A SCORE client told me recently that a friend of hers suggested that she consider buying a business that was not doing well. She asked me why she would ever want to do that.
Well a failing business might present an attractive investment opportunity for any number of reasons. When businesses for sale are failing, i. e., they have low or negative cash flow to the owner, you need to look under the cover to see what’s really going on in the business. The reasons the business is struggling could be correctable by the right buyer. And, if that’s the case, you need to make sure that what you are buying, with the necessary adjustments, will fit into a business plan that you believe will be successful.
Actually, the evaluation you should conduct is not much different than if you were considering buying a business that is profitable. You may find that the strong earnings of a successful business is based on factors which are temporary or depend on skills which you don’t have or are difficult to acquire.
A business may be failing because of owner mismanagement. Perhaps the owner doesn’t have the marketing skills needed to boost sales or maybe is not managing inventory in a cost effective way. This could create an opportunity for a motivated buyer with the capability to properly manage the business.
The owner may just be burnt out and may not have the energy to make the adjustments needed to improve the business. For instance, a business owner I visited recently has been running his business for a long time. His market has changed but he doesn’t want to make the investment in time and money to advertise and take orders over the internet even though the rest of his business infrastructure will support this. Again, this could be a good opportunity for the right buyer.
Sometimes early stage businesses fail because they run out of cash and can‘t raise more capital. This can happen even though their sales volume is growing nicely and can reasonably be expected to continue to grow. But a seller may have a long term lease or a loan payment that he or she can’t support any longer. A buyer with the financial resources and the know-how can treat the business as a startup but with a head start, thereby, avoiding many of the headaches entrepreneurs normally encounter when starting from scratch.
Of course, your evaluation may discover that a business is failing for reasons that can’t be easily resolved. In this case, you just keep looking for that good investment opportunity. There are many of them out there.
Why prepare a business plan?
Q: My partner and I are planning to start our own business in a field in which we are very experienced. We don’t need financing, so why should we spend time preparing a business plan? My father didn’t have a business plan when he successfully started and ran his business many years ago.
A: Starting your own business can be the most rewarding experience of your life or it could become your worst nightmare. Though the overall statistics vary, at a minimum, half of the small businesses fail within the first two years and 80% fail within the first five years.
Why do so many small businesses fail?
Business is risky, especially starting a new one. You may be risking your own, someone else’s, or borrowed money, but, at the very least, you are risking your own time, energy and self-esteem.
Many things have to go right for a business to succeed. You need the right idea, right market, right place, right time, right management and right amount of capital.
A well prepared business plan will help you answer these questions and reduce the risk. The value of a business plan lies in the thought process – not necessarily in the finished document. The disciplined, systematic approach helps you, and your advisors, to think things through thoroughly, to research to ensure all relevant facts are known and correct, and to look at your ideas critically.
So taking prudent steps to prepare an appropriate business plan which increases your chances of success would seem to make good sense.
A business plan does not necessarily guarantee success - you can start up successfully without one and you can fail with a good one. It simply increases your odds of success.
And, of course, business planning does not stop with a successful startup. Our business environment is always changing. The process of keeping your business plan current will provide you with a good decision making tool to deal with new challenges and opportunities when they arise.
Get help in preparing a business plan by attending SCORE educational events and using our free counseling services. Visit the SCORE website, www.scorehouston.org, where you will find training schedules, useful templates, links and other information to help you deal with many business issues including preparing a good business plan.
A: Starting your own business can be the most rewarding experience of your life or it could become your worst nightmare. Though the overall statistics vary, at a minimum, half of the small businesses fail within the first two years and 80% fail within the first five years.
Why do so many small businesses fail?
Business is risky, especially starting a new one. You may be risking your own, someone else’s, or borrowed money, but, at the very least, you are risking your own time, energy and self-esteem.
Many things have to go right for a business to succeed. You need the right idea, right market, right place, right time, right management and right amount of capital.
A well prepared business plan will help you answer these questions and reduce the risk. The value of a business plan lies in the thought process – not necessarily in the finished document. The disciplined, systematic approach helps you, and your advisors, to think things through thoroughly, to research to ensure all relevant facts are known and correct, and to look at your ideas critically.
So taking prudent steps to prepare an appropriate business plan which increases your chances of success would seem to make good sense.
A business plan does not necessarily guarantee success - you can start up successfully without one and you can fail with a good one. It simply increases your odds of success.
