How to Build a Small Business – Management & Strategies
How to Build a Small Business – Management & Strategies By Ralph Hershberger Smashwords Edition Copyright 2013 Ralph Hershberger Smashwords Edition, License Notes Thank you for downloading this free ebook. Although this is a free book, it remains the copyrighted property of the author, and may not be reproduced, copied and distributed for commercial or non-commercial purposes. If you enjoyed this book, please encourage your friends to download their own copy at Smashwords.com, where they can also discover other works by this author. Thank you for your support. Other books by Ralph Hershberger at www.smashwords.com: How to Build a Small Business: Marketing & Sales How to Build a Small Business: Startup The content offers small business owners a collection of brief articles that offer insights and years of experience from a several time start-up and small business owner himself, Ralph Hershberger. Ralph is also a SCORE mentor and the topics cover issues that are frequent questions and concerns of SCORE’s mentoring clients. 1Ralph H. Hershberger is President of Madera Associates, LLC a consulting firm that specializes in alignment of sales, finance, and operations of small businesses. He has held positions in business development, finance, operations, and general management in both the engineered products and construction industries. He has been a key management team member of three startups including Valley Verde Veterinarians, PLLC where he presently serves as Financial Manager. Prior to founding Madera Associates, he was COO/CFO of The Nielsen Wurster Group of Princeton NJ, an engineering consulting firm that provided dispute resolution, risk management, and management consulting services to the global construction industry. Thanks to the foresight of David Wichner, Assistant Business Editor at the Arizona Daily Star, an article on “Biz Tips” appeared in the Business section every Monday on a current topic for small business owners from 2011 to 2013. All of the articles were written by Ralph Hershberger who served as Executive Vice President and President of the Southern Arizona Chapter 0689 of SCORE at that time. Also, thank you to Diane Diamond, VP of Media Relations for the Southern Arizona Chapter, who edited, proofed and formatted these articles into this electronic format. Resources: www.score.org www.southernarizona.score.org www.sba.gov www.azstarnet.com How to Build a Small Business: Management & Strategies HOW TO IMPROVE YOUR CHANCES FOR SURVIVAL YOU DON’T HAVE TO GO IT ALONE IT’S ALRIGHT TO PASS METRICS FOR EVERY PHASE OF YOUR COMPANY’S LIFESCYCLE SUCCESSFUL COMPANIES LEARN HOW TO FOCUS STOP THE INSANITY RESOLVING CONFLICT PLAY TO YOUR STRENGTHS LEARN FROM YOUR COMPETITION JUST THE FACTS M’AM IT’S NOT OVER YET HOW TO IMPROVE YOUR COMMUNICATIONS EXPAND YOUR HOME BUSINESS THE RIGHT WAY HOW TO GET THE MOST FROM YOUR CONSULTANT BUT HOW DO YOU KNOW? GETTING OVER THE BUSINESS PLAN HURDLE HIDDEN PROBLEMS DRAG THE BOTTOM LINE ARE YOU A REACTOR WHEN DO YOU NEED A LAWYER AND AN ACCOUNTANT? HOW TO MANAGE A SUCCESSFUL EXPANSION COST REDUCTIONS WITHOUT LAYOFFS THE UPSIDE OF OWNING YOUR OWN BUSINESS CAN YOU TAKE A VACATION? WHAT TYPE OF BUSINESS PERSON ARE YOU? KNOW THYSELF IS IT TIME FOR A RADICAL CHANGE? STARTING A NEW BUSINESS IN A RECESSSION: IT’S NOT FOR THE FAINT OF HEART DON’T REINVENT THE WHEEL MR. MYAGI WAS RIGHT! EMBRACE CHANGE CHANGING LIFESTYLES MEAN NEW OPPORTUNITIES BENCHMARKING – THE KEY TO IMPROVING YOUR BUSINESS CONTINGENCY PLANNING SURVIVAL STRATEGIES GIVE YOUR BUSINESS A SWOT CHECK-UP EXIT STRATEGIES HOW TO IMPROVE YOUR CHANCES FOR SURVIVAL The Small Business Administration (SBA) reports that 50% of all new businesses fail in the first. Before starting a business, it makes sense to understand why so many fail. The primary reason businesses fail is insufficient cash to run day-to-day operations. It is caused by poor management in managing revenues, expenses, or profits. Although there are many elements within each category, once one of these variables is out of control, a cash shortfall is soon to follow. Before the doors are open, learn about these potential red flags. These include: Revenues Weak sales Low sales margin Expenses High fixed costs High employee costs High supplies costs Profit Management Expanding too fast Owners taking out too much compensation I’s obvious how a combination of low sales and high expenses can sink a business however, many small business owners are guilty of poor profit management. An expanding business requires additional capital that involves added space (rent), more employees, increased inventory, and/or higher account receivables. After an expansion, revenues usually grow more slowly than expenses and the difference can lead to a cash bind. A complete business plan with realistic financial projections will identify the tight times in advance in time for corrective action. As a business starts to generate cash, it is extremely tempting for the owner(s) to take additional compensation. It is a normal reaction to reward oneself after a struggle to survive but higher compensation means there is less for the increased expenses cited above. Run cash flow projections of different scenarios before any permanent changes are made. For additional detail consult the following: Small Business Management by Michael D. Ames, The Do It Yourself Business Book by Gustav Berle and The Seven Pitfalls of Business Failure and How to Avoid Them by Patricia Schaefer YOU DON’T HAVE TO GO IT ALONE One the many challenges a small business owner faces is isolation. Day-to-day activities and emergencies monopolize your time and energy. Participation in outside associations is easy to ignore but you do so at your own peril. Consider joining one of these groups to increase your business footprint. Arizona Small Business Association (ASBA) (www.asba.com) is largest business trade association in Arizona. ASBA represents a unified political voice for businesses and it advocates for legislation beneficial to small businesses. Members benefit from discounts on all types of business services. Better Business Bureau (www.tucson.bbb.org) Many consumers, especially people moving to Tucson, look to BBB to get trusted recommendations for all their service providers. BBB carries a lot of search engine optimization weight and members’ websites frequently appear on page one of a Google search. Tucson Business Club (www.tucsonbusinessclub.com) connects local business owners and teaches them how to generate business and create opportunities for each other. Money spent locally has an estimated economic multiplier of 6X. Marana Chamber of Commerce (www.marana.com) has 600+ members who support each other with referrals. More than 100 business owners attend their breakfast every month. They are involved in the community and help several non-profits. Oro Valley Business Club (www.orovalleybusinessclub.org) offers monthly meetings speakers focusing on local issues and how they affect local businesses. Green Valley/Sahuarita Chamber of Commerce (www.greenvallysahuartita.com) has 300 member companies serving a regional winter population of over 100,000. They recently partnered with the University of Arizona to restore the historic Canoa Ranch property as a tourist destination. Other resources: http://www.score.org/node/787247 IT’S ALRIGHT TO PASS Most SCORE clients have a good idea of the kind of business they want to start – a restaurant or specialty retail store for example. After taking our five session program, Simple Steps for Starting your Business, about one third of the attendees decide not to proceed. At some point during their mentoring or workshop sessions they realize they don’t really want to bother with all the other elements of running a successful business. These include accounting and finance, personnel, budgets, IT, legal, landlord issues, and dealing with suppliers, taxes, and insurance. It’s alright not to enjoy doing all these tasks but as an owner, you must have an awareness of their impact and be prepared to have someone on your team who is responsible for these issues. Fortunately, many of these items can be out-sourced to service companies. The financial issues can be handled by your CPA, personnel issues by an HR firm, taxes and insurances by your payroll service. In the end you are responsible from a legal and managerial perspective to stay on top of all phase of your business. It is far better to be