Good Reading

Below are two articles worth reading in full. Check back for new articles soon.

• Risk Management for a Small Business
• Where's The Cash?  Grants and Other Free Money
• Google - 5 Ways to Crash your Business
• The Ends & Outs of LLC's

Risk Management for a Small Business

Felix Kloman
Seawrack Press, Inc.
61 Ely’s Ferry Road
Lyme, CT  06371 USA
Telephone:  860-434-2917
Email:  fkloman@aol.com
Website: www.seawrackpress.com

Managing a small business is constant uncertainty, even when things appear to be going well.  Who will buy tomorrow, next month, next year?  Will my expenses go up or down?  How will rising gasoline and utility prices affect me?  Is a falling dollar good or bad?  Will I have enough time and interest next year for the business?  What happens if one of my support staff falls ill?  Could I handle a 50% increase in business?  In a sense, uncertainty is also the lure, the excitement of a small business.  Something new crops up every day requiring a nimble response and imagination.  That’s part of the fun!

The prudent business manager and owner tries to anticipate this ever-changing variety of unexpected events, some favorable and many unfavorable.  The follow-up is to prepare responsibly for and even take advantage of them.  This process of being ready for an uncertain future is called risk management.

Yes, it’s basic common sense, often practiced in one’s head, but with the wide array of unusual situations in today’s globally connected economy, a more formal approach is helpful.  Risk management for a small business means:

• Considering all of the possible future situations or events that could materially affect the business;
• Calculating (or guessing) their likelihood, when they might happen, and their financial and human consequences, both plus and minus; and
• Developing your own responses, both current and future.

Many business owners plan to spend a few hours each year in thinking about what might happen and planning how they should respond.  Putting these thoughts in a written matrix helps to think more intelligently about what to do:

• List your assets (tangible and intangible) and resources along the side (such as owned property, bank accounts, human resources, annual revenue, customers, suppliers, community support, etc.).
• List the sources of unexpected events along the top (such as the national and local economies, irrational human behavior, natural disasters, governmental activities, technological changes, and your own commercial and legal relationships).
• Highlight those with the highest likelihood and/or the highest material effect on your business (good or bad).
• Remember that unexpected events don’t necessarily happen in isolation: they often come in bunches!
• Add a list of how you will respond right now and when and if the event(s) occurs.

Many of those responses are, again, simple common sense, while others may be new ideas, such as:

• Maintain reserve funds, such as cash in bank accounts, longer-term investments, equity in a home, a bank line-of-credit, and conventional insurance for property, liability, illness and life loss,
• Create “mutual aid agreements” with suppliers, competitors, neighbors, and friends. They promise to help you; you promise to help them.
• Use an accountant to check your bookkeeping and offer occasional counsel,
• Use legal counsel to review your work,
• Work with local chambers of commerce and similar community groups,
• Write contingency plans so that you know how to react to a special event,
• Develop a plan for shutting down or selling the business,
• Create internal controls to prevent violations of the law and to maintain product and service quality.

Being ready for the unexpected, including being able to take advantage of it, is the keystone of sound risk management for a small business.

April 13, 2008   For a more detailed workbook on this subject, see Risk Management for Small Business, by Claire Lee Reiss, published by the Public Entity Risk Institute (www.riskinstitute.org), Fairfax, Virginia 2004.

Where's The Cash?  Grants and Other Free Money

By Hugh Curley
U.S. Small Business Administration (SBA)
Connecticut District Office  – 330 Main Street, Hartford, Connecticut 06106 (860) 240-4650

People often call the SBA asking for grants or "free money" to start their business. In many cases, they have read or heard about this free money and how easy it is to get through late night talk shows or in a publication. In most cases, the information is promising, but vague and sometimes misleading. In other cases, it is close to a scam, especially when money is required to access more detailed information.

The SBA and most other funding organizations in Connecticut do not provide grants or "free money" for starting or developing a business. Although there are some grants available through the SBA, they generally are targeted towards specific groups, types of organizations, or activities.

SBA grants provided to organizations are for specific technical assistance to small business owners or, in some cases, to conduct studies and gather statistics.  These grants are part of a formal performance based agreement usually made with business focused non-profit organizations or educational institutions. As an example, SBA funded grants have helped inform small businesses how to develop and maintain a drug-free workplace. These awards went to nonprofit organizations, CCSU’s Small Business Development Center, and Women’s Business Centers who had demonstrated capacity to assist in these efforts.

