What is the State of your Capital Needs?

Finding a supportive financing institution or bank is the start of one of the key relationships in the life of your business. Understanding how potential financers look at a business can increase your chances of success in landing the financing needed.
Outside views will take an objective look at your business that might not be consistent with your vision.

Sometimes entrepreneurs think they should receive more money than the fundamentals of their business merit. They also often underestimate the riskiness of their project.
At the same time, entrepreneurs shouldn’t forget that banks and other financial institutions are in business too and need to find and keep clients. That can make them an invaluable resource for new business owners.

Whether your plan is to start a business or expand your existing company, here are some key factors to consider when seeking financing.

1. Types of financing
There are two types of financing: equity financing and debt financing. When looking for money, you must consider your company's debt-to-equity ratio. This ratio is the relation between dollars you've borrowed and dollars you've invested in your business. The more money owners have invested in their business, the easier it is to attract financing.
- If your firm has a high ratio of equity to debt, you should probably seek debt financing. However, if your company has a high proportion of debt to equity, experts advise that you should increase your ownership capital (equity investment) for additional funds. That way you won't be over-leveraged to the point of jeopardizing your company's survival.


2. Your financial capacity
Having a solid credit history says a lot about your trustworthiness and ability to run a successful, profitable business. A willingness to put a significant amount of money into your business will show your lender that you are committed to the project and willing to share the risk.

The lender will also want to know how you are going to use the money, when and how you are going to repay your loan and whether there’s any security that can be pledged against it such as equipment, buildings or personal property. It might take two or three meeting to sort everything out.

3. Know your break-even point
- Breakeven analysis is a tool used to determine when a business will be able to cover all its expenses and begin to make a profit. For the startup business, it is extremely important to know your startup costs; you need to understand the level of sales revenue needed to pay the ongoing expenses related to running your business.
- A startup business owner must understand that $5,000 of product sales will not cover $5,000 in monthly overhead expenses. The cost of selling $5,000 in retail goods could easily be $3,000 at the wholesale price, so the $5,000 in sales revenue only provides $2,000 in gross profit. The breakeven point is reached when revenue equals all business costs.

The lender wants to see that you have built your plan based on a sound analysis that takes into account the market, the competition and the economic context. Do your own research and show that you know the trends, the opportunities and the risks when you present your plan. This boosts your credibility and a simple, concise presentation of facts and figures will back up your statements and business plan.
Good luck with your planning, I hope this brief outline helps.
gerry@polarisgroupmc.com

Succession Planning

Are you ready to pass the baton?

How much time have you spent recently preparing your organization for the future with a succession plan?

Too often owners of business have given no thought to how their business continues past their time or even who should be in line for succeeding others in key positions.

There is a fine line between structuring an organization so strong back up is available for all key positions and being top heavy with management staff. While it is important to develop and maintain an organization chart that identifies potential replacements for key positions it is a plan that must be kept confidential among only a few very senior managers. Clearly if the succession plan was broadly known the group of subordinates would constantly be chafing at the bit to move up the ladder. 

The succession plan should be updated regularly. Performance of employees change, new stars arise and training of key individuals to broaden their experience becomes important elements of the plan to maintain.

In small family organizations succession plans may be even more important. The owner may have family members who she/he would wish to carry on the business but are they qualified? Are there competing siblings who vie for the role of president and how does the current owner resolve that issue?

A well-developed plan not only provides for a smooth transition when needed but also can be a critical tool in situations that result from an untimely injury, illness, or death of the owner. You do not want a vacuum created from the absence, for any length of time, of leadership in the business. A prolonged absence of an identified leader can destabilize the business and lead to losses and in extreme situation lead to the collapse of the business.

The owner or president of the business has the fiduciary responsibility to be proactive and protect the business and ensure survival is optimized. That means an active role in preparing for his/her exit and change in other key management positions. 

You never know when there will be a need to pass the baton.

Financial Monitors to Focus on

You don’t need to be a math wizard to understand which numbers can tell you how well or how poorly your business is doing.
But you do need regular financial updates and the discipline to sit down and check the key performance indicators that matter most: sales, profit margins and cash flow.