And, of course, business planning does not stop with a successful startup. Our business environment is always changing. The process of keeping your business plan current will provide you with a good decision making tool to deal with new challenges and opportunities when they arise.
Get help in preparing a business plan by attending SCORE educational events and using our free counseling services. Visit the SCORE website, www.scorehouston.org, where you will find training schedules, useful templates, links and other information to help you deal with many business issues including preparing a good business plan.
Lessons from an experienced entrepreneur
My SCORE colleague, Irwin Miller, spoke at a luncheon some time ago about his long and very successful career in the pharmaceutical business in Houston. He spoke about his struggles to get started and the difficulties and many successes along the way. He concluded by identifying several key lessons based on his experience in running a successful small business.
• Hire good people. Effectively managing people is, of course, very important in running small businesses but it all starts by hiring trustworthy, hardworking, and capable people in the first place. If you don’t, you’ll spend more time doing their job than doing yours.
• Constantly improve. Irwin says, “If it’s not broken, fix it.” If it works today, it may not work tomorrow because the environment is always changing. You need the attitude that whatever is done today, can always be done better.
• Always innovate. Finding new ways of doing things is the best way to beat competition. The market rewards those who are the first to produce a new and valuable product or service.
• Put the customer first. Business starts and ends with your customers. If they feel they are your first priority they will keep coming back. Understand their needs and do everything you can to satisfy them. Satisfied customers are your most effective marketing tool and often are the best source of information for improving your business. So, ask them what you can do better.
• Take care of internal customers. Internal customers are your employees, suppliers, and service providers who are indispensable to operating a profitable business. Treat them well and they’ll spend that little extra effort to get the job done well and help you through difficult situations.
• Always keep commitments. Never let anybody down even if you have to eat some additional expense or spend some extra time to do what you promised. Your word must be golden and is essential to building a good, long-term reputation.
• Work hard. Most small businesses require a tremendous effort by the owners especially in the early going. You’ve got to attend to all the little details. Running a small business is not for the faint of heart. There will be many bumps along the road but you need to keep plowing through to succeed.
Other successful business men or women may have other key points but they won’t be too dissimilar to Irwin’s.
• Hire good people. Effectively managing people is, of course, very important in running small businesses but it all starts by hiring trustworthy, hardworking, and capable people in the first place. If you don’t, you’ll spend more time doing their job than doing yours.
• Constantly improve. Irwin says, “If it’s not broken, fix it.” If it works today, it may not work tomorrow because the environment is always changing. You need the attitude that whatever is done today, can always be done better.
• Always innovate. Finding new ways of doing things is the best way to beat competition. The market rewards those who are the first to produce a new and valuable product or service.
• Put the customer first. Business starts and ends with your customers. If they feel they are your first priority they will keep coming back. Understand their needs and do everything you can to satisfy them. Satisfied customers are your most effective marketing tool and often are the best source of information for improving your business. So, ask them what you can do better.
• Take care of internal customers. Internal customers are your employees, suppliers, and service providers who are indispensable to operating a profitable business. Treat them well and they’ll spend that little extra effort to get the job done well and help you through difficult situations.
• Always keep commitments. Never let anybody down even if you have to eat some additional expense or spend some extra time to do what you promised. Your word must be golden and is essential to building a good, long-term reputation.
• Work hard. Most small businesses require a tremendous effort by the owners especially in the early going. You’ve got to attend to all the little details. Running a small business is not for the faint of heart. There will be many bumps along the road but you need to keep plowing through to succeed.
Other successful business men or women may have other key points but they won’t be too dissimilar to Irwin’s.
Common Mistakes Small Businesses Make
Q: Now that I’ve gotten through the startup phase, what are some of the most frequent mistakes made by small business owners?
A: Our SCORE counselors talk to small business owners from time to time who may be struggling for a variety of poor decisions they may have made. While the list is long, the following are a few of the more common and serious mistakes we see.
People usually start with enough money to open the door, but often not enough to keep the door open. Their customers are happy, sales are growing, and they may even have broken even. Then that unexpected expenditure appears or a large inventory invoice or tax payment comes due, but there’s no money in the bank! Things snow ball from there and the business is in real trouble. The bank won’t lend them more funds, vendors won’t extend credit or a big customer won’t or can’t pay his invoice on time. They needed more contingency in their working capital budget at startup.
Sometimes, they stop planning. In particular, they don’t continue doing the kind of market research they did before they started up. So something in their environment starts changing and they are not aware of it. Their competition adjusts to the change before they do and takes the advantage. Our business environment is always changing and we need to frequently reassess where we are and where we are going to stay on the right track.
