by Paul J. H. Schoemaker, Inc. Magazine
You're the boss, but you still spend too much time on the day-to-day. Here's how to become the strategic leader your company needs.
In the beginning, there was just you and your partners. You did every job. You coded, you met with investors, you emptied the trash and phoned in the midnight pizza. Now you have others to do all that and it's time for you to "be strategic."
Whatever that means.
If you find yourself resisting "being strategic," because it sounds like a fast track to irrelevance, or vaguely like an excuse to slack off, you're not alone. Every leader's temptation is to deal with what's directly in front, because it always seems more urgent and concrete. Unfortunately, if you do that, you put your company at risk. While you concentrate on steering around potholes, you'll miss windfall opportunities, not to mention any signals that the road you're on is leading off a cliff.
This is a tough job, make no mistake. "We need strategic leaders!” is a pretty constant refrain at every company, large and small. One reason the job is so tough: no one really understands what it entails. It's hard to be a strategic leader if you don't know what strategic leaders are supposed to do.
After two decades of advising organizations large and small, my colleagues and I have formed a clear idea of what's required of you in this role. Adaptive strategic leaders — the kind who thrive in today’s uncertain environment – do six things well:
Wednesday, March 28, 2012
Tuesday, March 6, 2012
Every Journey Begins With a Plan
By Janet Hart, SBDC Vancouver,
One of the biggest obstacles to starting or expanding a business is fear of the unknown. If we knew that all of our business decisions guaranteed success, we would be very wealthy. In reality, we know that every decision involves risk. Successful entrepreneurs manage risk to a more acceptable level through planning.
A business plan is very much like a road map that guides your decision-making. The process of preparing a plan helps you anticipate the potential and risk of a business opportunity. What risks would cause you to lose an opportunity? Some examples are: insufficient money to capitalize and operate the business; poor timing and inability to produce a marketable product or service; too few customers (or, conversely, too many competitors); inadequately trained labor pool; inaccurate and poorly managed records; and a lack of business savvy and management skills.
A written business plan is an opportunity to create structure for your ideas. The plan enables you to objectively set goals, focus your energies, develop tactics, and monitor progress. Throughout the process of writing a plan, you will gain an understanding of what is required of you and how you can design the business to fit with your values, lifestyle, abilities, and resources.
Most business plans consist of six components: Purpose and mission, market analysis, product or service and operations, market strategy, management and organizational structure, and finance. A written plan will require a cover page, table of contents, executive summary, and exhibits.
One of the biggest obstacles to starting or expanding a business is fear of the unknown. If we knew that all of our business decisions guaranteed success, we would be very wealthy. In reality, we know that every decision involves risk. Successful entrepreneurs manage risk to a more acceptable level through planning.
A business plan is very much like a road map that guides your decision-making. The process of preparing a plan helps you anticipate the potential and risk of a business opportunity. What risks would cause you to lose an opportunity? Some examples are: insufficient money to capitalize and operate the business; poor timing and inability to produce a marketable product or service; too few customers (or, conversely, too many competitors); inadequately trained labor pool; inaccurate and poorly managed records; and a lack of business savvy and management skills.
A written business plan is an opportunity to create structure for your ideas. The plan enables you to objectively set goals, focus your energies, develop tactics, and monitor progress. Throughout the process of writing a plan, you will gain an understanding of what is required of you and how you can design the business to fit with your values, lifestyle, abilities, and resources.
Most business plans consist of six components: Purpose and mission, market analysis, product or service and operations, market strategy, management and organizational structure, and finance. A written plan will require a cover page, table of contents, executive summary, and exhibits.
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!
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.
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
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?
Collateral
.... 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
.... 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.
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?
Collateral
.... 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
.... 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
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
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