Start-up issues

Small Business Start-up Problems

There are many issues facing small business in the initial launch and successful management of these problems can be critical to the continuing profitability and growth of the business.

1.     Most start-up small businesses cannot afford debt. Money is often scarce and initial costs high. This is common even if there is no debt; debt can add the burden of interest and principle payments. Revenues are usually slower to develop as owners often overestimate their ability to attract customers form existing business.

Borrow little or nothing. Borrowing increases the level of risk and potential loss if the business fails.

2.     Your knowledge base to be successful must be broad. Don’t be misled by friends and associates who have never owned a business. Without a large staff of professional advisors running a business requires knowledge on a lot of topics. Knowledge of advertising and marketing, knowledge of finance and taxes, knowledge of production and operating costs, knowledge of employment laws and government regulations, knowledge of product supply and customer demands.

All businesses face these issues and the ones that survive are operated by owners with the knowledge to understand problems and anticipate potential solutions. The inexperienced often flounder and fail.

 

3.     Advertising by financial and some government agencies directed towards small business tend to create an impression that getting loans or loan guarantees is readily available for those seeking the support. The reality is that neither is true.

Government grants, loans, or loan guarantees are difficult to get approved. Many businesses will not apply, many cannot meet the criteria for approval, and among those who apply few will receive support.

  

4.     Many wishing to start a business do not understand the numbers.

Although many businesses do have a good business plan, all the written prose merely expresses in words the essence of the plan which is the numbers. One does not have to be an accountant to run a business but you must know the numbers. Cash flow, ratios, costs, pricing are essentials that any owner must know and understand completely to operate successfully.

 

5.     Every successful business person must sell.

Owners cannot take the position that they want to own the business but don’t like to sell. Nothing happens in business if a sale does not occur. When a customer is ready to pay for the product or service offered a sale has to take place and that transaction will not take place without some selling effort from the company. Without some effort on the part of the ownership it is unlikely the business will be successful for long.

Procrastinating

Are you guilty of Procrastinating?

Think the time you spend answering e-mail, composing IMs, and trolling Twitter doesn’t have an impact? Think again. Procrastinating in making business decisions generates enormous costs from time wasted and decisions delayed.

There are several approaches that may be considered to eliminate this waste.

1.     Don’t delay. Any time you put something off the problem usually gets bigger leading to more stress and possibly more procrastination.

2.     Reduce the issue to small tasks and work in short bursts to complete each portion. This focused activity for short periods allows you to get the feel for accomplishment. It gets you started.

3.     Learn to prioritize. You may never get caught up with everything you need to do. To be an effective leader you have to prioritize and decide what’s important and manage your time effectively.

4.     Turn off distractions. If necessary turn off email, stop answering the phone; give 100% attention to the task at hand.

5.     Create a daily plan. At the end of each day spend 3-5 minutes setting up the next day’s schedule. It may save an hour the next day while you try to determine where to start your work activity.

6.     Be accountable. Make yourself accountable to someone for what you want to accomplish. This could be an associate, friend, or business mentor. 

A task can more easily be tackled if you visualize it completed. Remember the “Law of Expanded Time”. Work will fill the time available to complete it. By making less time available to complete a task, you will spend less time completing it.

JUST DO IT.

Business expansion

Business expansion

The do’s and don'ts of business expansion

At one time or another, every business goes through a growth spurt and, whether it’s a multi-national corporation or an entrepreneurial enterprise, expansion is a tough process to navigate.

The real danger for any expanding business is that it does so too quickly or in an uncontrolled way. When this happens, cash flow and customer satisfaction are usually the first casualties and, in extreme circumstances, these can result in the demise of a once flourishing business. The trick is therefore to manage the growth process so you reap the benefits in the medium- and long-term.

Plan your expansion

It may seem obvious that any entrepreneur going through an expansion phase should do so with a game-plan, but many businesses expand in reaction to circumstances and don’t draw up a solid plan. Without this roadmap, it’s easy to get lost along the way, making changes to your business that are either too costly or not well thought out.

Don’t over-expand

While planned expansion can take a business to a whole new level, over-expansion is one of the biggest dangers of a growth phase. It’s easy to get carried away in the heat of the moment and to expand beyond the needs and the financial capacity of the business.

As a rule of thumb, plan capacity based on a five-year projection of demand and allow an additional 10% of capacity over and above that for periods of heavy demand or for partial down-time in any part of your business. More than this could be very risky and leave a business with overheads it can’t cope with.



Get professional financial advice

Whatever the nature of your expansion, there are financial implications for the business and it’s always best to seek professional advice. If you need to build or purchase your own premises, for instance, it’s important to speak to a financial institution that has experience in this area.

For plant and equipment, you may need to consider a flexible financing option, either a loan or a combination of a loan and an equity investment. Again, an institution with experience in the field and in your own industry is essential.

