YOUR SMALL BUSINESS ‘HANDYMAN’
Tip Number 1

I. HOW SUCCESSFUL IS YOUR BUSINESS?

Take a moment to evaluate your past business operations and its current status as you attempt to reach your next level of business objectives. For example, have you accomplished your original goals and objectives when you first started your business? If your goals and objectives have not been reached, you need to take some time to evaluate your business. As business owners, the majority of our time is spent putting out fires and we are often too busy to analyze where our business is progressing.

Each week, the Small Business Handyman’s column will either spotlight a flourishing Fountain Valley business or will provide helpful business operating techniques. The focus of this column is to assist your reaching your next sets of goals and objectives. Remember, for every one hundred business enterprises, only twenty-five percent who survive the first year are able to celebrate their tenth business anniversary.

II. WHAT CONSTITUTES A TRUE BUSINESS PERSON?

It is a person who creates a new business or buys an existing business in the face of risk and uncertainty. In addition, it is a person who is trying to achieve profits by identifying business opportunities and who assembles the necessary financial and staffing resources to capitalize on those opportunities. Finally, it is a person who possesses managerial and organizational skills.

III. ARE YOU A PROSPEROUS BUSINESS PERSON?

A successful business person is one who has control over most of his or her own destiny, who takes the initiative with bold and creative ideas and who is a risk taker with leadership vision. A successful person owns a business that is financially strong with a steady cash flow. And a successful person is not afraid of seeking assistance or advice from professional consultants or advisory boards.

IV. BUSINESS EVALUATION

To evaluate your current business, identify your business’s strengths and weaknesses and compare them with the following recommended business practices:

•  Provide demand products and/or services
•  Provide a unique or rare product or service
•  Provide a product or service which will not be obsolete
•  Provide a product or service which is superior to its competition
•  Provide excellent customer service
•  First serve your target market
•  Provide informed and professionally trained staff
•  Control and evaluate all expenditures
•  Possess an excellent cash flow and profit margin
•  Collect, in a timely fashion, all accounts receivables
•  Limit the number of accounts payables

V. REASONS WHY BUSINESSES FAIL:

•  Selling wrong or obsolete products or services
•  Product selling prices are either too high or too low
•  Poor cash flow, not enough cash at the end of the month
•  High expense ratio in comparison to sales
•  A low or non-existing profit margin
•  Poor business location and lack of parking facilities
•  Wrong target market
•  Poor geographical location for the business
•  Poor and ineffective advertising efforts
•  Lack of additional financial resources
•  Poor managerial and organizational skills
•  Incompetent staff
•  Non existent or inferior customer service
•  Poor business name, slogan, and brand.

BUSINESS PLANS BRING SUCCESS
Tip Number 2

Why write a business plan? Imagine departing for an unknown vacation destination without the use of a road map. This association is similar to a business person who is attempting to either start or operate an existing business without any idea of how to develop the business.

What is a business plan? A business plan is a written narrative with financial and marketing projections. The plan describes the goals of a new or existing business and how the goals will be accomplished within a certain period of time.

What is the purpose of a business plan? First and most important, the business plan is used by management and employees to guide them in the operation of the business. Second, the business plan introduces the company to potential investors and inform stakeholders to what the business will accomplish.

How many businesses prepare business plans? According to the 2002 Inc. magazine top 500 businesses, only 40% of those businesses had a formal written comprehensive business plan before launching their business ventures. If the remaining 60% had developed a business plan before starting the business, would they have been more successful? New entrepreneurs state the daily challenges and pressures of starting and running a company leaves them little time for planning. However, more than 55% of new start-up businesses fail during the first year and a majority did not have a business plan.

Why is a business plan important? A well-written business plan is important for several reasons. First, a business plan is an internal document helping a new or existing business identify its operational model and solidifies its goals. A business plan acts as an important road map for the management team and employees. Second, the business plan is a selling document of how a company is planning to meet its goals and objectives. It provides a mechanism for a young company to present itself favorably to potential bankers, investors, venture capitalist, suppliers, business partners, and key personnel candidates. A business plan helps a company establish itself from the crowded competitive business world. A business plan immeasurably improves the chances of getting funded. A formal development of a business plan demonstrates the dedication of the owner and or manager.

What are the types of business plans?
1. A Summary Plan – 10 to 15 pages. This plan is for companies who are in the early developmental stages and are not prepared to write a full plan. It may also be used when applying for a loan.

2. A Full Business Plan – 25 to 40 pages. This plan is written to identify the company’s operational plan with more details than a summary business plan. Usually, it is written and developed to assist new or existing businesses who are seeking funding from specific investors.

3. An Operational Business Plan – 40 to 100 pages. This plan is a detailed day-to-day operational plan primarily used for an internal audience: the owner, manager, employees, and current investors.

How do you write a business plan? If you decide to write a business plan, purchase a useful software program such as “Business Plan Pro 2005,” “Automate Your Business Plan,” or other programs sold at your local office supply store.

