Business Management

Should you borrow?

Most business owners eventually reach a point where they have to decide whether to borrow money for their company. It may be to plug temporary cash flow gaps or meet short-term working capital needs. Maybe it’s to take advantage of a growth opportunity by purchasing equipment, inventory, or raw materials, or maybe even buying another business.

So should you borrow money for your business, or shouldn’t you? There’s no simple answer. Used wisely and under the right circumstances, debt can be a valuable management and growth tool. Of course there is a cost to borrowing money, and too much debt or debt that isn’t structured properly can quickly become a noose around the neck of an unsuspecting business owner.

Here are thoughts to consider:

• Uses And Structure Of Debt
One of the primary uses of debt is to finance capital items, such as a plant, equipment. It often makes sense to finance these purchases even if you have enough cash to pay for assets outright. Financing capital items via a bank term loan saves your operating cash for the day-to-day expenses incurred in running your business.
You’re usually better off dedicating your operating cash to working capital expenses, such as salaries, rent, utilities, and supplies, rather than using it to pay for long-term assets. Also, the term of the business loan should match the useful life of the asset being purchased. You shouldn’t finance computer equipment that has a three-year life with a five-year term loan.
There may also be times when it makes sense to borrow money to help fund daily operating expenses. A working capital loan or line of credit can help cover temporary cash flow gaps caused by a lag in accounts receivable collections. This scenario is common among manufacturers who must buy raw materials up-front but may not receive payment for finished goods until months later.

• Prepare a cash flow analysis
Before assuming any kind of loan, construct a cash flow model that will help determine whether your business will be able to generate enough cash to service the debt. This model will show your projected monthly cash position so you see any potential shortfalls and plan ahead for how to meet them.
If you believe you do need to borrow money for your business, whether for capital items or to fund working capital, start by talking to your banker. Bring your business plan and current financial statements with you, along with your cash flow model, and be prepared to explain in detail how you plan to use the money. Your banker will help you decide if a business loan is feasible and if it is, what kind of loan and structure is best for your situation.


• Tighten your belt
Perhaps you need not borrow at all. Look for cash that’s already in your business that you haven’t uncovered yet.
The best place to start is by scrutinizing your credit and collections procedures. Are you enforcing your credit terms and aggressively pursuing past-due receivables? What about payables? If your suppliers are offering 30-day terms and you’re paying within 15 days, you’re lengthening your own cash flow cycle. Shortening your cash flow cycle by 10 or 15 days by accelerating collections and stretching out payables could eliminate the need for working capital financing altogether.

I hope these suggestions provide some insight to options worth considering. Please let me know your thoughts. gerry@polarisgroupmc.com

Business Launch

Starting-up? – Hazards ahead

Starting a business can be exhilarating and wildly fulfilling. However, it can be quite complicated, and may challenge you in ways you had not imagined. Knowing the challenges and problems you may encounter in your start-up can help you to prepare for the unexpected, and possibly help avoid common pitfalls.


1. Starting without a plan:
Enthusiasm over a good idea is over-rated. An idea is only an idea and without a well-developed business plan chances of success are minimal. It is also very difficult if not impossible to raise financing without a plan.

2. Money Problems
The majority of small businesses that fail do so because of lack of cash. Often, this is because owners borrow based on their ideas of a successful business, instead of borrowing for a worst-case scenario. A start-up business owner needs to be optimistic, but often is too optimistic about seeing profits. Without adequate cash flow, slow sales or a downturn in the market can end the business before it has a chance to gain momentum.

3. Managing Work and Home
A business start-up requires a tremendous time commitment and a strong will. Add to this the financial stress of a fledgling business. Start-up business owners often have problems balancing the overwhelming demands of the company with the needs of a family. If the stress of the workplace spreads into the home, the business owner may feel pressure around the clock.

4. Trying to Do It Alone
A common problem for most entrepreneurs is the belief that they can handle all of the start-up’s operations by themselves. It may be a cost-effective way to run the business, but operating the entire business on your own may not be a wise decision or the best use of your time. Many small-business start-ups may not require full-time employees. But it's a good idea to have at least two teammates, a lawyer and an accountant, ready to help. With experienced, reliable assistance, you can avoid other common business mistakes. When it is time to hire staff, be careful in your choices. Employees are a crucial component in the success of your business.

