Archive for category Surviving Today's Economy
Bank Finance Needed to Support Your Business–11 Points to Consider
Posted by admin in Small Business Credit, Surviving Today's Economy on February 1st, 2010
Most requests for bank finance are turned down not because clients are a poor credit risk but because they have approached their bank ill-prepared. Get ahead by communicating the right information the first time.
CASHFLOW
Provide data that shows you understand and can manage your working capital (debtors, creditors and stock) and that the cash in your business is sufficient to cover the bank’s interest (as well as other key costs such as tax, dividends and replacement capital). “Cash is king” and even profitable businesses can fail if cash is not managed. Understand your cash movements and you may even need to borrow less.
OUTLOOK
Present forecasts which communicate the amount required, payback period, risk and return to the bank. Figures should be more sophisticated than forecast sales and profit and should ideally show the relationship between profits, your balance sheet and cash flows. Sensitivity analysis is important to help the bank understand when they risk non-repayment. Forecasts should always be based upon the most up to date actual data.
MARKETS
Explain your market. Focus 20% of your efforts explaining what has happened and 80% on what you expect to happen and why. Do not worry, top economists sometimes get this wrong too. The point is you need to show the bank you have thought about it, considered the likely outcomes and that you have a clear action plan.
MIX AND QUALITY OF CLIENTS
Detail clients by name/industry/region/contract length. The strength of your clients and their ability to pay = the strength of your business. Building your business around one client is high business risk.
UPDATE
Give the bank up to date management information especially if annual accounts are dated. Information should be produced at least quarterly, split into division/region and include profit, balance sheet and cash flow breakdowns. Management information should be used to update forecast/budget data and any differences should be explained.
NEED FOR LIQUIDITY
Show the bank that your business is liquid and can survive. Tell them how quickly you get your hands on the cash and know your debt maturities, credit terms and what cash is tied up in assets. Think beyond a simple current assets/current liabilities ratio and consider your ideal liquidity position. Remember too much liquidity means assets could be generating a higher return elsewhere.
INCOME
Know your financial definitions. Are you talking about gross profit, operating profit, net profit or EBITDA (earnings before interest tax, depreciation and amortization)? All are common in the financial analysis of businesses. Also ensure you can discuss the seasonality and cyclicality of your industry.
COMPETITION
Tell the bank how you have you performed in comparison to your competitors? Be prepared to discuss your competitors’ strengths and weaknesses. This provides confidence that you are a proactive management team that really understand the business.
ACTIVITIES
Break your business down by activity/division and tell the bank which activities are performing well and which are a cash drain and why. Explain how divisions complement or overlap each other and the strategy for each. Be ready with forecasts if necessary.
TRACK RECORD
Unless starting up, provide at least 3 years accounts to a bank (5 years ideally if approaching a new bank) and up to date management accounts. A bank will need this data for the financial analysis of the trends in ratios and margins. It will also give them confidence in your management track record.
EQUITY, DEBT AND THE BALANCE SHEET
Communicate your risk (equity/directors’ loans) versus the risk to the bank. Know the real strength of your balance sheet by having current market values of assets to hand and full details of debt (including off-balance sheet exposure such as leases and guarantees). Be clear at the outset what security is and is not on offer.
Article Source: http://EzineArticles.com/?expert=Delphine_Paterson
Supporting Underserved Entrepreneurs
Posted by admin in Build Business credit, Small Business Credit, Surviving Today's Economy on November 24th, 2009
Supporting Underserved Entrepreneurs
Goldman Sachs’ initiative to help small business has drawn headlines. Here are some programs targeting microenterprises and inner-city entrepreneurs
Goldman Sachs (GS) announced last week that it is teaming up with Berkshire Hathaway (BRKA) CEO Warren Buffett to launch 10,000 Small Businesses, a $500 million initiative aimed at assisting low-income entrepreneurs.
Goldman is hardly alone in investing in small business. There are thousands of organizations—private, public, nonprofit, and hybrid—whose primary mission is to mentor, train, educate, and fund entrepreneurs.
One group reaching out to struggling entrepreneurs in distressed communities is Rising Tide Capital. The Jersey City (N.J.)-based nonprofit, founded by Alfa Demmellash and Alex Forrester when they were classmates at Harvard University, offers one-on-one business coaching and a 10-week entrepreneurship course called the Community Business Academy.
