5 Resolutions for Small Business Owners in 2013

The new year hasn’t even arrived, yet many small business owners may be wishing the clocks would go backwards. With big issues such as the Fiscal Cliff and the early stages of health care reform slated to go into effect on January 1st, there’s little wonder why.

But even if 2013 looks a bit rough from the outside, it doesn’t mean small business owners should be sticking their heads in the sand. If you are running a small business heading into the new year, here are five resolutions that you can make to keep your business on course:

1. Work on focus. If there is one thing that small business owners should have learned from the 2012, it’s that bigger businesses are pulling out all the stops when it comes to acting like a small business. This is evinced by the push for personalized service and same day delivery. To survive, small businesses have to be hyper-focused on their niche market, only providing the products and services they can truly deliver with quality.

2. Work those networks. Another big resolution for 2013, is to work on partnering with other businesses and professionals. Now more than ever, small businesses need to pool their resources in order to be more competitive, more relevant, and more profitable. This goes for businesses based both online and off-line. Even if you are not a natural when it comes to networking, in the new year the success of your business may depend on how well you can reach out to other business owners.

3. Work your customer service. One of the biggest assets a small business can have these days is also one of its most elusive: customer loyalty. I just saw an article at Business Insider about a Zappos customer service representative who spent a mind boggling 9 hours and 37 minutes (!) with a customer on the phone (they weren’t talking business the whole time… but, still…). Now, obviously you can’t afford to go that extreme with your customer service, but you can make a commitment to revamp some of your customer loyalty programs in 2013, and try to improve your overall customer service experience.

4. Work your online reputation. In these heady days of social media, a business’ reputation can literally be made or broken in an instant. The range and speed with which information is exchanged today is unprecedented. Another commitment for 2013, is to improve your online reputation. This includes: staying in touch with what people are saying about you online, ensuring that you business’ profile information is accurate, up-to-date, and complete, and in short, ensuring that your business is being properly represented.

5. Work your cash flow. Last, but certainly not least, is to re-evaluate how you manage your cash flow. If you haven’t yet learned your lesson from the chronic economic difficulty or any of the natural disasters that have happened in 2012, then make a commitment to incorporate strategies, such as creating an emergency fund, and using financing tools, such as a business cash advance or accounts receivables financing, to help you be prepared for emergency expenses and ultimately smooth out the flow of working capital in your business.

In short, as a small business owner, if you make it a point to truly focus on any of the areas mentioned above, then it may be just what you need to get your head out of the sand and paint a brighter picture in 2013.

How Small Business Owners Can Increase Employee Pay When Money is Tight

According to a recent Wells Fargo Business Insights survey, poor cash flow continues to be a major worry point for small business owners across the nation. These findings come as no surprise given the overall decrease in consumer spending and consumer confidence coupled with inflationary pressures and high rates of unemployment.

 

But as more American workers succumb to debt-related stress and illnesses, small business owners in particular may be struggling to both hold on to their talented, experienced workers while keeping them motivated on the job. The problem: these days, money has become a big motivating factor, even as the owners of many smaller businesses are looking for low-cost ways to encourage their workers without having to offer them a raise they just can’t afford.

So how can you as a small business owner break out of this cycle- especially if you are struggling with your daily cash flow? One answer to this predicament is to offer performance-based pay increases, and the more that you can align your employee performance measures with the company’s overall bottom line, the better. Some examples of this in action: giving employees a cut of the revenues from all new accounts that they help to set up, offering a bonus for coming up with ways to improve quality or efficiency, offering bonuses for high customer satisfaction scores.

Why does this stand a good chance of working? If employee goals are in line with company goals, then your compensation methods can be a simultaneous call to action- as this entrepreneur discovered. Employees will be motivated to give it their best, to help both themselves and the company as a whole, and this could just be the boost your business needs to successfully ride out these difficult economic times.

The Biggest Business Mistake?… Borrowing Money!

The other week over at Small Business Trends, I saw an interesting poll. The sole question: “What’s your biggest business mistake?” Though there are various options to choose from, such as “Failing to market my business,” and “Selling myself short,” the overwhelming favorite response (at the time of writing it is holding at 86% of almost 2,000 respondents) is “Borrowing money.”

 

While this may come as a shock to those who still believe that the banks should be handing out more credit to businesses in order to jump start the economy, several well-regarded reports, such as this recent one by the NFIB, have pointed to the fact that many small business owners these days are not looking for credit, and a significant amount of businesses are actually focused on dumping the balances they’ve already racked up.

