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2013

To strengthen your focus and prospects for growth, commit your strategy to paper—and let it live off the page.

 

1. Introduction: Plan Because You Need To

 

Staff members at the Shenandoah Valley Small Business Development Center (SBDC) receive frequent calls for help in creating a business plan. The trouble is, the entrepreneurs who seek this assistance often aren’t launching new companies. They’ve been running existing companies without a business plan and sit down to write one only when forced to by banks or other lenders who need that document to process a financing application.

 

That approach deprives the company of a resource that can play an important role in driving and guiding growth. “The plan is really a management tool for the business owner,” says Joyce Krech, the SBDC’s director. “It’s a great piece of the lending package, as well, but we would prefer that they be doing it for their own purposes and not because they’re being asked to do it.”

 

2. Stay On Course and On Target

 

Capturing your business planning process in writing gives you a solid analysis of the company’s mission, income, financial obligations, and paths to growth. Companies that operate without a written plan run the risk of getting distracted and thrown off course by opportunities that may seem interesting but aren’t really germane to their core business and function.

 

“They lose their focus, which just deters them from growth,” says Gwen Moran, founder of Biziversity, an online information resource for small businesses, and co-author of The Complete Idiot’s Guide to Business Plans (second edition, Alpha). “A business plan acts as your touchstone to keep you on track, to make sure that your business is performing in the way that you expected it to perform. Without a business plan, it’s very difficult to gauge those metrics and to know exactly what your business needs are at any given time.”

 

Once the plan is written, how do you keep it in play and optimize its value to your business? Experts recommend that you revisit your plan each time you review the company’s performance—whether that means at annual or quarterly meetings or in regularly scheduled conferences with your financial advisor. That helps business owners to hold themselves accountable to their plans and look objectively at whether the company is on course in terms of liquidity, credit, human resources, pay scales, production capabilities, distribution and logistics systems, risk management, and marketing.

 

“A good accountant will be able to help you fine-tune your plan and see opportunities and pitfalls that you might not even see because you’re so in the day-to-day of your business,” Moran says. Other options include SBDCs, the Service Corps of Retired Executives (SCORE), or non-competing business owners who are interested in providing mutual support. “You’ll get insights from different industries and new ways of thinking about doing things.” Whichever option you choose, make sure you select advisors who are willing to stand up to you and make sure you engage in all the critical thinking necessary to maximize the company’s potential for success.

 

3. Know How to Answer, “What If?”

 

These reviews will help you to assess not only how well your company is performing, but how thorough the plan is in anticipating what could go wrong and how you’ll handle those scenarios. “It could be a resource issue. It could be a competitive issue. The law could change,” says management consultant and business planning specialist Jenifer Grant. “There should always be a risk section in the business plan. And then you can assess, what happens if a key person goes away? What happens if the costs of our main ingredients go up? What if I need to hire people, and I can’t find them? You need to assess all the different risks that could have an impact on your business.”

 

And those if-then analyses aren’t limited to worst-case scenarios. You should also consider what you’ll do if, for example, your product takes off so much faster than anticipated that you suddenly need to ramp up production and contend with cash flow issues and staffing shortages. “Fast growth can be as much of a stressor as slow growth, or even more so,” Moran says. “You have demands placed on your business, and if you can’t meet the demands of your customers, you’re ultimately going to disappoint them, and they’re going to turn elsewhere.”

 

Comparing what’s written in the plan with what’s happening day to day can even produce insights about entry into new markets or expansion of your customer base. “Then you start thinking, as one of my clients did, ‘I never thought about this particular type of customer for my product before, because I had one vision in mind, one road on my roadmap. I didn’t see this other parallel customer base that I can tap into at very little cost,’” Krech says. In that scenario, too, a business plan is an invaluable resource in helping the company to modify its course and take advantage of those additional opportunities.

 

4. Bring the Whole Team on Board

 

But the business plan is not just a resource for entrepreneurs and executives. It’s a big challenge, but to get the biggest return on your investment in the plan, you’ve got to look for ways to make it live throughout the organization and ensure that it is supported by every employee. “On a day- to-day basis, you come in, you do your job, whatever it is,” Grant says. “It has to resonate with what you do—you, the individual employee.”