Since it was founded in 2004, Rising Tide has worked with more than 250 individuals, mostly single mothers, in Jersey City. “We noticed that there was a gap in the services provided, particularly to low-income entrepreneurs living in distressed inner cities. A lot of the established groups, such as SCORE and the U.S.Small Business Development Centers, focus on entrepreneurs further along in their journey,” Demmellash says.
far from aid: inner-city entrepreneurs
She and Forrester recognized that many micro-entrepreneurs, such as mothers offering home day-care services, did not consider themselves small business owners and did not tap into existing educational and coaching services. Even if they were aware of such resources, she says, they tend to be delivered in far-off suburbs and office parks remote from an inner-city population that often lacks transportation.
“These groups were struggling to find people to lend to, but they were not accessible to the population they were targeting,” Demmellash says. “Our idea was to be on the ground in the community.”
Another disconnect that Rising Tide discovered is that traditional entrepreneurial training programs frequently focus on formal business plan writing, a daunting prospect for entrepreneurs with limited educational backgrounds. “A lot of people we work with are coming out of an educational system that hasn’t been invested in for decades. They can’t fathom spending six to eight weeks trying to write a business plan,” Demmellash says.
Her group focuses on helping entrepreneurs organize their businesses so that a working business plan often results, she says. Rising Tide markets its programs by partnering with such existing organizations as National Urban League and Dress for Success. Flyers about the academy are even mailed out with monthly welfare checks, Demmellash says.
Entrepreneurs and would-be entrepreneurs interested in Rising Tide are invited to an orientation session where they evaluate their status to determine if they are ready for the program. Everyone who is selected to participate in the academy gets a full scholarship.
Can Rising Tide replicate elsewhere?
Initially, Rising Tide offered its educational seminars for free but found it didn’t get the response or commitment it had hoped for. “Free generally implies ‘without value,’ so we changed the dynamic and made the program selective. It’s amazing to offer someone an educational opportunity who has never before been offered an investment in their future,” Demmellash says.
As it achieves successes in Jersey City, Rising Tide hopes replicate its model in other disadvantaged cities throughout the U.S. and around the world, she says.
Another organization focusing on underserved, inner-city businesses is Next Street Financial, a merchant bank founded near Boston in 2005. While it operates on a for-profit basis, the bank has a “double bottom line,” says Tim Ferguson, who, like Next Street co-founder Ron Walker, is a long-time banker.
“We’re here to make money for ourselves, our shareholders, and our clients, but everything we do also has to have an economic development component to it. We want to know that we are having an impact on job creation in the inner-city marketplace,” Ferguson says.
In contrast to Rising Tide, Next Street targets established companies that have revenues between $1 million and $100 million, with most clients operating in the $4-million-to-$60-million range, Ferguson says. The bank, based on a European model, operates holistically, providing access to capital as well as advice on strategy, management, and marketing.
“There’s an enormous gap between what traditional financial service providers offer and what smaller businesses actually need. And it’s been going on for a decade or longer,” Ferguson says. “Banks have consolidated and adopted a ‘check the box’ approach to credit. Denial rates for African-American and Hispanic business owners are five to six times what they are for a white-owned business.”
No ownership—just brutal honesty
Walker and Ferguson, who met on a nonprofit board and dreamed up Next Street over what they call “a magical cup of coffee,” aim to provide Fortune 500-level consulting and mentoring to small business owners who could not afford that quality on their own.
Their typical client is an established company—most have been around 15 or 16 years—with an experienced CEO who is willing to embrace partnership with Next Street. The bank does not take an ownership stake in its clients, but “we will be brutally honest about their status and our opinions; they have to embrace us and not ignore our advice,” Ferguson says.
Companies that participate pay monthly retainers of $15,000 to $25,000 or work with Next Street on a project basis, in which case fees can range from $5,000 to $100,000. In the past three years, about 50 companies have become Next Street clients, Walker says, and two have gotten loans of $1.5 million. Next Street has helped an additional six companies raise capital from other sources.
Next Street is looking for clients in New York and Boston. Like Rising Tide, its founders hope to expand to other cities, including Chicago, Los Angeles, San Francisco, and Miami. Companies that are minority- or female-owned and fit their revenue range, but operate outside of the Northeast, can apply for Next Street’s help at its Web site.
Because there is no definitive clearinghouse listing every organization that aids entrepreneurs, there are some gulfs between small companies that need help and the groups that provide it. Here are some possibilities for entrepreneurs looking to find help with education or funding:
The official Web site of Global Entrepreneurship Week lists events sponsored by the more than 1,100 organizations that participated in GEW activities from Nov. 16-20. The events—searchable by city, state, and country—have concluded, but the groups sponsoring them may serve as local starting places for entrepreneurial resources.
