Arm Yourself with Knowledge

The internet has provided access to entrepreneurial experts from across the globe. Information on opening, expanding or harvesting your business is readily available. However, entrepreneurs need to be willing to take the time to access the information and learn from what is available.

This may seem like an easy task, yet many business owners do not take advantage of the information available to help their businesses survive, thrive and grow. Knowledge is a competitive advantage, and the business owner who learns about the market place, how to capture that market place and maintain market share will win.

Market research and competitive intelligence is an ongoing research task for any business. The information is critical in maintaining an edge in the market, especially in this time of more aggressive business and global competition. Market research is an ongoing task, because markets are changing very rapidly and the pace of business has increased dramatically in the past few years. The danger for many entrepreneurs comes from feeling overwhelmed and overloaded by the amount of information one can obtain.

To help the entrepreneur with their market research, there are a few key questions to ask. Before you start, ask what decision will be made and how the information will be used. When engaging in internet research, give yourself a time limit for searching the internet. There may be times where you waste more time than you gain by searching for answers on the internet.

Once you begin to engage in research, look at the source being viewed. Who wrote the article, what is their authority or affiliation? How accurate or relevant is the information, what is the intent of the information and how reliable is the information?

While engaging in market research, 50% of the information should be sought from people. Interview or call your competition’s suppliers, any associations for your industry, merchant associations, customers or local reporters. Get a feel for what is happening in your industry, what changes are taking place and what are some of the needs in the industry. Be persistent in contacting and talking with industry informants.

The next 50% of the research can be done on the internet or the library. Begin by using a variety of search engines for the same topic. Some search engines to try are www.google.com, www.yahoo.com, www.ask.com, www.search.msn.com, www.clusty.com and www.vivisimo.com. You can search blogs, local clubs, chambers of commerce, economic development organizations and more. Additionally, a lot of information can be found on GIS Maps. Fort Smith has an excellent GIS department, and they can be found at www.gis.fsark.com. Lastly, if you are in search of regulatory information, you can go to www.Thomas.loc.gov, www.usa.gov or http://asbdc.ualr.edu/.

Other search options include: your competitor’s website, news sites, sites your competitors link to, blogs, patent applications, podcasts, Wikipedia or advanced search engine requests. While the amount of information is overwhelming, entrepreneurs need to equip themselves with information that will help the business win customers. In this information age, anyone can access the information they need for business. The challenge is being disciplined enough to seek out the information that is needed.

NO FREE GRANT FUNDS

Opening a business and being one’s own boss is as much a part of the American dream as owning a home. In fact, being self employed or an entrepreneur is gaining a great amount of attention in this country’s economy. Citizens of this country are blessed with the freedom to start a business and enter an endless number of markets.

However, opening and running a business is not as easy as many make it seem. If you have flipped channels in the middle of the night, a funny looking man with question marks on his clothes lure others into the idea that there are numerous funds available for people to start their own businesses or that you can earn thousands working from home. This gentleman along with other copy cats are selling you untruths in order to sell their own books or services.

Business service providers, like the Innovation and Entrepreneurship Center or the Small Business Development Centers, wish there were easier ways to finance a business like the infomercials suggest. However, the reality is there are no free grant funds for people to start or grow their businesses. There are a small number of technology grants available to companies willing to engage in research and development for departments of the Federal government. These grant funds are highly competitive and come with many strings attached to the funding.

Moving forward on a business, the entrepreneur needs to be prepared to address the financial needs for the business. He/she needs to be able to sustain their personal finances first before moving toward opening the business. Rarely is a business profitable as quickly as the entrepreneur may think. Planning to sustain personal finances is the first step in starting the business.

In the planning process of opening the business, the entrepreneur should prepare conservative financial statements. These financial statements should identify how much capital is needed to start the business. If the company requires more funds than the entrepreneur has, then he needs to seek outside financing to help open the doors. Usually, a business will seek out a business loan to help pay for the materials, inventory or equipment needed to operate the business.