honest with yourself about your interests and desires early in the process before key financial commitments are made than to realize six months after you are open that you really don’t want to worry about payroll every two weeks. Sometimes the best decision is to pass. Other resources: http://www.score.org/resources/what-look-hr-outsourcing-company http://www.score.org/resources/small-business-payroll-solutions http://www.score.org/resources/ask-score-january-2009-outsourcing METRICS FOR EVERY PHASE OF YOUR COMPANY’S LIFESCYCLE One of the hardest things for small business owners to do is to extricate themselves from the daily grind and plan for the future. There always seems to be something that requires immediate attention. Unfortunately it is not until the month end or quarterly statements are generated, does owner really know how well the business is doing. Obviously it is too late to change what has already happened but it also means that the results for the next few months are, to a large extent, already pre-determined. The key is to identify a few simple flags or metrics that can tell you how the business is doing so that changes can be made sooner rather than later. The right metric depends on what stage the company is in – start-up, growing, stable, or declining. Start-ups need to monitor cash-flow, process or production ramp-up, and order backlog. Each metric captures its ability to generate and satisfy orders. Growing companies consume huge amounts of cash and must insure added overheads don’t outpace new revenues. Customer demand and operations performance seldom move in tandem so some measure of customer satisfaction is necessary. Service is common casualty of rapidly growing firms. Stable firms need to watch order backlog, preferably as a moving average over 3 or 6 months. These firms normally have stable processes so operating profit margin and variances are the best way to spot if something is amiss. Declining margins could be an indication of price erosion or increased input costs. Declining companies should try to squeeze out as much profit as possible. As revenue declines the key metrics are cost control via reductions in head-count, support, service, and distribution expenses. Ideally these metrics should be captured and reported every day on a one page report. They are not meant to solve a problem but to indicate corrective action is required. Like fish, problems seldom improve with age. Other resources: http://www.score.org/resources/5-ways-increase-your-cash-flow http://www.score.org/resources/score-tip-week-4-ways-bootstrap-your-startup http://www.sba.gov/community/blogs/guest-blogs/industry-word/5-steps-plan-any-part-yourbusiness SUCCESSFUL COMPANIES LEARN HOW TO FOCUS Many start-ups err by trying to be all things to all people. The decision is driven by a belief that they must offer a wide range of products in order to generate sufficient sales. In fact, the opposite is a more likely to be true. Repeat customers return to a store because of predictable positive experience. New customers come in because of an expected outcome created by advertising, publicity, or word-of-mouth. When customers are confused, they don’t buy. A successful firm matches its investment with the revenue its target market is willing to pay. For example, large hotel chains such as Marriott have created different brands (Fairfield, Courtyard, Marriott) each with their own style, features, and prices. Each caters to a specific segment such as families on vacation, budget conscious business travelers, and business people that require exceptional service and amenities. Small businesses don’t have the resources to establish multiple brands so they must select one. If it chooses to be a high-end retail store, it must create the image that its customers expect. Its location should be in a high-end shopping area with a sales staff that is attentive and well informed. The merchandise is displayed in a classic or even elegant manner. Customers who frequent a low-cost or value retailer expect a more functional presentation. Less investment in the surroundings translates to lower prices. Each element in the sales experience supports and reinforces the next. Tiffany’s would not work in a warehouse setting. The surroundings would undermine the image of their exceptional and unique products. These concepts exist across all types of products and markets e.g. cars, clothing, restaurants, groceries, vacation resorts, homes, travel and furniture. It is almost impossible to find a successful company that offers a product or service based on a one-size-fits-all strategy. The key is to research your markets thoroughly and then establish a combination of price and benefits that meets their expectations. Other resources: http://www.sba.gov/community/blogs/conducting-market-research-here-are-5-official-sourcesfree-data-can-help http://www.score.org/resources/marketing-research-shoestring-small-business http://www.score.org/resources/how-research-new-business-idea-part-1-analyzing-market http://www.score.org/resources/how-research-new-business-idea-part-2-analyzing-market-appeal STOP THE INSANITY It has been said that the definition of insanity is to do the same thing over and over again and expect a different result. Because many small businesses live on a day to day basis and lack the time or resources to plan, they are particularly vulnerable to this situation. How do you resolve this problem and move on? A clear indication that you may be trapped in this mode is to ask if you are faced with the same problems over and over. Most businesses can recognize problems; however, they misdiagnose and try to fix the wrong thing. They confuse symptoms with root causes. Root causes trigger multiple symptomatic problems. When a symptom is corrected, the root cause merely creates another symptomatic problem. Conversely, fixing a root cause eliminates many symptomatic problems. An example is a retail outlet that runs out of stock constantly. Potential sales are lost. Carrying more inventory is a symptomatic fix but it creates more problems – higher carrying costs and obsolete inventory. Potential root causes are delayed sales data collection, non-responsive suppliers, or failure to pay for prior shipments. The list is endless but an honest analysis of the situation will reveal one or two root causes that if fixed will enable you to concentrate on building your business. Other resources: http://www.sba.gov/community/blogs/turning-your-tablet-point-sale-system-%E2%80%93-ittime-make-switch http://www.score.org/resources/top-10-account-collection-mistakes http://www.score.org/resources/collection-letter RESOLVING CONFLICT Large businesses are notorious for the turf battles that occur between competing departments and egos. Even in a small business, it’s important to recognize potential conflicts and resolve them quickly before they paralyze the organization. Most conflicts start as disagreements over issues but escalate when personalities are introduced to the mix. Once that happens, emotions overrule logic and deep resentment can build. Managers can diffuse the conflict using a combination of these tactics: Have all involved parties meet at once. One-on-one meetings are biased and counterproductive for fact finding. Review the facts. Separate them from opinions and premature conclusions. This is an excellent way to flush out exaggerations and erroneous claims. Remain calm and avoid assigning blame in a public forum. Restate all facts within the context of company policy. If there is no obvious solution or you are faced with a series of poor options, reexamine the basic assumptions surrounding the issues. Consider relaxing some of the policies or constraints. Restate the problem and ask for solutions that will enable the team to move forward. Make a decision that supports the objectives of the company, not the agenda of one individual. Not everyone may agree with the decision but the fact that you made the decision and assumed the responsibility for it, allows the group to move forward. Other resources: http://www.sba.gov/community/blogs/community-blogs/business-law-advisor/ultimate-businesslaw-guide-acheat-shee-prevent http://www.score.org/resources/keys-calming-small-business-workplace-conflicts PLAY TO YOUR STRENGTHS Pro athletes know what their strongest skills are and they learn to play to them. That means they know in what situations they are most likely to succeed and how to avoid those that will expose their weaknesses. A