Develop a Project Management Schedule for the expansion

Again, this may sound self-evident, but many businesses expand without treating the expansion like a project – one of the most significant it will ever undertake.

When drawing up a project management schedule:

• Identify key deliverables
• Attach dates to these deliverables
• Identify key responsibilities
• Set up a regular review schedule
• Identify procedures for managing non-delivery on any part of the project
• Build in appropriate timing and financial contingencies

Managing the process is as important as planning it and it’s important to commit to this in a formal way, building in the appropriate checks and balances.

Keep your customers informed

Expansion of any kind can cause disruptions in your day-to-day operations and it’s important that your customers know what to expect. Before commencing an expansion, tell them what you’re planning and what the expected completion date is. If possible, tell them what disruptions to expect and how you’re intending to deal with them.

Announce the completion of your expansion

Once the expansion phase is complete, it’s important to let both existing and potential customers know about it. Tell them about the increased capacity of the business and the additional products and services you can offer. Develop a special marketing drive to announce the occasion and send out media releases, especially to the local and regional press.

Celebrate this moment in your business – it’s one of the best marketing opportunities you could ask for.

Business Start-up

Mistakes that threaten start-ups

1.     Under financing: lack of sufficient funding is probably the most common reason new businesses fail. Many entrepreneurs fail to assess the burn rate of the capital they have. Often the most costly step is hiring too many people. Try paying people with equity rather than salary, you will end up with a much more committed team and preserve cash. Don’t overspend on equipment and technology you really don’t need to get going.

Also, many start-ups fail to realize that few customers pay promptly; this can severely impact cash flow.

2.     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.

3.     Underestimating marketing: Start-ups often fail because of the lack of marketing support. Don’t confuse sales with marketing. Sales close today but marketing builds your tomorrows. Marketing creates the awareness and product demand which will lead to the need for a sales force.

4.     Lack of unique position: many start-ups are imitations of an existing idea and represent only a marginal niche. Smaller niche products may seem to be less risky but the limited opportunity may have a short shelf life. Make sure the idea is worth pursuing over a long period and then make sure you have the resources to sustain the pressures of the initial years of development.

5.     Inflexibility: with start-ups you have to be prepared to change on the go. Rarely does the plan get executed without a hitch. Marketplace dynamics, competitive behaviour and economic conditions can dramatically impact the plan. Ability to react and change plans may be a key to survival.

6.     Lack of preparation: a key failure factor is often the slowness of introduction or delays that may be caused form lack of preparation. Lack of a completed package, delays from suppliers, incomplete marketing support, can delay a launch and perhaps cause the opportunity to lose momentum or perhaps even miss a window of opportunity that is forever lost.

Make sure all key elements to launch are in place to ensure the potential is fulfilled or the entire investment for the new start-up may be lost.

Selling a Business

Biggest Mistakes that a Seller Makes.

1.     Wrong price
This is without a doubt the main reason businesses don't sell.  If your price is too high, buyers don't take you seriously and won't bother to investigate further. If it is too low you will leave something on the table. Most sellers don't know the value of their business. Ask a broker, get a valuation. Ask an intermediary that is experienced in selling your type of business. Having a firm idea of what you would like to achieve is ideal but keep it within reason.

2.     Inadequate financial records & information
Private businesses are set up to minimize tax, not show maximum profits. However, profit is one of the principal yardsticks of valuation. Low Profits = Low Valuation. If there is a good reason for low profitability and you can demonstrate solid results, make sure you document this. Nothing kills a deal quicker than failure to produce accurate, up-to-date, financial information or not answering queries quickly and efficiently.

3.     Lack of a firm decision to sell

Why do you want to sell? This will be one of the first questions a buyer asks you. Give some serious thought to why you want to sell. Common reasons include retirement, health, capitalization or a career change. If the buyer isn’t comfortable with your reason they will simply walk away. If you have not made a firm decision to sell, whatever your motivation - don't. Wait until you’re sure it’s what you want to do and have a firm idea of what you want to achieve.

4.     No preparation
Unbelievably, many businesses come to the market without a single idea of what is involved in the sales process and what they want to get out of the sale. It is vital that you understand these aspects and have a firm plan for what you would like to achieve. If you are poorly prepared, it will show, frustrate buyers and waste everybody’s time. The end result is NO SALE. Do not underestimate the amount of time and effort it will take to get a positive result.

5.     The right buyer
Usually the best deals arise when a buyer has a real motivation to buy - such as: when they will be gaining skilled staff, a proprietary product, a new geographic location / sales territory or lucrative contracts. These strategic buyers are driven by more than just profitability, which usually means they can offer better value for the business.

6.     Demanding an all cash deal
Some buyers are naturally suspicious of sellers who demand total cash settlement. What is being hidden? How much faith does the Vendor have in his business? Buyers may pay a substantial premium for an element of seller finance. Keep an open mind and you might get a better deal.

