Tuesday, December 15, 2015

Lessons from a Small Business Owner

          
        There is certainly no shortage of business advice out there and I read just about everything I come across.  But sometimes it leaves me scratching my head and wondering who exactly is the person giving the advice and have they ever actually owned a small business.  So as my holiday gift to you, I am not going to give you advice.  I am going to share some things that I have learned as a small business owner for over 20 years.  This is not an exhaustive list nor are they in order of relevance or importance.  Call me anytime and we can discuss these or other issues that you may be having with your business.

            Activity does not equal profit

 Have you ever had a customer or employee say “Wow, you are so busy, you must be doing great” when in reality you are not making money?  Unchecked activity can make your expenses soar to the tune of a loss.  Specific areas to look at are payroll and cost of goods sold.

            Don’t skimp on professional advice

 Unless you are an attorney or accountant you will need one.  I always thought I was smart enough to review and understand most legal documents but I did not go to law school and I am not.  Likewise with accounting.  Tax laws change so frequently that it is impossible for a regular person like myself or you to keep up.

            Positive net income doesn’t always translate into cash

 Your P&L looks great from an income side but you have no money.  Dig deeper and look at your balance sheet and cash flow statement.  Your cash could be tied up in inventory or accounts receivable.  Also look at your terms with suppliers.  Many owners like to pay for goods up front.  Don’t do it! Having net 30 or 60 is like having a short term interest free loan.

            Look for funding when times are good

 All businesses go through cycles and the time to get a loan is when you don’t need it.  Yes it will cost you interest money but it is very difficult to find funding when you are showing a loss or having critical cash flow problems.

            Do not hire yourself

 People gravitate to people that are similar to themselves.  You need to hire people that have talents that you do not especially when filling key positions such as managers.  I am a big picture kind of girl that doesn’t like to be bothered with too much detail or actual follow through once I have created something.  Know who you are and hire to compliment not duplicate yourself.

            Familiarity can breed contempt

 Small businesses often have a family feel between employers and employees.  That is fine as long as everyone understands that at the end of a day it is a business.  Due to lower wages, lack of benefits or other reasons, many owners just feel grateful to have any employees they can find.  Don’t be held up by your employees.  No one is irreplaceable.

            Deal with problems immediately

 Do not stick your head in the sand and ignore problems.  This has always been difficult for me since I really don’t like conflict or confrontation.  If you ignore a problem, it WILL get worse.  This applies to employees, customers and suppliers.  Hit it head on so that you can quickly resolve it and move on.

            Take a breather when you can

 Whoever said “if I am going to work this hard, I would rather do it for myself than someone else” is crazy.  You will never work as hard in your entire life as you will as a small business owner.  But, take advantage of calm times to restore your sanity.  I had an epiphany one day as I stood in my business and realized all was good at the moment and that I was only there because I felt obligated not because they needed me.  If you need it, I give you permission to take the day off!

            Think about your end game

 Clients think I am crazy when I ask about their exit plan as they are starting a business.  I had an end strategy for every business that I started and none of them included passing it on to my kids.  I realized that they would probably not be interested and guess what – they weren’t. 

Becky Brownlee is a business consultant with The University of Georgia SBDC at Georgia Southern University and can be reached at rbrownlee@georgiasbdc.org.


Monday, November 23, 2015



Financing remains one of the top priorities on small business owners’ minds as they continue to rebound and recover from the recession, The ability to secure financing in Georgia is getting better but is still far from being defined as easy.

Small Business Development Center consultants all across Georgia speak with lenders regularly and many share that their bank is ready to lend money again. The problem is many small business owners end up tripping over their own feet and killing the deal before it can get to the closing table. Here are five quick tips that any business owner can use to increase their chances of getting approved for a bank loan:

Check your credit report

The best defense is a good offense; so your first step should always be to review your own credit before anyone else. Even though you are applying for a business loan, lenders will pull a personal credit report for all owners of a business.

In the technological age that we live in, it only takes one wrong key stroke for incorrect information to become attached to your credit report. Pull your credit at least 60-90 days before you plan to apply for a loan so you have plenty of time to correct any inaccurate information before the bank sees your report.

