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General Business

57 Posts authored by: SBC Team

In-article.pngThe Importance of inventory control in building a profitable small business.

 

By Sherron Lumley.

 

Understanding the shelf-life of your company means taking a careful look at the amount of merchandise, parts, supplies, or finished goods your business is keeping on hand. When done right, inventory management can pay big dividends, notes Jonathan Byrnes, a profitability expert and a senior lecturer at MIT. “Product flow management,” he notes, “leads to improved earnings and happier customers.”

 

But according to the U.S. Small Business Administration, these important connections often go unseen by entrepreneurs. “Many small business owners fail to appreciate fully the true costs of carrying inventory,” notes the SBA in an “Inventory Management” white paper. This mistake can be a fatal one for a small company, however, as the paper’s authors note that “many small businesses cannot absorb the types of losses arising from poor inventory management.”

There isn’t one single method of inventory management that will optimize results for every business, however. So, it’s worth looking at two of the top schools of thought on the subject.

 

 

Traditional Approach: First In-First Out (FIFO)

 

Graphic Products in Beaverton, Oregon, a company that provides safety products to support OSHA compliance, favors the more traditional First In-First Out method of inventory control. “It’s very important when you have inventory items that may have a shorter shelf life to make sure they are received, shelved and shipped out using this system,” says Kelly Hardin, Graphic Products’ inventory manager. A slightly different variation on this approach, Last in-First Out (LIFO), is sometimes used when prices are rising because it eases the taxable income burden on the business.

 

Pull-Quote.pngSo what are the advantages of FIFO? For one, it is often easier to manage since the materials flow through a company typically follows an orderly, chronological path. (Here’s a simple example of how FIFO inventory would move during a typical month.) Second, by allowing for a larger inventory base, FIFO can make a small business more nimble and able to adapt to fluctuating demand.

 

“Many customers need products right away and cannot afford to wait days or weeks for their orders to ship. If we don’t have what they need, they might look elsewhere and we lose that sale,” Hardin explains. “Having the inventory on hand to fill orders right away means satisfied customers, and satisfied customers will be repeat customers.”

 

But stockpiling large amounts of raw materials isn’t without its drawbacks. All that inventory takes up money and space, after all. And customer returns can begin to wreak havoc on a system that is generally designed to be a single-file, one-way street.

 

New Favorite: Just-in-Time (JIT)

 

In the Just-in-Time inventory strategy, a large inventory is viewed more as a burden rather than a benefit and supply-on-hand approaches zero in some cases. The idea behind JIT, or lean manufacturing, is to have the necessary inventory arrive at the manufacturer or retailer at the exact moment that it is needed. James Womack, founder of the Lean Enterprise Institute in Cambridge, Mass., believes JIT will remain popular because of the potentially significant cost savings to small companies, despite its admitted disadvantages

 

“The downside with Just in Time is it doesn’t allow for unplanned swings in consumption, and an upturn or swell could mean an inability to meet demand due to inventory shortages,” acknowledges Ken Leava, a retired Supply Chain Specialist for Shell Solar. In addition, the complicated logistics involved in JIT inventory control sometimes become too difficult for a small business to manage without outside help or tracking software.

 

“The pros are that it keeps inventory at a minimum, so it’s financially efficient and doesn’t require a lot of space,” Leava explains. “Inventory sitting on a shelf is not healthy for a company, and not a good use of capital.” For example, at his former company, Leava reduced a $5 million-per-year expense item to just $50,000 in inventory on the shelves—a one-day supply. As a result, when an unexpected power outage hit, it only caused the loss of one day’s worth of stock. Thanks to a strong vendor relationship and the existence of an inventory contingency plan—both musts when adopting a JIT system—Leava had his supplier air freight all the replacement materials. “[It] wasn’t cheap,” he acknowledges, but he points out that it was still less costly to the company overall than incurring the long-term expenses of all that extra storage and potentially lost capital.

Which inventory method works for you? Weigh flexibility versus cash flow

 

Still, the JIT technique is not right for every business and the cost-savings may not be worth the potentially disenchanted customers for some businesses. But at companies with more steady production flows, slimming down the shelves can free up much needed capital for other investments.

 

One good metric to have on hand when you start this analysis is your company’s inventory turnover ratio. Defined as the cost of goods sold divided by the cost of an average amount of inventory, this ratio is a good bellwether of a business’s inventory churn. A low ratio indicates stock is sitting on your shelves for longer amounts of time and, so, is less efficient. Comparing your individual business’s inventory turnover ratio to industry averages can then give you a good sense of where you stand relative to your competitors. (Here’s a simple case study using this process.)

 

Nearly every small business looks for ways to better use its assets, keep costs down, and improve profitability. And because inventory represents an often-sizeable investment of a business’s cash that can’t be used elsewhere, balancing the competing requirements of fluctuating customer demands and cash flow is a challenge small business owners must get right.

in-article.pngBy Sherron Lumley.

 

For many small business owners, finding the time to grow, not just run their business can be a perennial challenge. “It’s tough,” says Sharon Rose, owner of Rose City Acupuncture in Portland, Oregon. In addition to seeing clients throughout the day, Rose keeps her own books, manages her own billing, writes a monthly newsletter, and handles the marketing for her business.

 

“With relatively few resources and often no support staff, managers of the nation’s 26 million small businesses can find themselves even more pressed for time than overworked and stressed-out colleagues in big corporations,” writes Hillary Chura for The New York Times.

 

Pull-Quote3.pngTo get a sense of the challenge and scale of the small business growth problem, a 2011 National Small Business Association (NSBA) survey of 400 small-business owners reported, “Unfortunately, 45 percent do not believe there will be any growth opportunities for their business in the coming year,” and, the number of small businesses reporting decreases in profits was just as large, at 46 percent.  In another new report by market research firm Infogroup, more than half of the small business surveyed—56 percent—reported their “growth” was flat or had declined in the previous 12 months. 

 

Creating a blueprint for change


But in keeping with the entrepreneurial spirit, both the NSBA and Infogroup surveys found that a majority of small businesses reported feeling confident about the future of their own individual firms, with most anticipating growth. So how does one go about making growth a reality?

 

Distinguishing short-term goals from long-term goals is an important first step in putting one’s business on a growth track. Long-term goals are big picture, purposeful and mission statement driven. Short-term goals are S.M.A.R.T:  Specific, measurable, action-oriented, realistic and time-specific. “Give yourself daily, weekly and monthly activities and standards to which you hold yourself personally accountable,” writes Bob Phibbs in his book, The Retail Doctor’s Guide to Growing Your Business. “You must feel all of the work is worth it, or you will be doomed to failure.”

 

Kurt Andrews, who runs his own American Family Insurance Agency in rural Corvallis, Oregon, definitely feels his work is worth the time investment. Though he has two employees, Andrews still handles most day-to-day operations, saying, “I believe in being available to speak with my customers personally.” That’s not surprising since it was that same personal touch that helped him initially build his customer base—his early sales prospecting involved heading out to construction sites with coolers full of ice water in the summer and coffee and donuts in the winter to chat up small contractors and their employees.

 

Twelve years later, though, taking care of all his current customers leaves him little time to find new ones, he acknowledges. “I can’t rest on my laurels,” he says, “It’s change or die.” To avoid that fate, Andrews says he would like to grow his business by ten percent in 2012. Again, that short-term goal is precise, measurable and time-specific. And to accomplish this goal, he is specifically blocking off four hours per week to focus on growth, make cold calls, and contact referrals. He will also participate in an upcoming Farm Expo to meet potential new clients and plans to take the time to visit all of the local co-ops and grain elevators in his farming community this year.

Don’t make today the enemy of tomorrow

Time management expert Peter Turla, founder of the National Management Institute, says, “Many people prioritize items based on what’s most urgent and what’s next-most urgent.” Instead, he says the key is to ask, “How does this activity fit in with my long-term objectives and where I want to go with a particular project or with my career or my life?”