Other grant programs, such as the Small Business Innovation and Research Grants (SBIR), are coordinated through SBA, but are provided by other federal agencies including the Departments of Health, Education, and Agriculture. As an example, in 2006, 87 Connecticut based small businesses received in excess of $20 million dollars for SBIR projects for the development of products identified by the government. Information on the SBIR program can be found at http://www.sba.gov/sbir.

Some state and local government agencies award grants in accordance with the extension of their mission.  One example of this would be the award of a grant for job readiness training for our young people.  These grants are most commonly awarded in the form of a contract at the end of an often highly competitive process.  Grant proposals are commonly reviewed by a board, scored on a basis of responsiveness to addressing a specific need, program quality, and the probability of achieving success as defined in the proposal, as well as the qualifications and experience of the program’s principals. Some grants provided by state or local governments will be incentives for existing companies to locate, expand or maintain and educate the workforce in Connecticut.  These, increasingly rare, awards are often an offset of property tax increases or reimbursement for specific job training expenses.  The best source of information on these is the CT Department of Economic and Community Development www.ct.gov/ecd.

Lastly are grants provided by private foundations or charitable organizations.  To get a better understanding of the mission and activities of particular non-profit organizations and foundations, contact the individual foundation or search with the assistance of internet based databases such as www.guidestar.org.

If asked the question: "Are grants available to assist small businesses in Connecticut?”,  the answer would be a highly qualified yes. However, grants to individuals in Connecticut who would use the proceeds to start their own "for profit" small business are indeed rare.

5 Ways to Crash Your Small Business

By Sheyna Steiner • Bankrate.com

Millions of workers dream of starting their own business, but the odds of being successful are daunting enough to keep most hopefuls on the sidelines.

For those who do go into business for themselves, without a background in business, it can be a steep learning curve.

But hope springs eternal. According to the Small Business Administration, or SBA, 637,100 small businesses with employees were opened in 2007. Based on its research, the SBA estimates that two-thirds of new establishments will survive two years; only 44 percent will survive four years. The survival rate plummets to 31 percent when the life of the business reaches seven years.

Although small businesses can crash and burn for many reasons, avoiding some of these common mistakes can help your small business beat the odds.

How to run your business into the ground!
1. Use your heart, not your head
2. Underestimate cash needs
3. Skip the market research
4. Limit your business acumen
5. Treat the business like a job

#1. Use your heart, not your head
Most people start their business out of passion, but passion won't pay the bills.

"You want to have fun and you want to be passionate about it, but a business is not a charity. You have to bring the dollars to the bottom line, and the way you do that is by measuring everything," says Hattie Bryant, creator and host of "Small Business School" on PBS and author of "Beating the Odds," a book on running a small business.

The energy and optimism that fuels an entrepreneur's startup dreams are mandatory to keep them slogging when the going gets tough. But hard-nosed business sense will keep the business afloat, and that means keeping a tight fist on the money and inventory.

"What surprises me is when businesses have been in operation for a year or two, and I ask the owner what his revenue was for the last month, what his earnings were and they just sort of guess," says Fred Glave, a Washington, D.C.-based counselor with SCORE, a free consulting service for small-business owners and entrepreneurs. The counseling staff of SCORE is made up of working or retired business owners and corporate leaders who share their expertise with their communities.

"They don't really know, and that says to me they're not really keeping on top of their numbers and performance," he says.

When business owners lose sight of exactly what's coming in and going out, it can mean that they also don't have a handle on who buys their products and why they buy them. Understanding why things work or, conversely, why they're not working, is vital to being successful.

"If people don't know what their revenue is, it's very difficult to manage the business in a tactical sense," says Glave.

#2. Underestimate cash needs
Business probably won't be booming right off the bat. Just like in personal finance, keeping enough cash on hand will save your business during the rough times.

"That is the one thing I always warn people about the most," says Fred Glave, a Washington, D.C.-based counselor with SCORE, which offers free consulting services.

