Small Business Development Center
At Chemeketa Center for Business & Industry
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Reality of Grants

By Chemeketa SBDC

DO NOT expect a grant to get your for-profit business started — despite those TV commercials late at night where the gentleman is screaming at you that the federal government wants to give you $50,000 to start your own coffee house!

Think about it, if there was really FREE money available to start a new business, there would be 250 million Americans in line ahead of you! If you haven’t figured it out yet, federal grants (despite the TV guy) are a myth, foundation grants are narrowly defined and virtually no one gives money for small business start-ups.

So, how does this myth persist? Because there are some (rare) federal grant programs that are awarded to the for-profit business. These grants are based on the needs of the federal program for a product or process — not the needs of the business — and they are seeking someone that can develop these products.

If you find that you can respond to the needs (generally a request for proposal — RFP), you need to know that applying for a grant is very different than applying for a loan.

Before developing a grant proposal, it is vitally important to understand the goals of the particular federal agency or private organization, and of the grant program itself. This can be accomplished through Internet research and discussions with the information contact listed in each resource description. You may find that, in order for a particular project to be eligible for funding, the original concept may need to be modified to meet the criteria of the grant program.

In allocating funds, grant makers base their decisions on the applicant’s ability to fit its proposed activities within the grant maker’s interest areas. If you want to see information about federal grants, go to www.sba.gov/expanding/grants.html

Other web sites for exploring grants:

www.grants.gov/

www.fdncenter.org

Note: There are approximately 7,000 private foundations in America; some offer grants for specific business activities that relate to whatever activity they espouse. If you are aware of a foundation that offers grants in the area of business that you want to pursue, I suggest you contact them directly to obtain the details for applying. Again, these grants are most often awarded to non-profit agencies that compliment the mission of the awarding foundation.


The Trouble with the Low-Cost Game

By Chemeketa SBDC

Don’t have enough customers so it’s time to lower prices, right? Well, maybe. You may be tempted to do this in your business, especially if a competitor has lowered prices. But you run the risk of lowering yourself right out of business.

Carefully consider other options; perhaps there are better ways to remain competitive. And if you need to lower prices, do so with a clear idea of where that might take your business.

• Review each step of your supply chain, from your vendors on through to your customers. Why are there not enough customers? Are you losing current customers because they’re dissatisfied? Chances are there’s more to it than your prices. Find the areas of weakness and shore them up.

• Find ways to cut costs where your competition can’t. This increases your margins and consequently your cash. If you need to cut prices as a last resort, you’ll be sitting in a better position. You may think you’ve cut costs to the bone, but take another look.

• Examine your business model. Are there strategic changes you can make instead of tinkering with pricing? Are your current offerings what the market really wants? You may have a problem with what you’re selling instead of how much you’re charging for it.

• See if you can raise prices in a complementary service or good if you need to lower them on a core good or service. A coffee shop might leave the coffee pricing alone, but slightly increase prices for pastries. This results in the same revenue per customer. On the surface it appears as if you are competitively priced, but you’re not paying the penalty for those low prices.

• Selectively lower prices for only some of your customer base, or for only a limited time as an incentive. Make sure that what you gain (in customer loyalty or in increased purchases of ancillary goods) makes up for the loss from the price reductions. Be strategic about this.

• Have a clear idea of just how low you can go, if you choose to engage in a price war. Know your limits. Remember that smaller businesses will lose this arms race much faster than larger and better capitalized businesses.

 


How Much Money to Launch a New Venture?

By Chemeketa SBDC

Trying to determine how much money you will need to launch a new business can be a daunting task. While I find that new entrepreneurs are comfortable writing the business plan narrative (who, what, where, when and why) when given the right tools, developing a budget often seems to be a venture into a dark abyss. This is also the case when expanding a business or introducing a new product to the market. It isn’t that you don’t know or cannot find out the costs — it is about how to organize the financial needs.

The first part of your start-up budget is relatively straightforward. The first items in your budget should be those costs that you will pay only once. These are the costs to get you into business. If at all possible, these expenses should come from your equity investment and not from borrowed funds. A combination of investment and loans is possible, but borrowing all the money to pay for start-up costs may create early cash flow problems as you need to pay your debt service before income has a chance to grow past the break-even point into profitability.