Get your financial house in order

The most important factor to a lender right behind personal credit is the business financials. Make sure your financial statements for the previous two years along with current interim statements are complete, accurate and at your fingertips.

This includes filed tax returns. Your past is the best indicator of future performance. Filing an extension for your tax returns and not having up to date statements may not be a deal breaker, but it will often raise red flags to the lender about your character and management style.

Develop a marketing plan

Most banks do not require a business plan from seasoned businesses. However, they will want to make sure you have thoroughly thought through the forecasts and have an idea of how the financing will ultimately help the business to grow and thrive.

It could definitely work to your advantage to develop and submit a marketing plan with your application. The marketing plan can be completed in as few as two or three pages and would outline the business marketing strategy, tactics and expected results for the next nine-12 months after receiving the loan.

Research banks

Just as it is with businesses and babies — no two banks are alike. Every bank has its individual preferences, style and dislikes. Business is hard enough, so there is no need to fight an uphill battle with a bank that isn’t interested in your industry. Do your research.

Lenders do not mind talking with prospects and answering initial questions that can save them time on the back-end. Reach out to your local SBDC office and let our consultants help you identify a bank that is fond of the industry you are in or has recently done a deal similar to yours.

Complete prep work

Eighty percent of the lending process is an exercise in paperwork due diligence. Lenders will ask you for a huge list of information and watch the clock to see how quickly you can turn things around.

Save yourself some headache by having the majority of the required documents together before you begin the application process. This is another area where SBDC consultants would welcome the opportunity to be of assistance.

While the loan process is difficult, it is not impossible. With a little preparation and determination, it is possible to secure a business loan in today’s fiscally difficult environment. Just remember that the SBDC is here to help.

Erica Bracey is a business consultant with the University of Georgia at Georgia State University. Reach her at ebracey@georgiasbdc.org or the Savannah SBDC office at 912-651-3200.


Bracey, E. (2015, November 16). Get to 'yes' with your bank. Business in Savannah. Retrieved from http://businessinsavannah.com/bis/2015-11-16/bracey-get-yes-your-bank 

Thursday, September 17, 2015

Smart Steps for a New Business


Many people dream of owning their own business, and many of them are successful. Unfortunately, some are not. Thorough planning is critical, so let’s look at some of the things that should be considered.

Business concept

The basis for a business is meeting needs. Entrepreneurs get their ideas from a range of personal and professional experiences, so as you evaluate and refine your concept keep in mind it should incorporate at least one of the following components: something new or something better, a new or under served market, increased integration and better distribution or new delivery.

Start by writing a business concept statement and try to be precise. Instead of saying, “I am going to start a business that does consulting” say “I plan to open a management consulting company that provides strategic planning for mid-size businesses in the Southern Coastal Area to improve efficiencies that will increase sales and reduce costs.”

Know the market

A great concept is just that if there isn’t sufficient market demand to support your business. Is the market large enough? Can you reach it efficiently? And is it ready for your product or service?

You must perform market research that should include at least two of the following: online searches, personal observation, informational interviews, focus groups, surveys, competitive analysis and paid research services.

Part of your market research should be devoted to industry health and trends because your business will be affected by the same environment for the overall industry. Don’t overlook global markets. Technology has connected the world, and even small businesses can find opportunities to sell internationally.

Management

This stands out as one of the most important elements in determining the success of your business. Having the right people in place can literally make or break your business.

Start by looking at yourself. What is your past management experience and background? Businesses change and effective managers are able to pivot and adapt. They are motivators and leaders with the patience to deal with a variety of different personalities.

Do you have experience in the industry? If not, you may need to consider education, training or both before opening your business. Don’t be afraid to acknowledge your limitations, which might be overcome by hiring people that complement rather than duplicate you.

Financial

Be realistic. Many of the small businesses that fail do so because they were under funded before they got started. What is the total start-up cost and have you included working capital for at least six months? Are you planning to fund the business yourself, seek a loan or approach investors?

Banks and investors will want to see financial projections for the business, and you should too. Poor cash flow management can bring even healthy businesses to their knees. This means that you need to consider break evens, cost of goods sold, accounts receivables, accounts payables, inventory controls as well as overall operating expenses. And, you will need a good record keeping system to produce financial statements to monitor the financial health of the business.