 

As a business owner, part of your job is to communicate the plan’s importance through your actions and behavior. “As you begin to fulfill your plan, it’s your job to talk to your employees, to talk to your team members, to get them as excited about your business as you are,” Moran says. She advises business owners to make sure their employees understand the solution that the company offers in its market and also the strategy you’re pursuing to achieve your market share. In addition, all employees should know their roles in the business and how they are important to the overall corporate vision. “That’s how you get buy-in. You need to be excited about your plan. If you’re not, then you need to go back to the drawing board until you find what makes you excited about your business, something that you can communicate to the people in your organization to get them excited about the difference that they’ll make in this process.”

 

Moran offers the example of the CEO of a mid-sized manufacturing company who each month invites a small group of employees to his office for coffee, donuts, and conversation about the business. Giving employees that kind of access to a business owner who knows their names and asks after their families is a morale booster. It also gives staff members a chance to see how committed the boss is to the company. “When you see someone who’s truly excited or truly passionate about something, it’s hard not to care about that,” she says. “You get that great one-on-one face time. You get that opportunity to convey excitement, to convey enthusiasm, to let people know that they’re part of a winning team. And everybody wants to be part of a winning team.”

 

5. A Plan for Top Performance

 

Once you’ve integrated the plan into your company’s day-to-day operations, how often do you need to revisit and re-evaluate it? That depends on your business and its rate of growth. During periods of rapid growth or cash flow crisis, some entrepreneurs and venture capitalists find it necessary to review the business plan weekly to make sure the numbers are on track. And any time you pass a major milestone or hit a certain revenue target, it’s good practice to re-evaluate the plan and make sure that it’s still serving you well. At a minimum, experts say, you must review the plan annually, and a quarterly review is preferable.

 

“When you keep a microscope on those numbers, they’re going to tell the story of your business. And too many business owners don’t,” Moran says. “They let a few financial statement periods go by before they actually look at the numbers. Then they realize that their expenses are far too high and their incoming revenue is far too low, and they start getting into trouble. But when you start following the numbers monthly and then doing a very serious dive into what’s happening in your business according to the metrics on a quarterly basis, that’s when your business plan starts to become a living, breathing document.”

 

Ultimately, that shouldn’t come at the expense of a huge investment of your time. You can achieve these goals without creating a massive document; a few pages can suffice. The objective is to be equipped to compare current operations and numbers with a written projection or benchmark that points out any divide—positive or negative—between the company’s projected and actual performance. And over the long run, a resource that accomplishes that should save you time, keep your company on track, and help ensure that the business delivers on its potential for sustained profitability and growth.


Article created by Inc. © Inc.

 

Inc.

Understanding Trade Credit

Posted by Inc. Aug 13, 2013

Trade credit is a means by which a business can purchase goods on account, laying out nothing up front but agreeing to pay the supplier at a later date. It is an “absolutely essential component” of the operating capital structure for both startup and growing businesses, says Jonathan B. Smith, founder and CEO of consulting firm ChiefOptimizer, and it is often the first extension of credit from a third-party source that is made accessible to a young business.

 

About 60 percent of U.S. small businesses use trade credit, according to The Oxford Handbook of Entrepreneurial Finance; the only other financial service with greater penetration in this market is checking accounts. However, trade credit remains an important capital management tool even as companies grow and expand. It is one of the most important sources of borrowing among all types of firms and throughout different economies. A 2008 survey covering businesses of all sizes in 48 countries found that an average of almost 20 percent of all investment financed through external sources was done using trade credit.

 

Trade credit terms are often expressed in a numeric format, such as “2/10/30” or “2/10, Net 30.” The first two numbers refer to the discount offered by the supplier for early payment, the last to when the entire outstanding balance must be paid. For example, if you purchase goods or services worth $5,000 on trade credit terms of 2/10/30, you qualify for a discount of $100 (2 percent of $5,000) if you pay within 10 days, but you must pay the entire balance within 30 days no matter what.