Although it is tempting to concentrate solely on building relationships with existing customers, this can’t be a business’s sole focus if it is to survive and prosper. When the NSBA surveyed small business owners about which future growth strategies they plan to implement in the coming 12 months, the top four responses were: new advertising and marketing strategies (43 percent), expanded Internet presence and e-commerce (36 percent), and strategic alliances (26 percent). However, “no growth strategies planned” came in at fourth with 24 percent.

 

“With me,” says Rose, “I see people a couple of times and then they are healed and they go away, so I always need to find new business.” To raise the visibility of her acupuncture business, Rose takes advantage of 20 minute pockets of time to update her business Facebook page, network with other professionals, and handle email correspondence, tasks that will ultimately lead to more business. Occasionally, she sacrifices a weekday of appointments to participate in trade shows, where she offers a limited range of services to attendees, who she sees as potential future customers. “I lose a Friday when I do a trade show over the weekend,” she explains, “but it’s essential.”

 

Learning to delegate

 

Do it, ditch it, or delegate it is a favorite tenet of time management, but of the three Ds, delegating is the perhaps the hardest for small business owners to do. “If you want your business to grow, you need extra brains—not just extra brawn—no matter how smart you are,” says Rhonda Abrams, author of The Successful Business Plan:  Secrets and Strategies. She adds, “While this may seem self-evident, hire well. Just as it’s easier to be a good parent if you have good kids, it’s much easier to be a good boss if you have good employees.”

 

To better delegate his agency’s clerical tasks, Andrews hired an assistant to work afternoons and a licensed agent who works in the mornings. His assistant takes care of the front desk responsibilities, filing and making past due calls, while the additional agent can handle functions that require an insurance license, such as following up on leads. Although he intends to stay available to his customers, having the phone lines covered throughout the day at a minimum frees his time to pursue his business growth strategy.

 

Creating a blueprint for change, prioritizing tasks with an eye toward bigger goals, and understanding the importance of delegating: following these three steps will help small business owners finally find the time to grow, not just run their companies.

White-in-article-portrait.jpgFor many entrepreneurs, making money is just one benefit of their small businesses

 

By Sherron Lumley

 

There’s an age-old debate about the meaning of life: Is it being loved and helping others, or is it licking the middle out of Oreos and racing speedboats? Whatever credo one chooses—altruism, hedonism, or a happy place in the middle—the personal fulfillment that comes from achieving life goals can be possible through small business ownership.

 

Of course, people go into business for many reasons, be it to gain more personal freedom, enjoy some extra income, or simply to follow a wild dream. However, as the amount of time and life invested in a business grows, its existential importance to the owner often begins to grow as well. Suddenly the enterprise becomes something more than just a way to pay the bills or an answer to that age-old question: “What do you do for a living?”

 

Pull-Quote.pngInstead, business owners increasingly come to see their firms as a way to create something wonderful, an opportunity to make the world a better place, a source of personal contentment, or as the start of a family tradition. Perhaps it’s no surprise then that many people thoroughly enjoy their work and that, according to the U.S. Small Business Administration, two-thirds of Americans now plan to work into retirement. With years of experience, maturity, and plenty of energy, today’s “workers are increasingly finding financial and personal fulfillment in running their own small businesses,” the organization says.

 

The thrill of the hunt

Julie Hunter looks like the girl next door, but when she dons her glittered helmet, short-shorts and roller skates, she enters the roller derby arena under her stage name “Glitterotica,” co-captain of the Hellcats, a TXRD Lonestar Rollergirls team in Austin, Texas. “If you remember how Christmas was when you were a kid—the most exciting day of the whole year—that’s what it’s like,” she says of the rough-and-tumble contact sport. Hunter’s small business, Medusa Skates, sells roller skates and derby gear online to customers throughout the U.S. and internationally. “I started the business because I love derby so much,” she says. “I plan to skate until I fall apart.” But even after she lines up for her final jam, the sport will still be a part of her life.

 

“It’s a way for me to stay involved with the demographic,” says Hunter, who credits the all-female roller derby, billed as “the most entertaining sport in the world,” for teaching her leadership, marketing, and advertising skills, not to mention assertiveness. “I don’t look tough,” she says, “and a lot of the girls are quiet and shy at first, but derby helps people a lot. I used to be deathly afraid of public speaking, but now being in front of 3,000 people or on TV is nothing,” she says. Medusa Skates is a way for her to help people learn about the sport that she has played for the last five years. For Hunter, enriching oneself literally goes hand in (gloved) hand with empowering others.

 

Celebrating success when hard work pays off

Chris and Susanne Carlberg, who just celebrated 33 years of marriage, launched their wine vineyard Christopher Bridge Cellars in 2001 after Chris retired from teaching high school. “It’s our labor of love,” Susanne says of the business, located in the Willamette Valley of Oregon, a cool climate region known for fine Pinot Gris and Pinot Noir wines.

 

“We have to know every aspect of our business and there are many challenges,” Susanne notes. “People see a beautiful bottle of wine and it looks glamorous, but it comes from years of sacrifice and working very hard.” She and her husband operate the vineyard together, with Susanne doing the marketing and communications and pitching in with production at crush time and Chris making the decisions such as when to stop fermentation and which oak barrels to use, elements that give the wine its unique characteristics. Still, she says that some of her business’s biggest payoffs involve the intangibles. “It’s twice as good when you work side by side as we do and you’re so happy.”

 

A triple bottom line

More and more, owners of for-profit enterprises of all sizes are adopting the new concept of a triple bottom line (TBL or 3BL), where they seek to meet social and environmental goals in addition to the normal financial ones. The triple bottom line breaks down into three P’s: profit, people, and planet.

 

“Companies that focus solely on profits are out of sync with the times,” says Tim Sanders in his book Saving the World at Work. Sanders, who was the chief solutions officer at Yahoo from 2001 to 2005, helps develop next-generation business strategies. His book heralds a new business era that he calls the responsibility revolution, wherein people want to make a positive difference, thrive, and achieve significance, ideas that strike a chord with many of today’s entrepreneurs.

 

Leveraging social and environmental differentiation is a way for small businesses to take advantage of what many are already doing—fulfilling personal goals for a better world through the decisions they make for their companies.

 

Susanne Carlberg agrees. “Our business has gone in the direction that is the most environmentally friendly,” she says. “We are creating momentum closer to home and want our wines to be known in the local community. Because of this, we try not to be extravagant in our pricing.” As a result, the Carlbergs’ white wines start in the $14 to $18 range and their reds in the $20 to $30 range, in sync with what is affordable locally.

 

Because social responsibility and helping others is a big part of the Carlbergs’ personal philosophy, they also promote several causes such as Doctors Without Borders and the Wholistic Peace Institute in Portland, Oregon, which brings in Nobel Peace Laureates to speak to local students. “Education has always been a top priority for us,” says Susanne, noting her husband’s former career as a teacher. They also support many local charities with various tastings and small events to boost the fundraising. “In the end, everyone wins,” she says.

 

And back at the roller derby in Austin, Texas, helping people is equally important to Hunter and her teammates. “TXRD has always been involved with the Austin community through local events and by donating our money, time, and swag to many charities including BACA (Bikers Against Child Abuse), GENaustin (Girls Empowerment Network) and SafePlace. And while Hunter clearly enjoys the experience of running her own small business, she also relishes its role as part of something larger. As the TXRD website puts it: “We love our town and our fans, and it shows.”

By Reed Richardson.

 

It’s a tempting premise: rather than suffer through building a new business from the ground up, why not scoop up an existing one that’s struggling and turn it around? For prospective entrepreneurs long on ideas and short on patience, this strategy has long held a certain appeal. But is jump-starting a career in small business ownership, especially in the current economic climate, really as easy as buying someone else’s failure and turning it into a success?

Pull-Quote-Tall.jpg

 

To be sure, buying a struggling business often has some distinct advantages, explains Stephen I. Butler, who owns his own financial and business brokerage firm, Butler Bank Consulting. Thanks to common features such as readymade staff, turnkey inventory and infrastructure, and an established customer base, acquiring an existing business can be an effective way to end run the sometimes laborious start-up process. Still, Butler says it’s worth pointing out that what is really being sold is someone else’s problems.