The Association for Enterprise Opportunity represents microenterprise development organizations. It also has a searchable resource library.
The Boston-based Initiative for a Competitive Inner City focuses on small business development in underserved areas.(Read an interview with the founder and learn more about the group in this special report.)
Los Angeles-based Operation Hope undertakes entrepreneurial and anti-poverty initiatives around the world.
The Accion Network is a microlender and microenterprise development organization that operates around the world and in the U.S.
Boston-based InnerCity Entrepreneurs sponsors a nine-month “StreetWise MBA” program and partners with the U.S. Small Business Administration in its educational initiatives.
Goldman’s 10,000 Small Businesses is planned as a five-year program modeled on the firm’s 10,000 Women initiative, which helps women entrepreneurs in 18 countries around the globe.
Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.
Myths Of Owning A Small Business
Posted by admin in Small Business Credit, Starting A Business, Surviving Today's Economy on November 24th, 2009
Entrepreneurs
Myths Of Owning A Small Business
Miriam Marcus, Maureen Farrell and Melanie Lindner 11.12.09, 11:00 AM ET
In 2007, Anand Sanwal was managing a $50 million innovation fund for American Express. His job: to identify and incubate new business ideas–and that meant doing gobs of market research, much of it on small, closely held companies. One problem: Public information on private companies was scarce, and the data that did exist wasn’t in much of a structured, useful format.
Sanwal knew he wasn’t the only one looking for that kind of information. So he and some partners launched Manhattan-based CB Information Systems to do just that. The company’s Web-based software, marketed under the name ChubbyBrain (www.chubbybrain.com), trolls the Web for data on private companies–what they do, who is buying and selling them and for how much. “We are all engineers who went to business school, so we thought we had what was an elegant, logical and robust plan,” says Sanwal, 35. “We were pretty happy with ourselves.”
But no matter what the textbooks say, having a great idea and a solid business plan often aren’t enough. To fund the software development, Sanwal was banking on income from a few consulting gigs inspired by a book he had written on corporate-resource allocation. Sanwal had gotten roughly $2 million in verbal agreements from CEOs or CFOs at three large financial-service companies. Then the stock market tanked and the deals were put on hold.
With no backup plan, Sanwal dipped into his savings and cobbled a bunch of smaller consulting engagements to keep his dream alive. Larger deals (the paying kind) followed. Now ChubbyBrain competes with Dow Jones and Thomson in tracking venture activity, and plans to roll out a line of new private-company data products in 2010. While stronger for the experience, Sanwal says the hard lesson still lingers: “A deal is not closed until the ink dries, no matter how many assurances you have from the other party.”
Eye Openers: 11 Myths Of Owning A Small Business
If only you knew then what you know now. … There are plenty of reasons that statement rings true for battle-tested small-business owners. We asked a bunch of them to share the most commonly misplaced assumptions about entrepreneurship. They just might spare you that familiar lament. For the full list, check out our slideshow.
Myth: Entrepreneurs are risk-taking visionaries.
Truth. Despite what some in the media would have you believe, you don’t have to be a swashbuckling risk taker to run your own show. “These glamorous stories serve to make entrepreneurship appear to be an exclusive art that’s relegated to a few people who exhibit a variety of specific traits,” says Len Schlesinger, president of Babson College in Babson Park, Mass. “Entrepreneurs are actually very good at avoiding risk rather than taking it on.”
Myth: The idea is more important than the details.
Truth: Whiz-bang new technologies and business models are sexy, but they aren’t a requirement. “A well-executed, decent idea is better than a poorly-executed, excellent idea,” says Gerald Shreiber, founder and chief executive of J&J Snack Foods. Shreiber’s secret to minding the details: a healthy dose of paranoia. “I have 2,600 people to worry about,” he says. “Somewhere, God or my parents and grandparents are watching over me.”
Myth: Jealously guard your idea, lest someone might steal it.
Truth: You may be onto something, but you surely don’t have all the answers (if you even knew to ask all the right questions). “While you don’t want to put your entire business plan on the Internet, entrepreneurs who do their homework look to a relatively large but select number of people to talk through their ideas,” says Reid Hoffman, founder and chief executive of LinkedIn.com.
Myth: Your business plan must be rock solid from the get-go.
