The Basics of Finance and How it Determines Success

by BusinessDictionary

 

Owning a business can be one of the most rewarding and satisfying ways of meeting financial goals and ensuring that a person’s future is secure and fulfilling. Today’s economy yields many opportunities to people with different skills and strengths. One of the most basic aspects of running a business that is often left by the wayside is that of financial management. Usually only an afterthought, it is the financial management of a company that determines success. The perfect product or service doesn’t mean anything if the money generated goes into the business only to be misused or unaccounted for. Spending the money earned wisely and knowing when to save or invest in growth should be of paramount concern for a business.

Everyone is aware of the fact that most businesses fail within their first year of operation. Often a major contributing factor that leads to failure is poor financial management. A review of the financial information for many failed businesses shows that the business would have actually been quite successful if the owners had just made sound financial decisions in all aspects of the business. It is always recommended to employ the help of a professional like a banking institution, financial planner or accountant. However, a business owner should understand, at the very least, the basic principles regardless of whether a professional is hired or not. This protects the business and the business owner from fraudulent activities. Keeping up to date with the finances and being aware of the principles involved will also beneficially affect other aspects of running a business.

For smaller businesses it may not be practical to hire a professional for all of the financial work, but there several software programs available that help to educate the owner on basic bookkeeping techniques.

A business owner should be familiar and comfortable with using the following:

• Day to day expense tracking – an owner needs to be able create and analyze reports that give an idea of the health of a business.
• Accounts Receivable and Accounts Payable – An owner needs to be able to tell when payment is expected and prepare for any outgoing expenditures

Of equal importance is the ability to determine the current financial state of a business and whether expansion is possible or even necessary due to competition. Being able to identify future trends that can positively or negatively impact a business will go a long way toward helping a business develop staying power in ever shifting market places.

Regardless of the size of a business, the goals of the business and the owner should be kept firmly in mind. While smaller businesses may not immediately benefit or be able to afford an accountant that is an expense that should be worked into a budget as soon as possible. Accountants and even financial planners are able to keep a business on track. They can help to establish realistic long-term goals to increase the chances of success. With the help of a financial professional, cash flow problems can be spotted and tackled.

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Developing Organizational Systems for Better Efficiency

by Carmen

 

Have you ever felt like your business will stop the day you don’t show up?  This happens to almost all entrepreneurs at first.  Sometimes it’s because entrepreneurs begin by filling every function their business has to offer, from answering the phones to actually making the product.  The business actually winds up getting limited by the number of hours the entrepreneur is capable of putting in.  Unless something changes, the business stops growing.  It also begins to resemble a job—something the entrepreneur absolutely cannot escape from.

 

This is usually the point where the entrepreneur hires his or her first employee—but often, this doesn’t solve the problem.  The entrepreneur gets caught up in trying to make sure the employee does things “right.”

 

Systems Are the Answer

 

A system is a specified way of doing things, and it can apply to every single part of your business.  You can develop the “best way” to answer the phones, and then you can write that way down in the form of a script.  From then on out, anyone who answers the phone need only observe the script to answer the phones just like you would.  If the employee leaves the company, the next employee just needs to stick to the script.  There can be scripts for sales presentations.  There can be specific instructions for marketing. These instructions can be as simple as noting that blog posts are written every Monday, direct mailers go out once a month, and follow-up calls happen every Thursday.

 

As you develop more and more systems you free yourself more and more.  You can turn your attention away from performing each function of your business.  Instead, you can work on finding other people to perform those functions.  You can verify they are following your systems, and then you can work on more systems.  This is what working “on” your business, instead of “in” your business, is all about.

 

Systems Give Your Business More Value

 

When someone buys a franchise they aren’t just buying a brand name—they are buying the specific systems that led to the franchise’s success.  Systems are the exact reason why McDonalds is such as success—most McDonald’s franchises runs exactly the way every other McDonalds does, regardless of who owns or manages any individual branch.  If you develop systems for your company you are opening up the possibility of turning your company into a franchise, creating a lucrative opportunity for your future.