The first place an entrepreneur should look for additional capital in starting their business is through what is commonly called “friends, family and fools (fff).” This form of capital is the easiest to find and obtain. After seeking support from friends or family, bank loans are then sought out for the business. If your business is entering a fast growth industry and your capital requirements are great, then venture or angel funding may be necessary.

Regardless of the type of capital source the business seeks, the entrepreneur needs to prepare a business plan, sound financial statements, and form a solid management team for the business. In addition to preparing the business for capital, the business owner must prepare their own financial worthiness. A good credit score or a cleaned-up credit report will be needed for the business.

Before jumping into a business idea, the first step towards understanding business capital comes with learning as much as possible about the options, opportunities and the requirements of money and one’s business. Utilizing resources like the Small Business Development Center or the Innovation and Entrepreneurship Center are good places to start.

African American Business Owners

According to the US Census Bureau, there are 1 million Black owned businesses in the United States. Black businesses account for over $100 billion in annual sales, and African Americans have over $800 billion in expendable income each year. Minority business enterprises (MBEs) are a rapidly growing and increasingly important segment of the U.S. and global economy.

From 1997-2002, the total number of U.S. companies increased by 2 million. According to the Minority Business Development Agency (MBDA), over 50% of this increase was accounted for by minority-owned firms. MBDA notes that minority-owned businesses are diverse, and participate in a wide variety of industries like financial services, health care, construction, transportation, and other services.

However, despite the impressive growth in the number of U.S. minority firms, MBEs must increase their size, scale, and the economic viability of their firms if they are to compete effectively in the global economy. In this day of the global economy, minority businesses must be assertive and innovative competitors who will not fear or retreat from globalization.

In the MBDA report, “Minority Business Enterprises Mastering the Supply Chain: A Perspective,” research suggests that businesses who understand the supply chain concept will be more equipped to bring their businesses to the next economic level. The report, available at www.mbda.gov, demonstrates how minority businesses are able to grow their companies by coping with the challenges of local, national and international competition.

If minority businesses learn about and master the three levels of supply chain management, new opportunities await their businesses. Supply chain management is defined as the “planning and management of all activities involved in sourcing, procurement, conversion and logistics management activities. It also includes the coordination and collaboration with channel partners, which can be supplies, intermediaries, third-party service providers, and customers.”

The three levels of supply chain discipline according to the MBDA include:

• Managing the fundamentals of supply chain, which includes identifying the risks that exist within the supply chain. Once the risk is identified, the business owner may take steps to mitigate those risks.
• Selling the value of a shorter and more reliable supply chain. By reviewing the supply chain, the business owner can see where efficiencies are needed and where partnerships may be formed to decrease costs yet increase turn-around deliverables.
• Transcending today’s supply chain. By acquiring the skills to get ahead of today’s supply chain trends, moving toward higher value positions and markets and staying ahead of the competition, the business owner will see greater results.

The three levels of supply chain discipline lead to business owners to a path of continues study and learning. Staying abreast of the market and trends happening within the market and with technology will lead to business decisions that are relevant. Minority businesses have great opportunities with their businesses, and taking charge of the business is the first step to success.

E-Myth Revisited

Several business owners and entrepreneurs in the Fort Smith region have been reading the book The E-Myth Revisited. Watching several entrepreneurs transform their approach to their businesses has been priceless to the IEC. The great thing about Michael Gerber’s book is that almost any business owner can read through its wisdom and apply at least one idea to help their business.

One such idea is considering one’s business as a reflection of oneself. Gerber notes “If your thinking is sloppy, your business will be sloppy.” This idea drills down to every aspect of one’s business. If you don’t have a plan, then your business won’t have a direction. If you don’t research your market or talk with customers, your business will reflect limitations because of that. If you don’t keep up with your market or industry by continuously learning, your business will get left behind. If you are greedy, your employees will reflect your values of greed. If you are unorganized, no one else in your business is going to be more organized than you.

