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Need financing for your small business? Look into an SBA loan

If you're a small business owner whose company needs an infusion of cash, the Small Business Administration (SBA) may be able to help. A federal agency charged with assisting small businesses, the SBA provides most of its assistance by loan guarantees to lenders. Such guarantees encourage private institutions (mostly banks and credit unions) to lend money to new or struggling businesses. SBA-backed loans, which can run from a few thousand dollars to hundreds of thousands, are very flexible. They can be used to finance working capital, equipment, furniture, buildings, and a variety of other business needs.

The most common type of SBA loan is offered through the 7(a) Loan Program. Under this program, a business applies directly to a private lender and the SBA insures or "guarantees" a percentage of the loan. If you, as the borrower, default on the payments, the lender will recover a portion of the outstanding loan balance. By reducing the lender's risk, the SBA emboldens otherwise reluctant lenders to provide funds to risky businesses. (Be aware, however, that SBA loan guarantees do not mitigate your responsibility for making loan payments.)

To be eligible for an SBA loan, your business must meet certain eligibility requirements. Obviously, you must plan to make a profit. (Charitable groups and other not-for-profit organizations need not apply). Because the SBA mandate includes strengthening the American economy, your firm must also do business (or propose to do business) in the United States. You'll also be asked whether you have funds available from other sources. So be prepared to divulge the nitty-gritty details of your personal, as well as your business, finances.

Of course, any legitimate lender will also scrutinize your ability to pay back the loan. (If your credit history indicates that unpaid bills are your stock in trade, don't expect an easy ride.) The lender will likely review the assumptions behind your company's cash flow projections. So come prepared to explain your financial forecasts (also known as pro forma statements). In addition, lenders will want to know that your company has a committed and competent management team. To this end, they may delve into your work experience, education, and history with prior business ventures. Time to spruce up your resume and fine tune your business plan.

The SBA also offers programs targeting veterans, underserved communities, and businesses affected by natural disasters. If you're considering an SBA loan, give us a call.

"Business Tips" are published monthly to provide useful business information. Return to this site every month for helpful suggestions on how to make your business more profitable. If you would like more information on anything in "Business Tips," or if you'd like to be on our mailing list to receive other business, tax, or financial information from time to time, please contact our office.

The business information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.

© copyright 2010

 

Tips for starting a home business

In these tough economic times, many people are taking a hard look at employment alternatives — some, because they've lost their seemingly stable jobs in the corporate world; others, because they dream of striking out on their own. In addition, as the Internet gains in popularity and employees discover the advantages of telecommuting, home-based alternatives are becoming increasingly attractive.

If such an alternative appeals to you, don't quit your day job just yet. Take time to fully investigate the pluses, minuses, and ramifications of starting a company in your home. Here are five questions to consider.

  • Is there a market for your product or service? Just because your co-workers or relatives rave about your new business idea, don't assume that everyone shares their enthusiasm. If you really expect the business to thrive, cast a skeptical eye on your potential product or service. Investigate the market, both locally and outside your geographic region, and ask whether people will pay their hard-earned money to buy your stuff.
  • Are you excited about the business idea? To be successful, you'll need to dedicate yourself to the business day in and day out. If, deep down, you aren't enthusiastic about the firm's product or service, you may find it difficult to weather the storms that confront every business.
  • Is it a good fit? If you don't like working with the public, a retail business probably doesn't make sense for you. Or perhaps your home-based business will require hours in front of a computer. If your forte is face-to-face interaction with people, you may need to rethink your strategy.
  • How will you allocate time for the business? For many people, a home-based business begins as a part-time venture. Do you have the discipline to stick to a work schedule after hours?
  • How will you finance start-up costs? As a general rule, you should have funds set aside to cover at least six months of operating expenses before opening the doors to your new venture. Without an adequate financial buffer, you may spend many unproductive hours just trying to keep the business afloat.

For those willing to take the plunge, a home-based business can provide great satisfaction. But as with any business venture, it pays to do your homework. If you would like to discuss issues related to starting a home-based business, give us a call.

 

Understand the basics of business logos

Remember the television ad that bombarded your senses with sleek cars, cool graphics, beautiful people — and left you in the dark about the advertiser's message?

