Wenatchee Office located at 238 Olds Station Road, Wenatchee. By appointment call 509-888-7252 or email jim.fletcher@wsbdc.org

Friday, December 9, 2011

8 Tips for Helping Clients Start a Business Right

Published by Knowledge Institute, Nov 2011

When clients fail to plan, they plan to fail

Starting and running a profitable business is not rocket science. The #1 reason many people fail is they fail to follow a well-established business development process. Below are 8 tips to business development that, when followed with purpose, will significantly help your business clients and customers improve their chances for growth and long-term success:

1. Test the Waters: Encourage client so close a sale. While this is not possible for all ventures, making a sale validates the business idea on multiple levels, such as who will buy, why they buy, what they'll pay, how much it costs and how much profit will be made.

2. Research, Research, Research: Encourage clients to Web surf and shop the competition to learn how similar businesses define, price, market and sell their offerings. LIttle is new. Take advantage of what works.

3. Connect Clients to Experts: There are over 33,000 "volunteer" business mentors in the U.S. that offer all types of expertise, such as tax, funding, marketing, import/export, govt. contracting, etc. Introduce and help clients to connect.

4. Write the Business Plan: Require clients to write their own plan and invest the time, hard work, learning and focus that will be the keys to their future success.

5. Fund Innovatively: You well know, banks are rarely lending. Get creative. Will customers invest or prepay? Is joining forces an option where client have "x," someone else has "y" and together they're better off? Is contracting for a service versus buying equipment an option, such as a delivery service instead of buying a truck.

6. Recordkeeping: Require clients to demonstrate that they understand and have arranged for reliable expertise for maintaining breakeven, forecasting, cash flow and bookkeeping records. Business success lies in the details of managing the numbers.

7. Defeat Fear Through Knowledge: Asking for the sale is scary. Maintaining financial records can be intimidating. Investing in ones future is risky. Yet millions of people are doing this every day with success. Help clients connect with no-cost business assistance networks to learn how they can do it too.

8. Focus, Focus, Focus. Profitability is the first objective in business. Focus on a sales cycle where revenues exceed expenses. Assist clients with refining and repeating this process before they start something new.

Like most things in life, the more purposefully you engage, the more likely you'll get the results you seek. Good luck!

Should You Have a Business Partner?

by Kathleen Purdy, Olympic Peninsula SBDC; First published in the Olympic Business Journal

Here at the Small Business Development Center (SBDC), we work with all types of  businesses — from sole proprietorships, to partnerships, to corporations with several owners. We’ve seen partnerships work exceptionally well and we’ve seen disasters.

A Successful Partnership
We’ve counseled many small businesses with more than one owner. In a great many of these cases the owners are also a married couple. As one couple said, “We want to continue to stay married to each other and therefore make the business partnership work!” Their marriage is the “glue” that keeps the business partnership working. But what if the partners aren’t married? Several years ago we worked with a non- married couple that started a business that was unique for this area. Soon their personal relationship ended. They separated their living arrangement, but both wanted to continue to work in the business. They did and were successful at it because they both believed in their business idea and wanted it to be a success. Later, one partner married and moved to Seattle. She couldn’t work in the business anymore and wanted her partner to buy out her half. She said “I want to be fairly compensated, but I also want the business to succeed.” Her partner agreed. We worked with them to come up with a buy-out plan that accomplished both goals. The business grew and did succeed.

Tuesday, November 8, 2011

Tracking Your Prime Cost? Good, Just Make Sure You're Calculating It Right

A tip from RestaurantOwner.com
One of the most important and telling numbers of any restaurant is its Prime Cost.

Prime Cost is the total of food and beverage costs plus all payroll expenses including wages paid to management and staff and payroll taxes and related benefits.

Prime Cost is a key indicator of a restaurant's profit potential and how well management is managing the restaurant's biggest and most volatile costs.

Generally accepted industry rules of thumb tell us that in tableservice restaurants the goal should be to keep Prime Cost at or below 65% of sales. QSR or non-tableservice operations should aim for a Prime Cost is 60% of sales or less.

