Finance

In early childhood you may lay the foundation of poverty or riches, industry or idleness, good or evil, by the habits to which you train your children. Teach them right habits then, and their future life is safe.—Lydia Sigourney

Too much money is worse than too little for most organizations—not that I wouldn’t like to run a Super Bowl commercial someday. Until that day comes, the key to success for most organizations is bootstrapping. The term bootstrapping comes from the German legend of Baron von Munchhausen pulling himself out of the sea by pulling on his own bootstraps. That’s essentially what you’ll have to do, too.

1. Focus on cash flow, not profitability. The theory is that profits are the key to survival. If you could pay the bills with theories, this would be fine. The reality is that you pay bills with cash, so focus on cash flow. If you know you are going to bootstrap, you should start a business with a small upfront capital requirement, short sales cycles, short receivables terms, long payables terms, and recurring revenue. It means passing up the big sale that takes twelve months to close, deliver, and collect. Cash is not only king, it’s queen and prince too for a bootstrapper.
2. Forecast from the bottom up. Most entrepreneurs do a top-down forecast: There are 150 million cars in America. It sure seems reasonable that we can get a mere 1 percent of car owners to install our satellite radio systems. That’s 1.5 million systems in the first year. The bottom-up forecast goes like this: We can open up ten installation facilities in the first year. On an average day, each can install ten systems. So our first year sales will be 10 facilities x 10 systems x 240 days = 24,000 satellite radio systems. That’s a long way from the conservative 1.5 million systems in the top-down approach. Guess which number is more likely to happen. read more

If you have recently joined the ranks of “The Downsized,” undoubtedly doing something entrepreneurial has crossed your mind (at least for a millisecond). But right now?

If you had the power to choose when you could be downsized, late 2008 probably would not be your 1st or even 2nd choice. Your 401k plan is probably looking uglier than this Almiqui. The U.S. unemployment rate is hanging tough at about 6.5%, and you are just not getting any younger.

If you are a newbie to the world of corporate downsizing, the emotion that is probably winning out in your “Top 10″ list is the fear emotion. Being out of work can certainly be frightening, and if you don’t have at least some fear, you either have a significant net worth, or are in a state of denial.

If you have been through a corporate downsizing before, then a feeling of déjà vu has probably settled into your psyche. All of those wonderful emotions that coincide with a job loss are re-surfacing, and you don’t like them one bit.

There is one way to avoid experiencing the emotions that you are feeling, currently. Become a small business owner. Get some control back in your life.

I believe in the franchise business model for a variety of reasons, including: read more

It’s November and, whether you realize it or not, the 2008 holiday shopping season is already upon us. And in light of the never-ending, dismal economic headlines entertaining us lately, it’s more important than ever for small business retailers to plan for a tight spending season.

The National Retail Federation (NRF) forecasts a 2.2% increase in sales this year. This, they are quick to point out, is about half the average holiday sales growth over the last ten years but, what they don’t point out is that it is not much less than the 2.4% growth in sales during the 2007 holiday shopping season.

Consumers anticipate spending about $830, on average, this holiday season. That figure represents a 10% decrease from last year’s average holiday spending, and includes gifts for family, friends and colleagues, decorations, flowers, candy and food, cards and postage. It also includes an expected average of $120 each on non-gift purchases made for themselves or their households by sharp-eyed consumers on the lookout for holiday sale prices.

So, what can the small business retailer do to maximize the season for their bottom line in an economic climate like this, when they really can’t compete on price? read more

The food related segment of franchising is the largest of all franchise types. From fairly upscale restaurant chains, to bagel shops, to coffeehouses, to fast food restaurants, it is a huge segment, and one that pumps a lot of money into our economy.

I was reading a story over at Smart Money online, a couple of weeks ago, and something I read caused me a little concern;

“Sharon Zackfia, a restaurant industry analyst, said in an investor note Friday morning that GE Capital has halted new franchisee franchising, although it will continue to honor pre-existing financing agreements.”

That is certainly an interesting development. Even more interesting was this story in AdAge that has to do with McDonalds franchisees getting loans for upgrades:

“Tightening credit conditions are crimping plans for marketers as diverse as giant General Motors Corp. and relatively small household-products company Method, have prompted Bank of America to halt loans to McDonald’s franchisees. They need the capital to frantically build coffee bars in the chain’s 14,000 locations for what was planned to be an April coffee introduction.”

Folks, this is all about lattes. Tasty, high profit, lattes. read more

One of the most important things you will do as an entrepreneur is to raise the money you need to finance your new business. Unfortunately, there are a lot of myths about financing new businesses.

