Up and Running Blog

June 2011

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Overview of the Players in the SBA Lending Process

by Helena Hauk on June 30, 2011

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The SBA is one of the most vibrant sources of funds and tools for small business owners. Their lending programs, especially the 504 program, make it possible for all types of small businesses to secure needed funds to continue to grow their business. It takes many people to successfully secure and close an SBA loan. Knowing who they are and how they work together empowers both lenders and borrowers by helping them identify key partners and opportunities.

Player One: The Lender

The first player on the SBA field is the lender. The lender is the one to whom you typically go to when you want a loan. Banks, credit unions, and micro-lenders all fall under this umbrella. The lender covers 50% of the project cost. By committing to only 50% of the total amount, lenders can participate in larger projects they might not otherwise be able to and assume lower risks with better loan-to-value ratios. They are also allowed to facilitate the loan at their own rates and requirements, making it an attractive situation for them (not just for the borrower).

Player Two: Certified Development Corporation (CDC)

Certified Development Corporation, or CDC for short. The CDC is a private, non-profit whose purpose is to promote economic development within its community. The CDC gives out loans for 40% of the project cost (offsetting some of the lender’s and borrower’s funding obligation). They work on behalf of the SBA and operate as the direct liaison between the SBA and the other players.

Player Three: SBA Consultant

Often a third party consultant is brought on to facilitate the deal. Usually the consultant is secured by the borrower and acts on behalf of the borrower’s interests. An SBA Consultant is someone with ties to one or more CDCs and multiple lenders. They bring to the table knowledge of the intricate and ever-evolving process and requirements for qualifying for an SBA loan, a network of lenders and CDCs to help back the loan, and skills in project management and business finance.

Player Four: The Borrower

Of course in any loan transaction there must be a borrower. The borrower is the small business owner(s) who are seeking the funds, whether it’s for purchasing real estate, financing growth, or acquiring other fixed assets.

Of course there will be additional players depending on the transaction. If you’re acquiring real estate then a real estate agent or broker, Title Company, inspector, contractor, and other parties will be involved. For equipment and software a vendor may be involved. Be sure to educate yourself on every player, what their roles and functions are, so you can ensure that they fulfill their duties and execute a smooth transaction.

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The Best Time to Start Your Own Business…

by Tim Berry on June 29, 2011

  • … is when you have to because you can’t stand not starting it. It’s been on your mind, you’re sure it will work.
  • … was actually years ago; but the second best time is now.
  • … is when you’ve thought it through, you know the risks, and you have a good realistic sense of challenges, keys to success, and likelihood of failure.
  • … is when you’re comfortable with your estimates of starting costs, sales, costs, and expenses. They feel like they are reasonable educated guesses.
  • … is when your spouse or significant other says “do it” and not “don’t do it.” Businesses fail and it’s not always something you did or didn’t do. Will failing at your own business kill important relationships?
  • … is when you gather up the money your business plan says you need to be able to start.

Don’t worry too much about the larger economic, employment, and socio-economic trends. Your business depends on what you do. It’s micro economics, not macro economics. Huge enterprises swing with the national economy, but small businesses depend on the specifics of what you do, how well you execute, and how well you communicate and deliver value to your customers.

And for a completely different take on this, I suggest Jessica Ramirez’ 7 Reasons Why It’s Never Been Easier to Start a Business on Business Insider last week. She said:

  1. The Cloud Lightens Your Load
  2. You Can Outsource HR
  3. Prototypes Are Now DIY
  4. Apple’s iPad is Your New Virtual Assistant
  5. Apps Can Do Anything You Can’t Do
  6. You Can Geo-Target Your Customers
  7. Google Alert Your Way to a Better Customer Experience

What do you think?

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Does Your Marketing Lack Personality?

by Cidnee Stephen on June 28, 2011

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Sometimes we get so caught up in following the rules with marketing that we forget its entertainment value. However, with marketing becoming more community based than ever (thanks to the onslaught of social media channels), you ‘gotta’ inject some personality or you are going to have a much tougher time engaging your prospects.

Without some personality:

  • You won’t get their attention in the first place
  • They won’t forward it on or tell others
  • They will remain neutral about your product or service.

At a recent social media conference, I had the pleasure of hearing the story of Knorr’s recent Sidekicks campaign, created by Tribal DDB Canada. It’s such a great example of how a bit of personality can go a long way.

