Friday, July 22, 2011

Will It Work? Tips for Determining the Feasibility of a Business or Project

Entrepreneurs are often faced with answering the question “Will it work?” Lenders, investors, perhaps
suppliers and others involved in the project should also ask that question or scan the business plan to see if
“will it work” is addressed. Whatever the specific project—starting a new business, expanding an existing one, or even selling or buying a business—the basic issue is feasibility.  Can it be implemented successfully?

Here at the Small Business Development Center (SBDC) we work with entrepreneurs on a variety of projects, and most of them involve feasibility. Here are some tips on feasibility that we’ve found work in most situations.

Do A Rough Analysis First
A good starting point is what we call “back of the napkin” analysis. In a short amount of time and with little data, you can often get a rough idea of the feasibility of a project. The results of this rough analysis may quickly decide if you need to spend more time on the detailed analysis, alter your idea a bit, or move on to
another idea.

For example, say you are thinking of making cookies to sell to stores, cafes, espresso stands, and restaurants. In a short amount of time you can gather some basic data:

• The cost of ingredients of a batch of cookies, and how many cookies a batch makes.
• The time it will take you to bake them.
• How much rent will be to use a commercial kitchen (assuming you will lease space until you are established).
• The price of competing cookies (the price to your customer—the store, cafĂ©, espresso stand or restaurant, that is).
• How much money you need at a minimum to take out of this business for yourself for the time you spend in it.

Although you will have other costs (insurance for example), you can quickly calculate using the above data, what your capacity is (how many you can make in the time you have in your leased commercial kitchen), and what your gross profit (sales less cost of ingredients) per cookie will be. You can then calculate how many cookies you need to sell per month to pay the rent, and provide you with the income you have decided is the minimum you need. You can then see if at this very basic level of analysis if it seems feasible enough to continue.

If the rough analysis seems feasible, you can gather more detailed costs and refine the analysis. Then you can start your market research to determine the level of demand. While our example is a simple one, this approach can apply to any type of business: starting a commercial fishing business, expanding a manufacturing business to add a new product, or starting a service business, such as bookkeeping services.

The tasks are the same:
• Gather rough estimates of your basic and largest costs, including profit for the owner(s)
• Figure out how many of your product you need to sell to cover these basic costs.
• Ask yourself if the resulting sales figure seems reasonable. Calculate how many different customers you might need.
• If your rough results are encouraging, proceed to next steps.
• Refine your cost estimates and redo the analysis.
• Start your marketing research to determine demand

What happens, though, if the rough analysis is not encouraging? Rework your idea — explore various options for parts of your plan. Being successful in starting a business or expanding an existing one involves determining if the venture is feasible — will it work. Start your analysis and contact the SBDC if you need assistance.

Monday, July 18, 2011

Social Media Marketing Featuring You Tube.

Here is an article that is a quick read on social media marketing plan featuring you tube. http://www.fastcompany.com/1761504/how-to-make-youtube-part-of-your-social-media-marketing

INC Magazine Best Business To Start

A colleague forwarded this link to an article regarding businesses  start up opportunities.


Herbal Remedies For Gastric Disorder

Gastric disorders often include gastritis, heartburn or reflux, dyspepsia or indigestion, hyper-acidity, ulcers, constipation, diarrhea, Irritable Bowel Syndrome, Inflammatory Bowel Disease, etc. Most of them may cause pain, nausea, bloating, belching, vomiting, flatulence, headache and several other discomforts. While Inflammatory Bowel Disease and chronic ulcers should be treated by a doctor, most other gastric disorders can be treated with herbs. Herbal remedies for gastric disorders are the best as they are gentle and natural for the system. Some of them are briefly mentioned below.

Juices & Mixtures
Coconut water, juices of spinach, carrot, potato, aloe vera, cabbage, coriander (added to fresh buttermilk) and lemon are effective in treating gastric disorders. Asafetida mixed in cumin water, curd and buttermilk, rice gruel, a tablespoon of cinnamon water, and honey are also effective. So is probiotic yogurt.
Bitter Herbs
Bitter herbs are unrivaled stomach tonics, promoting digestive juices, peristalsis and the flow of bile. Chamomile is an excellent tonic for the liver and digestive system. Gentian, Centuary, Boldo, and Mugwort are bitter and immensely useful herbal remedies for gastric disorders.