 

Viewed in isolation, a $100 discount may not seem very significant, but if you place that $5,000 order every month, it adds up to $1,200 over the course of a year. Since that savings flows straight through to the bottom line, it’s the equivalent of $1,200 in additional profit. A business working on a 20 percent profit margin would have to book an additional $6,000 in sales to match that performance. What’s more, by taking advantage of trade credit offers from suppliers, early-stage ventures can establish a history of repayment that may make it easier for them to secure bank financing as they continue to grow.

 

Startups and early-stage businesses can make themselves more attractive candidates for trade credit from vendors by being able to show a good personal credit history and a well-developed business plan detailing monthly revenue targets and anticipated cash flows sufficient to service trade credit debt, says Joel S. Mutnick, CPA, director of audit at accounting firm Fiske & Company. Growth businesses and those in later stages of maturity should stress their track record of success and their ability to adapt to changes in the marketplace.

 

The first thing any business should do to make it a better candidate for trade credit is “get on the map” by becoming listed with credit rating agency Dunn & Bradstreet and getting a D-U-N-S number, suggests Meredith Wood, director of community relations at Funding Gates, a developer of accounts receivable software. “Open a credit card under the business name, and start using it and paying off the balance right away,” she says. “Find other ways to show your business pays on time by opening up accounts with larger brand names, since they tend to report to the credit bureaus. Be willing to negotiate with vendors to prove you’re a good payer.”

 

 

Article provided by Inc. © Inc.

Inc.

The New Bootstrapping

Posted by Inc. Aug 6, 2013

Pig.jpgBootstrap financing—relying on your own resources with maybe a little help from family and friends—is a fixture in the start-up world, often of necessity. Until your business has a proven track record, it can be tough to get outside financing. However, as the recent recession sometimes made it difficult even for more-established businesses to access conventional sources of financing, a growing number discovered that bootstrapping can be a viable ongoing financial strategy.

 

Greg Gianforte, managing director of the Bozeman Technology Incubator, says bootstrapping is a business philosophy that works at all levels, and his experience with the company he started in 1997 proves it. “We were still using bootstrapping at RightNow Technologies 15 years later, right up until we sold to Oracle for more than $1.8 billion and had 1,100 employees.” Among the strategy’s most important advantages in his view: “You only have one set of masters—your customers. You can’t make a fatal mistake, because you can’t spend money you don’t have. You don’t waste time trying to raise money; you just go determine if there is a viable market. You own the entire business when you are done.”

 

The single most important consideration for bootstrapped businesses is positive cash flow, says Allan Branch, co-founder of LessAccounting, a bootstrapped venture that makes simple accounting software for business owners. “You must constantly ask yourself if you are spending your money in the most effective places and your time on the most effective efforts,” he says. You also must accept limitations that come with bootstrapping relative to funded competitors, which often must attempt “big play” marketing efforts that cost a lot of money, such as sponsoring industry events. “You can’t compete with them on those terms,” Branch says. “You must focus on the things you can do that they cannot.”

 

“Cash is to a business as fuel is to an automobile—no cash, no go,” Gianforte says. Cash management is critical to the success of a bootstrapped business and requires an outside-the-box approach to financial statements. Most businesses focus on their balance sheet, income statement, and cash flow statement, but those documents are primarily backward-looking. “The most important statement for a bootstrapper is the cash flow forecast, which is forward-looking and provides a framework for making decisions about when you can and cannot spend your precious cash,” he says.

 

Anything you can do to boost your cash flow increases the odds of success for bootstrapping, says Adam Hoeksema, co-founder and CEO of ProjectionHub , a web app that helps entrepreneurs create financial projections for their business. Some strategies that have worked for other bootstrappers are requiring a deposit for your product or service, offering a discount for payment in advance, and limiting credit extended to customers to no more than 30 days. Kathy DalPra has bootstrapped her business, Bride Appeal Web Design & SEO, and says the experience has been “liberating.” She creates and sticks to a strict monthly budget; calculates exact expenses, including paying herself; and includes a percentage of revenue to invest back into the business for growth. “By doing this in advance, I am clear on the precise minimum income I need to generate in order to cover my expenses each month,” she says. “That gives me a firm goal to work toward from day one.”


Article provided by Inc. © Inc.

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