 

Diamonds in the rough are hard to find

At any one time, roughly 10 percent of the country’s six million small businesses are in the process of being closed, sold, or transferred, according to a 2011 “State of Small Business Report.” While that translates into well over half a million small businesses undergoing some kind of transition, the active marketplace for small businesses being bought and sold is actually far less than that. (The two major online business-for-sale marketplaces, BizBuySell and BizQuest, claim just less than 100,000 combined active listings for companies of all sizes.) And of those, only a small minority will be businesses in distress or in the process of closing.

However, after witnessing the glut of undervalued real estate properties now available, many budding small business owners may think there are similar diamonds in the rough to be had in the business market. But Marc Gudema, a business broker from outside of Boston, says the analogy just doesn’t hold. “What I hear a lot from prospective buyers is, ‘I just want a decent business at a really cheap price,’” Gudema explains. “But I have to tell them those kinds of great deals are all gone.”

In fact, a recent BizBuySell Insight report from earlier this spring suggests that the business market bottomed out over a year ago and is now slowly rebounding. “It is evident from the increasing median cash flow and median revenue of closed transactions that small businesses are showing stronger financials coming out of the recession,” the report concluded. “Therefore, there will likely be an influx of businesses on the market from owners who were hesitant to sell until their business performance strengthened.”

Buying a business is complicated; consider hiring a guide

The prospect of an even larger marketplace that, simultaneously, features fewer good turnaround candidates makes navigating the business-for-sale waters even trickier. So, to avoid getting swept up into an unwise or even shady deal, prospective buyers might want to strongly consider hiring a professional to help them chart the waters.  

Real estate agents and CPAs are sometimes used to broker small business deals when the transactions are heavily real estate or location dependent, such as the sales of gas stations or restaurants. But selling businesses is not what they do for a living every day, notes Steve Wain, who runs the New Jersey-based business brokerage firm Calder Associates. “Business brokers, on the other hand, have to be educated in transition law, insurance, due diligence, and financial lending,” he says. “But if they’re not certified by the International Business Brokers Association (IBBA), you really don’t know who you’re dealing with.”

 

In about three out of every four brokered business sales the broker is hired by and paid by the seller rather than the buyer. Still, seller-hired brokers often give free advice to prospective buyers on things like compiling their financial portfolio and drafting a proper offer sheet. The process of matching a buyer with a business being sold typically takes anywhere from six months to a whole year, depending on the size, type, and complexity of the company and its assets. Although sales of failed or distressed companies sometimes can be executed much more quickly than that, there’s no guarantee, since the financial and logistical problems commonly plaguing a struggling business may take months to thoroughly untangle.

 

As a result of this complexity, standard business broker fees usually range from 10 to 15 percent of the cash portion of the deal. “Anything significantly above that, you should run for the hills, no matter what kind of promises they’re making,” Wain cautions. He also emphasizes that the cash price—and therefore the brokerage fee—is commonly much less than the total amount the business is sold for, since that latter figure often includes loans and other types of long-term payout compensation. “And if it’s a fairly straightforward deal for a fairly small business,” Wain adds, “it’s possible to negotiate a flat fee instead.”

 

“It’s not like you’re going to Home Depot to pick out a company”

“Almost 90 percent of the time, buyers first come to us saying, ‘I want a business that will bring in x amount of income a month,” Wain explains. “That’s a dangerous attitude, because it’s not like you’re going to Home Depot to pick out a company.” Wain says most reputable brokers will regularly turn away these entrepreneurial-curious types, because they’re simply looking to collect an easy paycheck rather than put in the hard work necessary to revive a business that’s currently on life support.

 

Many of these merely curious potential buyers do have the sufficient means to buy a company, notes central New Jersey-based business broker Rick Fulton, but they are often underqualified and overconfident, a deadly combination. (A common source of first-time buyer funding these days is a cashed-in 401(k) from a former job, he says.) “I’d say 100 out of 100 times, the buyer of a failed or distressed business thinks they can do better than the seller,” Fulton says. “But 90 out of those 100 will never make it.”

 

There’s a reason, in other words, that every town seems to have at least one storefront or restaurant spot that is always either “under new management” or “going out of business” and it likely isn’t the owner’s fault. Fulton too, has encountered the same business site being pitched to him for sales help multiple times, as different entrepreneurs cycle through what is an inherently flawed business model or location. “They fall in love with it and overlook the realities, and then they’re surprised when they’re out of business within a year.”

 

The key to staying emotionally detached during a business transaction, most brokers say, involves due diligence. Steven Butler always tells his buyer clients to get as much information as possible about the business and then get a second opinion. “Get a look at three years of past balance sheets, if possible, as well as any audits by accountants, past tax returns, and reports dealing with the business’s accounts receivable. Then, take all that data and have it analyzed by someone with relative expertise in finances.” (For a more complete list of disclosure documents a buyer should see before purchasing, see the sidebar.)

 

But don’t stop there, Butler says. It’s also important to take a hard look at the struggling company’s reputation as well. Why? “Because many times, distressed or failed companies have burned all their bridges of good will with their customers, suppliers, and financiers, by failing to deliver on their promises, pay for inventories, or make loan payments,” he explains. And despite the presence of new ownership, this past behavior can often haunt an ongoing business undergoing a turnaround, forcing it into onerous circumstances, like operating by C.O.D. payment or having to seek out entirely new sources of capital.

 

Starting over vs. starting fresh

Though fast-forwarding into entrepreneurship may be the primary driver behind purchasing a distressed business, it’s nonetheless important to take things slow both before and after the purchase. Not taking the time to understand what makes the business tick, many experts say, is a common mistake first-time business buyers make. And for someone buying a distressed business, in particular, it’s imperative to find out what once made the company successful and what has since changed to make it fail.

 

“I call it figuring out the ‘secret sauce’ and every business has it,” Wain says. Even if a prospective buyer has all the financial data and has talked with the sellers extensively, there’s still no substitute for actually experiencing how the company runs on a day-to-day basis, he says. “It’s like trying to explain to someone else how to ride a bicycle, they just can’t understand it until they do it themselves. That’s why I tell all buyers to check their egos at the door.”

 

As a cautionary tale, Wain cites a recent business transaction in central New Jersey where a buyer bought an established Italian restaurant and, within six months of purchasing it, changed its menu and theme to that of a Japanese restaurant. Soon after, the business began struggling and ultimately failed. “You have to remember you’re not only buying the assets, you’re buying the customer’s goodwill too,” he says. “In that case, the new owner didn’t grasp that, and he squandered that goodwill with an unexpected change.”

 

According to many business brokers, the most successful buyers of businesses—distressed or otherwise—are people who currently own another business or have experience running a business in the past. First-time buyers, they say, usually have a difficult time learning how to both run a business and resurrect someone else’s business at the same time. That’s why Butler often advises first-timers to take a hard look at the advantages and disadvantages of buying versus starting fresh. “In the end, I usually advise potential buyers that it’s probably better to start from scratch than to try and buy an existing firm, especially one that’s failing.” 

 

And although it might sound obvious, if a buyer considering the purchase of a struggling business can’t find any track record of success at all, there’s really no point in worrying about the “secret sauce” or future customer goodwill because neither are likely to exist. “Don’t bother buying a business that was never successful,” Wain says bluntly, “you’d be better off just starting your own business.”

 

 


 

Resources you should know about.

To locate a nearby business broker, use the IBBA’s “Find a Broker” tool.

 

Want to know the four biggest misconceptions about buying a business? Check out the IBBA website to “Avoid These Business Sale Myths.”

 

What are the eight sets of documents every prospective buyer should get from the seller before purchasing a business? To find out, go to the New York TimesGuide to Selling a Small Business. Look under “Prepare Your Business for Sale (Now!)”

 

Need a handy checklist of questions to ask during a business sale? Check out Inc. magazine’s “What to Look for in a Seller.”

 

What are the characteristics that make a prospective buyer an attractive and successful candidate for purchasing a business? Read broker Marc Gudema’s blog posting to find out “What Business Brokers Look for in a Buyer.”

By Reed Richardson.