When Prime Cost exceeds these percentages by more than a point or two, it usually becomes a real challenge for any restaurant to make a sufficient bottom line profit regardless of the other expenses on their P&L.

Some independent operators may not be getting an accurate reading of their Prime Cost because of the way owner's compensation is handled.

When calculating Prime Cost, the owner's compensation should be included in management payroll only if the owner is actively working in the restaurant and the amount of compensation does not exceed 4% of sales.

If you own a restaurant but have a GM manage the daily operations, don't include your compensation when calculating Prime Cost.

For owners who perform the duties of a GM and/or chef, first see if your salary exceeds 4% of sales. If it does not, don't do anything. If it does, take the amount that exceeds 4% of sales out of Prime Cost.

Reason for the 4% amount is this. In general, GMs or chefs are not paid more than 3%-4% of sales. When a restaurant is very profitable, working owners may pay themselves more or even much more than 4% of sales so including all of their compensation in Prime Cost can cause it to be artificially high in comparison to other restaurants.

If applicable, reclassifying some portion of owner's compensation out of Management Payroll should give you a better number for comparing your Prime Cost to industry averages and rules of thumb.

Have a profitable week!  Jim Laube & Joe Erickson

Monday, October 17, 2011

Preparing a Loan Application

Obtaining a business loan has become more difficult as the economy, regulations, and lendig policies become more stringent.  I took the following notes during a recent staff training presentation and hope they will help you to understadn what lenders need to see in a business loan appllication. 

I. Understanding the Lender

It is much easier to find a business lender if you understand what a lender needs in order to process your loan application. I recommend starting with the lender you are already doing business with but check for the most recent bank policies and procedures. Government regulation and bank policies are frequently updated. To prepare you application it is helpful if you know the following:

Bank Policies –
Loan portfolio mix, number of and type of loans they like to make.
Loan Programs they use? (SBA or USDA programs?)
Loan requirements – Minimum Credit score, Loan to Value, Collateral, Equity, Lending Ratios -- Liquidity, Debt Coverage, others
Risk tolerance – some banks are more liberal, others more conservative.
Lender’s experience with customers in your industry?
Recent changes in the bank’s corporate structure that effect lending policies.
Banking regulations that affect the bank’s lending policies.
Average time to close a loan.

• Loan Underwriting – The lender will only know what you provide, incomplete applications get denied. Your loan officer will need to justify a loan approval based on due diligence review of you and your business. Information they are looking for includes:

Is the loan purpose consistent with the type of loan?

Credit Standing (score and credit report)

Cash Flow, is the business be profitable?
.... Are losses explained?
.... How were losses funded?

.... Quality and value
.... Collateral value covers loan?

Equity/Net Worth
.... Has equity increased or decrease over last three years?
.... Amount of contributed equity and earned equity (retained earnings)

Financial ratios
.... Exceed lenders minimum target?
.... Ratio trends over last three years

Business condition – Strengths, Weaknesses, Issues

.... Other business owned
.... Other sources of income
.... Personal Financial history

II. Preparing a loan package
Presenting the lender with a complete package is critical. Your package must demonstrate your capacity to manage the business, your capacity to produce stated outcomes, and the market place capacity to buy your service/product. Incomplete packages slow review and errors or misstated information will result in a denied application. Lenders will be examining:

1. Financial Statements – History
• Profit Loss Statements- YTD  Revenue, margins, profit
 • Cash Flow: EBITDA and Working Capital needs, Owner draws, distributions, When you spent cash, when you received cash

• Last three years of Tax records, Explain differences between tax records and Profit & Loss Statements. Explain any expenses made for tax purposes

• Balance Sheets – current liquidity, asset quality, leverage, capital structure, retained earnings, Aging of A/R and A/P

• Budget Projections with assumptions

• Break Even analysis

• Ratio analysis - Liquidity, leverage, performance over time has been consistent and is sustainable Sales to Assets, ROI, ROA, A/R Turnover, Average Collection period A/P turnover, average payment period Inventory Turnover, Inventory on hand