Modern accounting software makes it easy to generate financial statements so you can perform some quick calculations to check the financial health of your business.
Here a few key areas that should be monitored monthly to enhance the opportunity of success.

1. Growth
Are your sales and profits increasing or decreasing year-over-year? Is there a trend?

2. Gross profit margin
Indicates the profitability of the business and reflects your control over cost of sales and pricing. You may want to compare this ratio with prior financial periods or industry data.

3. Inventory turnover and Customer Base
Measuring the number of days it takes to sell inventory allows you to adjust your pricing or marketing. A low number means stock is being sold quickly. In addition to profitability, a growing customer base is a sure sign that you are effectively reaching your target market, and reaching your target market is what your business is all about. The long-term growth of your company is tied directly to your ability to not only reach your customer base, but to expand it to accommodate your long-term goals.

4. Liquidity
The most common liquidity ratio is the current ratio, the ratio of current assets to current liabilities. This ratio indicates a company's ability to pay its short-term bills. A ratio of greater than one is usually a minimum because anything less than one means the company has more liabilities than assets. A high ratio indicates more of a safety cushion, which increases flexibility because some of the inventory items and receivable balances may not be easily convertible to cash. Companies can improve the current ratio by paying down debt, converting short-term debt into long-term debt, collecting its receivables faster and buying inventory only when necessary.

These are a few of the measures to check regularly. I hope the comments help.
gerry@polarisgroupmc.com

Struggling to deal with a crisis management plan?

 Is your organization struggling to deal with a crisis or plans to ensure the business exposure to a crisis is minimized?  It is not uncommon to see this paralysis because managers often prefer not to deal with the situation.




Here are a few steps that can be taken to help build a safety net.

1. Maintain sensitivity for even minor or seemingly insignificant events. Some could have the potential to develop into major issues that could be a blow to the business.

2. Plan ahead with a look to long term strategies as a guide. Work out best and worst case scenarios to help prepare for unseen events.

3. If a crisis arises act quickly; procrastinating rarely improves the situation.

4. Create a crisis management team with a mandate to trouble shoot, identify potential problems and empower them to recommend and enact changes to protect the business.

5. Provide strong and effective training to key employees and take steps to eliminate small issues so they don’t erupt into major problems.

6. Explore optional solutions and look for new ground to operate from if standard solutions prove inadequate. Think outside the box for solutions.

7. Don’t panic in a crisis situation. As the leader employees want strength. Keeping a cool head may facilitate focussing on the issues and getting a solution right.

The key to avoiding or minimizing the impact of crises that may arise is to be proactive ahead of adversity. I hope these tips provide insight into ways to fight through any situation that may arise with minimal damage to your business.

Business Management

Key leadership traits

Are you a leader just because you own and operate a small business? No. Effective business leadership demands a captain of the ship not someone just standing at the helm. Leadership is active, not passive. Leadership is a combination of traits and the ability to think and act like a leader. Leading and directing the activity of others for the overall benefit of the organization.


Here are a few traits of strong leadership:


1. Leaders Plan
The core of business leadership is being proactive rather than reactive. Leaders are good in crises - but that doesn't mean they sit around letting crises develop. Leadership involves identifying potential problems and solving them before they reach crisis proportions. Good leaders analyze and plan and adapt their plans to new circumstances and opportunities.

2. Leaders have Vision
Vision provides direction and without direction, there’s not much point to all that planning; your small business will still flail about. So if you don’t have one already, take your first step towards business leadership by creating a Vision Statement for your business.

3. Leaders Share the Vision and take charge
Sharing your leadership vision helps your vision grow and your business leadership develop. As you share your leadership vision you will strengthen your own belief in your vision and strengthen your determination to make your leadership vision become reality. Other people will start to see you as a person who's "going places". Your business leadership skills will grow as you and staff recognize you as a person with leadership skill.

Whether it's implementing a plan to improve your bottom line or responding to a crisis, you, as the leader, are the one who makes the decisions and sees that the appropriate actions are carried out. You can't just "talk a good game" to be a leader; you need to act and to be seen as taking effective action for the good of your small business.