 

Some days it may feel like getting everyone in your small business to work together is a Herculean task. Even if your company consists of a handful of employees or just yourself and one other partner, there may be times when it seems like everyone else involved in your business is using a different playbook. It’s tempting to attribute this disorganized effort to differences in job Pull-Quote-Tall.pngfunctions—salespeople aren’t in sync with the operations staff, human resources doesn’t understand the needs of customer service—but there may be another major factor contributing to a company’s lackluster performance, one that small business owners in particular frequently overlook: generational differences.

 

A decade ago, understanding how generational differences affect productivity in the workplace was often dismissed as a frivolous, touchy-feely topic, says David Stillman, co-author of the book When Generations Collide. Now, however, he says more and more companies are realizing the very profound effect that the four generations currently comprising the U.S. workforce—Veterans, Baby Boomers, Generation X, and Millenials (see sidebar for demographic explanation)—can have upon their chances for success.

 

Understand the differences

“The basic rule of thumb for any business is to really understand how communication differences among the generations affect their bottom line,” Stillman says. Stillman, a 40-year-old Gen Xer, co-owns the business consulting firm BridgeWorks with Baby Boomer Lynne Lancaster, his co-author. He explains that different communication norms are often the root of conflicts in the workplace. And lest you think these differences among the four generations will simply disappear as more and more Boomers and Veterans quickly leave the workforce, take note of a recent Bureau of Labor Statistics survey that shows that a solid majority of older workers have remained in full-time positions even well after reaching the traditional retirement age of 65.

 

Shaped by wildly different times, experts note that these four generations generally communicate using different means, at varying frequencies, and with sometimes radically divergent expectations about feedback. They tend to have strikingly different expectations about the companies that they work for and what they want to achieve in their own careers as well. In a rapidly changing and increasingly global marketplace, this diversity of backgrounds and viewpoints (not to mention technological savvy) brings with it many advantages, to be sure. But it also brings a set of challenges that can be problematic, especially for small business owners. White-in-article.jpg

 

Generations in isolation

“The chilling part for small businesses is that with a tiny workforce they could easily skew toward just one generation,” Stillman cautions. And those interests might not always line up with the long-term interests of the business. “Baby Boomers, for example, tend to be knowledge hoarders,” he notes. So, their expertise on how to, say, work around a production snafu or defuse an irate customer might never be passed on to the next generation of employees, he explains. To combat this, Stillman recommends that all companies undertake some kind of mentorship or knowledge sharing program. His business partner Lancaster agrees, adding, “The best way to foster this exchange of ideas and knowledge is to make the business case for it, to point out how it will help the bottom line and, thus, everyone will benefit.”

 

The lack of inter-generational interaction isn’t confined solely to Baby Boomers, however. In fact, a recent World of Work survey by the global staffing company Randstad found that the four generations rarely interact with each other in the workplace and often do not recognize each other’s skills or work ethic. And though the older of these two generations possesses the most knowledge and experience, the study found that a slight majority of Boomers and two out of three Veterans reported little or no meaningful contact with their youngest, 20-something colleagues. (You can download a PDF version of the study here.)

 

“The workplace is on the verge of real change,” noted Randstad managing director Eric Buntin in the survey. “By focusing on and encouraging the professional contributions of all employees, employers can help close the knowledge gap by instituting ways for each generation to recognize their strengths and value to all colleagues.”

 

Communication is the answer

The aforementioned formal mentoring programs are but one way to accomplish this. Particularly in small businesses, Stillman and Lancaster advocate a more informal approach, like simply gathering everyone together every few months to talk about how the company communicates, both internally and externally. “This shouldn’t be about fixing blame, but instead should be about asking ‘How can we do this better?’” explains Lancaster. Stillman adds, “you want to get past the ‘Back in my day’ anecdotes that set up an ‘us versus them’ mentality between generations, and instead get ideas flowing back and forth from old to young and young to old.”

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This give and take will help businesses better recognize that good ideas may come from different generations and because of different motives. For example, Stillman relates a story about one company’s recent decision to switch to paperless billing. “The Millenials in the company triggered the change because they wanted to save trees and be greener,” he explains. “But, understanding what the older boss might value, the case they made to him was that it would save the company both postage and materials.” The boss acceded to their request, but only after adding a caveat born out of the wisdom of experience, one that the younger generation had overlooked. “The boss said that the each customer must be given the choice of opting out of paper bills before any switch could be made,” Stillman notes.

 

In the end, a firm grasp of how the four generations work and communicate can pay dividends in not only better teamwork and productivity, but also in improved company morale, employee retention, and more effective recruiting. And for small businesses looking to achieve these results, Stillman says the best way to begin is to first accept that generational differences exist and then, just as importantly, “embrace those differences.”

By Christopher Freeburn

 

Small businesses always face big challenges, but being located in a small town can make the usual obstacles even harder to surmount. Small town environments impose certain restrictions on a small business that similar businesses in suburban or large cities simply do not face.

 

Small-biz-Pull-Quote.png“The battle for customers is much more aggressive in a small town compared to a large city,” says Tom C. Egelhoff, a Bozeman, Montana-based business consultant and author of How to Achieve Small Town Marketing and Advertising Success and The Small Town Advertising Handbook. The advantage of doing business in a large city, like New York, is that the sheer numbers of people passing outside your business every day is likely, simply by chance, to bring in many more casual customers in a week than a business in a small town of several thousand people will see in an entire year. “So you need to be much smarter, much savvier, and much more aggressive in small towns than in big cities,” Egelhoff says. The following three tips are critical to small-town success.

 

1. Small business, know thyself

The first step toward developing an effective strategy for competing in a small town is to understand what your business does, who its customers are, and what they want. “Think of it as creating aSmall-business-small-town-in-article.png resume for your business, as if your business was applying for a job with your customers, who are the boss,” Egelhoff says. Making certain that you thoroughly understand your marketplace is critical when operating in a small town since the small population leaves you less room for error. “In a small town, with its limited population, you don’t have the luxury of a slight misjudgment.”

 

Additionally, in small towns, many people will decide whether to visit your business or not, based largely on what they hear other people say about it. The smaller the town, the greater this word-of-mouth effect will be. This is why creating a consistent image for your business is so important. Customers will rely on that image when making the decision where to shop. “Don’t confuse potential customers,” Egelhoff cautions.

 

2. Be careful with pricing and advertising

In difficult times, a small business might be tempted to reduce prices sharply or offer extensive discounts. While that can bring in more customers in the short run, it can also have a negative long-term effect on the business, Egelhoff warns. “What you don’t want to do in a small town is to disrupt the image of your business that you have worked so hard to create,” he says. If your business was perceived as a purveyor of quality merchandise or services, too many discounts and sales might suggest to customers that your products aren’t really as good as they thought, or that you were always overcharging. “Another problem with too many sales or discounts is that they tend to attract the ‘discount customer,’” Egelhoff says. “A regular customer will take advantage of discounted prices, but will also buy merchandise at a the normal price, whereas the ‘discount customer’ only buys at the discount price and will never go up to pay for quality,” Egelhoff explains. If your business becomes primarily associated with discount merchandise and customers, you won’t be able to make money when good times return.

 

When it comes to marketing your business, Egelhoff has two rules for advertising. “First, you never advertise in any medium that you don’t have at least a seventy-five percent expectation that the advertisement will bring in more business than it costs, because advertising should be looked at as an investment, not an expense. It must pay for itself,” he advises. “Second, when emotion comes in conflict with logic, emotion always wins. This means that people buy products or services because of how they make them feel, not because they really need them.”

 

3. Maximize the right kind of customer service

In a small town, most people know each other, and they generally talk to each other. That means that word-of-mouth advertising is simultaneously a small town business’s greatest asset as well as its greatest potential threat. So it is vitally important to provide courteous, responsive service.

 

Egelhoff says that the right level of customer service is “the best service you can provide day and night and remain profitable.” He warns small businesses not to try and take customer service too far. There is only so much you can do to be helpful to customers before you start incurring unacceptable costs. “I think good customer service will help retain existing customers; it probably won’t bring in new customers,” he says.