If you don’t understand what it takes to run a business, your business will reflect that. However, there is hope, and you can change. The key is the business owner needs to be willing to change and make needed improvements to the business. Whether it is cleaning an office and getting organized or documenting and instilling policies or procedures for the organization, business owners need to be willing to take a sober and unbiased look at their businesses. If your business has cash-flow problems, will a line of credit or bank loan fix the problem or is there something else that needs to be reviewed? While complaining about business problems is easy, one needs to stop pointing the finger at others and take responsibility for what you see in your own business.

FYI – if you are interested in excellent buisness information, visit http://www.e-myth.com/blog/. This is an excellent blog to help you with your business.

Entrepreneurial Finance: The Function of Financial Statements

Money is the bottom line. We start, grow and invest in businesses for money. All the pains, highs and lows of business ownership are to provide for the business owner’s family, lifestyle, employees and so forth. Money allows entrepreneurs to open their business, and it is the key component to keeping the business open. While we may master our inventories, be the best at the services we offer or are brilliant at research and innovation, each business needs money to survive.

Despite the simple objective to make money in business, it is very common amongst entrepreneurs and business owners to overlook their abilities to manage the business finances. Many business owners will engage a bookkeeper or an accountant to set-up and manage the books. Others will buy financial accounting software programs and do their best to understand the power behind those types of software. However, a solid understanding of the business financial statements is critical for all business leaders regardless of how the reports are generated.

The good news is that regardless of the legal structure, type of business or size of business, the same basic financial statements apply. The financial statements are to serve as a mechanism of internal fiscal control, a tool to attract investors, a snapshot into the fiscal health of the company, a way to capture fraud before the business suffers major losses and a means to evaluate the overall functions of the business.

The first financial statement that a business needs to regularly generate is the income statement (also known as the profit and loss statement). Most businesses will want to generate this report on a monthly basis and compare the information with the previous months or to the same month from the previous year or two. If the business hasn’t opened yet, then the entrepreneur will want to generate an income statement for the first twelve months based on projected numbers they think the business will achieve. These projections need to be realistic and will be based off the market research completed during the business planning process.

The first section of the income statement will review the reporting time period’s gross revenues or how much money the business made during that time. Business owners need to include the total dollar amount of the returns and allowances the business gave in that time. The net revenue is found through subtracting the gross revenues from the returns. This is how much money the business made in the given reporting period.

The next section looks at the cost of goods sold. The business should list each major line item that contributes to how much the business pays for the products being sold. For instance, a manufacturer of widgets would track the costs of raw materials, and a retailer may wish to track the direct costs of inventory. Service oriented agencies can total the cost of delivering the service or they may opt to track overhead expenses in the next section.

The third section on the income statement tracks the operating expenses of the business (also known as overhead). Here the business should track salary expenses, which should include salary, payroll tax and any fringe benefits that the company will pay. This section should also include; rent or mortgage expenses, property taxes, sales taxes, depreciation expenses, utilities expenses, advertising expenses, insurance expenses, and any regular expenses incurred by the business.

The last section of the income statement will look at other expenses the business has on a regular basis. Typically, this is where loan interest is noted. While the business owner writes one check to pay off a loan or debt, the principal and interest are traced separately on the financial statements.

To finish the income statement, take the net revenue from section one and subtract that from the total cost of goods sold, operating expenses and other expenses. The resulting number will be your profit or loss for the reporting period.

The second financial statement is the balance sheet. The balance sheet lists all the assets and liabilities for the company. In simplest terms, this is a snapshot of the financial health of the company. A healthy business will show a well rounded balance of assets to liabilities.

On the balance sheet, current assets should be listed first. Current assets includes how much the business has in the bank, accounts receivable, inventory or any other account the business has money available in. Additionally, the business should also list all fixed assets it has. Under the fixed assets section, the business should list the value of all the land that it owns, the value of the building (if owned), value of any cars or major pieces of property owned by the business. The fixed assets should also note the cost of depreciation for any property owned by the business as well. The total fixed assets will be the value of the assets minus the depreciation.

Next, the balance sheet will list all current liabilities. Current liabilities include accounts payable, notes payable (credits, etc.) and taxes payable. Additionally, the balance sheet will list long term liabilities, which include building mortgage payable, equipment loan payable or other large debts owed by the business. Lastly, the owner’s equity will have its own line item on the balance sheet.