Knorr had just introduced their new Sidekicks with less sodium and wanted to take over the #1 spot in the marketplace. Tribal DDB introduced Salty – the lonely and dejected salt shaker. The ad and Salty were an instant hit, and they soon created a Facebook page for Salty’s Life and a Twitter feed as well. On Facebook alone Salty has 12,777 Likes (note: Knorr’s Facebook page has only 1,416).

Salty became such a hit that Knorr even created salt shakers of Salty and his buddy Pep. In less than 25 days the first shipment of 20,000 shakers sold out. In fact, people were selling them on eBay for $200 a set! People started launching YouTube videos of them and their Salty and Pep shakers. In fact, Salty is quite the hit on YouTube as well. Check this out.

Did Knorr achieve their goal to dominate their market? Yes. Did they end up creating enormous buzz for the product? Yes. Heck, they even created a new income stream (Salt & Pepper shakers). Just because of a little bit (okay a lot) of personality.

Sure, as small businesses, we might not be able to go to this extreme, but personality still plays an important point. One small company I know simply played with his Facebook ad. His first ad, presented his product in a serious tone and got a decent number of click-throughs, but when he added a fluffy kitten and some fun to his business page, his results tripled and his leads became way more engaged with his company.

Marketing should be about having some fun. Enjoy it and make it enjoyable for your prospects, too.

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Michigan Small Biz Giveaway … and Why Not Your State and Mine Too?

by Tim Berry on June 22, 2011

I recently found out about this very interesting Accelerate Michigan Innovation Competition. I wish we could do this in Oregon. And you probably wish you could do it in your state too.

If I read this right, the Accelerate Michigan Innovation Competition is going to give half a million dollars in real money to the Michigan company that wins its grand prize at the November event. Unlike most of the major MBA business plan competitions, this is apparently real money, not investment for equity, not in-kind services. I’m impressed.

They also have prizes for students, and even a $5,000 prize for the best tweet related to business plans. Not bad — if you’re in Michigan.

I’ve heard of other states offering prize money in competitions like this, but this one looks like the richest I’ve seen. I checked at bizplancompetitions.com, and it looks like Alabama has something like this, but for much less money. And I think I’ve heard of one in Nevada, but I didn’t find it at that site, which is the best I know for business plan competitions.

If you are in Michigan, click the links. There are deadlines for submissions, and, if I were you, I wouldn’t want to miss them.

OK Oregon? What are we going to do about this?

And you, in your state? Shouldn’t you have this too?

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Business Sale

6 things to do today to prep your business for sale

by Carol Roth on June 21, 2011

Too often, the shareholders of businesses wait until they are ready to sell their business to start planning for an exit. However, a lack of planning today may cause you to lose value when you ultimately are ready to go sip margaritas on the beach. Here are six best practices to follow before you want out.

1. Make sure your key employees are incentivized

Key managers who are not the sole shareholders of the business can create a huge conflict of interest during a sale and hold shareholders hostage during sale negotiations. Make sure to put in place incentives (like a sale bonus or stock options program) today to avoid eleventh-hour power plays.

2. Establish key advisor relationships early

Strong service providers can add substantial value to a sale process- in fact, they should pay for themselves. Create relationships with an experienced accounting firm, lawyer and investment banker or business broker today. And this means advisors with relevant M&A experience, not your uncle Ira who happens to be the family lawyer. This will give your advisors insight and knowledge so that they can best advise you when you are ready to sell.

3. Get rid of “private company” expenses

Many private firms are run to minimize taxes for the shareholders. However, when you sell your business, the objective is the opposite: you want to show as much profit as possible. It is advisable to cut expenses that aren’t mission critical to operating your business (like the yearly “company conferences” in St. Bart’s, etc.) one to two years prior to selling a business. While you will lose the tax write off today, you should more than compensate for it when you sell the business.

4. Get your numbers into shape!

Your financial statements are the key to determining the value of your company. However, many businesses have financials that are a hot mess, making them less credible. If you have > $5 million in revenue, get the last two years of your financial statements audited. Smaller companies should have their financials reviewed by a reputable accounting firm (again, not cousin Gladys the CPA). This can also point out weaknesses in your company’s financial operations/controls, giving you time to correct any issues.

5. Run a tidy “house”

Who doesn’t let their housekeeping slide from time to time? Well in business, having your records in disarray can cost you value- the more administrative items that you have in shambles, the more penalties you will incur from the buyer. Make sure that all of your files are in order and review them frequently, noting special clauses like change of control provisions that could impact a sale.

6. Create a growth plan

While you may be ready to exit your business, show that your business still has opportunities ahead of it. Buyers don’t want to buy a business that is ready to start a downward spiral or even just stay flat. Make sure you can credibly show three years of meaningful growth after the sale.