Why do they stop planning? Often it’s because they spend so much time running their business that they can’t find time to manage their business. They are so deeply involved in the operations they can’t see the future. Small business owners need to set aside specific time to attend to the management functions that keep their businesses running smoothly.
Sometimes the owner burns out and the business starts deteriorating. Owners can spend an enormous amount of time and energy starting and running a small business. This can take a heavy toll on the owners. Owners need to take time to relax and enjoy family and friends to recharge those business batteries.
And then they don’t seek timely advice. Small business owners need trusted advisors or mentors. They need someone to provide them objective opinions, someone they can bounce ideas off of. Family and friends may not always provide that unbiased opinion. Your advisors might include your attorney, accountant, banker or SCORE counselor. And keep your mentors informed so they can provide timely advice when needed.
A: Our SCORE counselors talk to small business owners from time to time who may be struggling for a variety of poor decisions they may have made. While the list is long, the following are a few of the more common and serious mistakes we see.
People usually start with enough money to open the door, but often not enough to keep the door open. Their customers are happy, sales are growing, and they may even have broken even. Then that unexpected expenditure appears or a large inventory invoice or tax payment comes due, but there’s no money in the bank! Things snow ball from there and the business is in real trouble. The bank won’t lend them more funds, vendors won’t extend credit or a big customer won’t or can’t pay his invoice on time. They needed more contingency in their working capital budget at startup.
Sometimes, they stop planning. In particular, they don’t continue doing the kind of market research they did before they started up. So something in their environment starts changing and they are not aware of it. Their competition adjusts to the change before they do and takes the advantage. Our business environment is always changing and we need to frequently reassess where we are and where we are going to stay on the right track.
Why do they stop planning? Often it’s because they spend so much time running their business that they can’t find time to manage their business. They are so deeply involved in the operations they can’t see the future. Small business owners need to set aside specific time to attend to the management functions that keep their businesses running smoothly.
Sometimes the owner burns out and the business starts deteriorating. Owners can spend an enormous amount of time and energy starting and running a small business. This can take a heavy toll on the owners. Owners need to take time to relax and enjoy family and friends to recharge those business batteries.
And then they don’t seek timely advice. Small business owners need trusted advisors or mentors. They need someone to provide them objective opinions, someone they can bounce ideas off of. Family and friends may not always provide that unbiased opinion. Your advisors might include your attorney, accountant, banker or SCORE counselor. And keep your mentors informed so they can provide timely advice when needed.
Characteristics of successful franchisees
Q: Is going the franchise route a better choice than starting your own business?
A: During the past several decades, franchising has become not only a uniquely American institution, but also one of the leading doorways into small business ownership. Every year, thousands of individuals choose to get into business ownership via the franchise route. But not everyone is suited to successfully operate a franchise.
To make the right choice for your own situation requires careful thought about your own goals, skills and personality and should be done before searching for and evaluating franchises. So what are the characteristics of people best suited for franchises?
If your appetite for risk is low, a franchise may be your best choice. A franchise lowers the risk because someone else has already pioneered the concept, tested the ideas and found out what works and what doesn’t. If you want to do all of those things with your own idea, then start a business yourself.
Successful franchisees don’t like to reinvent the wheel. They like to work within the proven systems and established procedures of the franchisor. They constantly ask advice of the franchisor support staff and other successful franchisees and follow the advice they get. They understand that they don't know all the answers and are willing to ask for help when they need it. This attitude enables them to achieve success more quickly.
Franchisees need to be prepared to give up some independence of action in exchange for the advantages the franchise offers them. The franchisor will specify how certain things must be done as part of the franchise agreement, but a good franchisor will be able to provide the training and support services needed to position the franchisee for success.
People and team-building skills are usually required of franchisees as are the abilities to plan, organize, administer and direct the work activities of employees. These skills are used to create loyalty, value and trust, and are probably the most important characteristics of all.
Those who have a firm sense of what they want to achieve and the drive and ability to execute a proven business model are far more likely to be successful. They will do whatever it takes to get the job done. This attitude shows in their every action like putting in long hours and handling multiple tasks. No matter what franchise you're interested in, you can be sure it's going to take work to make it successful.
After you can honestly say that you have these characteristics, then begin your franchise search and prepare a business plan.
A: During the past several decades, franchising has become not only a uniquely American institution, but also one of the leading doorways into small business ownership. Every year, thousands of individuals choose to get into business ownership via the franchise route. But not everyone is suited to successfully operate a franchise.