"They underestimate the amount of cash they'll need, so they don't capitalize themselves adequately when they start," he says. "So they run out of money and then they're desperate."

A related factor that contributes to underfunding is overconfidence about the amount of time necessary to build sales or clients.

"At the beginning, you're having so much fun that you forget that you have to have dollars in the door to make a payroll, for instance. You're having fun, but at the end of the month, you don't have enough money," says PBS' Hattie Bryant, creator and host of "Small Business School."

"For example, a big mistake that people make is thinking that they are going to make a sale really fast when in reality, it can take six months to close a sale," she says.

Although experts recommend having at least six months' worth of cash on hand, they also say business owners should assume they will not make a penny for a year. That may seem like a long time, but without enough cash to survive the ramp-up period, your small business may never overcome its first challenge.

"It could be a really great business for that community, but if they haven't financed themselves enough in order to capture that market or if they have under-forecasted how long it will take to gain customers, they may run out of money before it's had time to fully develop," says Wendy Vinson, president of E-Myth Worldwide, a global business-coaching company based in California.

For instance, everyone has probably seen a great business move into the neighborhood and then close before the end of the first year. On its heels, a similar business moves in and makes a go of it.

So what is the difference? "It could be that they have a better value proposition. They may have spent more money figuring out how to attract their target market, or they just have more money to allow their natural ramp-up time to occur," Vinson says.

#3. Skip the market research
Business owners need to know the who, where and why of their business before they can sell anything. But not all business owners take the time to find out if they even have a market before jumping in, and failing to research your market can be disastrous for new companies.

Wendy Vinson, president of E-Myth Worldwide, recalls one client who, being a musician, wanted to open a music store, selling instruments and teaching lessons in the back. He investigated a couple of different towns and found out how many people went to music schools and where they really got their supplies.

"This guy was great," Vinson says.

He researched where he would find the most people interested in music, instruments and lessons.

"He did a competitive analysis between the cities, and the one with the most opportunity was the one he chose," Vinson says. "I can tell you that the majority of start-ups do not do that."

In many instances, would-be business owners make decisions based on their lifestyle, such as opening on a corner near their children's school or close to home.

"We would say, do market research, validate that your business is needed and model your service to what is needed," Vinson says.

"Understand the competitors and how you can make (your business) stand out. What is different about yours -- how you wrap your product, pricing. Some people will just throw things out randomly -- even how they name their business," she says.

#4. Limit your understanding of the business
Check your elevator pitch. As a small-business owner, if you can't sum up your business in about two minutes, stating concisely what you do and why your business exists, you might have problems.

"You need to be able to articulate very clearly, and in what I call a very compelling manner, what you offer, why it is of benefit and why it is different from what is out there. If you can do that, you probably understand what you are doing," says Fred Glave, a Washington, D.C.-based counselor with SCORE, a free consulting service to small-business owners and entrepreneurs.

When small-business owners don't understand what they're doing, why they're doing it and how they differentiate their businesses from everyone else, it can be difficult to keep the business going when times get tough.

When things are going well, it can be too easy to lose sight of what is working if the person in charge doesn't understand what's driving his or her success.

Whether it's great service, reliability or a unique product that works, knowing the business backward and forward will help owners grow and sustain the business in good times and bad.

#5. Treat the business like any other job
Employees who make the leap to entrepreneur can fall into the trap of treating their business as a job they've created for themselves.

Treating your business as any other job -- except you get to be the boss -- undermines the enterprise.

"Rather than seeing the business as a separate entity from themselves that has revenue and expenses that include their salary, profit margins and income, they really see it as a situation where, 'If I'm charging $1,000 then I get to keep $1,000 minus a few things,' " says Wendy Vinson, president of E-Myth Worldwide.

"And that really is very much a technician or employee point of view, but they're trying to run a business that really has a whole other set of principles," she says.

Being inspired by the work they love can push people to take the leap into their own business. But running that business requires a different set of skills from the work they began. Sticking to the same mindset that makes a successful employee will not make a successful business owner.

Luckily, the set of skills it takes to run a successful business can be learned in classes, from books and from counselors at small-business resources such as SCORE, a Washington, D.C.-based consulting service to small-business owners and entrepreneurs.

Dreaming big comes naturally to most entrepreneurs, but business acumen is something that has to be honed and practiced.