The costs involved in start-up may include: legal and accounting charges for incorporation or partnership agreements, fees to government entities for licenses or permits, rental and security deposits, site preparation including leasehold improvements, furniture and fixtures, utility deposits and telephone installation, and printed materials including business cards, letterhead and marketing materials. And, of course, the necessary machinery and equipment and your initial inventory. The only way to determine these costs are to do your homework. You must call, write, or visit each of the vendors, explain what you are developing and get a quote or approximate price for a specific task.

Next, make a list of all the equipment (assets) you need to get this project off the ground. You must again research the cost and get quotes on specific items. Pro forma invoices are always good to get for the project file so you can have current information on hand, have something to compare other offers and/or even have for future reference should you choose not to proceed at this time.

You will also need to know how much inventory you need on hand to develop the business and to keep the shelves stocked appropriately until such time that sales can cover the cost of restocking. Price out each item individually and by bulk purchase to know your options and increase your flexibility.

The most difficult component of your start-up budget will be to determine how much cash you will need for working capital. This is the money you need to fund early losses and to smooth out your cash flow. You need to run a cash flow projection (beginning cash plus income, less cost of goods, less expenses) on a monthly basis for minimally one year to determine how much money is “in the bank.” You will most likely see potential “overdraws.” This is where your working capital requirements are established. There are only two ways to fund these overdraws — with capital infusion or by acquiring debt (not paying your vendors). So, plan on having (possibly borrowing) sufficient capital in reserve to fund early losses and to pay necessary expenses as your cash flow begins to build.

 


Make a New Year’s Resolution for Your Business

By Chemeketa SBDC

It’s that time of year again, when the old year is wrapping up and the new is just around the corner. The time of year when those resolutions about losing weight and spending less money are top of mind.

Business owners make resolutions at this time of year too. Smart ones will be setting goals and lining out action steps to go with their choices of course. But let’s start with a list of questions that every entrepreneur should take a look at right now. Some may or may not apply to your particular situation. Just pick a few for serious consideration. And then resolve to do something about them.

  • How can I be more proactive and less reactive?
  • What tough decision do I need to make (in January!) that will have an effect on the rest of the year?
  • Am I operating my business more like a hobby than a business?
  • Will I do a major campaign or major push of some kind this year?
  • Is my staffing at the right levels?
  • Is it time to shake up my marketing, perhaps add a big dose of social media?
  • Are my employees and I wearing appropriate clothing every single day, clothing that carries a clear message about my business values?
  • Am I measuring the right things?
  • Do I have sloppy work habits that are impeding my ability to run my business in an efficient and effective manner?
  • Am I thinking big enough?
  • What is the one thing that I can do this coming year that will make the biggest impact on my business?
  • Why don’t I have systems in place that make operations more efficient?
  • Do I run my business with a heavy dose of wishful thinking instead of running it on actual facts?
  • Do I have the right customers?
  • Will I be in business a year from now if I keep doing what I am doing, and doing it in the way I’m currently doing it?
  • How committed am I to making this business a success?
  • What help do I need and where will I get it?
  • Does my business need to be scaled up, or scaled down in the next year?
  • What got me into this business in the first place, and is it still relevant today?

 


Six Key Ideas to Grow Your Business

By Chemeketa SBDC

Your ability to think, analyze and decide is the key determining factor of your profitability.

To help you sharpen this ability, here are some key principles for business success that are relevant and important at every stage of your business life. If ever you aren’t happy with the business results you’re getting, revisit these key points.

1. The Product Must Satisfy A Current Need — The first principle to consider in selecting any new product or service is to determine if it fills a genuine, existing need customers have right now. A new product or service must solve a problem of some kind for the customer or make his/her life or work better in a cost‐effective way. You must be very clear, from the beginning, about exactly what your product or service does to improve the quality of the life or work of your customer.

2. Offer Good Quality At A Fair Price — The second principle for business success with any product or service is that it must be of good quality at a fair price. If it’s in competition with other similar products or services, it must have what’s called a Unique Selling Proposition ‐ some feature or benefit that makes it different from and superior to others out there.

3. 3. Be Careful With Your Money — Tight financial controls and good budgeting are essential. Successful companies use accurate bookkeeping and accounting systems. They put these systems in place at the very beginning and carefully record every penny they spend. Cash flow is a critical measure and determining factor of business success. Always carefully consider every expenditure. The basic rule for entrepreneurial success is this: Only spend money to earn money.