To make the right choice for your own situation requires careful thought about your own goals, skills and personality and should be done before searching for and evaluating franchises. So what are the characteristics of people best suited for franchises?
If your appetite for risk is low, a franchise may be your best choice. A franchise lowers the risk because someone else has already pioneered the concept, tested the ideas and found out what works and what doesn’t. If you want to do all of those things with your own idea, then start a business yourself.
Successful franchisees don’t like to reinvent the wheel. They like to work within the proven systems and established procedures of the franchisor. They constantly ask advice of the franchisor support staff and other successful franchisees and follow the advice they get. They understand that they don't know all the answers and are willing to ask for help when they need it. This attitude enables them to achieve success more quickly.
Franchisees need to be prepared to give up some independence of action in exchange for the advantages the franchise offers them. The franchisor will specify how certain things must be done as part of the franchise agreement, but a good franchisor will be able to provide the training and support services needed to position the franchisee for success.
People and team-building skills are usually required of franchisees as are the abilities to plan, organize, administer and direct the work activities of employees. These skills are used to create loyalty, value and trust, and are probably the most important characteristics of all.
Those who have a firm sense of what they want to achieve and the drive and ability to execute a proven business model are far more likely to be successful. They will do whatever it takes to get the job done. This attitude shows in their every action like putting in long hours and handling multiple tasks. No matter what franchise you're interested in, you can be sure it's going to take work to make it successful.
After you can honestly say that you have these characteristics, then begin your franchise search and prepare a business plan.
What does it take to succeed in small business?
Q: I’m trying to decide whether to start my own retail business. I have the experience to successfully operate the business, but what else does it take to succeed?
A: The fact that you are looking for success criteria indicates a realistic approach to entrepreneurship. Many folks jump in with both feet and ask questions later.
Entrepreneurs are generally inspired by at least one of two factors – independence and financial gain. Independence is sought to take risks and escape from other people’s direction. Many seek a haven from corporate bureaucracy. They want to be their own master, have a strong need for achievement and the freedom to make decisions. In short, they want the freedom that they did not have as employees.
The motivation for financial gain is generally considered to be unlimited. Importantly, the gains that are possible in new businesses must be great enough to offset the high degree of risk. Many entrepreneurs are so focused on escape that they ignore the unbalanced relationship between risk and reward and forge ahead in a high risk enterprise without taking the prudent steps to minimize risk, e.g., preparing a good business plan.
A Small Business Administration study identified five important predictors of an entrepreneur’s success. Drive is the most important attribute. New small business owners can expect long hours, high stress and endless problems, as they launch a business. The ability to maintain the necessary stamina should not be confused with the desire to succeed, although they are often interrelated.
Thinking ability encompasses creativity, critical thinking, analytical abilities, and originality. Often questions in this area include: Can I make a reasonable decision? Can I plan my strategy and take responsibility for carrying it out? Do I know when I need help and where to get it? No genius required here, just the ability to think clearly and analyze options.
People skill recognizes the importance of the ability to motivate employees, sell customers, negotiate with suppliers, and convince lenders. Personality plays a big part in success in this area.
Communication skill is the ability to make yourself understood. Part of this skill is the acknowledgement that muddled or abusive communications go unheeded.
Technical ability speaks to the need for entrepreneurs to know their product or service and their market. They must be experts in their field to operate their business with ease.
Finally, speak with a veteran SCORE counselor to get an objective assessment of your probability of success.
A: The fact that you are looking for success criteria indicates a realistic approach to entrepreneurship. Many folks jump in with both feet and ask questions later.
Entrepreneurs are generally inspired by at least one of two factors – independence and financial gain. Independence is sought to take risks and escape from other people’s direction. Many seek a haven from corporate bureaucracy. They want to be their own master, have a strong need for achievement and the freedom to make decisions. In short, they want the freedom that they did not have as employees.
The motivation for financial gain is generally considered to be unlimited. Importantly, the gains that are possible in new businesses must be great enough to offset the high degree of risk. Many entrepreneurs are so focused on escape that they ignore the unbalanced relationship between risk and reward and forge ahead in a high risk enterprise without taking the prudent steps to minimize risk, e.g., preparing a good business plan.
A Small Business Administration study identified five important predictors of an entrepreneur’s success. Drive is the most important attribute. New small business owners can expect long hours, high stress and endless problems, as they launch a business. The ability to maintain the necessary stamina should not be confused with the desire to succeed, although they are often interrelated.