point guard does not try to be a rebounding star. A singles hitter does not swing for the fences. The same applies to businesses, especially small owner-operator businesses. Your limited time demands that you focus on your competitive strengths. What makes you business unique? How have you differentiated yourself from competitors? How do your daily actions relate to these critical tasks? Your business plan articulates your strengths and how you plan to leverage them. This is where you should be spending your time-developing new products and services, tracking customer trends, and strengthening your finances. Keep a time log for two weeks and note the issues that consume your time. Odds are that events are dictating your schedule instead of you allocating your time to the areas that will insure the success of your business. Notorious time traps are personnel issues, supplier interruptions, and customer complaints. How can you minimize the frequency and impact of these time wasters? Successful managers frequent use an office sign to remind them of their key goals. As daily problems arise, they refer to it to determine if it is worth their time to engage on a problem. Personnel issues fall into two categories - individual problems and those that involve two or more employees. Most individual issues can be handled via a comprehensive employee policy manual. Disputes between employees are best handled by confronting both employees together instead of separately. Employee’s stories tend to soften when the other person is in the room. Verify the facts and make a decision promptly. Handle supplier issues in a similar manner. Communicate with the supplier’s decision maker and be prepared to negotiate a resolution. Complaints concerning fungible products are best resolved by removing the unsatisfactory product from the customer’s premises and replace with acceptable product. You can negotiate the financial issues later. Be decisive and move on to things that matter. Other resources: http://www.score.org/resources/keep-staff-engaged http://www.score.org/resources/10-tips-time-management LEARN FROM YOUR COMPETITION Markets change constantly and businesses have to adapt to survive. What is the best measure to monitor if you are being left behind? Most successful businesses actively track what the competition is doing and consider the effect it has on their product and marketing plans. It’s easy to spot these pricing dynamics in the retail world. Consider the following examples: The grocery cart at your market that compares how much the same items cost at the store down the street. Car insurance ads on TV that announce how much money you save by switching carriers. But what if the changes that are not publicized? How do you discover what the competition is up to? This is frequently the case in business-to-business sales that are covered by annual contracts. In this situation, the customer is the best source of information. In order to get the best deal, they will share what the latest competitive offer is. It may include other elements besides price such as extended payment terms, consignment, or promotional assistance. Remember too that not all customers want the same thing. The most successful marketers and contract negotiators know what elements are most important to their customers and it is not always just price. Don’t be afraid to engage your customers to learn what really motivates them. You will be surprised at what you learn. Other resources: http://www.score.org/resources/marketing-research-shoestring-small-business http://www.score.org/resources/qa-market-research http://www.score.org/resources/how-research-new-business-idea-part-1-analyzing-market http://www.sba.gov/content/marketing-101 JUST THE FACTS M’AM Making the right decision depends on having accurate information. Too often rumors and biased data are substituted for facts. As the late Senator Daniel Patrick Moynihan (D-NY) once said, “You are entitled to your own opinion but not your own facts.” One of the most important responsibilities of any business owner or manager is to obtain the right information before a decision is made. Getting the correct information is not as easy as it sounds, especially if the decision must be made in a crisis. Events seldom evolve in an orderly manner and people tend to spin the facts to support a preordained conclusion. It is unlikely that you will be able to eliminate all mistakes but listed below are several techniques to minimize the possibility of reacting to bad information. Demand to know the initial source of the information. Unless someone demands confirmation from an original source, rumors become facts. If a document is referenced, review the original document. This is critical if the situation could lead to litigation. Reconstruct the events that lead to the crisis and challenge each allegation of fact. During the process, emphasize resolution of the problem, not identification of the person at fault. Use the session as a “lessons learned” exercise. If the fear of punishment is removed, people are more likely to remain objective. Other resources: http://www.sba.gov/advocacy/847/126001 IT’S NOT OVER YET The stock market may be reaching new highs but as one network analyst observed, “The stock market is not the economy.” Company earnings are reaching new highs and so are stock prices. But there are still many weak signs in the economy and consumer confidence lags. Hiring is weak, savings rates are low, and many people are reluctant to spend on discretionary items. This hurts specialty retail and service businesses disproportionately hard. What can owners do to survive until things really turnaround? Although the simple answer is to increase revenue, cut expenses, and manage cash flow the devil is in the details. Here are several tactics to consider: The word SALE still draws customers but increases in volume don’t always offset the lost margin. It’s better to offer discounts on larger volume purchases as opposed to an across the board price cut. Some local restaurants now offer a limited take-out menu or nightly specials. Customers can pick-up an entrée and relax at home with their favorite wine. Expand the menu. Special items such as gluten free entrees will develop a loyal customer base Low-tech service businesses can offer a free month’s service or an introductory 2 for 1 promotion anything to draw new customers. Consider a reduction in hours or closing on Saturdays. Obviously certain businesses depend on weekend sales but some experience lighter traffic that does not support staying open. Search for new suppliers and squeeze your existing ones. To improve cash flow, reduce inventory and push suppliers for extended payment terms. Car dealers and furniture stores make financing a key part of their sales package. To survive, you must experiment with different combinations of tactics and monitor the results. The right answer is whatever works. Other resources: http://www.sba.gov/community/blogs/community-blogs/small-business-matters/start-survivalmaking-it-through-early-yearshttp://www.sba.gov/sites/default/files/Survival%20Tips%20for%20Managing%20During%20an %20Economic%20Downturn.pdf http://www.score.org/resources/12-sure-fire-steps-improve-your-retail-sales HOW TO IMPROVE YOUR COMMUNICATIONS How many times have you heard someone say in an exasperated tone, “I told him to do that”? This is a typical reaction when something is not done on time or improperly. Effective communication is important in any organization but it is especially critical in a small company where there is minimal system redundancy. It’s ironic that as the options for communication have evolved from letters to telephone to fax to emails to texting, the problem does not seem to abate. We have more information at our disposal, yet the problem persists. The reason is that these tools are all transmission devices, not communication devices. They are designed to improve speed and access, not resolve problems. One simple rule will eliminate missed communications and the complications they cause. Communication is the responsibility of the sender. It means that your responsibility does not end with the sending of a message. Email is perfect for broadcasting a consistent message to a wide audience, reaching people in different time zones, or transmitting documents. Its weaknesses are that it eliminates direct conversational feedback and does not guarantee that the recipient ever received the massage. A good communicator