Time to Look at Smart Growth for Your Small Business?

Time to Look at Smart Growth for Your Small Business?

Business owners often get caught in the squeeze between seeing opportunity to grow but not having the resources to hire people or get more space. Managing a small business needs to be a creative process.

If you find yourself in this position (and if not now you certainly will if you grow) spend a few minutes looking at a 3rd party fulfillment service. Think of it as an expansion that you can make without hiring people or signing a big lease.

Take a look here. 

What Does Patricia Kluge Bankruptcy teach us about business ownership?

A messy business failure can always be learned from. The Patricia Kluge bankruptcy has lessons for small business owners with partners, both known partners and unknown partners.

I once heard a wise man say, “Pick your business partners twice as carefully as you pick a spouse..because a spouse can only take half of what you have.”

If you are going into a partnership in a small business make sure you set up the proper buy/sell agreements so that you don’t wind up with a partner you don’t want. How could that happen?

You and you partner are 50/50 with no buy/sell agreements in place. You’ve known your partner since high school and trust him completely but….. after you two are in business he goes thru a divorce and his wife winds up being your 50/50 partner. Now what? But wait it could get worse…she remarries and now you have another partner, kind of. You get the picture.

Get your buy/sell agreements in order before you go into business with a partner. A good business attorney can help you avoid a terrible situation, one which we see way to often out in the real world. You’ll even find businesses for sale solely because of partnership issues that weren’t planned for at the beginning and now selling the business is the only way out.

Here’s a good video post regarding buy/sell agreements.

Uncertain Times, Reason to Act or Reason to Wait?

I am often asked “when is the best time for someone start a business?”. As you might imagine, the answer is different for everyone and even then, the answer is never 100% evident.

If you wait until the risks are minimal the time might may never come, if you leap when the risks are huge your chances of success are reduced. So what to do…………………..

My advice is to make sure you have thought about the opportunity and the risks. Knowing that you can never really quantify the risk. Here are a few questions:

  • If the business takes a year to get going what happens?
  • How much of my own money am I willing to risk?
  • How much of others people money am I willing to risk?
  • Am I as smart as I think I am?
  • Do I have a bullet-proof plan for the first 6 months? If not, why not?
The last item is critical, if you have a bullet-proof, well thought out plan for 6 months…and you can execute that plan, your chances of success go up dramatically. The reason is simple. A great and accurate 6 month plan means you know enough about your market and your customers to give you time to adjust to changes. The ability to adjust is an essential survival skill in business.
If you really want to start a business, focus on a well thought out 6 month plan. Review it with people who are in business, be honest and do your homework. If you’ve done all that and the opportunity still looks good…jump in..and welcome to the world of the entrepreneur.

What is Working Capital and why is it Important?

Many small business owners don’t understand or appreciate the need to have a good handle on working capital and how it is generated or consumed by the business. Let’s take 2 examples on opposite ends of the business spectrum.

First a Day Spa. At a day spa the customer comes in, pays for the services and then gets the services – no accounts receivables to collect…no money, no service. Also, a Day Spa sell lots and lots of Gift Certificates. With gift certificates the biz collects $100 for a gift certificate and has the cash for weeks, months, years or even forever before the service is delivered. That’s called negative working capital. I get your money before I incur the cost of providing the service.

Now lets look at an office supply business. A customer calls up, orders 5 cases of paper for delivery at a cost of $200 and the customer wants you to “bill” them. Which means they will pay in about 30 days. This $200 order requires a lot of working capital…you had to buy the paper, pay the driver, pay the person who took the order all BEFORE the customer pays you the $200. All those expenses you had to pay out before the customer paid you needs working capital to pay.

That’s why understanding working capital is critical, if you are in a business that needs working capital to grow you’d better figure out where the working capital is coming from before you start to grow. Many. many profitable businesses have gone out of business because they didn’t account for, and plan for, the working capital needs of the business.

The hard work of un-fooling yourself………..

As I’ve written before, during the 1st quarter of the new year I find myself trying to take extra time to plan and evaluate. Some of this is an natural reaction to reviewing the financials in preparation for filling taxes. Some of it is just my reaction to something I’ve heard or read somewhere.

During a recent walk I was thinking about something I read in a blog article by Michael Hyatt, by the way, if you are unfamiliar with him I recommend his blog. He writes a lot of good stuff about business and some interesting stuff about managing life. In one of his articles he hinted at something that I reformulated for my own use. What I’m talking about is trying to identify the business and personal habits, processes or practices that I automatically assume make sense but on closer investigation I’ll find out the idea either was never a good idea or it’s an idea who’s time has passed.

Once I decided to take a look I couldn’t believe how difficult it is to then decide which things to look at! I decided I’d look back at the prior week for some clues or direction. I had thought that the prior week was really pretty uneventful and not very interesting nor complex. But then I started breaking down the events and connecting the dots it got messy. I’m now convinced that many things are simple but few things are uncomplicated.

I then made the leap of logic that goes like this, “If I’m trying to figure out what I’m fooling myself about, then obviously I’ve already fooled myself and how will I recognize it?” Now what do I do?

It wasn’t nearly as difficult as I thought. Here’s what I did. I went to someone in our office and asked the brilliantly insightful question, “What do we do that’s dumb?” Much to my surprise (and a bit of disappointment) they didn’t need to think about it at all, nearly before the words came out of my mouth the person had listed 3 things…. bang..bang..bang!

To shorten this post I won’t bore you with the details but here are the results of looking into the 3 things identified for me:

  • #1 –  I didn’t realize we were even still doing it, it was a policy I had put into effect a few years back and it was absolutely redundant. Cancelled.  
  •  #2 – This was an item a service provider required and it is very important, except we had dropped the vendor long ago but kept the process. Cancelled  . 
  • #3 – This is something that actually makes sense but the person didn’t understand why we needed to do it. Once I explained it better the person was on board.

There you have it. This entire process took about 20 minutes and the result – eliminated 2 things that we were wasting money on and helped an associate understand a process they thought was a waste of time. All in all a pretty good return on my investment of 20 minutes.

Moral of the story… If you want to “unfool” yourself you’re probably going to need an opinion other than your own.

Starting a Small Business – What’s the most important question to ask?

Starting a business is more complicated than most people think. There are many issues to deal with and questions to ask when thinking about starting a small business. Starting a business the right way can inprove your changes for success.

Should I incorporate? LLC? C Corp? S Corp?
What name should I use?
How do I get or set-up my website?
How do I find a CPA? Do I even need a CPA?
How do I get a license to do biz in my state?
What accounting? Quickbooks? Excel?

And the list goes on and on…
But the real most important question is this……………….

If I start a small business, how do I get out of my small business?

What is your exit plan? Your goals, time frame, limitations?

If you will think through, with honesty, this question – How do I exit my business?  You will make a better decision about how you go into your business. Do you want to sell the business? If yes, then there are things you need to do when you set up your small business…Want an example?

If you want to sell your business don’t name your business after yourself. Believe me, Wizards A/C and Heat Service is easier to sell, and at a higher price, than John Q. Smith, Inc.

If you want to sell your business keep your financial information accurate, timely and clear. It is very difficult to sell businesses that have poor records and financial statements. Don’t be tempted to “massage” your financial statements to reuce your taxes, it will cost you dearly when you sell.

Think about your exit plan, it will help guide your decisions and avoid value crushing mistakes that we see made every day.

Send me your start up questions that relate to your exit plan, I’ll take a shot at getting you useful answers.