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Top 5 Reasons to Include Email Marketing in Your Business Plan

by Hal Licino on June 20, 2011

Even though global IPO markets may now be showing a bit of an uptick, indicative of the trend of new company formations after the abysmal depths of 2007 to 2010, any entrepreneur who has been trying to raise capital for a new venture does not have to be told that money is tighter than ever and investors have taken risk aversion to new heights.

Venture Capitalists and financial institutions are extremely reticent to fund new enterprises unless they are confronted with bulletproof arguments as to the company’s success, leaving entrepreneurs scrambling for ammunition to prove that their business plan is the bomb.

One of the best ways to bolster any business plan is to dedicate a sizeable portion of the marketing section to describing how the company will thrive through the application of the most effective strategy, the one which provides the highest Return on Investment of all: email marketing. Here are five points you should make in your business plan in order to dazzle your investors with your email marketing prowess.

1. Return on Investment

The Direct Marketing Association has established that each dollar invested in email marketing can expect to generate a ROI of $43.52. A ROI of well over 4,000% not only is guaranteed to get any investor salivating at the lucrative possibilities, but will also establish your business plan as strategically superior and indicative of highly sophisticated business acumen.

2. Immediacy

More than half of all American Internet users check their email at least once a day. With the proliferation of mobile web-enabled devices, a considerable percentage of on-the-go users check their email literally dozens of times daily. There is no other medium which can provide such immediacy while ensuring that the customer can be accurately targeted at any time and any place.

3. Efficacy

The number of emails sent by reputable and ethical marketers has increased by more than 60% since 2007. You would be hard pressed to name a single major brand which does not share a profound commitment to email marketing as a cornerstone of their entire promotional plan. These thousands of leading corporations rely on email marketing because it works. Period. Demonstrating that you are adopting the same strategies as the big brands will reinforce your business plan’s strength, impact, and growth outlook.

4. Precise Targeting

Countless VCs have been burned by hotshot companies that blow millions for splashy ads on the Super Bowl and then don’t draw flies. Mass market appeal is no longer relevant or cost-effective in the online age where it has been replaced by the one-on-one conversation paradigm of email marketing. Instead of squandering your funding on reaching millions of people who would never consider buying your product or service, you can dedicate your efforts to specific, individual, concordant audience segments and personalize your message to suit their particular requirements and preferences.

5. Social Media Symbiosis

Email marketing has become so intertwined with social media that it is difficult now to specify where one ends and the other begins, as each is responsible for exactly half of the remarkable 72% of all traffic driven to landing pages. Even private Angel Investors who may not be overly Internet savvy have received the message loud and clear that social media is the way marketing is done in the 21st century. By integrating your social media strategy with the advanced audience strategies unique to email marketing, you prove to your potential investors that you’re covering all the bases.

Basing your marketing plan on email marketing is an invaluable strategy for success. Make email marketing the crux of your business plan and convince your investors that you’re in it to win it.

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Hurdle

Free Guide to Starting a Business

by Kai Davis on June 17, 2011

Do you:

  • Stay up late at night thinking about business ideas?
  • See business opportunities all around you?
  • Want to start a business in the next 90 days?

If you do, keep reading. I have a special offer to help you get started with your business.

Hurdle eBook

Tim Berry, the president and founder of Palo Alto Software, the expert on business planning, and author of The Plan As You Go Business Plan, has put together a free Guide to Starting a Business. This free ebook, excerpted from Tim’s book Hurdle: The Book on Business Planning, is designed to help you start your next business.

Guide to Starting a Business will teach you how to master the basics of starting your business.

Learn how to:

  • Identify your customers
  • Assess the real risks of starting your own business
  • Choose a business name
  • Get funded and estimate start-up costs
  • Decide on a legal structure
  • Get licenses, permits, tax and employer numbers

A Simpler Plan for Start-Ups

We’re offering the Guide to Starting a Business to help you focus on the most important parts of your business. Guide to Starting a Business walks you through the process of creating a simpler business plan to help you move forward and make decisions.

The planning process should help you understand your business. It should help you define what you want from the business, understand what your customers want, and decide how to optimize your business on your own terms.

Tim Berry — Guide to Starting a Business

Confirm your email address to get your free copy of the PDF ebook Guide to Starting a Business, delivered right to your inbox.

Bonus: Get $20 Off Business Plan Pro

If you’re seriously considering starting up a business, it’s time to think about your business plan. Even at an early stage, a business plan is very important. But how do you get started?