follows these steps after an initial transmission. Asks for an immediate acknowledgement that the message was received. If it is a direct conversation, they ask the recipient to repeat what was said or asked. Establishes a deadline for a response or task completion. ASAP is not a deadline. Constantly checks for agreement on what was said. Asks for status updates and if additional support is needed. These steps all take time but consider this observation. Why is it that we never have time to do it right the first time but always have time to do it over again? Other resources: http://www.score.org/resources/crisis-communications-planning-checklist http://www.sba.gov/community/blogs/7-quick-tips-better-business-communications EXPAND YOUR HOME BUSINESS THE RIGHT WAY Nearly every large business started as a small business, frequently in the owner’s basement or garage. Apple and Hewlett-Packard are two classic examples. Although a strong vision is a key element in expanding a business it must be tempered with a healthy dose of reality. Expansion is a risky proposition expenses increase immediately while the revenue doesn’t and cash management becomes a daily concern. First examine why an expansion makes sense and if you are ready for the additional stress. The only valid economic reasons to expand are that customer demand for your existing product is growing, additional space is required for new product lines, or you want to move into new market locations. Here are some of the steps to consider before expanding a home business. Keep in mind that it is always cheaper to plan on paper than after a lease is signed or inventory and equipment are purchased. Form of incorporation. Many home businesses are unincorporated but it is now the time to start acting like a business. In general, incorporation separates and protects your personal assets from the business. Since each form has specific legal, tax, and owner implications first consult an attorney and a tax professional. Arrange for appropriate financing. Develop multiple financial pro formas that incorporate a range of revenue and expense scenarios. Lenders are not only evaluating the business plan but you as a manager. A good manager considers all possibilities. Validate and stimulate customer demand. Do everything possible to minimize the cash crunch following the expansion. Offer discounts for pre-expansion orders; initiate a teaser campaign prior to opening, schedule an open house with local press coverage - anything to stimulate traffic into the new location. Implement appropriate infrastructure systems to support the expanded footprint. This includes key operations employees who must be trained, payroll systems that are crucial to avoid payroll tax issues, and HR policies and procedures to comply with multiple federal and state regulations. Given the risks and tasks, it makes sense to hire a consultant to help navigate the process. Your objective is a successful expansion, not to save a few pennies. Other resources: http://www.sba.gov/community/blogs/community-blogs/small-business-cents/looking-expandyour-small-business-consider-sba http://www.score.org/resources/36-how-articles-printable-documents#homebusiness HOW TO GET THE MOST FROM YOUR CONSULTANT Every business person seems to have a story, usually unflattering, about consultants. For small business, they remain a cost effective method to solve specific problems and manage programs. The key is the client must understand the rules of the game. The common benefits of using a consultant are: Consultants serve as an objective third party. They bring a fresh pair of eyes to a problem. Cost control. You can use them only when needed and avoid the expenses associated with a full time employee. Tapping into an expert resource. Consultants exist for every type of industry and problem. Why waste your time learning what they already know? Additional horsepower. Employers may have the knowledge of a subject but never seem to have the time to get the work completed. Most of the negative experiences that occur during consultant engagements are a result of misaligned or poorly managed expectations. Consultants normally observe, test assumptions, analyze, and recommend steps to correct a problem. Implementation is the responsibility of the client’s management team or is included as a phase two of the consultant’s work scope. Client satisfaction is the intersection of expectations and performance. The best consultants spend extra time with the client to identify their expectations and their definition of a successful conclusion. Other resources: http://www.sba.gov/community/blogs/community-blogs/small-business-matters/outsourcingfreelancers-consultants-5-tips-ge http://blog.intuit.com/employees/5-resources-for-free-business-consulting/ BUT HOW DO YOU KNOW? Assume that you have identified a problem and have assembled the team and resources to fix it. How do you know if and when the problem is really fixed? That’s where metrics enter the picture. Metrics are simple, quantified measurements of progress. Monthly sales tracking is a metric. The most relevant metrics are numerical. Without a specific numerical measurement, comments concerning progress are merely observations – they lack the ability to calibrate the progress. Metrics work in all business functions. The easiest ones to develop and understand are increases in sales, or higher productivity rates. Can they work in service businesses? Consider a restaurant. How many repeat customers come in the door? How long does it take for us to serve an entrée? As a business grows, absolute number metrics give way to ratios. Ratios allow one to identify trends and remove the effects of volume. For example, airlines track how many complaints they receive per passenger mile. As more miles are flown, an increasing complaint ratio metric may suggest that their systems are inadequate to handle increasing traffic. The Southern Arizona chapter of SCORE can help you create metrics that are right for your business. Call us at 520-505-3636. Other resources: http://www.sba.gov/content/table-small-business-size-standards http://www.score.org/resources/why-marketing-metrics-matter-small-business GETTING OVER THE BUSINESS PLAN HURDLE No other single task causes more anxiety in SCORE clients than the preparation of their business plan. Part of the problem is the process itself, the fact that it cuts across multiple disciplines (products, marketing, finance), and some clients are not comfortable with their writing skills. The fact is that no other exercise more clearly defines whether you are serious about your business or it is to remain a hobby. Business plans are essential if you are looking for investors or plan to apply for a loan from a bank, SBA, or other financing entity. A solid plan demonstrates to an investor or lender that you know your industry, your company vision, and your functional skills. It can sell the business concept and establish your individual creditability. But there is one over-riding reason to create a written plan - you will be the primary beneficiary. A well conceived plan is the result of dozens of observations, analyses, and decisions. It forces one to focus on key concepts and to develop programs that are consistent with those concepts. Without a formal plan, finite resources are misdirected, efforts are diffused, and critical objectives are missed. A plan that tries to be everything for everyone becomes nothing to no one. Fortunately there are numerous standard software programs that make the process bearable. They are remarkably thorough and user friendly. The time spent on your plan will be the most important investment you make. Other resources: http://www.score.org/resources/does-your-business-plan-answer-these-key-questions http://www.sba.gov/community/discussion-boards/two-example-business-plan-outlines-fullexample-business-plan-great-new http://www.sba.gov/category/navigation-structure/starting-managing-business/startingbusiness/how-write-business-plan HIDDEN PROBLEMS DRAG THE BOTTOM LINE Pop quiz. What do the following business outcomes have in common? Lost customers due to poor service. Acquisitions that fail to deliver expected benefits. Key employees leaving the company and no replacements. Poor operating results due to poor general management. The answer: None of the above results appear as line items on a P&L or balance sheet. The negative impacts are buried in other accounts and are difficult to see (and