Tuesday, July 29, 2014

Risk management planning for small business owners

What will happen to your business if something happens to you?  Many small business owners don't think about what will happen if they get injured or sick.  Planning for this can insure the survival of the business.

You want to create a notebook or folder or spreadsheet which would allow someone to step in and run your business for you.  Assume you will be unable to communicate with this person so they will need all the information which is in your head!

Start keeping a record of all the task you, the owner, do every day.  Note what you did, how you did it and how often it has to be done.  Have a comprehensive list of all contacts (suppliers, service providers, customers) and their contact information (names, addresses, phone numbers).  Have a comprehensive list of all your logins, user names and passwords.  Make sure this list is locked up or password protected.  Make sure someone knows how to access this list though or it will do you no good!  Make there is a list of all your bank accounts, loan and credit card numbers and other details.

Now that you have the information ready, you have to find someone who will use it.  Consider who would be willing and able to step in for you.  Is there a family member or friend who has the time and skills needed to fill in for you?  Perhaps you will need more than one person to replace you.  Make sure you do some training once that person has agreed to be your backup.  Show him/her the lists and procedures and walk them through your most important tasks.  They need to know how to pay your bills, deposit your money and communicate with your key contacts to let them know what is happening with your business.

Taking the time to develop a back up plan can be the difference between life and death for your small business.

Thursday, July 24, 2014

Ongoing planning

Last week we talked about the importance of planning before you start a business.  This week we will talk about planning on an ongoing basis.

Large corporations have personnel in charge of strategy and planning.  Anyone who has worked for such an entity remembers long range planning sessions or meetings held with consultants to facilitate strategic planning.  Small businesses have different needs and issues, but they still need to have planning as part of their routine.

We meet once a year to review where we are and how we got here and where we want to go.  It is amazing how a business can change during a year without the principals being aware of it!  We review who are customers are, how our processes are working and what areas need improvement.  As a partnership, we talk about our relationship and how that is working.  We have a very detailed operating agreement and as such, we have very times where we have disagreements.  When we do find our approaches to an issue differ, we fall back on the processes in our operating agreement and we have always found a way to compromise.

It is important for any business to understand who their biggest customers are and who they would like to have as customers.  It is also helpful to understand the margins for each type of customer or service or business segment so you can focus on the most profitable areas when you work on the marketing plan.

It is also important to know who the key suppliers or service providers are and to have backups available if needed.  Understanding your supply chain is vital to the survival of any business.

If your business has employees, you will want to have regular performance reviews (at least annual) and to plan for future hiring.  Having job descriptions and required skill sets ready makes it easier and quicker to replace employees if necessary.  Having an understanding of the work/tasks done by the owners of a small business is also important so that work may be delegated to employees as the company grows.

Owners of small businesses are almost always busy, but taking the time to plan and work on your business is vital to the success of your company!

Friday, July 18, 2014

The importance of planning in a small business

Not everyone is a planner, but if you are a business owner, you must learn to be one.  You cannot run a small business successfully flying by the seat of your pants.  If a business requires bank funding to start up, they must have a business plan to obtain the funding.  There are service providers (including us) who can help write the plan but it is important to use that plan for more than getting a bank loan.

A good business plan is like a good blueprint for a building.  It lays out the foundation, shows where everything should be and how the building should be constructed.  A business plan lays out what kind of working capital the company will need for the first three years, how the business will be managed and operated and what the marketing strategy will be.

Now matter how much time and research you put into a business plan, things will never go entirely according to plan, so it is good to revise the plan frequently during the first three years.  Give some thought as to why things have differed and whether the plan needs to be adjusted or if the execution needs to be improved.

I come from a family of planners so it comes naturally to me.  Any tips on how to become a good planner if you were not born that way?

Wednesday, July 2, 2014

Improving your cash flow: Part VI

We have been discussing ways to manage and improve cash flow for small business owners.  Accounts Receivable need to be collected, inventory needs to be managed, accounts payable should be extended as far as possible, loan terms should be considered carefully and the cash needs of the owner should be budgeted for.  What is left?  Taxes.

Income taxes are handled differently for small business owners than for employees.  If the business is structured as an LLC, the owner(s) isn't eligible for a true paycheck and thus income taxes are not withheld from the money that is taken from the business.  Small business owners must send in estimated tax payments quarterly to cover their anticipated income tax.

These estimated tax payments do not show up on the P&L (assuming the owner pulls the money from the business) but are draws which are part of the equity portion of the Balance Sheet.  Cash flow is reduced by the payment of the estimated taxes and thus is part of our discussion on how to manage cash flow for a small business.  Some people find it helpful to transfer money into a savings account monthly so it is available when it is time to make the quarterly payments to the government.  The biggest part of cash flow management is making sure the money is available for all the different needs of the business: paying for inventory, paying employees, paying rent and other bills, paying taxes and providing income for the owner(s).

We hope this series has been helpful.