A well-designed business logo shouldn't leave potential customers with that kind of confusion. If you're developing a logo for your business, here are three questions to consider.

  • Does it communicate? A business logo should convey information clearly and unequivocally. Customers should not have to guess about the products and services your business provides. They should see your logo — even when racing down the freeway at top speeds — and immediately recognize your company brand. Are you in the business of selling ice cream? Don't make customers wonder whether the image on your logo is an ice cream cone or some sort of architectural anomaly. Do you provide counseling services? Perhaps a name is all that's needed. If you've designed a logo that's even a little confusing, return to the drawing board.
  • Is it useable? Logos may be plastered on a variety of media, from ballpoint pens to coffee mugs to websites to billboards. Because of this, it makes sense to use standard colors and fonts. If the logo displays highlight colors, make sure they're complimentary or contrasting. Keep in mind, also, that your logo may be reproduced in black and white or grayscale. So make sure the logo is legible, even without color. If you're planning to expand outside the United States, avoid colors, designs, or words that may offend or confuse international customers.
  • Does it differentiate? If at all possible, a logo should identify your business as unique. If it too closely mimics a competitor or some other company, consumers may begin to view your firm as a commodity. To set your logo apart, consider incorporating a tag line (an oft-repeated phrase like "just do it!") into the design to reinforce the underlying message.

To create an eye-catching logo as part of an overall marketing strategy, you may want to hire a professional graphic artist. Just be sure to review the artist's portfolio and references, and ask tough questions before committing to any potential design. Logo directories — such as logo-search.com or logoworks.com — can also provide ideas.

A logo will represent your business — positively or negatively — for years to come. It shouldn't be an afterthought, and it shouldn't indulge the whims of the marketing department at the expense of paying customers.

   

Identity theft can happen to your business too

Businesses sometimes adopt a head-in-the-sand attitude when it comes to identity theft.

That's good news for thieves. By stealing the average consumer's credit card data, a thief can run up a sizeable bill at a department store or online auction. But if the crook absconds with corporate files, a treasure trove of sensitive information (from vendors, customers, and employees) can be his for the taking.

Say you operate a local video store. In the process of signing up new members, you collect sensitive information such as credit card numbers and home addresses. One night a tech-savvy thief breaks in and steals the store's computers, thereby gaining access to all customer data you've collected. When the spending spree begins (and it will) and your customers learn of this security breach (and they will), your business reputation is headed for a nose dive.

Or there's the scam (often called the "bust-out") in which a crook rents space in the same building as your business. Using your company name, he or she applies for a corporate credit card. When the card issuer reviews the address, it checks out. So the corporate credit line is approved and the thief goes shopping — on your dime. Consider also that corporate accounts often maintain higher credit limits than those offered to consumers and large purchases may be commonplace, raising fewer "red flags."

To reduce the risk of identity theft at your company, consider the following:

  • If you don't need it, don't collect it. The more sensitive information that's sitting in your filing cabinets or on your computer, the more risk you run. So don't ask for a customer's social security number and home address if all you really need is a name and phone number.
  • Limit access. Staff should only be allowed to view information that's needed for their particular duties. The maintenance guy probably doesn't need to know about client health records. Perhaps the receptionist can remain ignorant about supplier identification numbers.
  • Who's asking? Thieves often get sensitive information from eager-to-help staff who fall for believable stories. "Miss, my mother is in the hospital and she really needs this information for proof of insurance." When you or your staff get a seemingly legitimate request, be sure to follow up. Call the hospital directly before sharing information.

Identity theft is not just a problem for your clients; it's a business threat as well.

 

Is it time to change your business entity?

Have you reviewed your choice of business entity lately? "Business entity" is the legal form under which your business operates.

Perhaps you organized as a traditional C corporation to obtain the liability protection offered by a corporate structure. Perhaps you operate as a sole proprietor or in a simple partnership, giving up liability protection but avoiding the double taxation of corporate profits. Or perhaps you chose an S corporation or one of the limited liability companies (LLCs). These provide liability protection but allow profits to flow through directly to your personal tax return without double taxation.