Thinking ability encompasses creativity, critical thinking, analytical abilities, and originality. Often questions in this area include: Can I make a reasonable decision? Can I plan my strategy and take responsibility for carrying it out? Do I know when I need help and where to get it? No genius required here, just the ability to think clearly and analyze options.
People skill recognizes the importance of the ability to motivate employees, sell customers, negotiate with suppliers, and convince lenders. Personality plays a big part in success in this area.
Communication skill is the ability to make yourself understood. Part of this skill is the acknowledgement that muddled or abusive communications go unheeded.
Technical ability speaks to the need for entrepreneurs to know their product or service and their market. They must be experts in their field to operate their business with ease.
Finally, speak with a veteran SCORE counselor to get an objective assessment of your probability of success.
Family Businesses Meed Extra Care
The family business is an American small business tradition, one that gives parents, spouses, children, and other relatives an opportunity to contribute to and share in a dream that can grow and prosper over many generations.
But without proper planning and management, family businesses can also be the source of contention, acrimony, and even irreparable harm to once-loving relationships. That’s why it’s important for aspiring entrepreneurs to fully understand the pros and cons of going into business with relatives and in-laws. The needs of the business may not always be compatible with family harmony, resulting in a situation that if handled improperly, can jeopardize the survival of both.
When bringing family members into a business for the first time, especially as investors or in a startup situation, you should consider putting the business relationship in writing. Family members sometimes buy into the excitement of a business startup without a clear idea of their role once the business is underway.
In an ongoing family business, it’s important to treat family members fairly. While some experts advise against hiring family members, that sacrifices one of the great benefits of a family business. Countless small companies would never have survived without dedicated family members. But avoid favoritism. Pay scales, promotions, work schedules, criticism and praise should be evenhanded between family and non-family employees.
Don’t become the employer of last resort for every distant relation who calls. Base employment on the skills or knowledge they can bring to the business. If your kids will be joining the business, make them get several years of business experience elsewhere first to help them gain perspective of how the business world works outside of a family setting.
Problems and differences of opinion are common in a family business, so it’s important to keep lines of communication clear. Weekly meetings to assess progress, air differences and resolve disputes work well for many family firms.
Just as solo entrepreneurs and non-related partners need to separate their business and personal lives, owners of family businesses need to prevent work-related issues from dominating family activities. While it may be difficult to totally confine shop-talk to the workplace, make it a standing rule not to discuss work and business issues at social gatherings or at designated “family times” where the focus should be on other things.
Many SCORE counselors owned family businesses. Why not have a chat with one of them and take advantage of their experience. Visit the SCORE website, www.scorehouston.org, to learn about our counseling, mentoring and education resources.
But without proper planning and management, family businesses can also be the source of contention, acrimony, and even irreparable harm to once-loving relationships. That’s why it’s important for aspiring entrepreneurs to fully understand the pros and cons of going into business with relatives and in-laws. The needs of the business may not always be compatible with family harmony, resulting in a situation that if handled improperly, can jeopardize the survival of both.
When bringing family members into a business for the first time, especially as investors or in a startup situation, you should consider putting the business relationship in writing. Family members sometimes buy into the excitement of a business startup without a clear idea of their role once the business is underway.
In an ongoing family business, it’s important to treat family members fairly. While some experts advise against hiring family members, that sacrifices one of the great benefits of a family business. Countless small companies would never have survived without dedicated family members. But avoid favoritism. Pay scales, promotions, work schedules, criticism and praise should be evenhanded between family and non-family employees.
Don’t become the employer of last resort for every distant relation who calls. Base employment on the skills or knowledge they can bring to the business. If your kids will be joining the business, make them get several years of business experience elsewhere first to help them gain perspective of how the business world works outside of a family setting.
Problems and differences of opinion are common in a family business, so it’s important to keep lines of communication clear. Weekly meetings to assess progress, air differences and resolve disputes work well for many family firms.
Just as solo entrepreneurs and non-related partners need to separate their business and personal lives, owners of family businesses need to prevent work-related issues from dominating family activities. While it may be difficult to totally confine shop-talk to the workplace, make it a standing rule not to discuss work and business issues at social gatherings or at designated “family times” where the focus should be on other things.
Many SCORE counselors owned family businesses. Why not have a chat with one of them and take advantage of their experience. Visit the SCORE website, www.scorehouston.org, to learn about our counseling, mentoring and education resources.
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