Business Plan Pro can help. With Business Plan Pro, you can easily create a custom business plan, with all the financial tables and graphs to go with it. You’ll also be able to:

  • View and edit over 500 complete sample business plans
  • Save time with linked financial tables (the formulas are built in, so you don’t have to do the calculations!)
  • Benefit from built-in help, expert advice from Tim, and tons of resources
  • Present your plan with confidence, with automatic charts and graphs, corresponding to your financial data.

Confirm your email address to get your $20 discount on Business Plan Pro, the free Guide to Starting a Business and helpful startup tips, delivered right to your inbox.

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Show Me the Money: What are my Financing Options for my Business?

by Helena Hauk on June 16, 2011

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Whether you’re just getting started or have been in business for many years, every business at some time or another will need a little outside financial help. Equipment breaks down, you outgrow your space, or maybe you want to invest in infrastructure. Whatever the reason, it’s nice to know you have options when it comes to financing the growth of your business.

When it comes to injecting money into your business, you typically have four options:

  1. Cash, either from you personally or from your business
  2. Gifted funds from family and friends
  3. Investor funds: this is cash in exchange for ownership/portion of net income
  4. Borrowed funds

There are pros and cons to each option, and you will need to weigh them against your current situation and your goals in order to determine which option is best for you.

Cash

We all know that cash is king, but in a young business cash may not be as readily available as it is in a mature business. Even if you do have cash on hand, you may not want to rush into spending it without first considering the following:

Pros of using cash:

  1. You don’t have to pay interest.
  2. You don’t have to give up equity in your company.
  3. You don’t have to mess with paperwork or tracking payments.
  4. It doesn’t affect your credit.
  5. Cash is a liquid asset so you can use it when you need it.

Cons of using cash:

  1. Cash typically represents your working capital and is necessary for daily operations and emergency funds. If you deplete your cash too quickly, or just before a bump in the economic road, you may find your financial hands tied.
  2. Cash is a scarce resource. It’s quickly depleted and takes time to replace.

Gifted Funds

We love our family and friends. They support us through thick and thin, and it’s great to know we have that network should we need it. However, you may want to think twice before you tap into that network financially.

Pros of using gifted funds:

  1. Peer-to-peer lending networks make it easy to tap into family and friends’ financial resources.
  2. They require less (and sometimes no) paperwork.
  3. They have a vested interest in your success.
  4. If you have a vast network you can accumulate enough small donations to reach a sizable injection for your business.

Cons of using gifted funds:

  1. Your family and friends may not be able to provide enough money to fit your needs.
  2. Informal arrangements have a tendency to backfire, even among family. Monetary obligations can strain some of the most important relationships in your life.
  3. You still may have to pay back that money and sometimes with interest.

Investment

Shows like Shark Tank have opened up the public’s eyes to the powerful and nerve-wracking experience of seeking outside investment for a budding company. Just like any option, investors are a double-edged sword and may not be right for every business.

Pros of seeking investors:

  1. Investors can provide a quick and often sizable injection to help push you over the hump to that next big level.
  2. Investors are keen on making sure their investment was worthwhile, so they will bundle their expertise in the deal, giving you a huge ace in the hole.
  3. Investors often take equity or royalty has repayment, which means you can gradually make payments based on the growth of the business rather than adding a large fixed payment to your expenses.

Cons of seeking investors:

  1. Investors tend to be focused on product-oriented businesses, so if you have a service-based company you may not be able to get investment.
  2. You have to give up equity in your company. Adding another chief to the mix can bog down the decision making process (in some cases) and may compromise your brand vision.

Borrowed funds:

Many businesses in need of funds jump to the lender option first. It’s certainly the most common and most well known option when it comes to securing needed funds.

Pros of borrowed funds:

  1. You have choices when it comes to sources of borrowed funds. Traditional banks, government programs, credit unions, micro-lenders, and mezzanine funds all have initiatives to help businesses at all stages of development.
  2. You can choose between an open line of credit that you can tap into whenever you need a little extra money, or seek a loan for a specific project or investment.
  3. You get to retain complete ownership of your company.

Cons of using borrowed funds:

  1. You have to pay interest and make regular payments, which increases your monthly expenses.
  2. It’s a long process requiring lots of paperwork.
  3. 3. It affects your credit.
  4. Often you have to put up collateral. If you default, the bank can take out a lien on vital assets.

Bottom line—there is no one-size-fits-all option for securing additional funds for your business. What’s good for one company isn’t necessarily good for another. Even in your own company you may find that certain sources of funds that are good for you now won’t make sense in the future and vice versa. That’s why it’s so important that, before you jump on one option or the other, you first weigh the pros and cons and decide what’s best for your business now.

