Friday, September 30, 2011

We don’t need no stinkin’ Emergency Plan

Being prepared is always smart, especially in an emergency.  Back in April of this year, we had bad storms pass through the state.  Tornado’s ravaged the area from Birmingham all the way to the Tennessee State line.  We’ve had storms pass through before, but not like this.  The storms spread destruction and death across the state.  And while the destruction was really bad for many people, local businesses without damage still had financial problems.
How did a business without any damage have financial problems?    They had problems on several fronts.  First, these businesses were without power for about a week.  That means they were out of business for a week.  I’m guessing that much of their overhead didn’t stop during that time.  Rent was still due, salaried employees still had to be paid.  Insurance and equipment leases still had to be paid, regardless of whether the doors were open for business.  So not only did they have to continue paying for much of their overhead, they also didn’t get any income from sales.  What sort of damage to your businesses financial condition would no sales for a week have?  What if you sold a product that had to be cooled or even frozen?  What if your product had to be warmed?  Now in addition to the losses from continuing overhead and no sales revenue, you have ruined inventory.
What is your business has some sort of emergency like a fire, explosion, flood or tornado?  What would you do with your employees and customers?  How would you keep them safe in a weather event?  What would you do in the case of a robbery?
Now I’m no disaster preparedness expert so I’m not about to tell you what to do with your business.  But I can give you a few points to think about.  If you don’t know how to respond to these points, a little internet research or discussion with your insurance agent/broker or workers comp insurance carrier will serve you well.  Here’s a very small list of subjects to get you thinking.  Don’t stop here, consider all the possible emergency or disaster conditions that could affect your business and create a policy or plan for your employees so they will know how to deal with these situations.  And don’t let the disaster situation be the first time they see the plan.  What does your insurance policy require for you to comply with your coverage?  Don’t wait for a disaster situation to ask the question.
  • Disaster/Emergency/Robbery Plan or Procedures
  • Employee Training on the Plan
  • Emergency Contacts List
  • Insurance Policy Requirements
  • Business Interruption Insurance 
  • Computer Program and Data Backup (Offsite)
  • Important Document Copies (Offsite)

Tuesday, September 27, 2011

Got Your Backup On?

Everybody hears the commercials on talk radio, TV and in magazines on Carbonite and other online computer data backup services.  “Backup your computer or you’ll be sorry!”  That’s the message that they’re pushing.  If you don’t backup your computer data, it’s just a matter of ‘when’ not ‘if’ your computer will crash and all your precious data will be gone…and then what will you do?
I learned this lesson the hard way many years ago.  I had a computer crash and lost everything on it.  Luckily, I had my data ‘backedup’ in the form of floppy disks.  Guess what?  When I went to restore my data on a new computer, it wasn’t compatible or couldn’t be retrieved off the 3.5” floppy disks.  Turns out I didn’t have ANYTHING backed up.  These are lessons learned the hard way.  I had to rebuild my data base from bits and pieces of data contained in reports and notes in files.  I was doing commercial and industrial real estate appraisals at the time.  I had databases of information on property sales, with all kinds of specific data recorded.  I had flood map data, employment statistics, all kinds of demographics and economic development statistics on the communities where I practiced.  I had hundreds of scripts written on different communities, construction types, sales situations, definitions and what have you.  I had been building this database over a ten year period and in an instant, it was gone.
After this incident, I was religious about backing up my data…for a while.
Last week, my computer died.  Just like in the Carbonite ads, it’s not a matter of ‘if’, but ‘when’.  This time I really did get lucky in that my mother board went out and my data was still safe on my hard drive.  However, I also have a subscription to Carbonite, so I didn’t lose any data.  I bought a new computer, restored my data and I’m back in business.  No problem.  Who says you can’t teach an old dog a new trick?
So, how do you back up your data?  DO you backup your data?  If you have anything important on your computer, give your backup process a little attention today, before you regret it tomorrow.

Thursday, September 22, 2011

Business Start-up and Your Personal Credit

Starting a business may actually hurt your personal financial position.  If you’re going to borrow money personally for a new vehicle or a home, being self-employed will create a problem if your business is new.  Retail bankers are not business bankers and may not have the skills to evaluate or understand your business.  And, it’s not their job to review your business to determine if you have the capability to repay a loan.  They will want to see two years of profitable operation in the form of financial statements and tax returns.  If you are unable to produce those, you will not be viewed favorably.  In fact, if you have yet to produce two years of profitable operations, your business will likely hurt your chances to get any kind of loan.
If you plan to purchase a new home for example, the mortgage company will look at the income and credit of you and your spouse.  Your combined incomes will be used to qualify you for the loan.  If your spouse earns enough income to qualify for both of you, then all the better unless your business has filed tax returns showing a loss.  If so, that loss will be deducted from your spouse’s annual income.
Plan major purchases, college education expenses and the like against your plans to start a business.  In some cases, you’ll be better off waiting to start your business until after the major financial expense event.

Tuesday, September 20, 2011

What does my FICO score have to do with anything?