 

If you’re not interested in franchising, you should know that you may be interested in selling your business one day.  Having systems in place, all carefully recorded in an operations manual, will make your business far more valuable.  A lack of systems means you’re really just selling “FFE”—furniture, fixtures, and equipment—as well as, perhaps, a location.  Offering systems means you’re selling a turn-key business that has been a proven success.  The latter is worth a lot more money, meaning you’ll enjoy a much higher return on your hard work and creativity than you might otherwise have.

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4 Tips for Buying a Business

by Carmen

 

Buying a business can be an excellent way to become a business owner.  It saves you from many of the headaches, heartaches, and risks associated with unproven start-ups.  It’s important, however, to be fully informed as you embark on the process.  Here are four “must-knows” about buying your first business.

Buy the Business that Fits Who You Are

Don’t buy a coffee shop just because someone told you that coffee shops are profitable.  Buy a coffee shop because you genuinely love coffee.  Buy it because you can think of a dozen ways to make your coffee shop experience just a little bit better.  You should also look at your skills, capabilities, and job history.  There’s nothing that says you can’t become a success in a completely unfamiliar industry—but you’ll enjoy your best level of success and happiness by pursuing a business that tackles a field you know and love.  After all, you’re going to spend a whole lot of time with your business.  Shouldn’t it be something you’ll enjoy?

The Classified Ads May Not Be Your Best Bet

If you don’t look any further than the classified ads, you might miss out on some truly outstanding opportunities.  Try asking local business owners who might be selling their business soon.  Try making a list of local businesses you’d love to own—you can always approach the owner to see if they’re interested in selling.  Professionals who are in the business of buying and selling businesses, such as CPAs and CVAs, often have insider information on people who are interested in selling but haven’t gotten around to looking for buyers yet.  You’ll likely pay a premium for these companies, but they may net you stronger a business than searching the classifieds, going online, or advertising that you’re ready to buy.  You can also try business brokers, but be careful—brokers work on behalf of sellers, not on behalf of buyers, and might not have your best interests at heart.

Gather a Team of Experts

At minimum you should be working with a good attorney, a CPA, and a CVA, or certified valuation analyst. A CVA is exclusively in the business of creating accurate pictures of how much a business is actually worth.  All three of these individuals can help you avoid spending too much money or making dangerous legal mistakes.  They can catch legal and financial problems, spot negative aspects of the company the seller might rather keep hidden, and keep you from allowing excitement overrule your good senses.  They also know the buying process inside and out and can help you conduct yourself in a way that ensures you are taken seriously by sellers.

Be Prepared for an Investment of Time

Buying a business usually takes 18 months—at minimum—if everything goes well.  Furthermore, depending on your involvement, it can require your full time attention.  It’s not something you do out of desperation or on impulse.  To protect yourself, it’s a good idea to have living expenses saved up for at least one year, because it might be difficult to hold down a full time job while you are attending meetings, scouting opportunities, and performing other tasks for your business.

Buying a business is much like starting your own. You have to be fully committed, have the necessary expertise, and possess the desire to make it succeed.

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How to Buy a Company

by Business Dictionary

 

Finding a company to buy might not be as easy as it sounds, at least initially. The main consideration in buying a company consists in knowing what type of business you think will be profitable and then buying a company in that business.

A good place to start is by contacting a broker that specializes in buying companies for others. On a large scale, an investment banker would fill the needs of a large investor buying a company; but on a smaller scale, brokers exist that can put you in touch with the type of company you might want to buy.

Getting a Broker

Finding a broker familiar with the market requires that you demonstrate you are serious and that you have the means to make the purchase. Because of the overwhelming ratio of unqualified buyers, business brokers generally are hard to approach.

