Wednesday, August 26, 2015

How to become a successful employer?

So you have launched your small business and have grown to the point that you need employees.  How do you go from being a solo entrepreneur to a successful employer?

The first thing you need to do is figure out what the job looks like.  What tasks will the employee be responsible for?  What skills are needed to accomplish the tasks?  Is the position going to be full-time or part-time?  Hourly wage or salary?  Writing a job description is a task few entrepreneurs enjoy, but it really is helpful.

Next, educate yourself on employment laws.  You don't need to be an expert, but you do need to understand the basics and you do need an expert to help you navigate all the complexities.  The IRS has a good site to learn the basics.  Publication 15 (Circular E) is a good place to start.

We recommend using a payroll processor or hiring an expert to get your payroll system set up properly.  Training on how to file and pay payroll taxes is a must if you are going to process and file payroll taxes yourself.  The federal government takes payroll taxes very seriously (seemingly more so than income taxes) so it is important to take this job seriously.  Many small business owners fail to understand that taxes withheld from an employee's check are his/her money and not submitting the taxes to the appropriate authority is considered theft.  It is often best to leave the whole processing of payroll and filing of taxes up to the experts and this frees up an entrepreneur's time for revenue generating tasks.  There are many big processors like Paychex and SurePay as well as small local providers.  Some provide portals where the business can enter hours and then the processor handles the rest. While many small business owners are loathe to spend money on outside services, this in an area where you don't want to make mistakes as they can be costly to the point of sinking a business.

Another issue to be dealt with as an employer are the tasks a human resources department deals with for larger companies.  There are many service providers who can handle this for a small business on an outsourced basis and we do recommend having someone like this as a resource.  There are many things you legally cannot ask a job applicant and many business owners are not aware of these questions and limitations.  Understanding laws surrounding the hiring process, maternity leave, family illness, drug testing, and termination routines can prevent actions which can result in painful lawsuits for a small business owner.

Once you have found the right employee, you will want to take the time to properly train him/her.  Again, it is helpful to put together an organized, thoughtful training program.  Well trained employees make fewer mistakes and are happier than those thrown into a job.  Having regular performance reviews may sound tedious, but they give both the employer and employee the chance to connect and problem solve.

How do you become a successful employer?  Do your homework, hire an expert to get you started strong and take the time to find, train and retain the right employee.

Wednesday, August 19, 2015

How to get a bank loan for your start up

If you have answered the previous questions in a way that supports your ambition to open a small business, the next thing you need to think about is how you will finance the start up.  A bank loan is the traditional source of funding so let's talk about what you will need to do to get the loan.
First you will need to create a business plan.  Banks will always require a full business plan for a start up and creating one takes a good chunk of time, even for professionals.  We generally expect a plan to take 40-60 hours to complete and a novice can expect it to take much longer.
Next you will need to supply the bank with information about your personal finances.  For most small business start ups, the owner is as important as the business plan so if you have a poor credit history/rating and little personal equity or cash, then a bank loan is not the way to go.  The bank will ask you to complete a personal financial statement which will detail all your assets and debts and sources of income.  They may ask for documents, like bank statements. to verify this information.  They will also ask for three years of personal tax returns to verify your income and they may ask for a current pay stub.  
Pull together the resumes of all pertinent owners and employees. The bank will want to see that you have amassed the proper skills to run the business successfully.
Have a folder with all your legal documents: articles of incorporation, business licenses and registrations you may need, operating agreements, franchise agreements, commercial leases and any other relevant contracts.
You will need to be able to explain to the lender what you will be using the loan proceeds for and how the business will repay the loan.  Have a detailed list of  any assets you expect to purchase including price and anticipated supplier.  
Be prepared to explain who will be handling all the important tasks in the business. 
It can be very helpful to hire an expert to put together the business plan, but the owner(s) need to comfortable with the details and assumptions in the plan so they can answer the questions put forth by the lenders. 

Getting a bank loan is one of the most stressful parts of starting a business, but if you pull together all the expected information and prepare for the meeting with the lenders, you can succeed.

Monday, August 10, 2015

How can you insure the success of your business expansion?