 

More important than being helpful during the sales process, Egelhoff says, is dealing with complaints. “In a tight-knit community, one person’s bad experience can really hurt your business,” he explains, “because that person will certainly tell friends about it, and word like that spreads quickly.” Egelhoff advises making it easy for customers to complain about products or service to you, the business owner (rather than friends and neighbors), and acting quickly to address those complaints when they are valid. “In a small community, one festering complaint can become poison to your business.

Use thBusiness-Valuation-Article.jpgese valuation tips to calculate a small business’s worth.

 

by Sherron Lumley

 

One of the most important factors to consider in buying or selling a small business is how best to calculate what the business is worth. Without that critical calculation, it is impossible to determine a fair value for the business and negotiations on a potential deal will likely come to naught, regardless of whether you are buying or selling.

 

“The value of a business is in the eye of the beholder and can be satisfactorily determined only by negotiations between interested parties,” says Lawrence Tuller in The Small Business Valuation Book.

 

Just as no two people are the same, no two businesses are the same and no two valuations will be the same either. Keeping in mind that one method will not be appropriate for every business, there are a few major approaches to calculating business value. Three of the most widely accepted are called the Asset Approach, the Income Approach, and the Market Approach, and as their names imply, they focus in turn on assets, income, and market comparison. (For more details, check out this online primer on the three business valuation methods.

Business-Valuation-Pull-Quote.jpgA quick look at three types of small businesses will help to illustrate the three methods: first, an older family restaurant; second, a widget manufacturing firm; and third, a newer dog-grooming franchise. Income will be used to place a value on the restaurant, assets will be used for the manufacturing company, and for the newer dog-grooming business, a market comparison will work best.

 

Income Approach

The Income Approach focuses on the benefit stream, estimating future income to determine the value of the business. Some call this benefit stream cash flow and others prefer the more technical term Net Operating Income (NOI). One year of NOI will be converted into a present value for the business by applying a capitalization rate to account for risk factors. It’s a little bit country and a little bit rock and roll, as every element imaginable can go into determining a “cap” rate. What it boils down to is the desired rate of return in view of the riskiness of the investment. 

 

Let’s say that our restaurant in question is a risky business, times are changing, and the future is hazy. The riskier the business, the higher the cap rate and the lower the market value of the business. A solid and growing business could have a cap rate of 15 to 25 percent (.15 to .25), whereas a volatile business could have a cap rate between 35 and 50 percent (.35 to .50).

 

In the Income Approach to valuation, the market value (V) is the net operating income (I) divided by the cap rate (R).  It looks like this: V= I/R.

 

Asset Approach

If this hypothetical restaurant is failing, the tangible assets may be the primary consideration for value and the Asset Approach would then be the one to use. The Asset Approach to valuation assumes that the company’s assets could be easily liquidated if desired. It is going to provide a lower level of value to which adjustments can be made for such intangible factors like good will, the reputation of the company, customer loyalty, and business location.

 

Asset valuation is often used for manufacturing firms because of the high value of inventory, capital, and equipment. Using the Asset Accumulation method, all assets both tangible and intangible are considered, less all of the liabilities. Intellectual property and customer contracts are examples of assets not on the balance sheet that will be taken into account using this approach.

 

Market Approach

Finally, let’s look at the newer dog-grooming franchise. Here, the Market Approach, in which the target company is compared to a similar company, will work when the two companies in question are as alike as possible. This method examines value in the context of the competition—what similar businesses are worth—and works well for younger companies or high growth industries.

 

A few easy calculations can be made using the financial statements and particularly the balance sheet, which is a snapshot of the company at a given point in time. It shows what the company has (Assets), what it owes (Liabilities), and what is left over for the owners (Equity). For example, debt-to-assets is a quick ratio often used to compare businesses. It is found by dividing total debt by total assets, both of which will be stated clearly on the balance sheet. 

 

Other Valuation Tools

One of the most straightforward valuation tools involves using annual sales along with a predetermined multiplier. For example, if a business has sales in one year of $100,000 and the multiplier for that business is 50 percent of annual sales, the value of that business is $50,000. So where does one find the multiplier? The Business Reference Guide, a 754-page guide now in its 20th year, provides rule of thumb calculations for over 700 types of businesses. The Business Reference Guide Online database (BRGO) is available as a one-year subscription from the Business Valuation Resources Store for $285.00, which includes the book. The website does have some free resources.

 

For more free information, Inc. magazine has partnered with the Business Valuation Resource to produce an online interactive chart for business valuation and a free database for general business values by sector.

 

These simple business valuation methods are just the first step. If a deal is on the table, contact an expert for outside valuation help. Appraisers, accountants, attorneys, and brokers are professionals who work in business valuation.

 

 

 

Additional Resources

  • Business Valuation for Dummies, by Lisa Holten and Jim Bates, 2008
  • Buying & Selling a Business, by Robert Klueger, 2004
  • The Small Business Valuation Book, by Lawrence Tuller, 2008

State-of-small-business-in-article.pngBy Reed Richardson.

 

On the heels of national Small Business Month in May, we compiled a broad statistical portrait of the state of the nation’s entrepreneurs, using data drawn from a number of private and governmental sources. In Part I of our series, which covered the demographic and fiscal state of our nation’s small businesses, we learned that entrepreneurs were often battered but remained undaunted by the recent economic headwinds blowing against them and that they appear confident about turning the corner in 2011. This second part of the series picks up from there and examines the topics of small business hiring plans for the coming year and what other obstacles remain for entrepreneurs in the current economic climate.

 

Are you hiring yet?

“Small business employment is showing continued strength,” explains Susan Woodward, an economist quoted in the April 2011 Intuit Small Business Employment Index. “While we have a long way to go to full employment, we have seen continued improvement now for a year-and-a-half.” Continuing an uninterrupted streak of hiring increases that stretches back 18 months, the survey found 60,000 small business jobs were added in April of this year, a 0.3% state-of-small-business-Pull-Quote.jpgbump. Add in this latest increase and it translates into 845,000 jobs added to small business payrolls since October 2009, according to Intuit, which tracks more than 65,000 small businesses with 20 or fewer employees.

 

Monthly hours worked and compensation per employee also rose in April, Woodward points out in the Intuit survey. But because hourly wages have trailed behind hours worked in the scale of their rebound, she explains, “the small business labor market is still soft and employers have room to hire without pushing wages up.”

 

Other surveys report a similarly slow but steady improvement in the attitude of small business toward hiring for 2011, with the number of small businesses expecting to hire new employees this year rising to levels not seen since before the recession hit. The rough average from these surveys works out to just over one in four small businesses adding staff in the next year. That level of hiring interest may seem small, but could actually reduce the national unemployment rate by more than 25%, as Network Solutions’ “State of Small Business Report” notes.

 

And of the skilled positions most needed by small businesses, accountants, social media experts, and marketing and/or sales representatives, topped the list, according to the Spring 2011 Small Business Monitor survey.

 

            Small business employee work/pay profile [i]        

103.6 – average monthly hours worked by non-exempt employees (April 2009)

109.8 – average monthly hours worked by non-exempt employees (April 2011)

6.2 – increase in average monthly hours worked (April 2009-’11)

$2,562 – average monthly wage for all small business employees (April 2009)

$2,653 – average monthly wage for all small business employees (April 2011)

$91 – increase in average employees’ monthly salary (April 2009-’11)

 

Small business hiring expectations [ii]

28% – expect to add part- or full-time staff in the next 12 months

2.3 – average number of full-time equivalent jobs expected to be added over the next year by each small business that is hiring

3.78 million – estimated number of total jobs to be created by small business hiring in the next 12 months

2.4% – potential percentage point drop in the national unemployment rate as a result of expected small business hiring (from current rate of 9.0% down to 6.6%)

 

Small business most pressing hiring needs [iii]

14% – are most in need of an accountant/bookkeeper

9% – are most in need of a social media expert

6% – are most in need of a marketing or sales representative

 

What challenges do you face moving forward?

While entrepreneurial optimism for 2011 abounds, there remain a number of concerns and issues for small business owners, whether they’re trying to regain lost momentum for an established company or ignite the successful launch of a startup.