2. Management
Character of top management, resume of management experience, experience as management in this business/industry. Team depth, who does the tasks of CEO, CFO, A/R and A/P. Succession (who runs the business if you can’t be there?) Performance as compared to industry standards and trends

3. Business Plans
• Supports and explains how you will accomplish what you claim in your budget. How you meet the five C’s of credit. (Character, Capacity, Capital, Conditions, Collateral)
• Explains market opportunity
• Provides budget assumptions.
• Describe the business, how you make money
• Describe the service/product, provide pictures, marketing materials, samples
• Associated documents, Articles of Incorporation (Partnership), Leases, Contracts, firm estimates on major purchases, Collateral

III. Presentation Tips
• Be enthusiastic
• Be professional
• Be prepared
• Make an appointment, be early and ready
• Be organized and bring copies of all the document to leave with the lender

IV. Deal Breakers
Some issues in your history can be deal killers, there must be extenuating circumstances before a lender can consider proceeding with an application. Other problems could result in a loan application being considered as a higher risk. If a loan were to be approved, these issues could result in higher interest rates and more conditions and restrictions.

Preparing a quality loan application package will help identify potential deal breakers and provide you the opportunity to explain what happened and what you have done to correct the situation. Remember, it is safer for the lender to say no if there is any doubt or perception that your loan is a higher risk than the lender wants to accept.

Friday, September 23, 2011

Typical Requirements For Business Loans

Seeking a business loan requires preparation and excellent documentation of your businesses financial health. The following list will help get you started, complete and accurate information will help the lender complete their review with a better chance of reaching approval. Pay close attention to financial projections and cash flow needs, they must be believable and supported by your business plan market assumptions

Proof read your documents as errors will delay review and possible cause rejection. Have someone else review you documents did they clearly understand what you wrote?

I. Cover Letter --States who you are, how much money is needed, what the money will purchase and what results are expected.

II. Business Plan
A. Description of the business
B. History and nature of business
C. Ownership structure. Attach contracts or organizing charter, copies of business licenses, EIN, Resolution/Articles of Incorporation or partnership contracts.
D. Key Management resumes
E. Description of product/service and market place. Including competition, market area, major customers, major suppliers, description of plant and equipment
F. Amount of loan requested. Specific dollar amount and purpose of loan, use and benefits, amount of owner’s contribution, primary source of repayment and repayment terms, list of collateral.

III. Business Financial Reports
A. Projected cash flow budget, income statement, balance sheet, financial assumptions
B. Business financial history for last three years
C. Tax returns for last three years
D. Itemization of all debts
E. Current aging of accounts receivable

IV. Personal Financial Statements (for each co-owner)
A. Recent personal financial statements, recent
B. Personal Tax returns for last three years

V. Attachments
A. Application forms.
B. Business incorporation documents, partnership agreements, buy/sell agreements, etc.
C. Legal documents: leases, contracts, franchise agreements,
D. Detailed lists of assets to be purchased
E. Summary of market research
F. Supporting documentation, pictures, plans, contractor estimates, customer contracts.

NOTE: Loan Decisions Points – Lenders have several critical decisions points. The information you provide must prove to a lender your ability to accomplish your business goals.  A lender review will include but is not limited to:

• Evidence of your ability to achieve the cash flow budget
• Total amount existing debt and how much more debt will be added with a new loan
• Ability to pay all of your debts and still be profitable
• Personal and business credit history
• Amount you are investing as the owner
• Amount of collateral
• Potential risk of business failure
• New business vs. well established business

Tuesday, August 16, 2011

Social Media Marketing Strategy

Recently read "The New Conversation: Taking Social Media from Talk to Action" anHarvard Business Review Analitic Serviceds Report regarding Social Media strategies. Follow the link to read the full text http://www.sas.com/resources/whitepaper/wp_23348.pdf

Executive Summary
The exponential growth of social media, from blogs, Facebook and Twitter to LinkedIn and YouTube, offers organizations the chance to join a conversation with millions of customers around the globe every day. This promise is why nearly two-thirds of the 2,100 companies who participated in a recent survey by Harvard Business Review Analytic Services said they are either currently using social media channels or have social media plans in the works. But many still say social media is an experiment, as they try to understand how to best use the different channels, gauge their effectiveness, and integrate social media into their strategy.
Despite the vast potential social media brings, many companies seem focused on social media activity primarily as a one-way promotional channel, and have yet to capitalize on the ability to not only listen to, but analyze, consumer conversations and turn the information into insights that impact the bottom line.