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Business Plan

Q&A: Can You Recommend a Business Plan Writer?

by Tim Berry on June 15, 2011

I’m amazed how often I still get emails asking me to either write a business plan or recommend a business plan writer for somebody who has a great idea and mistakenly thinks having a business plan done for them, by a supposed expert, will sell that idea to investors.

Sorry, it just isn’t so. Your business plan is the key to what you say in the pitch, and how quickly you can respond to questions. Investors want you, not an outsider, to plan your business. And that’s what they’re after — planning, which leads to management and controlling your destiny — not just a plan document.

I say “still” in my first paragraph because this should be common knowledge by now, but the myth of the “great” plan lingers on.

When you imagine a business plan document so great that some investor will read it and want to invest, you’re being wildly unclear on the concept. They don’t want the business idea by itself; they also want people who can make that idea a reality. The idea by itself isn’t enough.

Anybody who can develop a business can develop a business plan. A plan is good or not based on its content, specifics, milestones, scalability, defensibility, financial projections, and team in charge. It’s not style, writing, or formatting.

Maybe a coach can help, somebody to look over your shoulders, particularly on the financial projections. You want the math and finance to be correct. But having it your own plan, that you know backwards and forwards, and that you can change in an instant, is many times more important than any quality you’ll get by farming it out to an outsider.

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The Entrepreneurs Equation

How Writing a Book is Like Launching a Business

by Carol Roth on June 14, 2011

Got an idea that you just can’t shake?  That idea could manifest itself as a business or a book.  I have spent a lot of time talking about how entrepreneurs should approach a new business and have found that there are a lot more parallels between starting a business and launching a new book than you might imagine.  As I launch my first book, The Entrepreneur Equation, ironically on launching businesses, I thought I would share a few insights on the similarity between the two.

What’s Your Purpose?

Deciding to start a business is different than deciding to start a successful business.  The plans to open one store vs. a goal of creating a massive nationwide retail chain vary significantly.  It is hard to know what steps to take if you don’t know your end goal.

The same goes for your book.  What’s your end game?  Are you using it as a calling card to get more clients?  Are you seeking a label of achievement (like “best seller status”) for your brand?  Are you hoping to make gobs of money from it or are you using it to spread a message (by the way, if your goal is make gobs of money, you might want to chat with a few industry professionals first)?  These goals will significantly impact the planning and strategy of not only your manuscript, but the launch and marketing of your book.

And while you are at it, you might as well set the biggest goal that you can.  Nothing happens if you don’t achieve your stretch goal, but as Wayne Gretzky says, “You miss 100% of shots that you never take!”

Know Your Customer

I am always preaching in business about how important it is to know your customer, but my first book manuscript go-round was somewhat lacking in this department (which got fixed in the second go-round, thanks to great feedback from industry folks!).

To be successful in business, you have to know what pain point you are solving for your customer and how you are delivering value.  Plus, if “everyone” is your customer, you are going to have a hard time reaching anyone at all, so having a focus is critical.  The same goes for your book (particularly non-fiction books).  Ask yourself what tangible benefits your reader will take away from investing their time and money into your message.  Who is your specific reader and what quantitative and qualitative benefits are they seeking?  This will shape not only how you deliver your message in the book, but also how you plan to market your book.

The Idea Isn’t Valuable; It’s The Execution

In an era where we have access to virtually everything we want and need, plus a whole bunch of crap we don’t care about, it is hard to have a truly novel idea (pun intended).  Having the idea for a business isn’t valuable; it is executing on the business plan every day.  The same goes for a book.  Once you have the idea, you have to write the manuscript and then market, market, market!  Most publishers care at least as much, if not more, about your marketing plan than the content of the book.  So, even if you have a great idea, if you can’t or don’t want to pound the pavement to meet your goals, there isn’t a lot of value there.

The Day You “Open For Business” Is Where The Hard Work Starts.

Conceiving a business idea and writing your plan is a cakewalk compared to what you have to endure day in and day out to make your business successful.  The same thing goes for a book.  The common misconception is that you are done when you finish writing- not so!  Writing the manuscript, as daunting as it may seem, is easy compared to everything that comes next.  Prepare to devote a lot of time, effort (and depending on your goals, money too) AFTER the book is written!

The takeaway: Make sure you evaluate and prepare for launching a book, just like you would a business, if you want to be successful with it.

And if you want to learn more about The Entrepreneur Equation and some of these principles, it is available at Amazon.com and everywhere now!

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