The magic of the balance sheet is the total assets added together, should equal the total number of liabilities plus owners equity added together. If the two numbers do not match, then a problem exists in the business or in the preparation of the balance sheet.

Whether the business owner hires help to establish and maintain the financial statements and books or whether they seek to maintain this information on their own, it is important to understand how the numbers work and what the numbers mean. Watching the business financial statements will help guide the business along in its progress, prevent fraud, alert the owner to business trends and show the business owner how the business is working for him or her.

What’s Your Story?

Stories have played a critical role in society since the beginning of the human race. Without stories, much of our histories would have been lost through the ages. Even today, stories are a critical component of our lives. We hear stories each time the remote control is grabbed, we tell stories about our weekends or our children, we share what is personal to us in stories. Likewise, your business has a story. More amazingly, your business story can be told  in 30 seconds. Whether you have less than a minute or 15 minutes, the business owner needs to identify and be prepared to tell that story.

BJ McCabe, a business coach and storyteller, notes that her job is to teach high level businessmen or woman how to tell stories – business stories. “Each of us has a lifetime of experiences that have helped to inform us of who we are, what matters and shapes how we interact with others. The primary importance a of story (as I see it) is to help us make sense of our experiences.”

Carmine Gallo (in Business Week’s article “Mastering the 30-Second Pitch”) notes that when telling your story you should answer the following four questions:

1. What problem do I solve?
2. What is my service, product or company?
3. How am I different?
4. Why should you care?

What is your business story? What can you teach me about your business so that I will want to ask you for more stories and information? People really do want to hear your story, what is keeping you from sharing it?

Scientific Advertising

Knowing advertising is a discipline of marketing just like sales, did you know that advertising and sales are the same? The difference between the two is the delivery method. However, many businesses approach advertising like they are playing Black Jack.

The art of advertising has been in use since Egyptians began using papyrus to share messages. Today, individuals are bombarded with thousands of advertising messages a day. The challenge in advertising is reaching the exact person who needs your product or service, interest them enough to absorb your message then you need to take action.

Given the countless ways of reaching consumers today, the more you know about your ideal customer, the easier it will be to devise plans to sharing your message with that person (note – get out from behind your desk). Whether you place an ad in the paper, send direct mail, put ads on the internet or blog your message, there are fundamentals to follow in advertising.

Claude C. Hopkins wrote “Scientific Advertising” in 1923, in which he shares advertising fundamentals that continue to hold true even with the advent of new media marketing outlets. Mr. Hopkins’ conclusions were based on experience and testing that he had done throughout his career. His conclusions were not based off trends or opinions, which makes his information necessary for any business.

You can download his free short book “Scientific Advertising” at http://www.backchannelmedia.com/documents/ScientificAdvertising-ClaudeHopkins-1923.pdf .

Balancing Act

You are a business owner whose day begins well before the sun rises: you need to get the children dressed and to school, attend a 7:30 meeting, get started on email via the Blackberry, get to the office to find employees having problems, return voicemail messages and discover business operations that need addressing. This is all before 9:00 a.m. During the day, you have customers, vendors and your CPA begging for your attention before your children need to be taxied to tutoring or soccer, your spouse needs help at home and you still need to engage in business planning, balance the day’s financials and review business performance. How do you balance life’s needs in running a business?

While there are countless resources on the subject, people continue to feel the pressures of managing their personal, family and business lives. Each day puts direct and indirect pressure on our lives to act a certain way, obtain certain goals, and engage in certain activities. We receive countless messages on what our lives should look like, feel like and achieve. Add those pressures to the reality of your day, and you have a much stressed out situation.