When you started your small business, you probably handled most of the tasks.  You interacted with customers/clients, took care of the accounting, dealt with the marketing, made the trips to the bank and office supply store and maybe even cleaned the place.  Your business has now grown to the point where you have staff to handle many of these jobs and you are considering expanding.  What do you need to do to insure the success of this expansion?
The first thing you need to do is to make sure your business model is really fine tuned before you expand so make note of the mistakes you made with your initial opening. No matter how much you plan, there will be mistakes so use them to your advantage by learning from them.  Were you overstaffed?  Understaffed?  Did you schedule your grand opening too soon?  Did you not advertise your grand opening enough?  Talk to your staff and customers and take their thoughts and ideas into consideration. Make note of everything that went right as well and use this information to plot your expansion.
The next thing you need to do is to write an business plan for the expansion.  Most likely if your initial start up was a success, you had a business plan to drive the company launch. This expansion plan will be easier as you will have real numbers to use.
One major thing to consider when expanding is management.  When you have one location, you, the owner, can monitor everything very closely.  You will not have this luxury when you open a second location.  You can't be at two places at the same time so you will want adequate staff to maintain control.  This may require more money for payroll.  If your plan includes further expansion, this will become even more of an issue.  We have seen numerous cases where a successful business opened a second location and continued to be successful but then opened multiple additional locations and failed.  Make sure your plan shows adequate cash flow to allow for a qualified manager at each additional location. In addition to determining the cost of additional staffing, you will also need to consider the additional debt service your expansion make incur.
You will want to consider the location of your expansion.  Depending on the type of business you are running,  you don't want to new location to steal sales from your original location.  Consider whether the culture is different in your proposed new location.  What works in one community may not in another so do your research.
Supply chain is another issue to deal with when planning an expansion.  Do your existing suppliers have sufficient capacity to handle your additional purchase needs?
Another issue is whether to start from scratch or acquire an existing business when expanding.  There can be cost savings in the latter as well as built in management possibilities.
Finally, think about your energy level and whether you can adequately manage your expanded business.  The short term start-up period will be hectic, but the overall time commitment must be considered as well.
You may find economies of scale from an expansion which will abate some these additional costs, but you won't know this without crunching the numbers and completing the plan. Take your time, do your research and consider all the elements before expanding your business and you will insure your success.

Wednesday, August 5, 2015

How do I finance my start up?

We are on question eight of our list of questions you should ask and answer before starting a business!  This week we are dealing with how to finance your start up.  The traditional way is with a bank loan.  You will need a business plan to apply for a bank loan and you need to know what your personal credit score is.  Since the business is new, the bank will be concerned about your personal resources as a backup for paying back the business loans.  Do some research and pick a bank which can tap into SBA guarantees as they can take on riskier loans.
Another source of funding is friends and family.  It can be difficult to ask for their help, but using crowdfunding sites can make it easier.
You can also use peer-to-peer funding by using sites such as or Look into local non-profit group such as Community Development Corps.  They often will provide loans up to $150K with very reasonable rates and terms.  The SBA also oversees micro-lending programs which are also run by local non-profits.  Micro loans can be used for working capital which is very helpful for many start ups.
If you are willing to give up part of your ownership, you can consider equity investors.  Sites like Grow Venture Community, Microventures and Angel List can connect your with interested investors.
For certain types of businesses, look into factoring in which you sell your accounts receivable to a business in return for cash upfront.  This is helpful if you must offer extended terms to your customers.  A similar device is Purchase Order or Merchant Cash Advance financing in which you sell your future sales revenue (PO) for cash upfront.  Both factoring and PO financing concern themselves with the credit history/rating of your customers rather than your business.
Finally, many small business owners rely on credit cards to fund their start ups.  Be very careful with this method as you can quickly move into sky high interest rates which usually guarantee failure.  Also be cautious with self-funding.  If you use up all your personal resources, banks are unlikely to fill in the gap should you need additional capital.  They prefer to lend the initial funds and have you fill in the gap with your own money.

That is just a brief primer on how to fund a new business. Let us know if  you have had any positive experiences with any of these methods.