For instance:
  • Three-quarters (75%) of the companies in the survey said they did not know where their most valuable customers were talking about them. 
  • Nearly one-third (31%) do not measure effectiveness of social media.
  • Less than one-quarter (23%) are using social media analytic tools. 
  • A fraction (7%) of participating companies are able to integrate social media into their marketing activities.
While still searching for best practice and measurements, two-thirds of the companies surveyed are convinced their use of social media will grow, and many anticipate investing more in it next year, even as spending in traditional media declines.

Only a small group — 12 percent — of the companies in the survey said they felt they were currently effective users of social media. These were the companies most likely to deploy multiple channels, use metrics, have a strategy for social media use, and integrate their social media into their overall marketing operations.

Clearly, most companies are still searching for the best practices and metrics so they can understand where to invest and target their social media activities and build their own competitive advantage. It will take those new tools and strategies to create what Avinash Kaushik, Google’s Analytics Evangelist, describes as a new reality in harnessing the power of social media. “Too many companies have not evolved from what I call ‘shout marketing’ — think TV, newspapers, magazine ads — to influence by initiating and participating in conversations with consumers,” he said. “There needs to be a generational shift.”

Wednesday, August 3, 2011

Buying and Selling a Business

by John Rodenberg with the Tacoma Small Business Development Center,

You've worked long and hard to build up a good business. Maybe the business is hugely profitable, or maybe from a financial perspective the business may have paid you a modest salary over the years, but maybe not more. You may ready to retire, move onto another challenge, or perhaps you are burned out. You are wondering if you can and should sell the business. Will you be able to get some return for your investment? How do you come up with a price? How to market the business? How to negotiate with potential buyers? What steps do you take to close the deal? Where are the hidden traps?

Friday, July 22, 2011

Will It Work? Tips for Determining the Feasibility of a Business or Project

By Kathleen Purdy, Olympic SBDC
Entrepreneurs are often faced with answering the question “Will it work?” Lenders, investors, perhaps
suppliers and others involved in the project should also ask that question or scan the business plan to see if
“will it work” is addressed. Whatever the specific project—starting a new business, expanding an existing one, or even selling or buying a business—the basic issue is feasibility.  Can it be implemented successfully?

Thursday, July 7, 2011

How to Recognize a Business Opportunity

By Janet A. Harte, Vancouver, WA SBDC

Whether you are contemplating a new business or want to re-energize or expand your current one, you need to be able to recognize a business opportunity when you see one. You have probably had visions of one— customers buy things it cost a fraction to produce and you become fabulously wealthy. A businessperson’s dream come true! However, the reality is good business opportunities are hard to find.

Wednesday, July 6, 2011

What SBA Seeks In A Loan Application:

By Jim Fletcher, Wenatchee SBDC

First, the Small Business Administration (SBA) is a federal agency and does not make loans, SBA guarantees loans made by financial institutions. Under the guaranty concept, the business applies to their local business lender. The lender decides if they will make the loan internally or if the application has some weaknesses which, in their opinion, will require an SBA guaranty if the loan is to be made. The guaranty assures the lender that in the event the borrower does not repay their obligation and a payment default occurs, the Government will reimburse the lender for that portion of the loan guaranteed. However, the borrower remains obligated for the full amount due.  Additional informatioon on SBA loan programs and requirements can be found at http://www.sba.gov/

Seven Customer Retention Strategies

By Susan Hoosier, Longview, SBDC
Do you direct all of your energies to getting new customers? If so, you may want to take a closer look at the source of your sales since it is very likely that 80% of your business is coming from repeat customers. If you  find that 80% of your business is coming from 20% of your customers, you may want to consider some strategies for staying in touch with those customers! Retaining customers and serving them over their lifetime can mean thousands of dollars for your business.

