Tuesday, December 30, 2014

What do small business owners worry about? Part III

Goldman Sachs 10000 Small Businesses program released a survey of its participants which revealed the top four things small business owners worry about.  We have already discussed finding and retaining good employees and financing the business so this week we will talk about developing and updating business strategy.

Every business should have a business plan completed before it starts up.  Even if bank funding isn't needed, a successful business owner will want the blueprint a plan provides.  There are software programs that can help with the preparation of a plan, there are service providers who can help with the preparation and in some areas (the Fox Valley area of Wisconsin  http://www.fvtc.edu/training-services/business-industry-services/seminars/service/small-business-entrepreneurship/e-seed-entrepreneurship-training), there is a class you can take which walks you through the preparation of a business plan.

Starting with a strong business plan will help a small business owner get off on the right foot.  The next challenge is to keep the plan relevant by updating it as needed.  A business plan should be reviewed at least once a year and more often during the first few years.  The plan was the owner and advisors best estimation as to what would happen and will never be 100% accurate.  The key is to compare the actual results to the forecasted results (the pro-forma financials which were part of the business plan) and determine what caused the difference.  Using that information will allow the owner to create the budget for the next period and also determine if the underlying strategy of the company is working.  Was the actual customer base what the marketing plan forecast?  Did the sales come in as quickly as anticipated?  Were the expenses what the business expected?

Small business owners are often challenged to find enough time in the day to get all their tasks done.  Reviewing the business plan and updating it is crucial to the success of the company so we recommend setting a date on the calendar for this task to insure that it gets completed.

Wednesday, December 10, 2014

What do small business owners worry about? Part II

Last week we talked about the top four things small business owners worry about according to Goldman Sachs 10,000 Small Businesses program.  The biggest concern is finding customers which we discussed in the first article.

This week we will discuss the second most pressing concern which is financing the business.  Getting lending for a start-up can be very difficult and financing for an on-going business can be tricky as well.  What does a bank need to be able to fund a start-up?

The traditional things a bank looks at when making lending decisions are cash flow, collateral and character.  Cash flow to a banker means the business will have enough money to make the loan payments or pay back draws on a line of credit.  Collateral means the business has some assets which the bank can sell if the loan cannot be repaid.  Character means the business owner and staff have sufficient experience to make the business successful.

What many entrepreneurs don't realize is that bankers also look at the business owners themselves.  Lenders want the reassurance that if the business doesn't succeed, they can go to the business owner to get repaid.  Entrepreneurs looking to fund a start-up will be successful in obtaining financing if they have a good personal credit history and some personal funds to put into the business.  People with poor credit history and no savings to put into the business will not be able to get a loan.

The key to ongoing financing for a business is to develop a relationship with your lender.  Make sure you keep the bank aware of what is going on in the business, even if it is bad news.  Lenders have extensive experience and may have ideas to help a business owner get through a difficult period.  Another important piece is to be able to provide your lender with current, accurate financial statements.

Getting funding for a new business and continuing to be able to finance a small business are tricky tasks, but having a sound financial background and developing a good relationship with a banker can make the job easier.

Next week we will discuss business strategy and how small business owners can reduce their worry about developing it.