But this brings up a dilemma of sorts: part of a healthy cash flow strategy when running a business is having options to borrow, both in the short and long term, and without investment (usually of the borrowed kind), growth will typically be impossible.

So how do you know if it is good for you to be borrowing money for your business? Here are a few questions you can ask yourself to help ensure that your business borrowing doesn’t end up being a business blunder:

1. What are you borrowing the money for? While this may seem like a pretty straight forward question, there are actually certain categories of business borrowing that tend to be more problematic then others. For example, aside from short-term microloans or a revolving line of credit, if you are taking out a significant loan to cover your every day expenses, then it could be a red flag that your borrowing will get you in hot water.

On the other hand, if you are investing the funds in a business upgrade, then can you expect that upgrade to pay for itself in either increased productivity, sales, or market reach?

2. How will you repay the amount borrowed? This all leads to the next question which is how you plan on repaying the loan. Are you currently generating enough income to cover the debt? Do you expect your bottom line to increase as a result of the investment and when? Are you able to secure the loan with some kind of collateral? What would happen if you defaulted on the loan and had to lose that collateral?

3. What is your current debt load? A look at your current debt obligations is also vital to avoiding a business lending mistake. If you are already struggling to repay your business debts, then it could be a signal to avoid taking on an additional financing. If the loan is meant to consolidate your debts, then make sure you get qualified financial advice before jumping in.

4. Are there alternatives? If several red flags are going up, then perhaps you should consider any alternatives, such as cost-reduction strategies, or asset-based financing arrangements, such as accounts receivables financing or business cash advances.

Five Creative Strategies to Improve Cash Flow with Limited Business Credit

Remember the good old days when credit lines flowed like water and all you needed to do was call the bank to get set up with short-term financing when you needed it? Those days are long gone and small business owners are being forced to find other ways to free up much-needed capital.

 

Here are five creative strategies to help keep the cash flowing in your small business:

1. Join a barter network

Ever heard of a barter network? Here’s how it works. Let’s say Company A wants to open a booth at an exhibition but it needs cash to do so. Company A has broken-down farm equipment that Company B is interested in fixing and selling. After selling the equipment he can use the cash as bartering dollars to pay for another network member’s (Company C) display booth. Bartering is an excellent means to conserve cash and it can really pay off, quite literally.

2. Check your recurring charges

Recurring charges augment a company’s expenses automatically and endlessly. It pays to take a good look at your bills, particularly those that recur automatically. Most companies can cut down on a lot of expenses without even feeling any pain. Just two examples: Replacing an expensive monthly bottled-water service with a far less expensive filtration system and using a PR firm on a per-project basis rather than a set retainer.

3. How about billing twice a month?

Many companies bill clients on a 30-day cycle. But if you have to pay your employees twice a month, this can cause cash-flow difficulties. Why not invoice clients twice a month? One company did so and reported that more than 90% of its clients didn’t mind the change because it still allowed them 30 days to pay. The holdouts can be billed once a month.

4. Prevent bad debt by sending pre-lien notices

An effective way to prevent bad debt is to send pre-lien notifications to each customer on all jobs exceeding a certain sum (say $5,000). The notices should state that the company is protecting its right to place a lien on the merchandise that was purchased if the bill isn’t paid within the pre-set time. One large company reports that after sending out the notice, bad debt shrunk by $350,000 within a year and a half.

5. Think positive – drive your profits

If you are worrying that your bank might call your existing loans, look for ways to drive your profits. One company reports that it found ways to purchase inventory more efficiently, changed pricing strategy, and used incentives to raise the team’s productivity. As a result the company drove profits from 1% to 7%, and the bank expanded its credit line despite the crunch.

Small Business Confidence Wavering; Cash Flow a Problem

 According to the Discover Small Business Watch, small business owners are experiencing cash flow problems, leading to reduced economic confidence. Business owners’ economic confidence decreased in June. Previously, it had risen for two consecutive months.

 

More than half of all small business owners said they feel the economy is getting worse. Reflecting this sentiment, a full 51% reported cash flow problems. As a result, they had trouble making payroll and paying vendors. Business development suffered, as well with 43% of small business owners reporting that they had planned cutbacks in advertising and inventory.

Current events are contributing to business problems, according to many surveyed: 51% blamed the stock market for their troubles, 40% of small business owners sited that Europe’s debt crisis is having long-reaching effects, causing their businesses to falter., and 30% believe the Gulf oil spill has been negatively influencing commerce.