 

“The rising cost of gasoline and energy featured prominently on small-business owners’ list of worries, with one-third saying fuel prices will hurt their firms the most,” noted this recent Wall Street Journal article, which was based on a small business survey released in early May. These rising costs can often pack a dangerous double whammy of both higher overhead and lower profits, the Journal story points out, because “smaller businesses often lack the pricing power to pass on those costs to consumers.”

If topline costs like fuel and raw materials continue to mount and pricing fails to alleviate the pressure, small business owners increasingly fear being caught in a cash flow pinch in the near future, according to the Small Business Monitor survey. “This spring, cash flow concerns have risen to a historic high of 66% from a near pre-recession low of 53% just six months ago,” the survey explains. “Business owners’ desire to hire an accountant or bookkeeper may be a reflection of the challenges of managing cash flow.”

 

In addition, large-scale business plans, like finding financing for a business expansion, and long-term personal goals, like saving for retirement, have reappeared on many entrepreneurs’ radar screens as points of worry now that they’ve moved past simple survival mode. And finally, despite increasing adoption by small businesses, social media tools continue to be a source of both confusion and disappointment, with many entrepreneurs saying their online investments have failed to meet their expectations.

 

Small business external pinch points [iv]

15% – say general inflation

18% – say rising cost of raw materials

33% – say increased cost of gas or energy

 

Small business financial concerns [iii]

29% – say access to capital is harder to find in the last six months

23% – worry about paying all the bills

14% – worry about getting paid by customers

14% – worry about having enough money to win new business

7% – worry about making payroll

7% – worry about the capacity to accurately track cash flow

 

Small business online profile [ii]

56% – currently have a company website

31% – currently have a social media presence

            Of those small businesses with a social media presence:

            • 27% – use Facebook

18% – use LinkedIn

8% – blog

8% – use location-based services like Yelp or Foursquare

7% – use Twitter

2% – use deal-of-the-day sites like Groupon or LivingSocial

18% – currently allow customers to pay for products/services online

 

Small business social media benefits/drawbacks [ii]

5% – say social media “hurt more than it helped”

9% – say their social media experience “exceeded expectations”

36% – say their social media experience “fell short of expectations”

40% – report seeing customer criticism on company social media sites

56% – say social media “used up more time than expected”

63% – say social media helped them engage with customers and build brand loyalty

15% – report losing money on social media efforts

25% – report making a profit on social media efforts

 

Small business owner retirement status [iii]

81% – worry about their ability to save for retirement (was 71% in 2008)

52% – say they will need $1 million or less to retire

$1,205,000 – average estimated amount needed to retire

 

If you haven’t already checked it out, Part I of this series dove into the data to find out what today’s small business owners look like and how well they’re doing in today’s economic climate.

 

i – Small Business Employment Index, April 2011, Intuit

ii – “State of Small Business Report,” February 2011, Network Solutions and Robert H. Smith Graduate School of Business at the University of Maryland

iii – Small Business Monitor survey, Spring 2011, American Express

iv – Small Business survey, May 2011, Citibank

The-state-of-small-business-article.pngby Reed Richardson.

 

Often, small business owners can feel like they’re alone on their own little island when, in fact, they’re experiencing many of the same triumphs and setbacks as other entrepreneurs around the country. So, on the heels of national Small Business Month in May, we thought we’d compile a broad statistical portrait of the state of the nation’s entrepreneurs, using data drawn from a number of private and governmental sources. The following is Part I of our two-part series and it focuses on the current demographic and financial state of our nation’s small businesses. (you can read Part II here)

 

Overall, two primary lessons can be drawn from these surveys. One, entrepreneurs are a hardy lot, since small business activity increased in many respects during what was the worst economic downturn in seven decades. And two, most small businesses are now tentatively moving out of survival mode and focusing more on growth and long-term success.

 

Turning that entrepreneurial optimism into actual success has been anything but easy over these past few years, something that Scott Shane, professor of Entrepreneurial Studies at Case Western Reserve University, says was to be expected. “Decades of data show that interest in entrepreneurial activity is highly correlated with the ‘misery index,’ which is measured by adding the unemployment rate to the inflation rate,” Shane explains. (The misery index reached 12.72, a 20-year high, in December 2009.) “Still, a recession is no friend to entrepreneurs.”

 

Pull-Quote.pngShane’s observation is backed up by quarterly tracking data from the Bureau of Labor and Statistics, which show that private sector business “deaths” have outpaced business “births” throughout the recession, with the churn rate bottoming out in the first quarter of 2009, when the number of businesses closing outnumbered those opening by 63,000. Since then, the business launch rate has held relatively steady—between 170,000 and 180,000 new companies each quarter—while the number of closures has slowly decreased to a level of 200,000 last fall. In addition, financial data indicate that many small businesses stalled out during the recessions first full year of 2008, lost ground in 2009, regained stability last year, and, finally, are poised for growth again in 2011.

 

But there’s a lot here to digest, so dig in and see where your small business does or does not match up with its peers

 

Who are you?

According to the 2011 “State of Small Business Report” (click for full PDF report), which is jointly conducted each year by Network Solutions and the Robert H. Smith Graduate School of Business at the University of Maryland, today’s small business owners form an increasingly diverse cohort, making the idea of a “typical” small business owner obsolete. Still, the study notes that compared to the general population a small business owner is usually “older, more likely to be male, highly experienced, and relatively affluent.” (This survey defined small businesses as those private companies with less than 100 employees that provide their owners with more than 50 percent of their annual income—an estimate that includes just less than 6 million companies nationwide.) Here’s a numerical index of what this year’s “State of Small Business Report” found:

 

Small Business Profile

1 – typical number of locations (86% have a single location)

1.7 – typical number of owners (57% have a single owner, 32% have two, 11% have three or more)

3 – median number of employees (30% have just one employee, the owner)

13 – percentage which are minority-owned (30% by African-Americans, 30% by women, 22% by Hispanics, 17% by those of Asian/Pacific origin)

15 – median age of existence, in years (22% have operated for 5 years or less)

38% – report gross annual sales of less than $125,000

43% – are home-based businesses

48% – are considered “mature” companies by their owners

49% – are in some sort of transition

Of those:

         5% – are startups

         10% – are in the process of closing, being sold, or transferred

         34% – are relatively young, early growth companies

$186,200 – median annual revenue

 

Small Business Owner Profile

10% – report earning at least $200,000 a year

17% – are 65 years or older

24% – are 44 years or younger

28% – are women

50% – have at least a four-year college education

         Of those owners without a four-year degree:

         2% – have less than a high school degree

         17% – have only a high school degree

         29% – have attended a trade school, some college, or have a two-year degree

60% – have worked in their industry for 20 years or more

61% – report earning less than $100,000 a year

80% – founded their current business

 

How are you doing now?

For most small businesses, a roundup of surveys shows that 2010 represented something of a bounce-back year, with many reporting increased revenue, and, according to the “State of Small Business Report,” a slim majority returning to profitability. This marks a dramatic turnaround from the zero or negative growth years of 2008 and 2009, respectively. And while the ugly statistics from those years make the recent, year-over-year positive numbers appear a bit over-inflated, it’s becoming clear that much of the small business sector is slowly beginning to climb out of the deep economic hole.

 

Indeed, even though roughly two-thirds–68%–of small business owners rated the current market conditions as fair or poor, according to this recent survey (also covered in the Wall Street Journal), a large majority of them also report feeling confident that the worst is over and are cautiously optimistic about their prospects in 2011.

 

 

Small Business Profitability Index[i]

• 2009 – +21% (47% reported making money, 26% lost money)

• 2010 – +36% (52% reported making money, 16% lost money)

 

 

Small Business Revenue Index [i]

• 2008 – +1% (30% reported gaining in annual revenue, 29% lost ground)

• 2009 – -9% (24% reported gaining in annual revenue, 33% lost ground)

• 2010 – +23% (38% reported gaining in annual revenue, 15% lost ground)

 

Small Business Owner Satisfaction Level

55% – say ‘being your own boss’ is entrepreneurship’s biggest benefit  [ii]

61% – are ‘highly satisfied’ with their choice of being an entrepreneur [i]

76% – would still start their small business again based on what they know now [ii]

 

Small Business Confidence Level [ii]

69% – report their business is in the same or better shape than in 2010

81% – expect 2011 to be equal to or better than 2010

 

 

For more on the current state of small business, click here to read Part II of our series; it focuses on small business hiring prospects and the challenges facing entrepreneurs as they move forward in a still uncertain economic climate.