Do You Have Effective Internal Financial Controls in Your Business?

By Susan Hoosier, Longview SBDC

One of the very first private consulting jobs that I took on, several years ago was for a well-established company in the Midwest.  Day-to-day management of the company fell to the owner’s wife when he suddenly passed away. Since she was new to the daily operations, she began to scrutinize the financial information more carefully as a means of educating herself on the business financial condition. It didn’t take her too long to know that something wasn’t quite right but she couldn’t put a finger on the problem.

Thursday, June 30, 2011

Taking Your Business to the Next Level

By Kathleen Purdy, Olympic Peninsula SBDC 
“How can I evaluate new business opportunities?” “How can I determine whether to sell one of my three businesses?” “How can I better plan for future contingencies?” “Will I be able to sell my business in ten years and afford to retire?” These questions and others like them are ones that small business owners should be  asking themselves. As often happens, we become complacent when all is going well. We can breathe--and even take a vacation! However, businesses often take on a life of their own and may be headed down a path that is different from what the owner envisions. The owner just hasn’t told the business of his or her vision. Taking your business to the next level is that type of planning. It asks: “Where is my business going? Where do I want it to go? How can I get there?”

8 Ways to Increase Your Cash Flow in a Cash-Crunched Economy

by Kirk Davis, Green River SBDC

Every day I hear about cash flow problems from business owners. In this economy, most of us are having cash flow concerns. I am hearing that sales of most small retail businesses are down 10% to 20% from
last year. If you don’t understand the different ways to increase your cash flow, you can get stuck thinking you have no options. If you are having cash flow concerns, chances are it is difficult for you to get a loan  from the bank.

Wednesday, June 22, 2011

Can You Increase Sales by Exporting?

The Washington Small Business Development Center Export Program focuses on working with new-to-export and new-to-market companies with little or no expertise in international trade. The program has set an ambitious goal of establishing a “Culture of Exporting” across the state within the next two years.

Join the Online Revolution -- Engage in Radical Self-Promotion

By Kirk Davis, Green River SBDC

The Goal of Social Media is to Increase Sales. Really?

Social media provides the tools that enable us to have online conversations. I know, the big advice out there today about social media is don’t try to sell anything to anyone. The idea of social media is to be part of the conversation to build relationships over time. Of course, our goal in business is to sell more stuff to more people.

The new revolution in business is social media marketing. If done right, it can be your key to radically improving sales. The question is how do you increase sales by using social media? Sun Tzu in the Art of War explains that strategy is determined by the terrain. Here is an overview of the social media terrain.

Revisiting Your Credit Strategy

By Susan Hoosier, Longview SBDC

Monitoring and understanding your cash flow is probably one of the most critical aspects of business management. Cash flow has always been important to businesses, but many business owners have recently been reminded of this in a very unpleasant fashion; i.e. the cancellation or reduction of a vital credit line.

Business owners typically concentrate their efforts on year-end tax planning and strategizing for increased sales in the coming year. It is rare, in the planning process, to see businesses pay equal attention to planning for cash flow by reviewing the business’ credit strategy (the way that bills are paid and the way in which you receive payments for goods and services that are sold).

The ABCs of Profitability

By Jennifer Shelton with the Bellingham SBDC.

As a business owner or future entrepreneur, I believe it’s never too early to start thinking about how to make and keep your business profitable. In simple terms, profitability is the amount of sales revenue left over after business costs. Learning to measure profits helps to answer the question, “Are we making enough or going to make enough money for our efforts?”

Five Keys to Building a Strong Business

By Janet A. Harte, with the Vancouver, WA SBDC

One thing all business owners have in common  is their desire to build a strong business. A strong business is one that can withstand the ups an downs of an economic cycle; it can replenish itself through profits; it’s agile, flexible, and communicates well; and it can support the owner’s lifestyle. A strong business is based on a true business opportunity and a sound business model. While a business opportunity is shaped by the market environment; a business model is the shaped by the owner.