If you are ready to launch your new business and would like help with the above and more, plan to attend the SBDC StartSmart class beginning on Oct. 13. Please contact loverstreet@georgiasbdc.org for more class information.

Becky Brownlee is a consultant with the University of Georgia Small Business Development Center at Georgia Southern University and can be reached at rbrownlee@georgiasbdc.org for business assistance.

Brownlee, B. (2015, September, 14). Smart steps for a new business. Business in Savannah. Retrieved from http://businessinsavannah.com/bis/2015-09-14/smart-steps-new-business

Wednesday, August 19, 2015

The Case for Strategic Planning


I love the saying “failing to plan is planning to fail.” I think most would agree that it is true but as a small business owner, do you actually have a plan? 

Many of you started with a business plan to explain the viability and need for your business and to possibly secure funding. That is a critical foundation for any new business but it doesn’t necessarily establish a long term direction and goals for your business. 

A strategic plan is a tool that can be used as a GPS system for the success of your business. Where are you going, how long will it take to get there, what specific “turns” must be made along the way to reach your destination? 

But, don’t spend valuable time and resources creating a complex plan just to say that you have one. A good strategic plan should be clear and concise. Specific goals to be achieved within a specific time frame through specific actions.

Much like a business plan, a strategic plan starts with your company purpose, vision or mission statement. Before you begin writing the plan perform a situation analysis. That is a fancy phrase for looking at your company’s current position and asking key questions. Asking and answering where are we now, where do we want to be, who are our competitors, what is the future of our industry and how do we properly position ourselves will get you off to a great start.

One of my favorite tools that I frequently share with clients is the SWOT Analysis. It is very simple and stands for strengths, weaknesses, opportunities and threats. 

Strengths and weaknesses are internal. What do you do best, what is your competitive advantage? Be honest about your weaknesses. Every business has them and acknowledging them allows for improvement. Opportunities and threats are external. Look at the market, competitors, emerging trends and economic conditions.

Once you have established goals and directions you can craft strategies to get you there. Everyone in your organization should be involved in the strategic planning process. You may be surprised at the insight that employees can offer and implementation of the plan will require their time and commitment as well as your own. 

The plan should also set deadlines as to when your objectives are to be accomplished. Are you planning for a specific problem that needs to be corrected within the next 3 – 6 months or are you planning a growth strategy for the next three to five years?

I like strategic plans that focus on a key objective. I think they are easier to define and implement than tackling an overall strategy. Some key objectives might be: controlling costs, product or service development, personnel training, process improvement, identifying new market opportunities, increasing margins and determining if there is a need for additional resources such as funding.

The most important part of your plan will be follow-through. If a strategy is not producing the intended result it must be evaluated and adapted. Lastly, monitor your progress by establishing benchmarks and checkpoints. Strategic planning should be an ongoing process throughout the life of your business.

If you need assistance with strategic planning, we can help. If you would like to receive the SWOT Analysis Template, please send me an email.

Becky Brownlee is a business consultant with The University of Georgia SBDC at Georgia Southern University and can be reached at rbrownlee@georgiasbdc.org.

Brownlee, B. (2015, August 17). The case for strategic planning. Business in Savannah. Retrieved from http://businessinsavannah.com/bis/2015-08-17/brownless-case-strategic-planning



Wednesday, July 15, 2015

Employee or Independent Contractor?


I recently provided five of my top HR tips to a local magazine. My No. 4 tip was “Don’t misclassify employees as independent contractors to avoid payroll taxes or worker’s compensation insurance. Violations of wage and labor laws can result in costly fines and penalties.”

We work with small businesses every day, and the independent contractor classification is frequently misused. It is understandable since one of the biggest expenses for many small business owners is payroll related.

It is so much easier and cheaper to 1099 individuals at the end of the year and have no formal employees, but that can lead to big trouble if it is wrong and you get caught.

An unfortunate example of this was a situation where a small business experienced a downturn and had to let some people go. One of the “independent contractors” tried to file for unemployment benefits. The claim was investigated, and it was rightly decided this person was an employee.