To combat life and work toward balance, the Mayo Clinic has the following tips to consider:

1. Keep a log. We all have 168 hours a week, no more or no less. Try to track everything you do for one week and how much time it takes (even brushing your teeth) so that you can account for the 168 hour week. Review your week and see what activities you are doing for necessity, that you enjoy and that you could live without. For the “live without” items, can you delegate or outsource those at work and/or at home?
2. Learn to say no. Whether it’s a civic club asking you to spearhead an extra project or your child’s teacher asking you to manage the class play, remember that it’s OK to respectfully say no. When you quit doing the things you only do out of guilt or a false sense of obligation, you’ll make more room in your life for the activities that are meaningful to you.
3. Leave work at work. With today’s global business mentality and the technology to connect to anyone at any time from virtually anywhere, there’s no boundary between work and home — unless you create it. Make a conscious decision to separate work time from personal time.
4. Manage your time. Organize household tasks efficiently. Doing one or two loads of laundry every day, rather than saving it all for your day off, and running errands in batches are good places to begin. A weekly family calendar of important dates and a daily list of to-dos will help you avoid deadline panic. Include your children in adding their calendar items too.
5. Communicate clearly. Limit time-consuming misunderstandings by communicating clearly and listening carefully. Take notes if necessary.
6. Nurture yourself. Set aside time at least once a week (preferably more) for an activity that you enjoy, such as walking, working out or listening to music.
7. Set aside one night each week for recreation. Take the phone off the hook, power down the computer and turn off the TV. Discover activities you can do with your partner, family or friends, such as playing golf, fishing or canoeing. Making time for activities you enjoy will rejuvenate you.
8. Protect your day off. Try to schedule some of your routine chores on workdays so that your days off are more relaxing.
9. Get enough sleep. There’s nothing as stressful and potentially dangerous as working when you’re sleep-deprived. Not only is your productivity affected, but also you can make costly mistakes. You may then have to work even more hours to make up for these mistakes.
10. Bolster your support system. Find a mentor (you can have more than one) to help you with your business. This gives you an outlet for the various challenges you will face in being a business owner away from others in your life who may not be able to give you the support you need.

Business Ownership

Opening a business and being one’s own boss is as much a part of the American dream as owning a home. In fact, being self employed or an entrepreneur is gaining a great amount of attention in this country’s economy. Citizens of this country are blessed with the freedom to start a business and enter an endless number of markets.

However, opening and running a business is not as easy as many make it seem. If you have flipped channels in the middle of the night, a funny looking man with question marks on his clothes lure others into the idea that there are numerous funds available for people to start their own businesses or that you can earn thousands working from home. This gentleman along with other copy cats is selling you untruths in order to sell their own books.

Business service providers, like the Innovation and Entrepreneurship Center, wish there were easier ways to finance a business like the infomercials suggest. However, the reality is there are no free grant funds for people to start or grow their businesses. There are a small number of technology grants available to companies willing to engage in research and development for departments of the Federal government. These grant funds are highly competitive and come with many strings attached to the funding.

Moving forward on a business, the entrepreneur needs to be prepared to address the financial needs for the business. The entrepreneur needs to be able to sustain their personal finances first before moving toward opening the business. Rarely is a business profitable as quickly as the entrepreneur may think. Planning to sustain his/her personal finances is the first step in starting the business.

In the planning process of opening the business, the entrepreneur should prepare conservative financial statements. These financial statements should identify how much capital is needed to start the business. If the company requires more funds than the entrepreneur has, then he needs to seek outside financing to help open the doors. Usually, a business will seek out a business loan to help pay for the materials, inventory or equipment needed to operate the business.

The first place an entrepreneur should look for additional capital in starting their business is through what is commonly called “friends, family and fools (fff).” This form of capital is the easiest to find and obtain. After seeking support from friends or family, bank loans are often sought after. If your business is entering a fast growth industry and your capital requirements are great, then venture or angel funding may be needed.

Regardless of the type of capital source the business seeks, the entrepreneur needs to prepare a business plan, sound financial statements, and form a solid management team for the business. In addition to preparing the business for capital, the business owner must prepare their own financial worthiness. A good credit score or a cleaned-up credit report will be needed for the business.

The first step towards understanding business capital comes with learning as much as possible about the options, opportunities and the requirements of money and one’s business. Utilizing resources like the Small Business Development Center or the Innovation and Entrepreneurship Center are good places to start.