 

i – “State of Small Business Report,” February 2011, Network Solutions and Robert H. Smith Graduate School of Business at the
     University of Maryland

ii – Citibank Small Business survey, May 2011

by Christopher Freeburn.

 

As fuel prices shot through the roof over the last several years, airfares quickly followed, adding more woes to beleaguered frequent fliers, already harried by invasive and time consuming security checks. Worse still, as flight delays multiply, many airlines have all but eliminated traditionally free perks like meals, pillows, and drinks, and are now increasing charges for carry-on luggage and numerous other amenities.

 

Busines-Travel-Pull-Quote2.pngFacing this maelstrom of rising costs and increasing inconvenience, businesses of all sizes are beginning to question whether or not specific business trips are necessary, or whether technology can bridge the gap instead of actual travel. As always, small businesses face even greater challenges from increasing travel expenses, since their budgets leave much less room to absorb higher costs.

 

Fortunately for small businesses, telecommunications technology and the Internet make it possible to reach out to distant places like never before. There is now a wide range of communication options available, which if not quite the equivalent of physically being there, at least provide more robust long-distance communication than has ever been achievable before. These technologies don’t completely end the need for business travel, but in a time of escalating travel prices, they provide a low-cost alternative that can allow you to accomplish much of what you could have done had you traveled yourself.

 

“There will always be situations that demand real physical contact,” says New Jersey-based communications consultant Kevin Freeman. “And in many parts of the world being able to look your counterpart in the eye and share a real handshake is still needed to seal a deal, but for a lot of the other reasons we travel—meeting mid-level staff, giving in-company presentations, having detailed discussions of budgets and marketing plans—there is technology already available that can connect businesspeople without running up frequent flier miles.”

 

Technological interfaces

Early attempts at videoconferencing left a bitter taste in many participants’ mouths due to scratchy or out-of-sync audio and poor video quality or connections that failed in mid-conversation. ButBusiness-Travel-in-article.png these issues have largely been resolved due to the advent of high-speed fiber optic cables.

 

Today’s high-end videoconference systems use high-fidelity audio and high-definition video, displayed on large video screens, to provide a vibrant and convincing simulation of a real face-to-face meeting. Videoconferencing facilities are available for rental by most major telephone, satellite, and cable companies in many cities, capable of communicating with your counterparts in similar venues hundreds or thousands of miles away.

 

If renting such a facility isn’t something you plan to do on a frequent basis, a number of commercial business products exist that can provide your small business with similar capabilities, provided that you also have a high-speed Internet connection. Cisco’s Webex is one such provider, offering both online meeting and videoconferencing capabilities. (Click here for a demo of WebEx, which offers new customers a complimentary 14-day trial.)

 

Web conferencing takes the traditional videoconference and sends it zipping across the Internet. Typically, in a web conference individual participants sit at their own computers, which are connected via the Internet (as opposed to videoconferencing in which participants on both ends usually sit in groups around a single set of screens). But increasingly, web conferencing lets participants join in via their mobile devices. There is a variety of web conferencing software available, some of which requires installation on each participating computer, whereas other programs simply require participants to direct their browsers to a particular website to access the web conference.

 

Most web conferencing applications, like Microsoft Office’s Live Meeting, require the use of an external server to host the conference—a Microsoft-owned server, in Live Meeting’s case. (Click here for a free demo of Live Meeting.) A benefit of web conferencing over videoconferencing is the ability to share applications and data among individual participants, with access and control of the application or data shifting back and forth among the participants as the conference progresses.

 

Environmental consciousness

Reducing budget strain from high fuel and airfare costs isn’t the only reason some companies are beginning to reconsider extensive business travel. “There is a growing recognition even in the business community of the impact that fossil fuel-burning modes of transportation like cars and airplanes have on the environment we all share,” says Freeman. “This is a particular concern amongst Europeans, but it is becoming very common in the U.S., too.” (To calculate your share of carbon emissions produced by taking a business trip, check out this Carbon Footprint Calculator.)

 

The more we travel via automobiles and airplanes, the more carbon dioxide we produce as a result, which contributes to global warming and the greenhouse effect. “There is a growing school of environmentally conscious thinking that says we should trim back wide-ranging travel in order to prevent damaging the environment,” Freeman adds.

 

In the end, whether you are motivated by concern for the environment or concern for your bottom line, video or web conferencing is a capability you should consider adding to your business toolkit.

SBC Team

Finding the Right Vendors

Posted by SBC Team Mar 29, 2011

Finding_the_right_vendors-article.pngBuilding the strongest links in your small business’ supply chain.

 

by Reed Richardson.

 

Few small businesses are truly standalone companies. Most require some kind of raw materials or natural resources for their products or services and many others rely upon some form of delivery or distribution assistance to reach their customers. These B2B supply chain partners, though not strictly part of a small company, nonetheless play a crucial role in any entrepreneurial endeavor’s chances for long-term success. A hiccup in upstream parts inventory can quickly shut down a small manufacturer, while a breakdown in customer shipping can likewise paralyze an online retail store. So the process of finding and choosing these crucial links in a small company’s supply chain cannot be overlooked or blithely executed.

 

Starting out, don’t assume, ask instead

“‘Where do I start my search for suppliers?’ is a typical question I get asked a lot, but it’s somewhat difficult to answer,” says Glenn Eisen, a SCORE advisor from Hastings-on-Hudson, N.Y., Pull-Quote.pngwith more than four decades of supply chain management experience. “More often than not, I just begin by sitting down with the small business owner, discussing their product, and then trying to find a directed solution specific to that product’s needs.”

 

For example, if an entrepreneur will be selling clothing, Eisen explains that it’s probably best for cost reasons to start a search for a supplier overseas, whereas a product primarily made of metal might be better sourced by looking in Milwaukee or Minneapolis because of the large metalworks markets there. “It’s important to understand that there’s no single supply chain answer that fits every company,” he points out. “And once you do start finding potential suppliers, don’t assume you’ll know what you’ll need from them and don’t be afraid to ask lots of questions.”

 

Cracking the code to successful supplier searches

Most vendors and suppliers are categorized by specific product and industry type. So it’s a good idea for small business owners to start their search by becoming familiar with the North American Industry Classification System (NAICS) and older Standard Industrial Classification (SIC) codes. These codes, which range from two to six digits, depending on their specificity, are a key piece of sorting information to have on hand when searching through industry supplier catalogs or online directories. In fact, it’s a good idea for entrepreneurs to not only know the SIC and NAICS codes of all their suppliers and vendors but for their own products and services as well. (For more on how these codes work and to conduct a quick supplier search, check out this SIC and NAICS online tutorial and NAICS lookup tool, respectively.)

 

For a more old-school approach, try looking in trade publications and magazines related to your suppliers’ industry. Those articles and advertisements often provide helpful background information and insider knowledge not typically available on the Internet. (For a list of free trade publications, sorted by industry, try searching the online subscription directory TradePub.) Another, somewhat less obvious, choice for supplier information involves your small business’s peers and—yes—competitors. Some of these companies may be hesitant to provide their vendor details, but many others may be surprisingly open and willing to share data about how to get the best deals. Finally, it’s worth checking out the vendor lists commonly included on local, regional, and national government websites. Whether city, state, or federal agency-based, these resources can often provide a struggling entrepreneur with a handy starting point in his or her search for reliable, vetted suppliers.

 

Don’t fall victim to the “If you want something done right…” trap

While each small business’s supply chain solution needs to be uniquely tailored to its specific industry, location, and customers, it’s also important to realize that it’s not necessary to try and build a supply chain from the ground up. “That’s the first big mistake I see,” explains Eisen. “Small businesses get buried in supply chain procurement, administration, and structure when they don’t have the time or resources for that. Don’t go out and try and reinvent the wheel. It’s better if you find some reliable suppliers that can do the work for you, so you can concentrate on selling and marketing your business.”