The Ends-and-Outs of LLC's

Attorney Judy Gedge has spoken to a number of the SCORE Chapters in the State on this ever-popular subject and has written extensively on it.

This article will give you an idea of the information you can find on her Web Site.

Opening a Franchise...Look Before You Leap
By Attorney Judy Gedge

If you’re like many people, you may have that secret yearning to own your own business. There are certainly advantages to ‘being your own boss’. For one thing, no one can fire you! On the other hand, there’s no ‘calling in sick’ when it’s your own business. While you can open your own business or buy an existing business, a popular approach is to open a franchise business.

The benefits of opening a franchise business include
• Use of a tried and true set of business techniques
• The advantage of goodwill and name recognition of an established franchise
• Extensive training by the franchise company in how to run a successful business
• Pooled marketing and advertising dollars amongst a large numbers of franchise operators
• Assistance in site selection, build-out and other startup requirements

The very essence of running a franchise business is that you must follow the franchise company’s rules and regulations in operating your business. So, for instance, the owner of a Subway® sandwich shop is not allowed to serve his wife’s spaghetti and meat sauce as an added menu item. Uniformity amongst franchise locations is a key element of buying into a franchise system. A Connecticut Yankee who walks into a McDonald’s in South Dakota is entitled to expect substantially identical food, ambience and service as he receives in a McDonald’s in West Hartford (local accents excepted!) So, if you’re a real maverick who wants total control over your own business operations, you may want to think twice (or three times) about buying into a franchise business. But if you like the idea of buying into a tried and true method of doing business and you’re prepared to pay the franchise fees, then franchising may be a good option for you.

There are franchise opportunities available for practically any type of business you can imagine, including businesses in retail, junk removal, fast food, tutoring, professional services and even pet waste clean-up. (See FranchiseOpportunities.com to get an idea of the multitude of franchise options available.) If you’re considering opening a franchise business, you’ll need to do two things - Do your due diligence (investigation and evaluation of the business) and put together a team of professionals to guide you through the process.

DUE DILIGENCE
The key to choosing the right franchise business for you is completing a thorough investigation of the franchise (a process we lawyers refer to as ‘due diligence’). The franchise company will provide you with much of the information you’ll need for this investigation in the form of the Uniform Franchise Offering Circular (UFOC). Franchise companies are required by federal law to provide you with an updated UFOC and give you
adequate time to review it. Do not succumb to high pressure tactics to sign up today or risk losing the opportunity to 2/10/100 people (fill in the number) who are ready to sign on the dotted line if you don’t. Buying into a franchise system is an important and expensive business decision that will take time to properly investigate.

Here are some of the areas that you’ll need to investigate in any franchise opportunity.
• Cost and Financing. How much will it cost to open the business (initial franchise fee and other start-up costs). How will you pay for it? Do you have home equity you can ‘tap into’ to fund the business? Are you prepared to mortgage your house to get a business loan?
• Projections. What will your projected cash flow be? Will you have sufficient working capital to fund the early start-up months of the business? Your accountant can be of great help in this area.
• Franchisor Assistance. What exactly will the franchise company do to help you start this business. Will they actively work with you to find the right location? Will they provide plans & specifications for a build-out? Do they have a list of approved contractors you can comfortably use?
• Terms of the Deal. What will the franchise company commit to do for you? For instance, will you be entitled to an exclusive territory (meaning they won’t open another franchise in your area)? What are you obligated to do as a franchise owner? Make sure you understand each and every franchise fee. In addition to royalties on sales, you may be paying an additional percentage of revenues for an advertising fund. Is there a minimum royalty payment regardless of revenues?
• Talking to Others. Make sure you talk with other franchise operators including, if possible, owners that have left the business. You’ll want to find out what it’s really like to operate this kind of business and whether the franchise company truly delivers on its promises. The contact information is listed in the UFOC for current and former franchise owners.

PROFESSIONAL TEAM
Last, but not least, you’ll want to put together a solid team of professionals to help you evaluate a franchise opportunity. This includes an accountant, banker, insurance agent, real estate agent and, of course, a business lawyer. Buying into a franchise business may be just right for you. But it’s like any other important decision, you’ll want to ‘look before you leap.’