4. Get Efficient Through Technology — Working hard is important, but there’s one thing even more important — working smart. That’s what technology helps you do. You get more done, you get it done easier and you get it done better. By using technology you’re able to do some things that would simply be impossible without it. There is an array of technology tools that allow you to build your business in extremely smart ways. Be sure to take full advantage of them.

5. Maximize Your Marketing — Perhaps one of the most important principles for business success is strong momentum in the sales department. This requires an emphasis on marketing that permeates the entire organization. Everybody must think about selling and satisfying customers all day long. Create a daily sales checklist, set performance goals, and unify everyone’s effort by sharing goals team‐wide.

6. Create A Culture — This is about cultivating passion in both your team and customer base. Your culture clarifies your identity, your values and your beliefs, in addition to more basic things like the products or services you offer and how you price them. Some growth strategies are obvious and have immediate results. Others, like creating a culture, have more indirect results, but are still extremely important.

 


Simple Steps to Quell the Office Critic

By Chemeketa SBDC

A wealth of current research tells us that the most critical factor in controlling undesirable turnover and increasing retention of talented people are the skills of managers. People join companies but they leave managers. Satisfied employees are critical to the success of your business. If they’re not happy on the job, customers are not happy being with them.

So what do you do when you have an employee who is just not happy? Every business can have “the glass is half empty” person on the lookout for something to go wrong. You can recognize them — they spend the majority of the day in a negative slump and critical of everything from projects to people.

The “it will never work” attitude also can devastate your company morale. You may start to notice that other employees — once happy, motivated people — are starting to gossip and criticize. When it comes down to it, negativity is like the flu: It’s contagious. It’s also expensive. Negativity costs companies millions in terms of productivity and profitability.

So how do you deal with an employee whose negativity is starting to rub off on other people? Our first instinct may be that the person’s behavior is just about their “bad attitude” and ignore it. Not a great idea. This can actually fuel the fire by setting a culture of negativity. In fact, if we do nothing about the negativity — we are condoning the behavior and subsequently, endorsing it. You do need to take some action.

Often at the heart of a “negaholic” attitude are fear and uncertainty. Change is the biggest single cause of workplace negativity. Even if that new billing system is for the better, people will automatically ask themselves: What am I losing? For employees, change automatically equals the loss of something comfortable — and they will resist it.

Here are some simple steps for quelling the office critic, paraphrased from some great work by Chris Penttila, a freelance journalist.

1. Understand change from the employee’s perspective. Employees can put up with change as long as they can talk openly about it. Remember most negative people don’t know that they’re negative because no one ever tells them.

2. Find the fear, then focus on solutions. Teach negative employees to focus on offering solutions, not just criticism. Turning the griper into a solution provider gives them a genuine avenue to contribute.

3. Do some coaching. Work with the negative person on improving their attitude. Chances are, these people are complaining because they think they have good ideas that haven’t been heard.

Ultimately, employers can work too long and hard with some negative people when it’s better just to cut your losses, recognizing a bad fit. If there’s no improvement after three to six months, maybe it’s time to let them go (legally, documented, etc., of course).

After you let a negative person go, talk with employees about the future of their workplace. It can be the perfect opportunity to take the pulse of your company culture.

 


The 5 C’s of Credit

By Chemeketa SBDC

Businesses require capital to start, run and grow. Where does it come from? Isn’t that a large piece of the successful business puzzle? Many small businesses must save for years or invest inheritance or retirement funds, while others borrow from friends and family.

While these are successful venues to pursue in raising funds for business, they are not always available. Who is always available? The bank.

Visiting a bank is not a guarantee that you will receive needed funds; typically, about one in four businesses will be successful in getting a loan. Why is that number so low? Banks want to lend in a manner that brings the greatest return for the least risk. In other words, they want to know they’ll get their money back.

So your job as a potential borrower is to demonstrate that you are capable of repaying what was borrowed and that you are a minimal risk to the bank. Banks look at potential borrowers and assess their 5 C’s: character, credit score, capacity, capital and collateral. Bankers often use this term to describe the considerations given to the borrowing ability of a small business.

A bank is going to assess your character. This is often picked up during the interview process and throughout your work with the loan officers. Do you have a history of paying on time? How do you treat your managers, employees, vendors and customers? This is a subjective judgment but is one of the 5 C’s, a piece of the decision-making process.

On the flip side, the next test is not so subjective. Credit score is often a make-or-break consideration. A credit score demonstrates your commitment to meeting your financial obligations. There is not a concrete minimum score; each institution sets its own policy regarding credit scores. Having a high score increases your chances of borrowing money.