New Myths about Entrepreneurship

Guy Kawasaki in his blog, “How to Change the World” (http://blog.guykawasaki.com/2008/01/top-ten-myths-o.html), invited Scott Shane to share his myths about entrepreneurship. Scott Shane shares these and other tips in his new book, The Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By. I am repeating/quoting the information from this blog, because I believe entrepreneurs need to understand these myths.

1.       It takes a lot of money to finance a new business. Not true. The typical start-up only requires about $25,000 to get going. The successful entrepreneurs who don’t believe the myth design 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.

2.       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 seventy-two percent of the companies that got VC money over the past fifteen 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 one in 4,000. That’s worse than the odds that you will die from a fall in the shower.

3.       Most business angels are rich. If rich means being an accredited investor –a person with a net worth of more than $1 million or an annual income of $200,000 per year if single and $300,000 if married – then the answer is “no.” Almost three quarters of the people who provide capital to fund the start-ups of other people who are not friends, neighbors, co-workers, or family don’t meet SEC accreditation requirements. In fact, thirty-two percent have a household income of $40,000 per year or less and seventeen percent have a negative net worth.

4.       Start-ups can’t be financed with debt. Actually, debt is more common than equity. According to the Federal Reserve’s Survey of Small Business Finances, fifty-three percent of the financing of companies that are two years old or younger comes from debt and only forty-seven percent comes from equity. So a lot of entrepreneurs out there are using debt rather than equity to fund their companies.

5.       Banks don’t lend money to start-ups. This is another myth. Again, the Federal Reserve data shows that banks account for sixteen percent of all the financing provided to companies that are two years old or younger. While sixteen percent might not seem that high, it is three percent higher than the amount of money provided by the next highest source – trade creditors – and is higher than a bunch of other sources that everyone talks about going to: friends and family, business angels, venture capitalists, strategic investors, and government agencies.

6.       Most entrepreneurs start businesses in attractive industries. Sadly, the opposite is true. Most entrepreneurs head right for the worst industries for start-ups. The correlation between the number of entrepreneurs starting businesses in an industry and the number of companies failing in the industry is 0.77. That means that most entrepreneurs are picking industries in which they are mostlikely to fail.

7.       The growth of a start-up depends more on an entrepreneur’s talent than on the business he chooses. Sorry to deflate some egos here, but the industry you choose to start your company has a huge effect on the odds that it will grow. Over the past twenty years or so, about 4.2 percent of all start-ups in the computer and office equipment industry made the Inc 500 list of the fastest growing private companies in the U.S. 0.005 percent of start-ups in the hotel and motel industry and 0.007 percent of start-up eating and drinking establishments made the Inc. 500. That means the odds that you will make the Inc 500 are 840 times higher if you start a computer company than if you start a hotel or motel. There is nothing anyone has discovered about the effects of entrepreneurial talent that has a similar magnitude effect on the growth of new businesses.

8.       Most entrepreneurs are successful financially. Sorry, this is another myth. Entrepreneurship creates a lot of wealth, but it is very unevenly distributed. The typical profit of an owner-managed business is $39,000 per year. Only the top ten percent of entrepreneurs earn more money than employees. And the typical entrepreneur earns less money than he otherwise would have earned working for someone else.

9.       Many start-ups achieve the sales growth projections that equity investors are looking for. Not even close. Of the 590,000 or so new businesses with at least one employee founded in this country every year, data from the U.S. Census shows that less than 200 reach the $100 million in sales in six years that venture capitalists talk about looking for. About 500 firms reach the $50 million in sales that the sophisticated angels, like the ones at Tech Coast Angels and the Band of Angels talk about. In fact, only about 9,500 companies reach $5 million in sales in that amount of time.

10.   Starting a business is easy. Actually it isn’t, and most people who begin the process of starting a company fail to get one up and running. Seven years after beginning the process of starting a business, only one-third of people have a new company with positive cash flow greater than the salary and expenses of the owner for more than three consecutive months.