correct), especially if the overall results are positive. Nonetheless, their effects are real. They are the equivalent of leaving money on the table. Employees and managers know these problems are a drag on a business but because most performance evaluations are driven by accounting metrics such as profit or ROI, it is easy for management to ignore them. They also share two other traits-the fixes take time to implement and the positive results don’t appear immediately. Rebuilding customer service and loyalty is a step-by-step process. Successful integration of an acquisition requires attention to hundreds of details. Mentoring younger employees is time consuming and frustrating. It is especially difficult for larger business to embrace this culture. Momentum creates its own justification. Careers have been built around an existing game plan. This is one area where small businesses have a decided advantage over larger firms. They are typically more nimble and have fewer turf battles to overcome. They also have fewer degrees of separation between themselves and their customers so the benefits appear faster. Owner/operators are not slaves to quarterly results and can take a longer-term view. These principles are fully explained in The Balanced Scorecard by Robert S. Kaplan and David P. Norton. They offer a formalized method for management to evaluate and measure the results of integrating these programs. Other resources: http://www.sba.gov/community/blogs/community-blogs/small-business-matters/7-tipscontrolling-and-preventing-employee-ab http://www.score.org/resources/5-strategies-successful-acquisition-deal ARE YOU A REACTOR? Are you a reactor? Reactors respond to emergencies and mundane events the same way. They overreact. Problems are blown out of proportion relative to the magnitude of their potential impact. Arbitrary decisions are made in favor of expediency instead of the long-term benefit. Reactors make the most difficult bosses because they create a constant state of tension. Although they believe they are effective, their management style limits the growth potential of their business. Either the best people leave or the organization becomes paralyzed because no one will take any initiative. Can a reactor change? The answer lies in an old joke. Q: How many psychiatrists does it take to change a light bulb? A: Only one, but the light bulb has to want to change. So it is with a reactor. They first must recognize that their management style limits their effectiveness. The change mechanism requires creation of a context so that an event can be referenced against a constant. In business, that context is known as the business plan. A business plan outlines the company’s goals, strategies, tactics, and defines how resources are allocated. It acts as a baseline for management to evaluate crises and unforeseen opportunities and injects objectivity into an emotional situation. Behavioral change is exceedingly difficult. A reactor may have a business plan but resists using it due to ego or a desire to remain flexible (unaccountable). The challenge is greater in a small business because there seldom is anyone who can guide the process. Sometimes change is unavoidable. It is triggered by a major event such as competition, succession, or the need for liquidity. Every manager should constantly ask how their management style affects the future growth of their business. Other resources: http://www.sba.gov/sites/default/files/Management%20Issues%20For%20Growing %20Businesses_0.pdf http://www.sba.gov/community/blogs/community-blogs/small-business-matters/7-ways-leadand-empower-your-team-%E2%80%93-because-s WHEN DO YOU NEED A LAWYER AND AN ACCOUNTANT? Nearly every SCORE client asks when they should arrange for help in the legal and accounting aspects of establishing their business. The simple answer is when they are writing business plan and well before they open or start their business. Because legal and financial elements are closely related and have long-term implications, it makes sense to resolve these issues early on. Although the filing of incorporation documents is straightforward, you need a lawyer to fully explain the advantages and limitations and how they relate to your specific personal situation. Changing your status later on is complicated, expensive, and most likely will trigger tax liabilities. It is well worth the hourly fee to get it right the first time. Each incorporation form has a unique set of tax rules and implications. Tax rules change yearly and accountants are best equipped to show you the effects of each scenario. Again, everyone’s situation is different. Some clients have working spouses, or significant amounts of investment income, or unusual deductions. When combined with the profit or loss from a business, the permutations become overwhelming. If you are not a lawyer or accountant, let the professionals review the documents and run the numbers. Your value to the business is in defining the product or service, sales and marketing, and management. Keep your eye on the ball. Other resources: http://www.score.org/resources/resource-listings-for-legal-issues http://www.score.org/expertanswers/expert-tips-finance-accounting http://www.sba.gov/content/business-structure-and-tax-implications HOW TO MANAGE A SUCCESSFUL EXPANSION An expansion is a bet on a positive, long-term future. Since these decisions involve major financial commitments, they are riskier than simple day to day business choices. Poorly planned expansions are a common cause of business failures. Before making capacity additions, consider the following less risky alternatives that avoid capital outlays and can increase your capacity: Expand store hours or add temporary staff. Run production facilities on overtime. If you are a manufacturing company, explore off-loading production to other firms, including competitors. Develop new lines of services e.g. sit-down restaurants can offer catering. If you still need to increase capacity, the risks can be mitigated by these steps: Challenge the factors that support your optimistic business forecast. Develop exhaustive financial projections to identify all the hard and soft costs of the expansion. Rather than purchase a building or equipment, consider leasing. Secure large portions of new business via contracts even if it means offering a “sweetheart” deal. Lower profit margins are preferable to no revenue and idle equipment. Establish a line of credit to carry you over periods of tight cash flow caused by slow sales, production start-up problems, and additional A/R. The intent is to understand the driving forces for expansion and to manage the process to minimize the risks. Other resources: http://www.score.org/resources/are-you-qualified-line-credit http://www.score.org/resources/60-seconds/establishing-revolving-credit http://www.sba.gov/community/blogs/community-blogs/small-business-cents/basics-revolvinglines-credit COST REDUCTIONS WITHOUT LAYOFFS In this economic environment, every business is looking at declining margins. Sales are flat, raising prices is not a viable option, and costs keep rising. That means that it’s time to aggressively attack your costs. Layoffs are unpleasant, can cause a decline in service, and undermine employee morale. In place of staff reductions, consider the following items that don’t require any cash outlay. Review your merchant card processing fees. Most plans are not on an annual contract so you can change anytime. Banks and third party processor fees can range from 1 to 3% on the basic charge cards. Other higher cash back cards can cost up to 5%, all paid for by the merchant. You don’t have to accept every card. Shop your support services. These include janitorial, phone and Internet carriers, and waste disposal. Again, most of these services are month to month. Review all insurances including health care, workman’s comp, liability, and business interruption. If you find a lower rate, your existing carrier may match it to keep your business. Either way, you come out ahead. Other resources: http://www.sba.gov/community/blogs/paypal-bill-me-later-google-wallet-%E2%80%93-whichright-your-small-business http://www.sba.gov/content/buying-insurance http://www.score.org/resources/insurance-coverages THE UPSIDE OF OWNING YOUR OWN BUSINESS People start companies for a variety of reasons. They are creative types, or long to control their own work environment, or believe a start-up is the best option to generate personal wealth. Even though very