Learning to be a leader isn't easy because it takes a conscious commitment and consistent effort to develop one's business leadership skills. I hope these tips help develop that skill and contribute to greater business success.

Business Management

Keys for Success with your Business

What Any Organization Needs To Survive and Succeed




Essentially five things or factors are needed by any organization wanting to succeed:
• Key Managers  – those who facilitate operations
• Vision – a reason d’etre for organization
• Processes – activities which the people undertake to fulfill the business purpose
• Physical Resources – a place to work, the right equipment, finances to operate and the appropriate staffing.
• Customers – people outside the organization who are willing to pay money in return for the products and services the organization.

But it’s not just the existence of these five basic factors that enables success -it’s what you do with them. The 5 Key Success Factors Of Business

1. Managing and developing people:
 People today want some direction and structure, but they also want freedom and encouragement to develop their skills and knowledge. Effectively managing people requires balancing providing direction, structure, organization, with encourage personal growth, development and creativity. Effective managers do not manage all people the same, except for some basic rules. They manage each person according to what he or she needs as motivation to do their best.

2. Strategic focus
 In today’s rapidly changing world, it’s not just enough to have a purpose for existing. Leaders have to focus the organization’s resources on the greatest opportunities to fulfill the company’s vision. Priorities may change from time to time so it’s necessary for leaders to keep focused on the desired end results such as increased sales and profits.

3: Operations:
What the people in your organization do day in and day out to create value for customers, to earn or justify income, strongly determines whether you succeed or fail.  You can’t separate operations from strategic focus which gives direction, people which do the work, customers who pay the money and physical resources to do the work. Effective operations ensure that customers get exactly what they want at the right time, the right price and the right quality. Strategic focus is largely externally oriented, operations largely internally oriented. Both need to be totally in sync with each other – not something that happens automatically but rather requiring constant effort. This is why communication is the true lifeblood of a successful organization – a high flow of information so everyone and everything is connected. Easy to say, hard to do.

4. Resources and Cash Management
Finances, facilities and equipment are the big 3 physical resources. If you don’t have adequate financing you can’t start or sustain the business. A large focus for capital is providing adequate facilities and equipment for people to work in and with. Cash flow is king. It matters little what A/R total, it’s when the money is collected to use it to sustain the organization that matters. Failing to manage cash flow is the No. 1 reason for business failure.

5. Customer relations:
Customers generate money, so in many ways this is the most important success factor. Getting customers involves marketing – indeed this success factor includes all kinds of marketing and sales. The key to successful customer relations is to give them what they need, not just what you want to sell. It is key to develop customer loyalty and thus keep competitors away. Tracking competitor actions, analyzing changes in the market environment, and adapting accordingly will help the business succeed.

Use some of these principles to improve your opportunity of success.

Business Management

Is there a killer loose in the business?

There are a number of business attributes that can be secretly dragging down the value of your company. If you do an assessment of what the business is worth there could be factors silently dragging down the value of the company. In many cases, fixing the problems is relatively easy as long as they know what the problems are.





Here's a list of some of the most common "silent killers" that are decreasing the value of businesses when you may be considering a sale.

• Customer Concentration
A business should strive to have a diversified customer base so that no one customer makes up more than 15% of your revenue.

• Declining Gross Margin 
If gross margin is declining as growth occurs a potential buyer may conclude that your competitive advantage is weakening and you have to compete on price to win customers.

• Supplier Over-dependence
Seek to have a variety of sources for your raw materials. If you are forced to buy from one supplier the negotiating leverage over you can drag down your company's value.

• Sloppy Financials
Keep your books clean. Nothing scares off a buyer faster than shoddy, inaccurate bookkeeping.

• Management Risks
Strive to ensure that your company runs well when you are away. After all, for a business to be valuable to someone else, it needs to survive when you are gone for good. If you have key employees, make sure they are locked into some sort of incentive plan that rewards them to stay beyond the sale of your business.

These are a few suggestions that can easily be repaired and can enhance the overall valuation as you prepare the business for sale.