Truth: Building a company is an iterative process, says Hoffman, and entrepreneurs must be willing to adapt–to changes in customer demand or the competitive landscape. “It’s not like chess where you have a pre-formulated, deterministic strategy and must get all the moves in exactly the right sequence,” he says. There should be a principal plan in place–see Ten Things All Good Business Plans Must Have–but it should be flexible and updated constantly. Says Hoffman: “No battle plan survives impact with the enemy.”
Myth: Passion will get you there.
Truth: Passion can ease the pain of 15-hour days. It can galvanize employees and win over customers. In some cases, it can even enthrall deep-pocketed investors. But it is no silver bullet. The most effective entrepreneurs learn to modulate their emotions, says Rich Gelfond, chief executive of IMAX. His mantra: “It’s never as good as it looks, or as bad as it seems.”
Myth: You can set your own schedule.
Truth: “I thought I’d be the boss and sit back and put my feet up,” says Mike Zaya, chief executive of Printrunner, an online printing and ink-cartridge company. Reality looked a bit different, including a several-night stretch of sleeping but two hours a night at the office. “You end up being the goalie of the company, and the goalie has to sacrifice their body,” adds Zaya. “You have to be the first man in and last man out on any given day.”
Myth: There’s glory in it.
Truth: For all its rewards, entrepreneurship can also feel like a thankless job. “No one tells me that I did really well, it’s always me telling everyone else that,” says Amir Korangy, owner of the Real Deal, a real-estate focused publishing company in New York City. Korangy says entrepreneurs need internal motivation and reassurance because it rarely comes from outside. “After a few years, you want someone to say you’re doing good work,” he adds. “But the only way to tell yourself you’re doing a good job is to see an increase in revenues.”
Surviving the Economic Times
Posted by admin in Surviving Today's Economy on March 9th, 2009
10 Ways to Safeguard Your Small Business
The current upheaval in the financial sector has many of us longing for the days when we were worrying only about an impending recession. As the U.S. economy continues its spiral to rock bottom and as the stock market remains highly unstable despite the passing of the $700 billion “rescue” plan, our situation is drawing comparisons to the Great Depression. If you’re a small business owner, you are likely wondering if you’ll become a casualty of these economic end times. Ed Hess and Charles Goetz say you do have a fighting chance-but you need to stop the handwringing and start taking aggressive action to safeguard your business.
“Nothing is more stressful for a small business owner than talk of economic catastrophe,” says Ed Hess, professor of Business Administration and Batten Executive-in-Residence at the Darden School of Business at the University of Virginia and coauthor along with Goetz of the book “So, You Want to Start a Business? 8 Steps to Take Before Making the Leap” (FT Press, September 2008, ISBN: 978-0-13-712667-5, $18.99). “You start thinking about everything hanging in the balance, and if you aren’t careful you let your worries overwhelm your common sense. Rather than taking steps to safeguard your business, you find yourself paralyzed by anxiety.”
The authors stress that financial doom and gloom does not mean certain death for your small business. Once you accept that you’re going to have to work very, very hard-and that no one is coming to your rescue with a taxpayer-funded bailout package-you’ll be ready to come out swinging.
“You have to remember who’s in control,” says Goetz, who is a Distinguished Lecturer in Entrepreneurship at Goizueta Business School, Emory University. “It’s you. And only you. As a small business owner, you should certainly know what’s going on in the economy, but remember that you are the captain of your ship. And if you take the proper action, you can steer your business around this economic mess.”
Hess and Goetz provide a few small business safeguarding tips based on their decades of experience teaching and advising entrepreneurs:
1. Obey the Golden Rule of Small Business: Protect your credit. As the credit crunch worsens, it is critical that you make sure your business has the best credit possible to ensure you can get a loan if you need one. Make absolutely certain you are paying your bills on time. Don’t let anything fall through the cracks. If you are having trouble making a payment, let the company or bank know why. If there is a dispute on a payment, get something in writing that says you aren’t to blame. Being turned in to a collection agency will tank your credit score, something you absolutely can’t risk.
2. You can’t show your employees the money, but you can show ‘em the love. You need your employees to be on your side now more than ever. Show them every day how much you appreciate them. You’ll be surprised how much goodwill a handwritten thank you note can create. And while you can’t give raises to show your appreciation, there are other ways-for example, have lunch catered once a month or show up with doughnuts and coffee one morning.