7.     Trying to sell yourself
Selling a business is a complex and time-consuming process. It is very easy to underestimate the process and think you can do it all. You wouldn’t be the first or last to take your eye off the ball while trying to sell, letting your business suffer – weakening your sales proposition.
A buyer will automatically assume a position of advantage if they see you have chosen not to take professional help, especially if they equip themselves with an army of experts. Beware. Using a broker means that you will benefit from an experienced professional who understands what it takes to make a deal happen – controlling the process from start to completion. Not convinced? One of the best reasons to use a broker is to act as a buffer between you and the purchaser. There will be times when you’ll want to adopt a tough negotiating position - a broker makes this possible without antagonising the buyer. Remember, you might have to work with a new owner during a handover.

8.     Timing
The best time to sell your business is when you don't have to. Sell when your sales and profits are at, or near, their best. It can be hard to justify a great price and do a deal when your sales volume and profitability are in decline. Plan your sale in advance make sure all the right elements are in place, especially tax advice. Being well prepared can really make the world of difference in terms of the money going into your pocket.
There is also a definite timescale to closing a deal. Buyers can quickly lose interest and move on if they feel they are not making progress or not getting accurate information efficiently. Using a good broker should address this problem.

9.     Lack of a business plan

Buyers buy based on their perception of the future revenue stream of the business. The buyer, as part of the evaluation process will prepare a business plan. The seller is much better positioned to project market potential and costs than the buyer. A business plan with well-reasoned and documented operational information will go a long way in convincing a buyer of the long-term future of the company.

Business Agility

Does your business have the agility to react quickly?

Business Agility allows a company to react quickly to external forces or the marketplace. This can result in minimizing damage from competitive threats or to enjoy the benefits of responding to new opportunities.

The marketplace changes much faster now and a company that is successful and stays on top characteristically reacts quickly. Identifying new trends and creating a product or service to satisfy consumers can produce very large benefits both in short term profits and long term market share advantages. Expansion with new product can lead to a new segment or direction for the business.

Companies that are proactive rather than reactive generally are the industry leaders.

Agile companies remain reactive rather than fixating on long, efficient production runs and standard brands. Rather than bloating with long inventories efficiently made, a nimble company may be better able to deal with changing markets, client needs and competition.

It is important to understand the strengths the business has that can be leveraged as a competitive advantage. The strengths can be products, processes, key personnel or a network than can be used to enhance the business. Understand how to turn the advantage into profit.

Simplifying operations where possible increases flexibility and increases agility or response time to market changes. Organizations that monitor and manage costs without sacrificing quality are in an improved position to change direction when necessary.

Part of simplifying operations is reducing unneeded administrative overhead and information reporting. It is useful to continuously review processes for improvement and to eliminate out-dated procedures. This requires a continued monitoring of internal and external environments to ensure policy are updated. Information needed for strategic reasons should not be eliminated but enhanced to ensure vitality is improved.

Market intelligence becomes a key factor and should be an area of focus to drive the organization and keep it on its toes.

These steps can keep the business highly energized and exciting as it maintains a position of responsiveness to the market, customers, and competition.  

Business Planning mistakes

Business Plans are a useful tool in managing and growing the business. The complexity of the plan varies with the size and nature of the business but here are a few ideas to avoid in planning.

1.     Don’t delay.

Too many business owners only create a plan when banks or investors insist on it. Find the time even if you are too busy getting things done. The busier you are the more you need a plan. Don’t spend all the time just putting out fires; the entire business may be lost if you focus on one burning issue.

 

2.     Cash Flow insensitivity.

Most business owners seem to focus on profits instead of cash. The reality is that businesses spend cash to operate, not profits. Understanding cash flow is critical. If you only get one report to manage the business make sure it is a cash flow chart.

 

3.     Planning fear.

Preparation of business plan is not that hard. This is not a doctoral thesis or a book that has to be written. Help can be secured from books, small business development centres, local university business schools and planning software from the internet.

 

4.     Undefined goals.

Plans should omit vague undefined goals that are just hype. The purpose of the plan is to define specific goals that are achievable and measurable. Follow guidelines for specific milestones and hold people accountable for results.

 

5.     Lack of priority.

A business plan should provide focus. The plan can include objectives for operations, finance, sales, or personnel but a priority list of 15-20 items will lack focus and importance.

6.     Overly optimistic projections.

Revenue projections that accelerate too quickly create a false impression and unrealistic expectations. Generally more conservative projections are easier to defend with bankers or other potential sources of financing and also may prevent the owners from overspending with the anticipation of generating income that may not occur.

A good business plan presents an overview of the business -- now, in the short term, and in the long term. However, it doesn't just describe what the business looks like at each of those stages; it also describes how you'll get from one stage to the next. In other words, the plan provides a "roadmap" for the business, a roadmap that should be as specific as possible.