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.

Business Value

Tips for Maximizing Business Value

Burying excessive personal expenses in the business financials can lower business value!

The most popular method of valuing a business uses a multiple of earnings over a period of years. Business owners should be aware of that while attempting to reduce the bottom line with personal expenses to minimize taxes.  Though there are a number of deductions that may be added back to determine true cash flow, not all add-backs are considered legitimate by buyers or lenders.  Being too aggressive in minimizing taxes today may cost a business owner big dollars at closing.

Some businesses may need a whole new direction!

Unfortunately, there are businesses whose market has changed so drastically that their products or services now have limited demand.  And it might not be the slow economy!  Those business owners may have to consider a whole new business model and get into the research and creative thinking mode.  A good starting point is searching ideas on the internet or getting professional help to reposition the business.

“You can’t always get what you want”

The title to the 1969 song by the Rolling Stones seems to echo what the market is telling many business owners these days.  There is no question that prices for many businesses are down and for various reasons.  But if there are offers on the table a business owner must take a hard look and be realistic as to what has to change, the business or the economy for the price to “sing along” with expectations.

Leases can make or break the sale of a business

The lease terms of the business space can be a major consideration for a buyer.  For example, a retail business with a long term lease on a good location can be attractive.  But a long term lease on a business needing more space to grow could be a detriment.  Or there can be concerns for an expiring lease when the landlord might demand a large increase.  When it comes to negotiating a new lease, business owners must carefully think through the timing of their plans for exiting their business.

Business decisions

Let’s make decisive business decisions

Decision-making is a crucial part of good business. The question then is ‘how is a good decision made? One part of the answer is good information, and experience in interpreting information.

Managers can be trained to make better decisions. They also need a supportive environment where they won’t be unfairly criticised for making wrong decisions. A climate of criticism and fear stifles risk-taking and creativity; managers will respond by ‘playing it safe’ to minimise the risk of criticism which diminishes the business’ effectiveness in responding to market changes. It may also mean managers spend too much time trying to pass the blame around rather than getting on with running the business.

Decision-making increasingly happens at all levels of a business. The Board of Directors may make the grand strategic decisions about investment and direction of future growth, and managers may make the more tactical decisions about how their own department may contribute most effectively to the overall business objectives. But quite ordinary employees are increasingly expected to make decisions about the conduct of their own tasks, responses to customers and improvements to business practice. As a result careful recruitment and selection, good training, and enlightened management are important supports to good decision making.

How do you make the best possible decisions, knowing they will have an impact on your company's future?

There are strategies you can use to avoid common pitfalls and hone your decision-making skills.  Making better, faster decisions will help you take advantage of business opportunities and avoid pitfalls.

1.     Review the problem/decision in a broad context to include as many perspectives as possible. But don’t procrastinate just to get another opinion.

2.     Make decisions as much as possible on facts rather than emotion. It is good to challenge your gut instincts; use objective data to reinforce decisions.

3.     Don’t hesitate to challenge the status quo. Staying in your comfort zone in order to be comfortable may lead you on the same path. Change does not necessarily take more effort.

4.     Be open to others opinion but trust your own ability and ability of employees to make a well-reasoned decision.

5.     Recognize that some constraints may influence the decision; financial constraints, practicality, and lack of resources to implement the decision may influence the path taken.

Decisions are not taken in isolation and the effects of any decision will depend on reactions of others. Competitive behaviour should be anticipated and can influence choices. In the end, the review process needs to be completed with minimum delays and decisions finalized. Respect for action taken with a firm unwavering approach or allowing responsible employees to decide will earn respect from the organization.

Success factors

Success factors in business

Here are some of the key factors leading to success in business.

1.     Plan for success. A good plan increases your chance of success by defining objectives, framing costs, forecasting revenue and defining risks.

2.     Management strength: a strong management group is critical. Entrepreneurs should have the confidence to surround themselves with strong people; this will pay dividends in productivity and growth of the business. Those owners who seek individuals who will follow and not lead will be constrained by their own failings.

3.     Develop a network. Networks of peers can be a powerful resource for support and direction.  It is great if you develop both a network within the organization and a network of peers outside of the business.

4.     Consumer focus. An unwavering commitment to the consumer is invaluable. Understanding the consumer’s wants and needs provides the best way to gain customer loyalty. Repeat business is the lifeline to continued success. This also strengthens your reputation in the marketplace.

5.     Continuous improvement. In order to stay at or near the lead in your market position there need to be continuous product improvement. Innovation and keeping pace with technological improvements provides that cutting edge performance. This also enhances productivity and profitability of the business.

6.     Know your strengths. An honest approach to management of the business can help generate growth. Don’t waste time chasing dreams or ill-conceived ideas that do not match your core values or strengths in the business.

7.     Manage time use. Entrepreneurs need to act with a sense of urgency to develop ideas. Learn to manage your time and include leisure activity. If plans are not working adapt to changes that will work even if it requires acquiring skills that may be missing in the organization. Working smart produces quality results which outperform quantity.