American business owners remain optimistic, however with 53% of respondents reporting that would they not take a job working for someone else, even if they were offered more money. Nevertheless, 40% of small business owners have considered altering their business model or switching their line of business. The main challenges they cite are government policies and regulations, and finding new business.

How to Determine the Value of Your Business

After considering the various pros and cons, you have decided to sell your business. Over the years you may have invested a good deal of sweat, hard work and energy (not to mention cash) into your “baby.” But knowing how to put a price tag on your investment can be difficult. Nevertheless, you certainly want to get a fair price.

 

What factors should you consider when evaluating your business’ net worth?

There are a number of facts you need to know. First, keep in mind that there is no exact science when it comes to determining the value of your venture. Be that as it may, smaller businesses tend to sell for 2 to 4 times cash flow. In the event of a very small business, the multiple could be as low as one. On the other hand, mid-sized businesses may sell for 3 to 6 times cash flow. This multiple could be even higher for some businesses.

Here are some tips on how to come to a reasonable value for your business:

  • Look at your business’ cash flow. Cash flow is a vital element in determining your company’s value: Smaller businesses are evaluated based on Seller’s Discretionary Cash Flow (Owner’s Salary & Benefits + EBITDA (Earnings before Interest, Taxes, Depreciation, & Amortization). Mid-sized businesses are generally evaluated at EBITDA  or EBIT (Earnings before Interest & Taxes).

 

  • What does the future look like? The actual value of a business is dependent on its future performance. Future performance depends on the business’ current performance and forecasts for the future, as well as what the buyer actually plans to do with the business once acquired.

 

  • What is the buyer’s ROI? The buyer’s Anticipated Return on Investment (ROI) is also a vital factor affecting a business’ valuation; the higher the potential return and the lower the risk involved, the greater the value. But, where the risk is high, like for example, where sales are historically inconsistent, then the lower the value of the business, even if things could change in the future.

 

  • Take stock of both hard and soft business assets. A company’s assets are an important factor to consider when determining value. There are hard assets, such as equipment, furniture, and inventory, and there are soft assets, such as patents and software. Are all of the business’ assets for sale? Do you plan to include accounts receivable and inventory?

 

  • What is the business’ history? Has it built up a good image or brand? Is there a loyal customer base? Will the current workers stay with the new buyer?

 

  • What does the market look like? Is this business operating in a volatile or high risk industry, such as food services? Is there a lot of competition from other businesses?

 

Evaluating your business properly is not a simple undertaking since it concerns several factors, many of which are hard to quantify. It is recommended that business owners looking to sell their business consult with an expert in the field in order to reach a realistic estimated price.

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Troubleshooting: When Your Business Isn’t Making Money

The reasons why a business would fail to post a profit are many. According to the Small Business Administration (SBA), the majority small businesses take at least a year to show a profit due to the fact that it takes some time to generate enough revenue to cover the company’s start-up expenses. There are other factors though, such as challenging economic conditions, poor resource management, and changes in industry trends.

Identifying the cause behind of a business’ lack of profitability and taking appropiate corrective action can dramatically (and often quickly) turn a business around. Here are some areas of consideration:

  • Are you utilizing metrics, forecasts, and other reports? There are countless financial and performance reports that a business owner can use to both measure and predict business performance and thus spot a potential problem. Budgets, income statements, cash flow statements, and salesforcasts all fit into this category. Prepare a budget on an Excel spreadsheet and refer back to it often. Make sure to link work activities to your income. If you are in sales, make individual sales projections. If you deal in flat-rate services, track contracts closed and the dollar value of each contract. If your services are sold by the hour, track contracts closed and billable hours.

 

  • Are you being fiscally responsible? In order to make money, you have to keep a close eye on your spending. Are you about to spend money on something for your business? Ask yourself if you really need it and whether it is within your budget.

 

  • How is your inventory management? At times a business may not be profitable because too much capital is being tied up in unused or slow moving inventory. Look for ways to free up over stocked inventory supplies, and make those bulk purchases wisely.

 

  • Are you paying too much for your overhead costs? Overhead (or operational) costs generally consist of some of the biggest expenses facing a small business. These are expenses such as payroll, rent/mortgage payments, and utilities. Look for ways to reduce your overhead by, for example, sharing office space or opening your office at home. The latter will provide you with double savings, both on rent and commuting expenses.

 

  • Are you pricing your products/ services properly? The profitability of a business also depends on the rates you charge for your product or service. In order to lure in customers, many new business owners tend to undercharge for their service or products. You need to ensure that your rates are enabling you to turn a profit.