few start-ups ever reach the IPO phase, there are several avenues for sole owners to accumulate a sizable nest egg, even before they sell the business. The most effective tools are profit sharing plans that are structured as 401K accounts. These plans have multiple requirements and it is highly advisable that you retain a professional to establish and manage the reporting requirements. These are the basic elements of these plans: All employees that work 1,000 hours during the year must be included. The company contributes a minimum of 3% of the employee’s earnings into the plan. The benefit to the owner is the ability to shelter far more money than a standard 401K plan offered to employees at a large company. If the company contributes an additional 2% to the employees’ accounts (5% total), the owner may shelter an additional amount. How much? For a business that clears $200,000, the owner can shelter up to $55,000 total. Remember that most small businesses are incorporated as subchapter “S’ entities so the owner cannot draw a salary. In effect, a $200,000 profit includes an owner’s draw plus any company profit. These sophisticated plans are especially attractive to businesses that are very profitable and have a few employees. Your accountant can run the various scenarios to insure compliance and to optimize your plan. Make sure you work with an expert. Other resources: http://www.sba.gov/community/blogs/community-blogs/business-law-advisor/%E2%80%9Cmy401k-free-isn%E2%80%99t-it%E2%80%9D-%E2%80%93-understanding-401k-fe http://www.score.org/resources/sharing-wealth CAN YOU TAKE A VACATION? You been slaving away for a year or two and it appears that your business is going to survive. Customers, expenses, and employees have stabilized. Maybe it’s time for a break. Suddenly you are confronted with an entirely new range of issues. Who can you put in charge while you are away? The real challenge is to identify a number two, or XO - someone who knows the business well enough to run it for brief periods in the owner’s absence. You want someone who is familiar with all aspects of the business. Do they have common sense? How do they react to emergencies? This decision has to be considered and implemented long before you plan to go away. How do you know if you have selected the right person and trained them adequately? A simple test is while you are on vacation does your cell phone ringing constantly? Does the office have to constantly check with you for every decision? If so, then you haven’t given them adequate decision latitude and training. Some managers authorize their staff to make decisions based on a maximum dollar amount. Others instruct their staff to not call unless there is a serious safety emergency, manufacturing disruption, or key customer issue. The point is to establish the rules before you leave. Constant vacation interruptions are also a sign of a flat organization - one where all decisions are made by one person. This management trap constricts the growth of a company because above a certain activity level, it is impossible for one person to make all the decisions in a timely manner. The result is gridlock and poor staff development. In the end, it’s a choice between investing the time while you are at the office or spending the time on the phone while you are supposedly on vacation. Other resources: http://www.score.org/resources/5-tips-when-military-duty-calls http://www.score.org/resources/4-technology-keys-guiltless-getaways http://www.sba.gov/community/blogs/guest-blogs/industry-word/three-ways-protect-yourbusiness-while-yore-vacation# WHAT TYPE OF BUSINESS PERSON ARE YOU? At the IdeaFunding® seminar, investors and investment seekers discussed the current options, expectations, and landscape for start-up firms seeking capital. The investor panels consisted of angel and venture capital investors. The new business start-up concepts were primarily from the health care and diagnostic, software, educational services, and transportation fields. The investors stressed the difference between those who want to build a lifestyle company and those who want to build a larger, ever expanding company. A lifestyle company is a small firm that allows the owner control of the daily operations and provides a comfortable lifestyle – new cars, a home at the lake, private schools for their children etc. The owner retains most of the equity, has little interest in growing the organization, establishing multiple locations, or a expanding their product lines. Why is this distinction important? Angels and venture capital firms, who are equity players, are seldom interested in lifestyle companies because they never will generate the returns that they strive for – typically a 10X return in 5-7 years. If your plan is to establish a lifestyle company, then you are better getting a loan from your family or friends, the local bank, or the entities covered in prior columns e.g. the Small Business Administration, ACCION, or the Micro-business Advancement Center. They will not take an equity position and are concerned only with your ability to repay your loan. Other resources: http://www.sba.gov/content/how-apply-sba-loan http://www.sba.gov/community/blogs/women-business-owners-%E2%80%93-how-expandyour-sources-capital-and-get-outside-financing http://www.score.org/resources/accion-loan-application http://www.score.org/resources/list-venture-financing-resources-new-mexico KNOW THYSELF Plato is not known as a business man but when he told his students to “Know Thyself” he could have been speaking to small business owners as well. In this age of 24-hour cable business news, never ending email solicitations, and mountains of print media it can be difficult to analyze the information as it pertains to your business. But do so you must if you are to avoid running in circles in pursuit of goals that sound good but are not correct for your business. Simply put, you must fight the urge to be part of the herd. That’s why both of SCORE’s signature courses, Simple Steps to Start a Business and Simple Steps to Grow Your Business, start with a review of the basic driving forces for your business. The critical elements are always the same. What need does your product or service satisfy? Who are your target customers? How do you validate your value proposition? What is the competitive landscape? How will you market and sell to your customers? And of course, what had changed since the last time you reviewed these issues? New technologies will expand the range of tactical options (e-commerce, social networking etc.). But since each business is unique every program must be evaluated as it pertains to your business and how it will enable you to differentiate yourself from the competition. Other resources: http://www.score.org/resources/score-tip-week-pricing-your-product-or-service http://www.sba.gov/sizeup IS IT TIME FOR A RADICAL CHANGE? A slow recovery can hit small retail businesses hard, especially those that compete against big box stores and those that offer discretionary retail items. Most business owners have implemented the standard cost cutting and cash saving steps such as limiting employee hours, reducing inventory, stretching payments, and selected promotions. What can a business do when the incremental steps aren’t enough? It may time to totally change your business model. Downtown retail businesses have been fighting the suburban malls and big box retailers for years. One successful strategy is offer products or services that the larger stores can’t or won’t. Compete on custom service and unique items, not on price. A local hardware store in our area knows the original fixtures and small appliances that were installed in the neighboring housing developments. Need a new garbage disposal? Which development do you live in? Here’s the exact replacement. Another option is to accept that consumers’ buying habits have permanently changed. Just as mail-order expanded the footprint of businesses, the Internet has taken this dynamic to the next level. Consider closing the retail store and move totally to an Internet based business. This step has the major advantage of reducing your fixed expenses and expanding your sales reach. The money you save can be redirected into web page development, customer support, and expanded inventory. Both moves have the advantage of a staged rollout i.e. you don’t have to totally abandon your present model to test the new concepts. Take the time to experiment and fine tune your