The owner was forced to pay the employment taxes they should have been withholding and paying for all of the “independent contractors” in addition to multiple fines, penalties and interest. You can imagine how costly this was, and the owner almost lost his business entirely.

The IRS uses three characteristics to determine the relationship between businesses and workers:

• Behavioral control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.

• Financial control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.

• Type of relationship factor relates to how the workers and the business owner perceive their relationship.

The IRS has a helpful publication that can be found at http://www.irs.gov/pub/irs-pdf/p15a.pdf.

Section 2 goes into greater depth on the three characteristics and even gives examples from various industries.

The SBA has its own version of this. They say an Independent Contractor:

• Operates under a business name,

• Has his/her own employees,

• Maintains a separate business checking account,

• Advertises his/her business’ services,

• Invoices for work completed,

• Has more than one client,

• Has own tools and sets own hours, and

• Keeps business records.

And an employee:

• Performs duties dictated or controlled by others,

• Is given training for work to be done, and

• Works for only one employer.

Simply put, if someone has set hours, is salaried or paid hourly and performs the job at your facility with tools, materials and instructions provided by you, they are an employee.

This should be enough information for you to properly determine whether you have independent contractors or employees, but if you are unsure, I always suggest you speak with your attorney or accountant.

We will be happy to assist you with HR issues and can help with the necessary steps to take before hiring an employee.

Becky Brownlee is a business consultant with The University of Georgia SBDC at Georgia Southern University and can be reached at rbrownlee@georgiasbdc.org

Brownlee, B. (2015, July 13). Employee or independent contractor?. Business in Savannah. Retrieved from http://businessinsavannah.com/bis/2015-07-13/brownlee-employee-or-independent-contractor

Wednesday, June 10, 2015

Answer These Questions Before Spending on Ads


A lot of people confuse the terms “marketing” and “advertising” and often think they are the same. This can be a costly mistake since businesses spend hefty amounts to advertise their products or services.

Let’s take a look at the differences between the two.

According to the American Marketing Association, marketing is the activity, set of institutions, and processes for creating, communicating, delivering and exchanging offerings that have value for customers, clients, partners and society at large. All of these things put together make up your marketing strategy.

Advertising can be defined as the activity of attracting public attention to a product or business, as by paid announcements in the print, broadcast or electronic media. This means advertising is just a piece of the marketing mix. A comprehensive marketing plan should direct your business on how and where to spend your advertising dollars.

Before you spend money, answer these questions:

• Who are your customers?

Consider demographics such as age, gender, educational level or income. Take a look at psychographics such as attitudes, behavior, lifestyle or hobbies. These things can help you define your customers. This is the most important thing for you to know. Every business doesn’t sell to everybody. Who are your people?

• What do these customers want, and can you provide that?

Are they looking for great customer service and high quality? Maybe they are looking for value for their money. In this case the customer perception of value is more important than whether the price is high or low. Given our hectic lives, many of us are looking for simplicity. How easy is it to do business with your company?

• How much are your customers willing to pay for your product or service?

Ninety-nine percent of us have a tipping point where we say how great something is but are not willing to pay the price. Disposable income has dropped and people will price shop, but there is generally a range of what they are willing to pay for a product or service. Where are you in this range?

• Who are your competitors?

There are two types of competitors. Direct competitors are selling the same or similar products or services. Indirect competitors sell something different but are in a related industry and are competing for the same dollars. Think about recreation — movies or bowling? A customer will make a choice to spend their money at one or the other.

• What is different about your product or service?

Have you found a niche? What do you do or offer that is unlike and hopefully better than others in the market? If you are exactly like everyone else in the market, you will be forced to compete solely on price, and the majority of small businesses can’t do that and survive. Do you offer something brand new or have you improved on something existing?

Advertising is just part of your overall marketing plan. Once you have a marketing strategy you can create an advertising campaign designed to get the right product to the right people at the right place at the right price.

Plan thoroughly and spend wisely.

Becky Brownlee is a business consultant with the University of Georgia Small Business Development Center at Georgia Southern University. If you need marketing assistance, research or other business guidance, she can be reached at rbrownlee@georgiasbdc.org or 912-651-3200.