 

  • Is your location working for you? Evaluate your current location. Is it too far from your potential customer base? Is it too far from delivery routes. What about the commute for you and your workers? What image or message does your location give to your potential clients?

 

  • How are your employees performing? Your employees play a vital role when it comes to profitability. Whether you deal in sales or any other area, every team member contributes to delivering value to customers. Examine each employee’s success factors: For example, does your marketing assistant increase business through his/her efforts? Has your sales team met its quota? If you define critical activities you will effectively motivate your employees. Take heart – if you treat your staff as partners to your success and establish reasonable goals for the future, your small business is likely to flourish.

So Your Business Turned One-Year Old… Now What?

As a new small business owner it may be very gratifying to develop and sustain a business for an entire year- especially if you are doing so under adverse economic conditions. But keep in mind as you celebrate this one-year milestone that there will still be a significant amount of work to do to help ensure that your venture remains viable in the years to come. According to statistics, about half of all new small businesses will fail within the first few years of operation.

After the initial start-up stage, it is extremely important to shift your focus to financial planning, operational efficiency, and strengthening your market position- all of which can only fully occur once a business has been up and running for some time.

Below is a list of some important things to consider when your business turns one year old: 

  • Is the business registered under an appropriate corporate structure? Different corporate structures produce different fiscal, taxable, and legal realities for their owners, and it is quite common among small businesses that they change from one structure to another as they grow and develop.
  • Are you taking steps to build your business’ credit profile? Building your business’s credit is essential if you want to have access to various forms of financing, but it is not a passive process. Make sure you are entering into transactions that will positively affect your business’s credit history.
  • Evaluate your marketing strategies. After operating for a year, it is a good idea to examine your marketing initiatives to see how much Return on Investment (ROI) you are achieving. You should also consider if you are effectively conveying to customers that which makes your products or services unique.
  • Evaluate your business’s operations. It is a good idea to take stock of how smoothly and effectively your business is operating so that any changes and improvements can be made. Think: quality control and productivity. Make sure that you also consider how your business is utilizing available resources, including worker input, supplies, and materials.
  • Keep tabs on employee and customer satisfaction. If either of these two groups are unhappy then it does not bode well for your business.
  • Cash flow, Cash flow, Cash flow! Is there enough available capital to cover operational expenses? What about growth? Make sure you are in touch with any impending cash shortfalls and that you have access to quick, short-term sources of financing.

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Keeping Your Business Out of Debt

As I scan the media these days, I often come across the personal accounts of people who were drowning in debt yet were able to pull themselves out and make their way towards financial stability. Since these people tend to be representative of the “average Joe,” the display of resilience and discipline is particularly inspiring.

But what about all the small businesses out there who are also struggling with debt? With consumer sales slumping across the board (yep, it’s official… we’re in a recession!), many small businesses are feeling the pinch.

And words such as, “debt consolidation,” “business restructuring,” and even “bankruptcy” are being thrown around like used tissues, without enough emphasis on what they mean for you and your business and without a clear way of evaluating your options.

In my experience, a small business’ financial stability can often significantly improve simply by making a few, relatively small changes in the way it operates. These changes broadly fall into one of three areas: cash flow, operating budget, and what I will call “outreach.”

Here are a few suggestions on how you can reduce expenses, increase efficiency, and cut back your debt.

Focus # 1: Your cash flow

Your cash flow is the flow of working capital that is taken in and given out of your business. It is effected by your accounts receivable, inventory, accounts payable, capital expenditures, and incurred debt. One of the biggest reasons why small businesses fail is that they are not paying enough attention where their cash is either going or being held up. The result is that they fail to recognize and react to an impending cash crisis. Here are some tips to improve cash flow:

  • Use software to help manage your business. Many accounting software packages offer a full range of features, such as financial reporting, payroll management, and billing. Popular options include: Quickbooks or Peachtree. You can also check out the free open source programs, such as GnuCash and TurboCash. Facility management software or scheduling software such as PeopleCube can also help improve budgets, increase efficiency and reduce costs.

  • Create a monthly cash flow schedule. Many of the factors effecting cash flow, such as outstanding accounts receivable or inventory, do not show up on an income statement. A cash flow schedule is specifically designed to give you a clear picture of each component of your business and how it effects your cash flow so that you can project a future cash shortage.

  • Look for ways to improve billing and receivable income. Make sure your bills are sent out on time and that late payments are accurately tracked. You can require that customers make an initial deposit when an order is taken, and offer small discounts to those who pay their bills quickly. You can also direct hard to collect receivables to a factoring company.