These are some hazards you may face in starting a business. There are others but avoiding these may help improve chances of a successful start in business. I hope this helps you get underway. Let me know.
gerry@polarisgroupmc.com

Business Management

Benefits of a mentor

As a small business owner or entrepreneur, you have a lot on your plate. And whether you’re busy trying to establish your business or developing a growth strategy for your existing operation, it can be valuable to get an expert opinion from a mentor.


1. Expert Advice
Above all, business mentors have “been there, done that.” They can offer you expert advice and guidance based on actual experiences — successes and failures included.
The insight that business mentors can provide because of what they’ve been through with their business ventures, and over time, is tremendously valuable from a practical standpoint.

2. A Different Perspective
Consulting with a business mentor can be a great way to gain a different, fresh perspective. It’s easy to get caught up with your ideas to the point of questioning, confusion or second guessing – and having a sounding board in a business mentor is a great way to work through some of those kinks and broaden your own outlook.

3. Networking
With all that experience likely comes a vast network of industry connections. Your mentor can help open doors so you can meet people – potential partners, customers and decision-makers in your target market.

4. Skill Development
If you find that you’re struggling with a particular task in your start-up activities or are facing an issue with employees, bookkeeping, etc. in your existing business – a mentor can help.
Many business mentors have a particular area of advanced skills, so you can further your technical abilities while you gather bigger-picture insight.

If you’re just getting started down the path to business ownership – or have been there for some time – and are looking for some guidance, consider reaching out to a business mentor to help you along the way.
You’ve got nothing to lose – and a world of business insight to gain.

Please let me know your thoughts: gerry@polarisgroupmc.com

Stress management

The all-too common response we hear a lot these days when asked how things are going is, “busy!” Most small business owners are balancing a multitude of tasks to the point that sometimes it’s easy to forget what day it is, let alone how long it’s been since your last vacation.

Here are a few thoughts that may help reduce daily stress:

1. Learn to Say “No”
When you commit to 10 percent more than you can actually accomplish, it “feels” like you’ve got 50 percent more, thereby creating even more stress. By not taking on more of a workload that you can reasonably carry, you create more time for meaningful activity and therefore less stress.

2. Delegate, Delegate, Delegate
Taking on more than your fair share of the responsibility for getting things done leads to fear of things “falling apart” when you take a day off. Giving more responsibility to your employees and contractors–and trusting that they’ll get the job done–can take a huge weight of stress off your shoulders.

3. Track Your Time
Here’s a huge secret: 90 percent of time management is simply tracking how much time you’re spending on each type of task. Knowledge is power. Once you realize what’s eating up your time it becomes absurdly easy to decide what’s high-priority and what can be eliminated or delegated.

4. Unplug
Every entrepreneur knows that success is only possible through self-discipline. Well, here’s where theory meets practice. Exercise the self-discipline to turn off your phone and computer when you’re asleep and for at least two hours while you’re awake. For maximum stress reduction, spend that time with friends and family.

I hope these suggestions are helpful. Please let me know what you think gerry@polarisgroupmc.com

Management

Small Business Management Issues

Cash
Finding it and managing it. There is never enough. Fast growing companies can outgrow available resources. Underperformers can’t acquire cash.
Leasing vs purchasing can lesson stress while commercial loans, credit cards and overdrafts are expensive. Care is needed to protect the business’ overall credit rating.

Lack of a Clear Plan
Many businesses don’t know how to plan. Lack of a plan aggravates the cash problem by wasting cash chasing tempting diversions; it is wasteful to throw money at problems hoping for a quick fix. Equally important is revising your plan according to changing economic and business conditions and to ensure your survival in a recession.

Ineffective Leadership
This issue takes many forms. It is frequently in the form of depth of leadership. The owner of the company is too hands-on and a) does not concentrate enough on his primary role as a leader rather than a manager; and b) fails to enlist support of competent managers and staff or through recruitment and outsourcing. This may cause the company to stop growing and eventually could lead to failure.

Sales/Marketing Competence
This leads back to planning and leadership. Many businesses have not defined what their USP is. Don’t try to compete in conflicting areas, such as lowest price and highest service. One lowers revenue and the other adds to costs. Part of the planning process for a product should include a clear answer to one question, “why should they buy from me?”

Lack of Execution
This may be the largest issue facing small business. This lack can be in a number of forms including:
- Poor execution of strategy
- Failure of new product development
- Owners spend only minimal time on strategy
- Poor communication of strategy to employees
- Lack of performance measures and little performance analysis

These are some of the problems from my viewpoint. What do you think?