Other Herbs
Ginger is a wonder medicine for any stomach related irritations and diseases. Ginger juice mixed with salt or honey, or ginger tea, can be very effective. Peppermint is another useful herb; its ability to calm cramping stomach and intestinal muscles makes it a superb treatment for indigestion. Other useful herbs are: Artichoke, Goldenseal, Marshmallow, Marigold and Bishop's Weed, Carom seed, Asparagus, Bell pepper, fennel, garlic, cardamom, Goldenseal, Bayberry and turmeric, ajwain, mint, lavender, rosemary, juniper, valerian, lemon balm, yarrow, slippery elm, aniseed, clove, Haritaki, (also known as Terminalia chebula), Amla (Emblica officinalis), Nishoth (Operculina terpethum), Mulathi (Glycyrrhiza glabra), Marich (Piper nigrum), i.e., Pepper. Laxative herbs such as Cascara Sagrada, Senna, Rhubarb, and Buckthorn besides Aloe Vera resin, will greatly help heal the stomach and intestines. Antispasmodic herbs relieve cramping and spasms, and include Cramp Bark, Black Haw, Lady's Slipper (very rare and hence expensive).
Fruits
Apples and carrots contain malic acid and tartaric acid which help neutralize stomach acids. Papaya seeds and pineapples, blueberries, cherries and tomatoes and vegetables like squash and Cranberry can also fight gastric problems. Orange is another effective indigestion remedy. So are grapes.
Oil rubbing
Rubbing a carrier oil (i.e. Olive, Castor, Almond, or Grape Seed oil) into the stomach and massaging 1-3 drops of one of the essential oils supra into the stomach area, will also be effective.
Water
Water is the best medicine for all diseases. Water consumption must be sufficient to meet the requirements of the body.

Thursday, July 7, 2011

How to Recognize a Business Opportunity

Whether you are contemplating a new business or want to re-energize or expand your current one, you need to be able to recognize a business opportunity when you see one. You have probably had visions of one— customers buy things it cost a fraction to produce and you become fabulously wealthy. A businessperson’s dream come true! However, the reality is good business opportunities are hard to find.


Even if you think you have found one, it takes risk, skills and ability, and timing to take advantage of it. Risk attaches itself to any business opportunity. Therefore, objectively analyze the feasibility of your concept. Successful businesses have a product or service people want, at a price they are willing to pay, and it is easy to get. If you offer something you think people want without knowing it, you are risking more than necessary.

Let’s say you think an opportunity exists for a new restaurant. There are a number of things you can do to test your assumption. First, find out what is happening in the overall industry. Trade associations, magazines, and current books can give you an idea of current demand. Examples are the trend towards small, highly specialized food establishments (e.g., pretzel, cookie, ethnic, etc.) and mixed-use restaurants (e.g. play areas, movies, games, Internet, etc.). You can also gain a lot of information through observation. Stay current with local news and business periodicals and gain insights from the perspective of other businesses. You should also gather statistics on consumer behavior for your type of business. For a restaurant, you need to know how often people eat out, how much they spend, common personal or demographic characteristics, and preferences in dining atmosphere or services, etc. From there, you can evaluate your geographic area and see how well competitors are filling those needs.

Once you have gathered information, you can form a hypothesis about supply and demand. A business opportunity could be lurking somewhere between what people want and what they are getting. Find out how they are currently meeting their needs. For our restaurant example, you might find grocery stores have designated a special department or menus of established restaurants have been updated. Your challenge is to find out how well needs are being met and where people go to meet them. If people need something, they will find it. Locating establishments on a map will give you a geographic sense of how far people must travel. If convenience is a significant buying factor, you will be able to identify underserved areas. Once you complete this analysis, you will be in a better position to develop your own competitive strategy.

At the heart of your competitive strategy is your distinctive competence. Your distinctive competence is something (e.g. a skill, specialty, level of service, etc.) that sets you apart when compared with competitors. This differentiation and your pricing strategy define your business in the minds of consumers. A sound competitive strategy depends on your knowledge of the customers and their needs, the ways your competitors meet their needs, and the perceived value of the goods and services you offer. It’s what separates a business opportunity from a good idea.

It takes money to make money, so that means every business opportunity will have costs associated with it. Take the time and effort to know exactly what resources are required to optimally run the business. Capital expenses include hard assets like equipment and beginning inventory. It may be difficult to find a site designed for your purpose; therefore, you must anticipate costs associated with renovating a space. Be sure not to underestimate your working capital needs. Working capital is used to replenish inventory, pay employee wages, and finance other continuing operating expenses. You will always have a need for working capital because the timing of cash coming into the business does not always match the timing of cash going out. It takes most businesses a long time to achieve a predictable profit. Be sure you know if you have the financial reserves to cover the costs of startup (or expansion) and operation. If you must leverage your own money with a loan, be prepared to offer sufficient collateral to secure it. A true business opportunity will generate sufficient sales to support the cost and provide a profit.