  • Know where to get temporary financing. Set up a business line of credit or apply for a business cash advance so you always have access to capital when you need it.

  • Track your flow of inventory. A lot of capital can be tied up in overstocked or unused products and supplies.

  • Stay on top of your bills. You can negotiate with vendors for payment in 30 days or more and pay towards the end of the term.

Focus #2: Your operating budget

Take a look at your budget to see where you can cut costs and increase efficiency. Even minor changes may add up to big savings in the long run. Here are a few suggestions:

  • Equipment purchases: Consider equipment leasing and financing instead of purchasing your equipment outright. You can alternatively buy second-hand or reconditioned equipment.

  • Taxes: Make sure that you are maximizing your tax deductions. For more information, read this article, and here’s another.

  • Outsourcing: Some jobs can be done more effectively, efficiently, and cheaply by people outside of your business. Popular jobs to outsource include: managing and creating web content, designing and writing marketing material, and handling minor administrative tasks, such as, data entry and answering phone calls.

  • Bringing work in-house: On the other hand, modern technology is making it possible for small businesses to tackle jobs that were usually either handled by outsiders or by people specially trained for the task. For examples of this, check out bMighty.com’s Server How-To Center or HP’s line of low budget equipment and tools that allows small businesses to create professional-looking printed material.

  • Business travel: Rely on telecommuting and webconferencing where possible. Search online for deals on cheap flights and hotel rooms, and be prepared where you can to be flexible. Alternatively, you can hire a travel consultant to do the work for you.

  • Conserving resources: Bring in energy-efficient products, such as CFL light bulbs and energy star equipment. Incorporate resource-saving practices such as, shutting down computers when not in use, printing double-sided pages, using time switches for lights and air conditioning units, using GPS when traveling on the road, and not letting vehicles run idle.

Focus #3: Outreach

This area is a combination of marketing, with a focus on customer satisfaction and customer feedback. One thing that many small businesses have over their bigger competitors is the personal relationship they can maintain with their customers. Do not overlook this vital asset! Not only will it help you to increase sales, but it can help you to operate more productively.

  • Focus on quality. The integrity of your products and services will form a lasting impression on your customers and can go a long way towards building customer loyalty.

  • Ask customers for suggestions. Actively ask your customers for suggestions or improvements via surveys or personal conversations and then follow through on anything that can be implemented.

  • Bring in CRM software. Several open source Customer Relationship Management (CRM) software options exist for small businesses, such as Compiere and SugarCRM. These applications allow your business to effectively manage and access your customer information and to use it to develop your customer relationships.

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11 Things a Small Business Can Do to Survive Today’s Economy

With a little discipline, good organization, and planning, small businesses can safely survive an economic downturn. Here are a few suggestions:

1. Stay in touch with your cash flow. Focus on the areas where your cash is being held up, such as inventory, equipment purchases, and accounts receivable. By doing so, you will be in a position to improve your current cash flow and predict a future shortfall.

2. Consolidate or restructure your debts. Bring together debt from loans, credit cards, or any other lines of credit. Negotiate with creditors for a longer repayment period.

3. Look for ways to cut costs. You could, for example, cut down on old and obsolete inventory, and save on paper and postage through the direct deposit of payroll.

4. Streamline your billing system. You need to on top of your customer receivables. There are several accounting software programs on the market, such as QuickBooks, that can help you keep track of who has paid and automatically alert you when bills are overdue.

5. Tighten your credit policy. Set stricter terms and conditions for receiving credit. You could require a down payment at purchase, shorten the payment period, and only extend credit to select customers.

6. Use assertive debt collection techniques. Know when to make phone calls, send written requests for payment, and statements, and know when it is time to hand it over to a collection agency.

7. Put off any plans for expansion. It is better to stick to what you are already good at and just try to make it better.

8. Negotiate with your suppliers. You can try to barter down what you are paying your suppliers. If you have a long term relationship with any of your suppliers then you may be able to get better credit terms.

9. Outsource certain jobs or tasks. Business owners can take advantage of a growing pool of professional freelance workers for any job or project that will take away from the business. This is a cheaper option to hiring employees, and you can get some quality work.

10. Focus on customer satisfaction. Work on retaining the customer base that you have built up with follow-through, good customer service, and quality control.

11. Know your financing options. Know where to get money before you need it. Some financing options are based on future sales and have flexible repayments, such as invoice factoring or merchant/ business cash advances. Focus on building relationships with current lenders, and do not forget about any family or friends who may be able to help you out in a pinch.