GUIDELINES FOR LEADING AND STAFFING YOUR SMALL BUSINESS’
Tip Number 3

Let’s ask ourselves, “Why is leading and staffing your business so important in today’s competitive world?” Without an appropriate leader at the head of the business and guidelines for hiring a competent staff, the potential success of the small business will be in jeopardy. Today’s article will focus on these two important aspects of a successful small business.

What constitutes an effective small business leader?

•  A leader creates a set of values and beliefs for employees and  passionately pursues them.
•  A leader respects and supports his/her employees
•  A leader sets an example for his/her employees
•  A leader focuses on his/her employees’ efforts as they pursue challenging  goals
•  A leader provides the resources employees need to achieve their goals
•  A leader values the diversity of his/her workers
•  A leader encourages moderate risk-taking among his/her workers
•  A leader values new ideas from employees
•  A leader encourages creativity among his/her workers
•  A leader maintains a sense of humor
•  A leader behaves with integrity at all times

What are the vital tasks of an effective small business leader?

•  Hire the right employees and constantly improve their skills
•  Motivate workers to higher levels of performanc
•  Communicate the vision and the values of the business and create an  environment of trust
•  Build an organizational culture and structure that enables the company
   to  reach its potential

How do small business owners hire the right staff?

•  Conduct a job analysis which includes a practical job descriptions and
   job  specifications
•  Plan an effective interview

What constitutes a job analysis?

•  Create a job description including a written statement of the duties,  responsibilities, reporting relationships, working conditions, and
   materials  and equipment used in a job
•  Create a job specification including a written statement of the  qualifications and characteristics required for a job, stated in such
   terms as education, skills, and experiences

What should be included in an effective interview?

•  Develop a series of core questions
•  Ask open-ended questions rather than those calling for “yes or no”  answers
•  Create hypothetical situations candidates would encounter on the job
   and  ask how they would handle them
•  Probe for specific examples in the candidate’s work history which  demonstrate the necessary traits and characteristics
•  Ask candidates to describe a recent success and a recent failure and
   how  they dealt with them
•  Give an employment test that measures what is required for the job

How to successfully give a performance appraisal?

•  Link the employee’s performance to the job description
•  Establish meaningful, job-related, observable, measurable, and fair  performance criteria
•  Prepare for the appraisal by outlining the key points you want to cover  with the employee
•  Invite the employee to provide an evaluation of his/her own job  performance based on the criteria
•  Always be specific
•  Keep a record of the employee’s positive and negative critical incidents
•  Discuss the employee’s strengths and weaknesses
•  Incorporate the employee’s goals into the appraisal
•  Keep the evaluation constructive

IMPORTANCE OF MAINTAINING ADEQUATE CASH FLOWS:
Tip Number 4

America’s number one small business challenge which causes many failures is maintaining an adequate cash flow. Unfortunately, managing cash flow is a struggle for many business entrepreneurs. Owners need to manage forecasting, collecting, disbursing, investing, and planning for a business to operate smoothly. Most businesses start having difficulties when the cash inflows and cash outflows do not keep pace with each other leaving the business short of cash and unable to pay its operating obligations. The following reminders are to assist businesses maintain appropriate cash flows:

Major Causes of Small Business Cash Flow Problems:

•  Problems with collecting accounts receivable—40%
•  Seasonality of sales—23%
•  Unexpected variations in sales—15%
•  Weak sales—13%
•  Other causes—9%

Steps to Shorten Cash Flow Receivable Period:

•  Invoice customers immediately upon delivery of goods or services
•  Monitor customers’ use of credit and adjust the credit limits accordingly
•  Offer customers a discount for paying their invoices early
•  Establish a deposit policy for works in progress
•  Tracking past-due accounts and actively pursuing collections

Cash Flow Warnings through Self Assessment:

•  Business costs growing faster than sales
•  Awareness of true costs of products and services
•  Employees mistake sales for profit
•  Competition or softening in the industry turning products in commodities
•  Calculate how much cash is needed to fuel the business growth

Steps in Preparing a Useful Cash Budget:

•  Determine an adequate cash balance
•  Forecast future sales
•  Forecast cash receipts
•  Forecast cash disbursements
•  Determine end-of-month cash balance

Cash Flow Management:

•  Take advantage of money-saving opportunities
•  Make the most efficient use of available cash
•  Finance seasonal business needs
•  Develop a sound borrowing program
•  Develop a program of debt repayment
•  Provide funds for business expansion
•  Plan for investment of surplus cash

Avoiding Cash Crunch:

•  Closely managing receivables and payables
•  Utilize an appropriate inventory control
•  Bartering whenever possible
•  Careful investing
•  Trimming overhead costs

Know When the Business is Generating a Profit:

•  Know total expenses both fixed and variables
•  Know costs of goods or services
•  Know how to analyze monthly financial statements
•  Know the monthly net income before and after taxes