 

To illustrate his point, Eisen cites a Los Angeles-based small business appliance maker he counseled recently. The entrepreneur, who had developed a compact, combined washer-dryer that was perfect for urban markets with lots of apartments, was devoting too much of his time personally boxing up and shipping his product directly to customers, mainly in New York City. “He was spending hours and hours and anywhere from $50 to $60 to ship to each one,” Eisen recalls. “I convinced him to hand this task off to a third-party logistics company that would batch the orders up and ship 50 at a time to New York, where a haulage company would then pick them up from a warehouse and individually deliver them. By doing this, his shipping costs dropped to $20 per unit and, because he saved so much time, he was free to market and sell more.”

 

Ability to leap multiple supply chain links with a single source

For small business owners looking to streamline and consolidate their supply chain, third-party logistical (3PL) providers, like the one Eisen recommended, can be an elegant and cost efficient solution. By offering both upstream and downstream services, like overseas shipping, air freight, customs clearance, warehousing, freight forwarding, and even home delivery, 3PL companies can provide one-stop shopping for a wealth of logistical solutions. “Remember, a company’s supply chain doesn’t end when it gets, say, a shirt from the manufacturer in China,” notes Eisen. “It ends when the customer finally gets what they ordered.”

 

Price matters, but so too do quality and agility

The quest for the cheapest goods available can sometimes blind a small business owner’s vision of what’s best in the long-term for his or her company. For that reason, searching for vendors overseas should be done with an abundance of caution and should be thoroughly tested using small, trial-size orders initially. This is particularly important since few small business owners will ever conduct a face-to-face visit with any of their potential overseas suppliers.

 

Moreover, keep in mind that a supply chain originating in a factory located halfway around the world can be susceptible to problems—like natural disasters, worker’s strikes, and political unrest—not commonly experienced here. Intangible factors like these, which can result in missed shipments and canceled orders, don’t show up in an order quote and may ultimately prove to exact a higher price than choosing a more expensive, but more reliable and flexible domestic supplier.

 

Those latter characteristics, Eisen points out, create the strongest supply chains. “Ordering from a supplier is just that, an order,” he says, adding that ordering connotes a one-time event with no long-term mutual benefits. “But buying from a supplier is about building a relationship over time so that two companies can help each other grow and succeed. That’s what to look for when you’re building a supply chain.”

White-in-article.jpgWhether you wish to export your own products or import the goods of foreign manufacturers, make sure you understand the basics of doing business overseas

 

By Christopher Freeburn

 

Most entrepreneurs dream of founding a great business. Many hope to create businesses with global reach, sending their brand into markets not only across town, but across the world. While the Internet and the rise of a more intricately connected global economy has made it possible for many small businesses to sell abroad, many owners want to do more than simply mail products overseas, they want to import foreign products, or see their products actively sold in foreign markets. And though recent Commerce Department tracking reports found that less than one percent of small and medium-sized businesses export goods outside the U.S., there has never been a more opportune time to extend your small business’s international reach.

 

“In the past, opportunities for many small businesses ended within the borders of their own country, and international trade was only for large multinational corporations,” says John J. Capela, author of Import/Export for Dummies. “Today, the global marketplace provides opportunities not just for the multinational corporation, but for small upstart companies. The Internet, affordable changes in technology, and increased access to information have all made it easier for firms of all sizes to engage in international trade.”

 

Trading abroad: export basics

Sending your company’s products overseas for sale in foreign markets requires a considerable amount of planning and education. If you decide to export your products directly, you will need to find a partner in the target country who can receive the goods and put them in the right marketplace. There are two main ways of doing this. First, you can pay someone to act as an agent for your products in the target country. The agent will negotiate for you with vendors in that country’s marketplace to secure placement or sales of your products. Alternately, you can locate a local distributor in the target country who will take possession of your products as they arrive and send them to the right markets.

 

These forms of direct exporting require making contacts in the target country and successfully negotiating sometimes complex and expensive agent and distribution agreements. Relatively few small businesses attempt this. Most opt for less onerous indirect exporting arrangements, using export management companies (EMCs) or piggyback exporting.

 

EMCs are U.S.-based companies that provide exporting services for multiple U.S. clients. “EMCs normally take title to the goods and assume all the risks associated with doing business in other countries,” Capela says. EMCs handle distribution and legal negotiations inside the target company and are popular with small exporters for exactly that reason.

 

In “piggyback exporting” a small business that wishes to export goods to a given market partners with a larger domestic exporter of complementary—but noncompetitive—products headed to that country. Capela uses the example of a small maker of hairbrushes that would like to sell its products in Italy. The brush maker approaches a shampoo maker that exports to the Italian market and offers that company the right to market its brushes in Italy. “Why would the shampoo company be interested in such a deal? Because this enables the shampoo company to offer a more complete line of products to its distributors with little or no additional investment,” Capela explains.

 

Forming an overseas partnership: import basics

U.S. businesses looking to import products from abroad have an astonishing array of opportunities to choose from. Many foreign governments, particularly countries in Asia, are eager to arrange partnerships between U.S. importers and their domestic suppliers and manufacturers. If you know where the product you wish to import—or wish to have manufactured outside the U.S.—is made, contact that nation’s embassy or consulate. The embassy or consulate can put you in contact with the appropriate trade agencies that will facilitate contact with that country’s available manufacturers.

 

Forming an overseas partnership is a step that must be taken with great care. Since you and your potential business partner live in different countries likely possessing greatly different business laws and regulations, separated by vast distances, the first step would be to consult business law attorneys in both countries to determine what sort of partnerships are permitted in each country and exactly how the business would have to be structured in order to best adhere to both local jurisprudences. Different nations have specific laws governing international partnerships, employment, and investment, the intricacies of which are too great to be answered comprehensively here. Any partnership you form will have to accommodate itself to those rules, and you will almost certainly require professional legal advice to determine how those differing rules apply to this enterprise.

 

“Prior to finalizing any purchase or sales agreement, make sure that you understand the warranties and service included,” Capela advises. “Confirm who will register trademarks, copyrights, and patents, if applicable, and in whose name it will be. Finally make sure that any agreement includes a provision for termination and settlement of disputes.”

 

Building long-distance trust

As for maintaining a trustful relationship with a partner who resides and works in another country, frequent communication and independent verification of financial data are probably the best means. Internet-based approaches allow for instant communication between widely separate parts of the world, and it means that any data that your partner has access to, you should as well. You should be able to communicate with your business partner easily and as often as necessary. You should also insist that your partner retain a chartered financial analyst (CFA) or accredited accountant or accounting firm (equivalent to a CPA in the United States) to audit all financial statements generated by the partnership in the area where your partner is based on a continuing basis, and provide copies of that analysis to you. If your partner objects to granting you access to the business’s operational data, or permitting an independent review of the web site’s financial data, you would be well advised to strongly reconsider any partnership deal.

 

 

Import/Export online resources:

To see how well your business and its products match up with those that are typically successful overseas, take a quick, nine-question “export readiness assessment” found at the federal government’s helpful Export.gov website, here: http://www.export.gov/begin/assessment.asp

 

To decide whether or not your small business needs an EMC and for tips on finding the right one if you do, check out this how-to page on the Federation of International Trade Association’s website: http://www.fita.org/aotm/0499.html

 

TradePort, a non-profit alliance of California-based trade associations, offers a handy series of tutorials on the basics of business importing and exporting here: http://www.tradeport.org/index.php/trade-toutorials

 

The Small Business Administration’s International Trade webpage, which includes import and export tutorials, videos, podcasts, financing tips, and other information, can be found here:

http://www.sba.gov/aboutsba/sbaprograms/internationaltrade/index.html

 

For more personalized import/export business assistance, contact one of the SBA’s local Export Assistance Program offices. The SBA’s EAP directory can be found here:

http://www.sba.gov/aboutsba/sbaprograms/internationaltrade/useac/index.html

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