There are many resources to help you analyze a business opportunity. You can find books on the above-mentioned topics, reference materials, and access to periodicals and the Internet. When you have completed your initial analysis, take advantage of no-cost, confidential business counseling from SCORE or the Washington Small Business Development Center. Advisors will help you evaluate your findings and assist you with the development of your business plan.

Wednesday, July 6, 2011

What SBA Seeks In A Loan Application:

First, the Small Business Administration (SBA) is a federal agency and does not make loans, SBA guarantees loans made by financial institutions. Under the guaranty concept, the business applies to their local business lender. The lender decides if they will make the loan internally or if the application has some weaknesses which, in their opinion, will require an SBA guaranty if the loan is to be made. The guaranty assures the lender that in the event the borrower does not repay their obligation and a payment default occurs, the Government will reimburse the lender for that portion of the loan guaranteed. However, the borrower remains obligated for the full amount due.  Additional informatioon on SBA loan programs and requirements can be found at

SBA 7(a) Loan Guaranty Program:  Most SBA business loan guarantees will be one of the various 7(a) guaranteed loan programs depending on the amount to be borrowed. A 7(a) loans can be used for most business purposes, up to a maximum guarantee of $1.5 million, with a typical maturity of 7 to 10 years depending on how funds are used.

504 Loan Program:  The 504 Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. Loan made under the 504 program can be A 504 Loan is made by a Certified Development Company who work with the SBA and private-sector lenders to provide financing to small businesses. 


Typically, a 504 project includes a a private-sector lender covering up to 50 percent of the project cost, with the  504 loan from the CDC covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped. The advantage of a 504 loan is a longer maturity and a lower interest rate on the 504 portion of the loan. The business/owners must contribute at least ten percent of the project total cost.


SBA Guarantee Eligibility
Repayment ability from cash flow of the business is a primary consideration in the SBA loan decision process but good character, management capability, collateral, and owner's equity contribution are also important considerations. All owners of 20 percent or more are required to personally guarantee SBA loans.

All businesses must: meet SBA size standards, be for-profit, not already have the internal resources (business or personal) to provide the financing, and be able to demonstrate repayment. Certain variations of SBA’s 7(a) loan program may also require additional eligibility criteria. Special purpose programs will identify those additional criteria.

Maturity  Maximum loan maturities have been established: twenty-five (25) years for real estate and equipment; and, generally seven (7) years for working capital.

The maximum maturity of loans used to finance fixed assets other than real estate will be limited to the economic life of those assets - but in no instance to exceed twenty-five (25) years. The 25-year maximum will generally apply to the acquisition of land and buildings

Equity Investment  Business loan applicants must have a reasonable amount invested in their business. This ensures that, when combined with borrowed funds, the business can operate on a sound basis.

Strong equity with a manageable debt level provide financial resiliency to help a firm weather periods of operational adversity.

Determining whether a company's level of debt is appropriate in relation to its equity requires analysis of the company's expected earnings and the viability and variability of these earnings. The stronger the support for projected profits, the greater the likelihood the loan will be approved. Applications with high debt, low equity, and unsupported projections will be denied.

Earnings Requirements  A company must be able to meet all its debt payments, not just its loan payments, as they come due. Applicants are generally required to provide a report on when their income will become cash and when their expenses must be paid. This report is usually in the form of a cash flow projection, broken down on a monthly basis, and covering the first annual period after the loan is received.

Applicants should write down all assumptions which went into the estimations of both revenues and expenses and provide these assumptions as part of the application. For new or expanding business with anticipated revenues and expenses exceeding past performance, the necessity for the lender to understand all the assumptions on how these revenues will be generated is paramount to loan approval.

Working Capital  Working capital is defined as the excess of current assets over current liabilities. Working capital is essential for a company to meet its continuous operational needs. Its adequacy influences the firm's ability to meet its trade and short-term debt obligations, as well as to remain financially viable.

Collateral  To the extent that worthwhile assets are available, adequate collateral is required as security on all SBA loans. However, SBA will generally not decline a loan where inadequacy of collateral is the only unfavorable factor.