Free reports are available, and you should review your score at least annually. This will help you identify ways to clean up your credit. It also provides a basis for comparing yourself to other borrowers, as most reports tell you where you rank nationwide. You can work on your credit score for months and even years in advance of applying for a loan to position yourself to be lendable.

Capacity is where your projections are used. What is your ability to repay the loan? A banker will look for sufficient cash flows to cover your debt repayments, not just to this bank but to all the sources from which you have borrowed funds.

Debt-to-income ratios are used in making these determinations. Most homebuyers are familiar with this computation. When looking at your total debt payments as a percentage of your total income, it must be below certain thresholds determined by the bank to keep its risks at moderate levels.

Next comes the skin-in-the-game test. A lender wants you to invest, not just your time and efforts, but your money into the business as well. Capital. This is often a deal breaker as many people expect to be 100 percent financed. Typically you will need to contribute 20 to 30 percent of the capital. These funds are often raised from friends, family or retirement withdrawals.

The last of the 5 C’s is collateral. Your lender wants to know how it can get its money back if you default and don’t repay. If you pledge real estate or capital equipment as collateral, then you can be forced to sell the assets and the proceeds used to repay your creditor. Remember, banks are risk averse, and having sufficient collateral allows them the best opportunity to recover their funds, but such a drastic measure is typically a worst-case scenario.

Banks are great to work with. They want to lend money. But will they lend to you? Are you bankable? That is for the bank to determine, but if you strive to improve your 5 C’s, you are giving yourself the best chance at raising the funds necessary to start, run and grow your small business.

 


Make a Plan When Spending Advertising Dollars

By Chemeketa SBDC

It’s a question as old as business itself: How can a company be sure it’s spending the right amount of money on the right kind of marketing so that it can sell more products or services to increase profitability and, ultimately, enhance shareholder value?

Advertising dollars without an evaluation plan are dollars wasted. You must know BEFORE you spend one dime what you expect to get as a return on your investment, or ROI, and you must have a plan for knowing whether or not the expenditure was worthwhile.

ROI is a measure of the effectiveness of your advertising. How much you made compared to how much you spent or invested.

First you must be specific. Set your goal. To start down the path of marketing/advertising without knowing what you want to achieve is easy. Most everybody starts that way. The problem, you will never know if you got where you wanted to go. More specifically, you will never know if the marketing strategy worked!

If you spend $1000; attract 10 new customers who each spend an average of $50 dollars — this is not good: $50 x 10 customers yield $500. You just spent $1000 to earn $500.

Measure your investment. Your ROI is calculated by dividing your sales by your advertising costs. Example above $500 / $1000 = 50 percent. Not good. Bad investment. You must have a minimum of 100 percent simply to break even.

“Oh”, you say, “they will come back”. Okay, then your strategy simply for breakeven must be 10 new customers spending $50 each and returning a second time to spend $50. ROI: $1000/$1000 = 100 percent. Okay, but still not good enough. Why all the effort and energy just to break even?

The most effective advertising gives you a high ROI. You get a high ROI if you spend very little to advertise and still get sales.

The second critical step in ROI is how do you measure the effectiveness of the ad? Be sure to collect data so that you can calculate your actual ROI. If you are using multiple advertising methods, you will need to track sales or income as a result of each type of advertising.

• Ask prospects that contact you how they heard about your business. (Write it down, keep a tally – you cannot remember in your head and measure effectively).

• Include a code with your advertising and ask prospects to include the code with their order or inquiry. (Codes work well to track results from multiple advertising campaigns that are occurring concurrently.)

• Keep advertising campaigns separate from each other to test new markets.

• Feature a new product / service and market it exclusively in multiple media.

To know if a marketing strategy is effective you must a) know your costs (easy enough) and b) know how many customers responded to the advertising strategy ( more complex but critical). Be creative.

 


Keep Things in Perspective Business Owners

By Chemeketa SBDC

If you’re a business owner, you know that the job can be tiring, stressful and challenging. Small business owners wear many different hats, often at the same time. There are customers to service, records to keep, critical questions to answer, inventory to manage, taxes to deal with and a million details.

So much needs to be done, and often by only one or two owners. It isn’t uncommon for the business to drain your energy and motivation, regardless of how much you enjoy the business. Finding balance in this chaos can be difficult. But neglecting to find this balance can lead to burnout, business failure or personal illness. Creating boundaries between personal time and work time is necessary to keep your business in perspective.

