Small Business Development Center
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Category Archives: Small Biz Management

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.


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.


Running a Family Business Can Have Unique Challenges

By Chemeketa SBDC

Family businesses can be wonderful. And challenging. Or maybe difficult and challenging. Or maybe all of it all at once. If siblings are involved there are issues to be worked through on the way towards a smoothly running business, especially if the business was started by the older generation and then handed over. Here are a few key points to consider:

  • Clear away any unfinished business or lingering emotional issues first. Unresolved issues will clutter any discussions going forward. Rivalries, old wounds, and tendencies towards competition can derail a business. Invest in a weekend retreat or series of sessions with a trained facilitator. Decide up front if this is even a course worth pursuing. If it isn’t then involve legal counsel to draw up a buy-sell agreement and documents that consolidate ownership into fewer hands.
  • Determine up front what the vision for the company is, and agree on it. If one sibling wants to grow an empire while another is happy to keep the business the same size it is now, there will be big problems. Come to agreement on size, direction, and other matters so that everyone knows right off the bat where this is headed.
  • Your business needs an organizational chart and clear job descriptions for everyone. Who will fill which niche, how much responsibility will each person have and for what areas, what are the regular duties to perform. How will performance be measured? These are key questions for any person in a business, but especially key when emotional and family factors are at play. Take subjective judgment and the potential for favoritism out of the equation by using well-written documentation.
  • Write clear compensation policies and stick to them. What people are paid should be based on job performance and in accordance with industry standards. Take the emotion out of this completely if you can. Hire an HR consultant if you need to.
  • Decide how communication will occur (in writing? During regular meetings?) and be sure to include a policy on conflict resolution. How will things be brought out into the open and dealt with (in a timely manner)? Ignoring conflicts will just lead to greater ones down the road, and that can spell disaster.
  • Develop a board of advisors and pay serious attention to their advice. Members of this group should include your attorney, your CPA, and people outside your business who have expertise in marketing, personnel, your industry, and other related matters that impact your business.
  • Create a set of policies (in writing!) that govern perks, privileges and conduct. Who will get the sports tickets? How often may company equipment be used at home? Where will charity dollars be allocated to, and who will decide? How much financial information will be shared (things like extra gifts from mom and dad, personal tax information, prenuptial or divorce documents)?
  • Figure out ways to enjoy each other’s company on your off hours. You’re still brothers and sisters, so enjoy family holidays and find ways to strengthen your family bonds.


Planning a Company Retreat

By Chemeketa SBDC

Do you and your staff need a retreat day? You know, a day away from work where you can focus on strategic planning, or resolving something that’s just too big to fit into an extended staff meeting. If you do, here are some planning tips to make the most of your time.

First, you need to know what your goal is for your time away. The retreat should have a clear business purpose, like creating a strategic plan, or developing the year’s marketing calendar. Make sure you can accomplish this goal within the time you’ve dedicated.

Once you know what you want to accomplish you can decide who to invite. Just issuing a blanket invitation to all staff might not be the best use of staff resources. And consider that some retreat goals might be served by inviting some of your best customers or other stakeholders. Also, you’ll want to include anyone who needs to have buy-in on whatever decisions you are making.

From here you’ll need to decide on a few logistics. Where will you hold the retreat? Do you want to build social time around the business activities? If so, then consider a place with good restaurants or recreational facilities around it. Will you be having the event catered? Is it a brown-bag affair? This will make a difference in your locale.

Next, think about who will help you get through the agenda. A facilitator can play a helpful role here. They’re neutral, understand group processes and dynamics, and can help you get through an agenda efficiently. You may want to include one.

Prior to the retreat, work up an agenda that is specific as to time frames, activities, purpose and desired results. Distribute the agenda beforehand so attendees can bring whatever materials they might need to present. Participants should know up front if they are there to just discuss issues or if they’ll be asked to make decisions on issues. The more preparation everyone puts in ahead of time the better your retreat will go.


Bad Habits That Can Derail Your Business

By Chemeketa SBDC

Can we talk about your habits? Well, how about the ones that affect your business then? We all do things habitually, for better or worse, and those things have a direct bearing on the success (or not) of our businesses. Here’s a handful of them to watch out for.

• Indecisiveness. You know this one, it’s where you stall out on decision making. Perhaps you let the day to day small tasks of your business keep your attention away from the decisions you know you need to make, and so you just don’t make them. Or perhaps you wait (and wait and wait) for the one key piece of information you need. And you put off making a decision that will make a big difference for your business. And you do it repeatedly.

• Being penny-wise. In other words, cheaping out and saving small amounts of money when a wiser spending decision would bring a far richer return on investment. Businesses cost money to run and to grow. Naturally you shouldn’t run around wasting money left and right, but the opposite of this is hanging on to every nickel at the expense of strategic spending decisions.

• Allowing day to day chaos and noise to distract you from what’s strategically important. Also known as “putting out fires” all day long, this habit solves the urgent and immediate but doesn’t help you lay out long-term plans and direction. This is also known as being held hostage to the “tyranny of the urgent.”

• Waiting for the ideal time before doing something. Unfortunately there usually isn’t a perfect time for things. If this is a good, or good enough, time to make something happen…then seize it and make good on it. This habit of waiting is a cousin to the habit of indecisiveness. Also known as spinning your wheels, it doesn’t move you forward. If I offered to give you a million dollars if you made a decision about something in the next half hour, I’ll bet you could do it, right? And that means you don’t have a problem making a decision, you have a problem choosing to make a decision.

Be honest with yourself about some of this stuff and how it’s affecting your business. What small changes can you make right now in your habits that will benefit your business a good deal in the future?


If You Fall Behind on Payments, Talk to Your Creditors

By Chemeketa SBDC

There are times when cash flow becomes very short for your business and you may have fallen behind in payments to your suppliers.

While it may not be easy, talking to your creditors has to be done. Unanswered collection calls are the quickest way to see your company fall into a legal morass that will end badly. Whether it is the actual creditor or a collection agency, providing no information (also known as running and hiding) inevitably takes the action one step further into a legal process until you may end up in court or even in bankruptcy.

If you can’t pay your bills in full, work out a plan of partial payments or extend the deadline for sending a check. You can work this plan out on a spreadsheet (every business owner should be very comfortable around a spreadsheet – if not, go get trained or learn on your own – just be sure it is a tool you know how to use!) Look at every possibility and be certain that you can present a plan that you can handle. It makes no sense to propose a payback if you cannot meet it.

Then you need to present this plan. If you are really uncomfortable about having a conversation with your creditors, start the dialogue with a short letter. One caution here is to avoid making any promises. You don’t know yet what ones you can keep. Try something along the lines of:

“Dear Supplier: You may have noticed that recently our payments have been slower than you normally expect from our company. Our cash flow has been strained by a shorter than normal summer and lower than expected sales. We are all working diligently to correct our problems and hope to be back to a better schedule soon. We will be in touch shortly to give you an update on our progress. We appreciate our long-term business relationship and thank you in advance for your cooperation. Sincerely, ABC Company.

People will talk. If all they have heard from you is silence, it is likely that strong action will be taken, including legal action. You need a chance to explain the circumstances of your company’s current situation and then describe your strategy for changing those circumstances. Your own spin on the subject will be much more positive than someone unfamiliar with your circumstances.

And finally, a creditor is less likely to take major action against someone with a recognizable name and personality – so make those calls!