Brownlee, B. (2015, June 9). Answer these questions before spending on ads. Business in Savannah. Retrieved from http://businessinsavannah.com/bis/2015-06-09/brownlee-answer-these-questions-spending-ads

Tuesday, May 19, 2015

Let's Help Banks Help Us


In working with many small businesses on a daily basis, I hear similar recurring questions. The most popular ones seem to be "Why can't I get a loan"? Or "Why won't my bank approve my request"? From that, it usually becomes, "My bank doesn't want my business anymore", or "This bank just doesn't lend money".

While Georgia banks have struggled, especially in the 2006 to 2010 time frame, their basic business model remains the same. Their primary, and by far their most significant, revenue driver is interest income from loans.

Banks simply must lend money in some form or fashion to survive. The State and Federal Regulatory Agencies have altered their ability to lend money, no doubt. So what does that mean for small business borrowers?

It means that small business borrowers must become better educated in the new way of banking, and the new way of borrowing. Quite frankly, many of the small businesses we work with at the SBDC offices throughout the state, are simply not prepared to borrow.

Banks go through a process of underwriting to determine whether or not they want to lend money, and each loan opportunity is unique. Lenders, simply put, are in the business of managing the risk for their employees, customers, shareholders and other stakeholders, each time they consider a request.

They do this by examining financial information of borrowers, holding personal interviews with borrowers, making site visits with borrowers, simply to gain as much knowledge as they can about the loan request.

Bankers are looking to assess 1) primary source of repayment, or, the available cash generated by the business/entity making the request 2) Secondary source of repayment by the business/entity such as collateral, other source of income/cash flow, or other guarantor/co-signer with assets or ability to repay.

As a former small business banker with both regional banks and local banks in Georgia for 12 years, I go back to my fundamental credit training I received from some very talented and experienced commercial lenders. I also take time regularly to visit and work with our middle Georgia bankers, learning from them, and assisting many of their customers in various areas of their business.

Please allow me to share some advice regarding the borrower/lender relationship, and how small business borrowers should better prepare for a loan:

• Establish a relationship with a lender. If one has not been established, start working on it now. The lending business is a relationship business, period.

• Provide accurate and timely financial statements, monthly, or perhaps quarterly, and most certainly at year end. Usually a Profit and Loss, or Income Statement, accompanied by a current Balance Sheet will suffice. In most cases, it is simply not enough to provide tax returns at year end.

• Make sure the statements are accurate, get a bookkeeper or CPA to review, if they are internally prepared.

• If needed, get some help to learn the basics of what a revenue item is, what an expense item is, what an asset is, and what a liability is. As a small business owner and potential borrower, having a general knowledge of this information could save the business; it will give the lender the confidence of knowing that the borrower/owner is in control of the business, and more importantly, that he or she understands how the business makes money.

• Learn what "Debt Service Coverage" means and how it’s calculated. It will be calculated by the lender, period.

• Provide a secondary source of repayment. If "hard assets" such as real estate or equipment or rolling stock aren't available by the business or owner personally, seek help from another party that can offer collateral, or perhaps sign on the debt.

• Don't expect the lender to bear all of the risk. A loan is simply an investment by a lender in the business. They do not want to own the business; they simply want their money back, with interest. Share in that investment with them. Anticipate the need for a cash or asset injection.

• Clearly demonstrate the purpose of the needed funding.

• Understand proper loan structure and/or terms. For example, money borrowed for hard asset purchases needs to have an amortizing term, meaning that the borrower will pay principal and interest payments from the start, reducing the debt as the asset depreciates. Money needed to acquire inventory, or provide short term cash to fund accounts receivable, should be on a revolving term, and should be paid back fully as that inventory is sold and cash is collected.

Finally, it is a much more difficult environment in which banks operate, and their standards for analyzing credit, grading and booking loans have changed. But it is a responsibility of each potential borrower to become more educated about what is now necessary to be considered a qualified borrower. Banks want to lend us money, we need to help them do it.

Josh Walton is the Area Director of The University of Georgia Small Business Development Center in Macon. He may be reached at jwalton@georgiasbdc.org

Walton, J. (2015, April 13). Let's help banks help up. Business in Savannah. Retrieved from http://businessinsavannah.com/bis/2015-04-13/walton-lets-help-banks-help-us