Below I outline a few of the myths and point out the realities:

Myth 1: You need a lot of capital to start a new business — Not true. The typical start-up only requires about $25,000 to get going. Many entrepreneurs keep the cost of financing a new business down by designing their businesses to work with little cash. They borrow instead of paying for things. They rent instead of buy. And they turn fixed costs into variable costs by, say, paying people commissions instead of salaries.

Myth 2: You are likely to raise money from someone else — Maybe. But if you do, you are in the minority. Even in studies of businesses as much as eight years old, the majority of businesses received no money from anyone other than the founders. And for brand new businesses, a relatively small percentage are able to get money from venture capitalists, business angels, banks, trade creditors, friends and family combined.

Myth 3: Your personal credit doesn’t matter; it’s the business borrowing the money — Not true. Very few entrepreneurs can obtain capital on the basis of their business ideas alone. Almost two-thirds of founders use personal debt to finance their businesses. And about half of the founders of sole proprietorships less than five years old personally guarantee the debts of their businesses.

Myth 4: Venture capitalists are a good place to go for start-up money – Not unless you start a computer or biotech company. Computer hardware and software, semiconductors, communication, and biotechnology account for 81 percent of all venture capital dollars, and 72 percent of the companies that got VC money over the past 15 or so years. VCs only fund about 3,000 companies per year and only about one quarter of those companies are in the seed or start-up stage. In fact, the odds that a start-up company will get VC money are about 1 in 4,000. That’s worse than the odds that you will die from a fall in the shower. read more

I believe I have an interesting take on the current financial imbroglio we find ourselves in.  I am both a small business owner and a financial adviser.  So, while the stock market has taken a significant whacking including the largest American bank (WaMu), insurance firm (AIG) and broker (Merrill Lynch) all having tanked, I am feeling the fallout from the current malaise two-fold.  This blog post is based on my insights into helping a small financial advisory make it through the tough slog ahead but applies to any business.

Black Swan Contingency Planning

What’s the issue: There is an incredible amount of interdependency we’re witnessing across businesses, sectors and geographies.  When a mortgage bank fails in the US, it has far-reaching consequences felt around the world.  Little events are exacerbated and seemingly discrete events domino into global markets tanking.  While banks like Merrill and Morgan looked as if they should weather this storm OK (albeit with some lumps), Lehman’s demise called into question these firms’ viability overnight. read more

The best advice I ever heard was when a wise person said to me the time to evaluate your business cost and cash position is not when times are tough but when times are good. Even so, most people don’t do that. However, there are many things a business can do to weather rocky financial conditions. They fall into three buckets: managing costs, managing cash flow and increasing business volume.

Managing costs

Now more than ever it is easier to reduce costs by doing many tasks electronically. For instance:

1. Move routine communications to email or instant messaging.
2. Bank online for both payments and receipts.
3. Bill electronically.

At an operational level, you should be scrutinizing every expense or overhead line item, looking for areas of waste or opportunities to lower cost:

1. Negotiate new terms for property leases, offering longer terms at a reduced rate.
2. Where possible, consolidate occupancy.
3. Consider switching to homeworking for staff ,and so release property requirements but ensure that communications will not be impeded.
4. Consider the extent to which you can operate hot desking.
5. Negotiate or switch communications carriers ensuring that each category (voice, mobile and data) is optimized for your consumption levels. read more

Open Forum editors are visiting small businesses to ask how they’re handling the economic challenge.  Here are the stories of four businesses in New York City, reported by Bill Brazell.

A Salon Focuses on Customer Service
Santa Cruz, founder of Salon Santa Cruz, is proud to have kept her business going on Manhattan’s Fifth Avenue for 25 years. She says the economy’s turmoil is “affecting us over time, rather than all at once. We’re in the beauty industry,” more luxury than necessity, so people can cut back when times are tight. “They’ll extend their color service a little longer,” she said. “They may decide not to get that pedicure.” At the same time, “We’re a feel-good, look-good industry. We help people feel good.” And when times are tough, people want to feel better. To keep her customers coming back, “we’ve had to retrain the staff, so their customer service is even better.” And she had to postpone hiring a cleaning person, instead asking her current staff to help more with the cleaning.

Planning for a Slow Holiday Season
At Major Florist Wholesale, owner Louis Theofanis said he had “thirty phone calls to answer right now,” so business is “not down that much yet.”  But he’s planning for a slower than usual December. “We’re expecting it to be down 20% for the holidays, so we’re ordering 20% less,” he said.
read more