Start the process of setting boundaries by reflecting on priorities and knowing what’s really important to accomplish in a day, a week or a month in order for your business to succeed. After that you will feel better about allowing the time you need for personal activities. Analyze and understand all of the tasks you perform in your business. Prioritize those that bring in the most value, and ruthlessly reduce or eliminate the rest. Delegate as a matter of course; outsource if you need to.

Finding balance is about making choices that are healthy (emotionally and physically) and implementing tools that reduce stress. Rethink business hours of operation to allow time for family, friends, exercise and fun. Keep business activities confined to those hours of business operation as much as possible to avoid burnout.

The key to successfully keeping business in perspective is to establish boundaries, plan ahead and manage time for achieving the greatest impact. Develop a healthy perspective on what’s truly important to your happiness and what’s getting in the way.

Some common strategies that busy business owners use to balance a personal life with business success include time management, planning, prioritizing, being productive and not just busy, delegating, incorporating technology, and just plain old taking a break to refresh and recharge.

Some additional tips include creating a focus on solutions and not problems, keeping a visual reminder of your “why am I in this business” near you at all times, writing down your successes at the end of each day, and viewing challenges as growth opportunities.

Everyone business owner knows it takes fortitude. To those outside looking in, running a successful business looks easy. But every business owner knows that their success only came after a lot of false starts, time and effort, learning experiences and perseverance. If you don’t take time to recharge your batteries and refresh your perspective, it’s easy to find yourself frustrated with your business.

 


Start-up Businesses Need Market Analysis and Research

By Chemeketa SBDC

Market analysis and research are critical for start‐up businesses and should be a key element in the business plan; however, this is not solely for new businesses. Accurate assessment of the market and development of an effective plan are critical to the success of both new and existing businesses.

Market analysis involves both a broad study of the business environment and market forces, and in an in-depth examination of the business, competitors and customer base in order to understand where each is today and where each will be in the future.

Market research is defined as systematic gathering of information regarding customers or potential customers to use in planning for and operating a business. To be successful in business, you need to understand what your customers want and need, what price they are willing to pay and what their buying habits are. You need to understand what the competition is doing, what direction they are moving and how they are reaching customers. And you need to understand your industry, what the business trends are, and what opportunities and threats are looming on the horizon.

Market research is used in business planning to determine the feasibility of a business idea or a business location. It’s used to show investors and lenders that financial projections are reasonable. It’s also used to develop a pricing strategy and to build advertising campaigns that reach potential customers. Market research is used to identify new opportunities and reduce business risks. Without market research it’s difficult to identify trends or potential problems in your industry.

Market research is divided into two categories. Primary research is conducted from scratch and often gathered from direct contact with customers. Secondary research is market research that’s already compiled and organized for you, and it’s available from a variety of sources. Government agencies can provide a wealth of information about economic conditions, trends, disposable income and the regulatory environment. Industry associations, business periodicals, academic institutions and other businesses collect and analyze research data about business trends.

The Oregon Small Business Development Center Network recently introduced a new market research service. The Southern Oregon University Market Research Institute can deliver in‐depth, applied market research to OSBDCN clients around the state who have established businesses that are poised for rapid growth and job creation. A market research team of graduate researchers and faculty advisors at the SOU BizCenter will compile In‐depth market research reports based on the specific needs and industry sector of BizCenter business clients. The institute’s research databases can provide a wide range of data and information including industry trends and forecasts, competitive analyses, customer demographics and characteristics, and much more.

Most of the institute’s services will be offered at no cost, although more in‐depth and customized research will be fee based. To utilize the services and database resources of the Market Research institute, owners of small businesses must first meet with an adviser at the Chemeketa Community College Small Business Development Center (SBDC). In addition to the databases that can be utilized by the Market Research Institute to assist established businesses that are poised for growth, your local Chemeketa SBDC also has tools available for businesses at other stages, including start‐ups and pre‐venture clients.

Researching your market is an ongoing process in successful business. It can be as simple as asking customers how they found your business or what other products and services they would be interested in purchasing from you. It can be as complex as creating a fullscale survey and analyzing the data collected using statistical analysis. Developing a strategy and selecting the research techniques you will use to gather market research data can be challenging. The team at the Chemeketa SBDC is ready to assist you in this process and help you navigate a path, creating a roadmap for future growth.