In a word, EVERYTHING.
The personal credit score is the first and most often cited reason that individuals are unable to borrow money to finance their business dreams.  They never get a chance to describe their idea, show their financials or impress with their strategies.  The banker looks at the personal credit score (called a FICO Score) and says, “No thanks.”
If you will need to borrow money from a financial institution to finance your start-up, you will need a minimum credit score of 680, and probably much higher.  Make an appointment with a commercial loan officer at your bank and discuss the process.  Find out about the bank’s credit score requirements  and make sure you have a high enough credit score to qualify.  While you’re there you can get a general idea of the bank’s underwriting guidelines and business information requirements and you can find out if they lend to start-ups.  Many banks and credit unions don’t lend money to start-ups at all.  Your company may need a couple of years seasoning before they will consider a financing request.  Of course, you probably won’t need the money by then. 
Don’t wait until you need the money to start the process.  Make friends with the banker and learn about the banks requirements.  Start building your personal financial position and improving your FICO score.  If you have bad credit, see a personal credit counselor.  There are many free services to help you understand personal credit and how to manage it better.

Thursday, September 15, 2011

The 5 Deadly Sins of Entrepreneurism

The dream of business ownership is like an addiction running through the veins of entrepreneurs.  We crave the start-up and break out into cold sweats at the very thought of a new business opportunity.  When done properly, a start-up is a wonderful thing, blooming with profits and gushing cash flow.  When mismanaged, the beauty tarnishes and becomes a kudzu in our flower bed.
So what causes us to lose our way and take what we thought was such a wonderful idea and turn it into such a mess?  For many unenlightened entrepreneurs, they take their eye off the contest and start coveting the prize.  Instead of focusing their serious intention on building an enterprise, they lose focus and just create a job.  Or worse yet, they fall prey to the 5 deadly sins of entrepreneurism:  fame, fortune, leisure, travel and possessions.  Let’s look at these in more detail.
1.  Fame
You dream of walking into any room in town and being instantly recognized.  People whisper behind your back, ‘say, isn’t that the guy who started that successful business that’s taking the market by storm?’  The mayor takes your call and congressmen call you for your opinion.  That the sort of fame you got in mind?  Well, the reality is that you’re at work so much that your dog doesn’t even remember you anymore and growls when you enter the front door.  
2.  Fortune
You’re treating everyone in town to dinner at the best places, throwing lavish parties and watching your bank accounts skyrocket.  You’re thinking about opening one of those Swiss bank accounts to shelter your income.  HA!  Most likely, you’re taking a pay cut.  You made pretty good money as a mid-level manager at your former company.  Maybe you were an engineer or salesman and you did pretty good with salary and investments and retirement funds.  But now, you’re employees are making way more than you and your wife is concerned about making the mortgage next month if something doesn’t change.
3.  Leisure
Do you see yourself in a James Bond movie, relaxing by the pool with bikini-clad supermodels?  Maybe you’re doing something simple like coaching a youth sports team or doing a mission trip to Africa for a few months.  The reality of starting a new business that you’ll be stuck in the office way more nights and weekends than you ever dreamed possible in your worst nightmare.  In fact, in July, you slept in the office more than you slept at home.
4.  Travel
See the world from your luxury yacht.  You and Robin Leach are sipping champagne and eating caviar in all the best destinations.  Is that your dream?  How about a dream crushing 90-minute commute twice a day in your 2004 Honda?  Will that do?
5.  Possessions
Possessions tend to be all over the map, depending on the individual.  While some prefer expensive suits and Rolex watches, others want a Bentley or Rolls Royce.   What you’re more likely to get is accounts receivables, inventory and bad debt.
There is nothing wrong with wanting nice stuff.  That’s one of the reasons we started these crazy businesses in the first place.  I put myself into that mix with the rest of you.  The problem is, many hopeful entrepreneurs take their eye off the start-up and start focusing on the prize, before the enterprise is even established.  For these people, the prize becomes a poison and bitter reality instead of the comfort.  They dive into the prize before they have earned it.  Instead of keeping their attention focused on creating an efficient enterprise that will generate profits and cash flow without your constant supervision; they spend the new credit line on a ‘much deserved’ vacation or leathers and a hog Harley. 
Don’t let the prize get in the way of creating a business enterprise.  Get the work done first and then enjoy the fruits for many years to come.

Tuesday, September 13, 2011

What are your business start-up goals?

Why do you want to start a business?  Many people want to start a business for all the wrong reasons.  See the previous posts on that topic.  Let’s change the topic slightly.  What do you hope to accomplish in starting a business.  In other words, what are your business start-up goals?
Are you starting a business just so you can get money for stuff?  Extra income for:  cars, boats, houses, travel, hobbies?  What about college education for your kids, medical expenses or retirement?  These are all good goals, but will your new business actually allow you to get there?  And what about time frames?  Over what period of time do you expect to reach these goals?  Does starting a business REALLY help you achieve your goals?
Spend some time thinking about your goals.  Why do you want to start a business?  What do you hope to get out of it?  Many would-be entrepreneurs thought that by starting a business they wouldn’t have to work for the ‘man’ any longer.  What they found was they traded one ‘man’ for another.  The new boss is probably much harder to work for and requires significantly longer hours and a much higher quality of work than the old ‘man’ required.
Think about your motivation for wanting to start a business.  Discuss your thoughts with your spouse and family.  Make sure that everyone is on the same page and that page isn’t a fairy tale.  Talk with a business coach or mentor to get a reality check on your plans and goals.  If you do the proper planning up front, the end result may be exactly what you wanted.  But a lack of planning may put you worse off than when you started.