“Your employees know that money is tight, so they shouldn’t be expecting raises or bonuses,” says Hess. “But you can pull them together and let them know how much their hard work means to you. You can say, ‘Thanks for a great job!’ when an employee goes the extra mile. Small gestures like these will let them know that you care about them and appreciate their hard work. Showing your thanks will help you build a better relationship with them, which makes it more likely that they will stick with you through thick and thin. Great employees are often the best defense in tough times.”
3. Make outstanding service your “secret weapon.” One area in which a small business should always excel is customer service-good economy or bad. But when times are tough and customers have less money to spend, they really care that they’re getting a lot of bang for their buck. They’ll be looking to cut out those businesses that aren’t meeting their needs. As a smaller company, you’ll have an advantage over any larger competitors because you are better positioned to provide consistent, outstanding service. Small businesses just tend to be more flexible and can “turn on a dime” to meet client needs as they arise. Talk to your customers frequently-see how you can help them in these tough times. The closer you stay to them the better!
4. Figure out where you can cut expenses. Do a line item check of your expenses and really think about what you could do without. Some cuts may be obvious. For example, if you have cable TV set up in your office that might be the first thing to go. But to figure out the less obvious expenses, be sure to involve your employees. Because they are on the front lines every day, they may have a better idea of what can be cut. For example, maybe they’ve noticed that you have an incoming paper supply that could be reduced. If you’re paying an expensive lease for office or warehouse space and your lease is up, you might want to consider moving to a smaller, cheaper space. Who knows? You could be able to get a good deal on an office lease or storage space. The real estate market is suffering right now, so more and more property owners are looking to make money on their properties any way they can. If your current lease isn’t up and you are having trouble making ends meet, you might want to discuss a temporary renegotiation of your lease with your landlord that would allow you to pay less rent now and make up for it when your business improves.
5. Keep abreast of the news in your sector or industry. Depending on what kind of business you have, different economic events will affect you in different ways. Find a reputable website for your business sector where you can get free news about your industry. Staying informed will help you know which way to navigate your business.
“I do have one caveat in regard to staying informed,” says Hess. “Don’t get so bogged down in the news that you are back to your worrying again. Know enough that you are able to steer your company down the right path, but don’t get so obsessed with reading every breaking news item that you get distracted from actually running your business.”
6. Re-examine your credit terms. You are running a business, not a charity. When times get tough you need to let your late-paying or no-paying customers know that it is time for them to pay up.
“Tell them you’ll work with them to set up a payment plan that they are comfortable with,” says Goetz. “But hold them to it. Knowing the state of the economy, most of your customers will understand the situation you are in and will do whatever they can to pay you on time, especially if you’ve served them well.”
7. Manage your inventory. Keeping a close eye on your inventory will help you conserve cash and clean up your balance sheet. That way when credit loosens you will be among the strong firms that banks are willing to lend to.
8. Keep an eye on your competitors. There’s no better time to know exactly what your competition is doing. If your competition seems to be thriving, figure out why. You might want to copy some of their techniques. If they’re not doing well, you need to know that too, for other (obvious) reasons.
“If your competitors are struggling, they may well go out of business,” says Hess. “Be there to snatch up their customers. Taking advantage of failing competition provides you with the unique opportunity to grow your business during a slow economic period.”
9. Get feedback from your customers. Keep communication lines open between you and your customers. Make sure you know how the bad economy is affecting them. Use surveys, comment cards, and one-on-one conversations to find out how you can better assist them during these tough times.
“When you’ve gotten feedback from your customers, show immediate action in the areas they’ve complained about,” says Goetz. “This will show them just how serious you are about great customer service. And if you take their suggestions and put them to action, they will feel like they have a hand in shaping your business so that it better meets their needs.”
10. Create an online presence if you haven’t already. A great way to stay in front of your customers and attract new ones is by maximizing your presence on the Web. Make sure you have a great website that is easy to navigate and that makes it easy for visitors to purchase your products or contact you to discuss what your business can do for them.
“Online marketing can also be a big help,” says Hess. “It’s cheap and allows you to send information about your business to a large number of people easily. For example, sending a marketing e-mail is an easy way to get in front of new customers. Just make sure your message is on point and that you are sending your marketing messages to people who would legitimately benefit from your business.”
“The economy is getting a lot of blame these days for sinking businesses,” says Hess. “I’m not saying it’s not making things harder for some companies-it certainly is-but it isn’t a deal breaker by any means. Sometimes it’s just a convenient scapegoat. When you have a business with a good foundation and you take the necessary steps to protect your company, a small business can survive tough times.”
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