changes. If you are a victim of momentum and are struggling to change, just remember what Einstein said, “Insanity: doing the same thing over and over again and expecting different results.” Other resources: http://www.sba.gov/category/navigation-structure/starting-managing-business/startingbusiness/business-law-regulations/online-business-law http://www.sba.gov/content/setting-online-business http://www.score.org/resources/getting-your-business-online-quick-qa-verisign STARTING A NEW BUSINESS IN A RECESSSION: IT’S NOT FOR THE FAINT OF HEART What do General Electric, Hewlett Packard, FedEx, and Microsoft have in common? Besides being successful global companies, they were each founded during an economic depression or severe recession. Any new business can improve its chances for success in a recession by following these steps: Avoid fads. Consider a product or service that people need, even in a recession and create a strong value proposition around it. Focus on a specific market group. Companies that attempt to be all things to all people usually fail to satisfy anyone. Cash is king. Cash is the lifeblood of any business. Conserve it at all costs. Reduce spending on nonessentials. Bigger is not better. Scale the operation to what your sales can support today, not in a year. Monitor inventory closely. Don’t be afraid to place slow moving items on sale to raise cash. Consider special deals with a few key customers that can deliver critical volumes of business that will cover your base costs. Most new businesses over estimate sales and under estimate expenses. If you develop multiple forecasts with different sales/expense data you will be in a stronger position to handle the inevitable surprises. Other resources: http://www.score.org/resources/score-tip-week-4-ways-bootstrap-your-startup http://www.score.org/resources/10-ways-entrepreneurs-can-reduce-their-supplier-costs http://www.score.org/all-business/reduce-bounced-checks DON’T REINVENT THE WHEEL Many SCORE clients struggle with their business plans due to a lack of information. Two areas in particular are most challenging – accurate competitive information and financial benchmarks. They need a source of objective data to use as a sanity check on their plans. Fortunately, those resources exist. An excellent source for competitive intelligence is the Book of Lists, published by Inside Tucson Business. This publication contains extensive demographic information about the greater Tucson business community as well as lists of active businesses arranged by business type. Each list provides basic descriptive data as well a number of employees, key services, and top local executives. In some cases recent revenues are reported. To learn more, contact Inside Tucson Business at 520.294.1200. Financial data is reported in the Annual Statement Studies – Financial Ratio Benchmarks published by The Risk Management Association (RMA). It contains financial performance data for both service and manufacturing businesses. Banks report the financial performance of their clients to RMA. RMA collates the data by NAICS code number, a system that identifies each type of business and assigns it a code e.g. veterinary clinics are #541940. Typical data reported are assets, liabilities, and profitability all by size of business. Managers and loan officers use this data to measure a firm’s performance relative to its peers. If you are a start-up, it can be used to calibrate your business plan projections against what is typical for firms in your industry. This book in the business reference department at the Pima County Library and is not available on-line. Other resources: http://www.insidetucsonbusiness.com/app/BOL/ http://www.rmahq.org/home/search?k=Annual%20Statement%20Studies %20%E2%80%93%20Financial%20Ratio%20Benchmarks%20 MR. MYAGI WAS RIGHT! In the movie The Karate Kid, Pat Morita tells his young pupil to “Focus”. The same advice applies to any small business. The reason is limited resources. A small businesses owner/operator wears multiple hats and encounters dozens of problems and challenges every day. Some can be handled with an immediate decision. Others are more complicated and require additional time or effort to resolve. Without an overall plan that establishes a context for action, that owner will confuse the immediate problems with the critical ones. The second part of the equation is the resource issue. He/she has limited funds, people, and/or time to resolve a major problem We each have the same number of hours in our day. How is it that some people achieve more than others? The answer is that they have a focused plan that has identified critical issues and has allocated resources to implement a fix. Aside from fixing a problem, successful resolutions are a big morale booster for the team and employees. Other resources: http://www.score.org/resources/bankers-delight-business-plan http://www.score.org/resources/business-plan-software EMBRACE CHANGE Markets are constantly changing and that presents opportunities to adjust your business. The most obvious examples are in high technology where change and planned obsolescence are part of the industry culture. The same is true for service and manufacturing firms. Customers’ tastes and styles change. Successful restaurants constantly experiment with their menus. Manufacturing companies develop new products to enable their customers to be more efficient and productive. Now may be the best time to take calculated risks to expand your product lines, pursue different market segments, or ramp-up an e-commerce program. These changes are much easier to implement when business is strong than when you are in a battle for survival. A proven tactic is to expand into areas that are complementary to your existing products or services. A shop that offers sports equipment could move into sports clothing. Another option is to offer services that are counter cyclical to your existing product lines. In northern climates, summer landscaping firms offer snow plowing in the winter. It’s trial and error exercise but an essential tool to revitalize your business. Other resources: http://www.score.org/resources/5-low-risk-ways-fund-future-business-growth http://www.sba.gov/community/blogs/how-break-through-5-common-barriers-small-businessgrowth CHANGING LIFESTYLES MEAN NEW OPPORTUNITIES The world is not a static place. Things are constantly changing - clothing styles, food preferences, popular sports, and advanced technological devices. What is seldom recognized at the time of the initial change are the secondary effects. Change does not occur in a vacuum -- there are reactions. Anticipating these secondary changes is an untapped potential for new businesses. Technological changes have forever altered the way we use telephones. Cell phones have evolved from simple communication devices to total activity platforms from which one can shop, get news, connect to the Internet, or take and send pictures. Although these developments have created tremendous opportunities, they have lead to an explosion in fraud – and the business of fraud prevention. Your small business may not generate a major societal shift but you can participate in the ripple effects. What are the potential implications of major changes on your business? This is the basis of strategic planning – developing future alternative scenarios, considering the implications, and reconfiguring your business to capitalize on the opportunity before your competitors can. As a small business you have two major advantages in implementing change. You can respond more rapidly than a large company with layers of management and turf wars to negotiate. You can act immediately, order the equipment or develop the necessary support logistics, train your people, and market to the public without organizational delays. The second advantage is flexibility. Many federal and state regulations don’t apply to businesses with fewer than fifty employees which exempts most small businesses. While many regulations are necessary and beneficial, there is always an offsetting price, whether it is financial or loss of flexibility. A small business owner still retains ultimate control. Anticipate the future, make a decision, and implement. Play to your strengths and advantages and win. Other resources: http://www.score.org/resources/strategic-planning-guidelines BENCHMARKING – THE KEY TO IMPROVING YOUR BUSINESS It is said that imitation is the sincerest form of flattery. That’s the idea behind