For all SBA loans, personal guarantees are required of every owner with at least a 20 percent share of the business , plus others individuals who hold key management positions. Whether or not a guarantee will be secured by personal assets is based on the value of the assets already pledged and the value of the assets personally owned compared to the amount borrowed. In the event real estate is to be used as collateral, borrowers should be aware that banks and other regulated lenders are now required by law to obtain third-party valuation on real estate related transactions of $50,000 or more. SBA may require professional appraisals of business and personal assets, plus any necessary survey, and/or feasibility study.

Resource Management  Managerial capacity is an important factor involving education, experience and motivation. A proven positive ability to manage resources is also a large consideration.

Preparing A Loan Application. Obtaining loan approval is easier when the business loan application has been adequately prepared. This usually includes a current business plan, financial history with at least three years of federal income tax returns, personal financial history including credit reports and and credit scores, legal documents such as partnerships, leases, articles of incorporation, market research to support sales projections, sources of owners equity, lists of collateral and any other information the lender may require.

Seven Customer Retention Strategies

Do you direct all of your energies to getting new customers? If so, you may want to take a closer look at the source of your sales since it is very likely that 80% of your business is coming from repeat customers. If you  find that 80% of your business is coming from 20% of your customers, you may want to consider some strategies for staying in touch with those customers! Retaining customers and serving them over their lifetime can mean thousands of dollars for your business.
Some practical ways to develop action around customer retention strategies might include some of the following steps: 



1 Communicate with your existing customers on a regular basis.
2 Show your appreciation for their business and nurture customer loyalty.
3 Look for ways to build trust between your business and your customers.
4 Don’t make it easy for your customers to switch to the competition.
5 Expand product lines to provide more products or services for your customers.
6 Anticipate the changing needs of your customers.
7 Use cross-selling (selling other parts of your line to the same customer) and up-selling (selling more per order) to increase the average sale to each customer.

If you’ve lost customers, you may want to develop some strategies for getting them back. In order to implement a strategy, you need to have a database of previous customers. So, if you don’t keep a database, it stands to reason that that should be the first step in your strategy: Develop a database!

Next, you need to remind them about your business and tell them you want them back! However, you may first need to find out why they stopped coming to your place of business and, if you failed to meet their expectations, you need to make it right.

You’ve already invested a lot of money in the customers you retain and the customers you have lost. For that reason alone, putting some additional energy into retaining customers, and reactivating lost customers, makes sense for your business.

Do You Have Effective Internal Financial Controls in Your Business?

One of the very first private consulting jobs that I took on, several years ago was for a well-established company in the Midwest.  Day-to-day management of the company fell to the owner’s wife when he suddenly passed away. Since she was new to the daily operations, she began to scrutinize the financial information more carefully as a means of educating herself on the business financial condition. It didn’t take her too long to know that something wasn’t quite right but she couldn’t put a finger on the problem.


We worked together to analyze costs, analyze pricing and develop strategies for positioning the business to be put up for sale. Meantime, she shared with me that she had a concern that one of her employees was stealing from the company. So we turned our focus to the development of internal controls while we tried to identify whether or not her concern was valid. As it turned out, the tightening of internal controls caused the person in question to leave the company after over 20 years with the business. The owner, and her sons, were completely devastated to find out that the employee had been stealing from them consistently for many years. This employee was highly valued by the business and was considered almost like family after many years of service. The moral of the story is simply that no business is too small to institute effective internal financial controls.

How can you begin to develop controls? First you need to identify the areas that are high-risk in your business. High-risk areas may include: Cash receipts and disbursements, customer credit and collections (writing off bad debts), purchasing and storage of inventory, payroll (including worker’s compensation insurance fraud). Under no circumstances should an accountant, bookkeeper, or the Controller of the business be given check-signing authority. Fraud can easily be concealed if this person has authority to sign checks. The owner/manager should sign all checks. If there are multiple owners, at least two signatures should be required. Do not create a signature stamp that can be used in your absence.

Following are other recommendations:
• In a small company, if you cannot separate duties to provide a check and balance system, consider job-sharing through a cross-training arrangement.
• Require that employees who work in high risk areas take vacations. Pay attention as to whether employee life/styles seem to match what you may know about their salaries.
• Limit access to accounting records and year-end entries.
• Make surprise audits and inspections
• Discuss computer controls with your accountant or a computer security specialist
• Be sure that you pay attention to the legal aspects of internal controls. Be sure any controls that you put in place do not violate the privacy rights of employees or customers.

Article written by Susan Hoosier, Longview Small Business Development Center  To locate your local SBDC advisor please visit the SBDC web site http://www.wsbdc.org/