Thursday, September 8, 2011

Rocket City Sitters - WBCNA Start-Up of the Year

Rocket City Sitters win again!  

At the Huntsville/Madison County Chamber of Commerce Small Business Awards ceremony on September 1st, Rocket City Sitters won the Women's Business Center of North Alabama Start-up of the Year award.

Last summer my friends at Rocket City Sitters won the Madison Chamber of Commerce Start-up of the Year.  I blogged about it here.  RCS was started by Adrienne Stephens, Nick Weseman and Erica Weseman.  They are a fine example of the kind of small business that drives the American economy. 

RCS provides short-terms childcare in the Huntsville-Madison county area.  They hire only trustworthy sitters who are certified to provide quality care for your kids.  They also work with organizations such as churches and businesses and events like a wedding or reunion.  No more need to stay home on a Friday night because you can't find a sitter.  Contact Rocket City Sitters today to schedule a sitter by phone at 256-272-1727.

Tuesday, September 6, 2011

‘Intellectual Disarmament?’

Jim Albaugh, President and CEO of Boeing Commercial Airplanes, warned the National Aeronautics Association on July 13th in an address that the nation risked intellectual disarmament in the aerospace industry if participating companies couldn’t continue to attract engineering talent.  He noted that with the end of programs like the space shuttle and slashed budgets, engineering talent would continue to diminish.  To make matters worse, much of the current engineering talent is approaching retirement age in the next couple of years.  “I fear we are in danger of falling into a downward, self-perpetuating spiral.  Without enough capable scientists, engineers and technologists, our nation won’t be able to maintain its position as the world’s aerospace and technology leader,” Albaugh told the group.”
He went on to say that watching the final shuttle landing on July 8th was “one of the most devastating days of my professional career, thinking that for the first time since 1962, we no longer have access to space…just another country hitchhiking a ride to low Earth orbit” on a Russian spacecraft.  It’s actually gotten much worse since Albaugh’s speech; the Russian space program is on hold until further notice following the failure of the Progress M-12M on August 24th.  The unmanned resupply freighter failed to reach orbital velocity and crashed to the ground shortly after launch.
So here we are in the fall of 2011 and not only does the United States have no manned space program, neither does anyone else.  It’s been 50 years since we could say that.  While that is tragic in and of itself, it speaks to the problem that aerospace industry has in attracting new talent.  Informal discussions with current and former NASA employees uncover a large number who have never seen a program come to fruition.  That is, these employees have worked on one program after another which was cancelled and never built.  Can you imagine spending your entire career working on programs that were cancelled?  Can you imagine never seeing one of your projects completed?  What a demoralizing prospect.  
This sort of start and stop has become second nature at NASA.  It has become a hot potato being tossed from project to project as the political whims of Washington D.C. politicians change every other year.  Is it any wonder that the best and brightest scientists and engineers choose other careers?  Not since the von Braun days of Apollo have we had a national excitement about our space program.  In those days, the best and brightest were drawn by edge of the envelope work to space centers at Marshall, Johnson and Kennedy, knowing that the fate of human lives and national prestige were on the line.  That’s the sort of environment that draws the best talent.
I fear, like Jim Albaugh, that we will be unable to attract excellent talent to the aerospace industry in the future.  But, I also fear that the world-class talent that is there now will leave for other industries, other opportunities, other jobs.  And in these days, any job is a good job.  And once they are gone, I’m afraid we’ll never be able to replace them.   

Thursday, September 1, 2011

Days Beyond Terms

Business Days Beyond Terms reported by Experian Business Information Services for the second quarter of 2011 show some interesting results.  Like the bankruptcy rates discussed in the last post, the most interesting being that the largest companies had the worst payment rates.

While the publicly released data doesn't give the actual numbers for company size, the full report does disclose figures for industry groups.  For company size, Days Beyond Terms is represented by categories of colors from tan (least bad) to dark red (worst).  I'll represent them with numbers from least bad (1) to worst (5).  For the period ending June 2011, the figures are as follows:

Company Size DBT
1 - 4 1
5 - 9 1
10 - 19 2
20 - 49 3
50 - 99 3
100 - 249 2
250 - 499 2
500 - 999 3
1,000+ 4

Frankly, I'm at a loss to explain this.  Like the discussion about bankruptcy rates, I'm not surprised that the larger companies are having difficulties, but what's different about them versus the small companies?  Anyone have an explanation for this?

Now let's look at industries.  I'll just summarize the top worst offending industries.  These may surprise some of you.

Industry Avg. DBT % $ Delinquent % $ 91+

Construction 12.1 22.8 17.4
Business Services   9.2 12.7   9.0
Finance   8.9 11.2   7.8
Agriculture   8.8 10.5   8.0
Communications   8.1 19.3  11.7