benchmarking; an exercise that compares your operation to your competitors’. The specific areas of comparison depend on your business and how you choose to differentiate yourself from your competition. It works for all kinds of business, industrial products and consumer services, B2B (business to business), and B2C (business to consumer). These are some common elements that companies use to benchmark themselves: Price Service Quality of products Delivery response Ease of purchase Selection of goods or services Exchange policies Technical support The process involves selecting those elements that you chose to compete on and then examining how your competition performs in each area. Those who that rank highly in each category as said to exhibit “best practices”. It is highly unlikely that any company achieves best practices for every category. Each of the elements has a cost associated with it and it is cost prohibitive to offer the best and still have the lowest cost. It all comes back to what elements that support your business model. To start, think of a product or service that you have recently used and whether you had a positive experience. If so, it is likely that the seller ranked high in the elements that are important to you. Try it with your own business. Ask your customers how you can improve. The worst that can happen is that you improve your business. Other resources: http://www.score.org/resources/35-best-practice-tips http://www.score.org/resources/4-ways-provide-customer-service-outshines-your-competitors CONTINGENCY PLANNING Business is not an exact science. Business plans are based on a set of assumptions. These are the “givens” that are not expected to change during the year but they do. Revenue forecasts are subject to so many variables that they have limited value. Just when things appear under control, unforeseen expenses occur. Key employees leave and products become outdated. How can a small business survive? The key to maintaining your sanity and the survival of the business is to accept that these events will happen, to assess potential risks before they happen, and to develop contingency plans. This exercise requires identifying potential risks in each of your key functional areas. In a production plant, examples of these risks are operational interruptions, raw material price spikes, or loss of a large customer. Each event creates a ripple effect of problems throughout the company. Staffing issues occur in every company and department. Many large firms engage in succession planning and mentoring. Although it may seem a luxury for a small business to address this issue, the limited number of employees in key positions makes it even more important. Cross training can minimize the impact. Remember that it is easier and cheaper to do it before the crisis happens than to try and deal with it during the aftermath. Other resources: http://www.score.org/resources/how-set-contingency-plan http://www.sba.gov/content/disaster-planning http://www.score.org/resources/business-continuity-plan SURVIVAL STRATEGIES Since it appears that the current economic level is the new normal for the foreseeable future, it’s time to consider more drastic steps. Improving cash flow and reduction of your break-even point will buy additional time for the economy and your revenues to improve. Cash-flow can be improved by: Renegotiate your lease. In exchange for a lower monthly payment, be prepared to offer something in return such as an extended term commitment or higher payments several years out. Sell your capital equipment or hard assets and lease them back. Although this results in lease payments, it converts assets into cash. When the state sold several office buildings and leased them back, it used this strategy to close budget gaps. If you have multiple locations, close some and consolidate. This step is especially painful because it is not easily reversible and may result in lease penalties but it reduces utility and maintenance expenses and inventory carrying costs. Convert debt into equity or sell a portion of the business. Because the value of many businesses is reduced during a recession, this tactic should be considered as a last resort. Survival strategies require out-of-the-box thinking and tactical retreats that will enable you to fight another day. Other resources: http://www.sba.gov/community/blogs/community-blogs/small-business-cents/six-ways-managecash-flow-seasonal-business-own http://www.sba.gov/community/blogs/managing-small-business-cash-flow-%E2%80%93answers-10-commonly-asked-questions http://www.score.org/expertanswers/grow-cashflow-credit-transactions GIVE YOUR BUSINESS A SWOT CHECK-UP Small businesses are all consuming for their owners. Daily demands make it difficult to set aside time for owners to think how larger trends may affect their business. That’s why it’s an excellent idea to perform a SWOT analysis. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. It is an objective evaluation of you and your competitor’s ability to handle a changing business environment. Observations are characterized as either internal or external. Most SWOT analyses categorize these factors as coming from social, technological, economic, or political forces. A simple example of an external technological threat is how digital photography affected Kodak’s chemical film business. Smaller retail businesses may consider how changing consumer purchasing patterns threaten traditional store front business models. This development is a combination of social and technological factors. SWOT analyses should include representatives from all key functional areas. To obtain a complete perspective, both hourly and salaried employees should participate. Because most employees are sanguine about their company’s strengths and weaknesses, SWOT sessions as best conducted by an objective, outside facilitator or team (such as SCORE) who have conducted many SWOT sessions and knows how to challenge myopic assumptions. A good facilitator also recognizes that not all factors are equal. The trick is to identify those few changes that have the power to alter your current business model. A SWOT analysis may not lead to immediate action, but it will raise your awareness of the key issues that must be monitored. Other resources: http://www.score.org/resources/ask-score-december-2012-strategic-planning http://www.sba.gov/community/blogs/how-break-through-5-common-barriers-small-businessgrowth# EXIT STRATEGIES Eventually, every small business owner must confront the inevitable - they cannot run their business indefinitely. Preparation for this event is known as developing an exit strategy. The challenge is to recapture the full value of the business from the next owner. Unlike a public company that issues stock and has a liquid market to sell its shares, family businesses are faced with unique problems that require advance planning. Because a sale may be triggered by an unexpected event such as death or illness, closely held businesses must address these risks before they happen. Prior planning reduces the possibility of having to make a decision under emotional strain and reduced negotiating leverage. The laws for business sales and subsequent tax treatment are complex. It is imperative to retain an experienced attorney and tax accountant to structure the proper deal and documents. The best time to make these arrangements is when the business is first established. Each type of business organization (LLC, PLLC, partnership, stock incorporation) has a unique set of tax characteristics and legal implications. Most small businesses never go public. A more common scenario is for the business to be sold to a competitor or larger company. Experienced owners know to maintain cordial relations with competitors and to think about potential buyers well before they have to sell. Other resources: http://www.score.org/resources/should-i-shrink-or-grow-my-company http://www.score.org/resources/buy-sell-agreements-can-preserve-family-business http://www.sba.gov/content/plan-your-exit ### Contact any of the almost 400 SCORE Chapters in the United States for free mentoring sessions with certified SCORE mentors and free or low-priced small business information and education. The author, Ralph Hershberger, is a member of the SCORE Southern Arizona Chapter #0689. http://www.southernarizona.score.org https://www.facebook.com/SCOREsouthernarizona?ref=hl [email protected] 520-505-3636
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