However you do business, it's a decision you should revisit periodically. That's because there's no single "correct" choice that is best for every business at all stages of its life. Each option has its own advantages and limitations in a number of areas. Among the questions to consider are:

  • How many owners or shareholders will the business have, now and in the future?
  • How great is the need for protection against liabilities?
  • How do you want profits to be taxed?
  • How do you want to allocate profits and losses among owners?
  • Do you want to provide retirement and fringe benefits to owners?
  • What are the plans for future growth?
  • What are the annual costs to maintain the business entity?

The tax and nontax consequences of the legal form you choose for your business can be significant. To discuss whether your current business form is still right for you, give us a call.

   

Make your company one of the "best places to work"

Every year business journals and Internet Web sites produce lists of "the best places to work" compiled from employee surveys, management interviews, and the observations of professors and financial reporters. Whether a company rises to the top of a person's personal list depends on his or her particular job preferences. For example, you might value a laid-back workplace and decentralized management. For you, a company that offers that kind of environment (other things being equal) might be considered one of the top places to work. Someone else might instead prefer a hard-driving, more intense firm. He or she might find your company tedious and boring.

Studies have consistently shown that compensation, although important, is not the primary factor that makes workers stay at a company. It's not all about the money. In fact, some firms that provide stellar compensation packages suffer high turnover, low morale, and dwindling market share. Others — including smaller companies that may not offer tip-top benefit packages — maintain a loyal and dedicated workforce that regularly contributes to the company's success. In fact, many studies show that happy workers provide more efficient production, better customer service, and greater innovation. They're also less likely to quit or call in sick.

Want to make your company one of the best places to work? Here are four keys.

  • Respect. In the best companies, employees matter and they know it. Providing employees with necessary training, acknowledging outstanding work, creating a healthy and upbeat workplace — these show team members that they're valued.
  • Fairness. The best companies treat employees equitably. This applies, of course, to hiring and promotion decisions, but might also include sharing the firm's success through a structured bonus plan.
  • A sense of pride. Most people enjoy working with a team that accomplishes something significant. Create this type of work environment and you'll foster company loyalty. Strive to make everything you do — and everyone you employ — an integral part of the firm's mission.
  • Opportunities. No one looks forward to a dead-end job. Give your workers an adventure to anticipate. Find ways to expand their horizons. For example, you might provide cross-training to develop new skills or encourage innovation.

Even if you can't offer the best compensation package on the planet, satisfied workers can help propel your company forward. And they'll let their talented friends know that your company is one of the best places to work.

 

Watch for hazards when buying a franchise

With a franchise, you don't have to start a company from scratch. Whether the business sells fast food, automotive services, gourmet coffee, or dry cleaning, successful franchises are usually based on a proven business idea and a recognized brand name. The best franchisors can jumpstart a business by providing staff training, location advice, and detailed operations manuals. And some have ongoing relationships with financial institutions, which can help when you're searching for start-up capital.

But buying into a franchise requires careful analysis and a healthy dose of skepticism. Before taking the plunge, watch for these hazards:

  • Unrealistic forecasts. Sometimes predicted revenues do not materialize. That's because early entrants may have cornered the most profitable territories already. So be aware that rosy forecasts based on historical data do not always pan out. Get market research for the area you've staked out (preferably from several sources), and determine the least amount of revenue you'll need to cover costs and remain profitable.
  • Unanticipated costs. In addition to an initial outlay for franchise rights, you'll incur numerous out-of-pocket costs. These might include advertising, inventory and supply expenses, additional fees for training staff, legal expenses, and so on. Generally, you'll also pay a continuing royalty on sales whether or not you make a profit. Failure to factor in these additional costs can sink a business before it gets started.
  • Undependable franchisors. This is one area where research is vital. Contact other franchisees and ask about their experiences with the company. Have they been satisfied with the company's support, including training, the quality of goods delivered, and ongoing relationships? Take a hard look at the company's key management staff. How long have they been in business? What experience and education did they bring to the company? How many of their franchises have failed and why?
  • Unproven business model. If you're considering a franchise that's not exactly a household word, use caution. Of course, jumping in during the initial stages of a fast-growing franchise can be especially lucrative. But there's no substitute for proven marketability. Often a great idea on paper needs to be tweaked (or overhauled) when a company enters the marketplace. Unless you can live with significant risk — including the potential loss of your investment — steer toward a franchise with a solid track record.