Nevertheless, if you show that you really want to buy a company, the broker will most likely show you a number of companies up for sale.  The key is to know what kind of company you want, have a specified amount budgeted for the transaction and ultimately commit to making the purchase.

Cash Flow and Valuation

The first thing you must determine before laying down your cash is what the company you are interested is actually worth. Once you have determined the value of the company’s assets, the company’s cash flow should be evaluated.

As a rule of thumb, small companies generally sell for 3 to 6 times their cash flow, so if a company has a cash flow of $150,000, the price for the company would be $450,000 to $900,000. Larger companies can pay up to 10 times cash flow in their acquisitions, while stocks on the stock market are usually trading at 15 to 20 times cash flow.

Once you have determined the company’s cash flow and the value of all their assets, you could write a letter of intent stating your offer. The offer can then be addressed by the company’s officers and your offer can be accepted or a counteroffer made.

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Should a Small Business Practice Total Quality Management?

by Business Dictionary

 

Total Quality Management is the dedicated effort to providing a continuously-increasing level of quality in an effort to retain the attention (and repeat business) of your customers. Widely practiced throughout the world, large corporations are continuously examining their products and services through the practice of TQM to optimize their competitiveness, paying particular attention to their core customer base. So why can’t small businesses do the same?

The short answer is: they can. But if you’re a small business owner and you want to apply the analytic practice of TQM to your company, there are a few pitfalls to be aware of, each of which could lead to excessive costs to your bottom line.

Benefits of Total Quality Management

When stacking the pros and cons, the potential for boosting your company’s success makes the implementation of a TQM business philosophy extremely attractive.

Those who’ve initiated a Total Quality Management analysis have routinely experienced an improved understanding of their customers’ needs, an overall increase in customer satisfaction, streamlined communication within their organization and better problem-solving. Plus, TQM has enabled many businesses to unify their workforce though enhanced levels of motivation – a key reward many hope to achieve as a result of the process.

All of these revelations lead to stronger relationships with suppliers, fewer product and supply errors and a noticeable reduction in waste related to business processes.

The Downside of TQM for Small Business

Though the valuable insight delivered through TQM makes it extremely attractive, nothing comes without a cost. And that cost can be excessive, even for large-scale organizations.

Revealing both the strengths and weaknesses of your organization, the findings from a Total Quality Management analysis can result in significant increases related to additional employee training as well as a disproportionate consumption of management’s time. In addition, the process may include an increase in paperwork and the failure to address the individual needs of your small business due to an emphasis on ‘process’ rather than ‘results’.

Where Your Efforts Should Be Focused

It would seem obvious, but the ultimate goal of any customer-driven organization, whether large or small, should be customer service. And when it comes to implementing Total Quality Management for small businesses, this is exponentially vital.

Small businesses often have limitations on finances, personnel and equipment while suffering under the added burden of vulnerability related to unpredictable shifts in consumer behavior. The surest way to offset this weakness is to operate like a turn-of-the-century specialty shop, catering not only to a specific niche but, more importantly, developing a relationship with your customer base.

Before the days of Costco, Walmart and other national grocery chains, specialty shops that included bakers, butchers and vegetable grocers provided food for every family in their local neighborhood – often for multiple generations – by getting to know each family personally and anticipating exactly what they’d need based on their buying habits, as well as those of other family members.

In doing so, these early shop owners set the standard for both product management and customer satisfaction, cultivating a level of care and attention that often extended to their employees, who were also taken care of like family.

To promote this essential component of Total Quality Management, it’s crucial to have a staff that understands the overall process and is committed to its successful execution. Therefore, just as the shop owners of old, the savvy small business owner should recruit and retain quality employees while training and motivating them to work cohesively as a cross-functional team, resulting in more efficient problem-

identification and resolution, process execution and overall productivity across all business processes.

These “TQM-enhanced” employees will have more control over their work and a greater sense of ownership in the company, translating to a natural drive toward customer satisfaction and noticeable increases in the overall success of the venture.

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