If franchises are on your mind, give us a call for help with your analysis.

   

How to pitch your business to the press

After a few false starts, your business is finally up and running. You're producing things; you're providing services; you're making an impact. It's time to issue that hot press release or grant an in-depth interview to the local newspaper reporter. But if you're like many business owners, dealing with the press is unfamiliar territory — maybe even a bit scary. If you're preparing a press release or gearing up for an interview, here are a few dos and don'ts to consider.

Press releases

  • Don't write advertising copy. Unlike a commercial, a press release must deliver actual news or interesting information — something that's newsworthy. It should read like a news story with a catchy headline. The article should answer the big five questions — who, what, when, where, and why. Then weave in quotations, testimonials, statistics and an anecdote or two. Ideally, a well-written press release should instill in readers a desire for more information.
  • Send it to the right person. Publications often have many departments, each of which may be inundated with press releases from governments, businesses, and other organizations. Don't send your carefully crafted press release about construction trends to the fashion editor.
  • Keep it simple. A standard press release usually runs from 400 to 500 words — just enough words to pique a reader's interest. Use standard language and avoid jargon. Remember, if your readers can't understand your buzz words, they'll quickly lose interest. Keep your sentences short and to the point.

Interviews

  • Be prepared. Anticipate your interviewer's questions by creating a brief fact sheet about your firm that can be referenced during the interview and given to the reporter when he or she leaves. Try to recall human interest stories that relate to the history of your business, its staff, or its customers. Come to the interview with a few fleshed-out story ideas, complete with statistics and pertinent facts. If you want your story published, make the reporter smile.
  • Don't fuss. If the reporter (who, after all, knows a lot more about the publication's readers than you do) wants to take the story in a different direction, be flexible.
  • Be available. Remember, journalists have deadlines. A wise business owner will consider those restraints and provide access at any reasonable time.

Following a few simple guidelines can help ensure that your business is recognized in the press and discovered by potential customers.

 

How to motivate employees in tough times

Charles Dickens once started a novel with the following words: "It was the best of times; it was the worst of times... it was the spring of hope; it was the winter of despair." He could have been describing today's economy.

Small firms, especially, struggle with changing market conditions. How about the local business that manufactures airplane parts? In an upbeat economy, inventory may be flying off the shelves. But if OPEC decides to raise oil prices or a significant segment of the public decides to avoid air travel, the firm's highly skilled machinists may find themselves in the unemployment line. Or take a small construction firm. Sales revenues can be influenced by a wide variety of conditions, including lumber prices, interest rates, and gyrations in the global economy.

Uncertain market conditions can affect the productivity of even the most stalwart and loyal employees. Workers who face indefinite futures may find it difficult to stay focused. A major challenge for managers, throughout the ups and downs of business cycles, is motivating employees and keeping them on track.

How do you ensure that your workforce remains productive and positive during these volatile times? It's a tall order — but not an impossible one. Here are three suggestions.

  • Keep it real. Denying the problem won't make it go away. If your company is losing sales and your workers may face layoffs, don't pretend everything's just fine. Open the channels of communication even wider. Solicit solutions from your staff. Employees have a vested interest in keeping the company afloat. They'll often provide some of your best advice.
  • Shift the focus. Pessimism breeds pessimism. To counter negativity, discuss new opportunities. Analyze businesses in your industry that are showing a profit, even in a down market. Shine the spotlight on them; then go and do likewise.
  • Show appreciation. No one likes insincere kudos. But when the work or attitude of an employee deserves honest praise, don't pass up the opportunity. Let your workers know they're making a difference. Even if your firm can't offer cash incentives right now, let your best employees know that their efforts haven't gone unnoticed. If you can honestly do so, hold out hope for future rewards as market conditions improve.

To some of your staff, today's volatile market may seem like "the worst of times." Keep them motivated now, and "the best of times" may be just ahead.

   

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