|
|
|
Small Business Survival Guide
|
Business New Haven
4/3/2000
By: Michele Beck
|
When it comes to information and advice for the Connecticut small-business owner, the guide that follows represents only the tip of the iceberg. There is a wealth of low- or no-cost counseling, seminars, courses and literature available. Some of the places where small business owners can go for assistance include the Connecticut Economic Resource Center (CERC, 800-392-2122), Regional Business Resource Center (203-624-1493) and the Small Business Development Center (203-782-4391).
Financing
Small businesses face a variety of financing needs in every phase of their growth. The principles involved in securing the needed financing are similar, however, whether yours is a start-up or a well-established company, whether you are trying to compensate for the uneven cash flow in a seasonal business or whether you need a one-time loan for a new piece of capital equipment. Whatever your situation, an accurate assessment of your needs - and of your ability to repay - are key.
The most important piece of preparation start-ups can undertake before shopping for initial funding is to put together a really thorough business plan. A good business plan will include financial projections based on solid research.
“We look at the assumptions behind the numbers - which turn out to be more important than the numbers themselves,” says Ken Martin, regional director and executive vice president for small business at Fleet-Boston.
For start-ups, a lender also looks to the experience and credit history of the company's principals in order to help determine the new business's creditworthiness. In this regard, proven ability to manage - particularly in the industry in question or one very similar - is important to establish.
In addition, banks and other lenders generally like to see a projected break-even date that is not too far distant - typically less than a year for most industries.
Banks will also look for a minimum equity injection from the new business's principals. (At Fleet-Boston the minimum is ten percent.) “The bank wants to share the risk, but we do not want to take the entire risk,” says Martin.
A lender will expect a start-up loan candidate to have accessed the traditional sources first - family and friends. A house with no debt can also be figured as equity.
It is sometimes possible for a start-up to get the backing of a venture capitalist. Martin cautions, however, that “There is not a lot of venture capital available at the low end.”
Some cities, as well as the state, offer loan programs for new businesses. New Haven's Small Business Initiative, for example, can write loans of up to $25,000, for which new and existing businesses may qualify. A good banker, Martin points out, understands this arena and will be able to guide a new business owner to appropriate existing programs. Or, call CERC, your regional SBA office, or the Connecticut Small Business Development Center.
Martin has one last word of advice for start-ups: don't finance your new business with credit cards. A lot of start-ups have begun by maxing three, four or even five credit cards out at $10,000 or $20,000 limits apiece. This is usually done because the principals want to get up and running quickly. The problem - in addition to high credit-card interest charges - is that frequently the planning stage gets short-changed, resulting in problems later on down the road.
Up-and-running businesses, have financing needs, too. Depending on the nature of your cash flow (if, for example, you are a seasonal business with very uneven cash flow over the course of the year), you may need a working capital line of credit. Applying for a line of credit for an existing business is relatively simple.
At other points, you may need a term loan or a lease agreement - for a new piece of equipment, for example. “We evaluate the strength of [an existing] business in exactly the same fashion as we do with a start-up,” says Martin. Here, too, it is important for a business owner to work with his CPA and his banker to determine what the true need is. And with a term loan in particular, Martin says, a bank will look for the money to be paid back in a specific number of months.
Existing businesses looking to finance a sizable expansion may want to consider contacting the Connecticut Venture Group. The CVG (203-333-3284) is a non-profit networking association that works with existing companies with annual sales of $1 million or more seeking growth financing.
In order to be prepared for normal growth, Martin suggests that small businesses work with their banker to take steps in advance of needs. For example, they could get a line of credit in place, get pre-approval for a lease - even if they don't immediately need either. Then, when an opportunity becomes available, they can be ready to take advantage of it.
Be sure to do your homework when selecting a bank. Know more about it than just its ability to say “yes” quickly. Be sure it understands small business. Also check to see that it can help you with other specific needs your particular business may have, such as handling multiple locations, or expertise in international transactions. If you select your bank carefully, then your banker can be a trusted guide through all your financing needs.
Accounting
An accountant can and should play a key role in maintaining the financial health, and charting the growth, of your small business. “Don't just use him as someone who files your taxes and advises you on compliance,” says Bill Hyde, a CPA with the North Haven firm of Donald L. Perlroth & Co., CPAs. Ideally, says Hyde, your accountant should be the leader of your overall professional team, comprising your attorney, banker, insurance agent and accountant.
A good accountant can provide invaluable help and advice with such things as financing decisions, human resources questions, and appropriate benefits packages. In fact, an accountant will be able to provide insight on just about any decision a small business owner has to face.
In order to find an accountant to fill this key role with your business, start by asking your business acquaintances for references. (Contacting the Connecticut Society of CPAs will only net you a name from a list, Hyde cautions.) Make sure that any firm or individual you are considering has some knowledge of your specific industry.
Once you have narrowed the field to two or three, have a 30-45 minute interview with each candidate. “You want a personal rapport with your accountant,” Hyde says. You will also want to ask about candidates' affiliation with such organizations as CSCPA, the American Institute of CPAs and your local chamber.
In order to establish a good working relationship with your accountant, plan to meet more than once a year. Twice yearly should be the minimum, says Hyde. Monthly or quarterly get-togethers are better.
“To get the most out of your accountant, let him be proactive; use him as a sounding board,” Hyde advises. He also points out that a good accountant will not be making decisions for you. And although an accountant will sometimes seem to be set on puncturing the balloon of your expansive thinking, this is his job.
“I just want my clients to realize the ramifications of what's going to happen two months, three months down the road,” Hyde says.
Finally, your accountant is the best one to advise you on your accounting software. “There's a lot of low-end software,” says Hyde. After assessing a client's computer sophistication and his needs, Hyde says he can usually match the company with an off-the-shelf product that meets 90-95 percent of its needs. He adds that the manuals that come with accounting packages are notorious for inaccuracies. An accountant can direct you to proper training for your package (“essential,” Hyde says), as well as help to troubleshoot.
Insurance
There are five types of commercial insurance just about every business owner should have: property insurance, liability insurance, a commercial auto policy, workers' compensation and an umbrella policy.
Most property insurance policies today are what is called “special,” says Scott Bennett, a commercial business insurance executive for Damman-Webster Insurance of Westport and Wallingford. Unlike the older, “standard” policies which followed a “named perils” format - explicitly identifying each of the potential hazards covered by the policy - a “special” policy includes everything except those things which are specifically excluded (usually such things as nuclear accidents, war, military actions, intentional acts). A special policy is the most inclusive kind available, and is what a small-business owner should look for, according to Bennett.
Bennett advises business owners purchasing property insurance to pay particular attention to any kind of “co-insurance clause” a policy may contain. Policies with such a clause stipulate that by signing the policy you guarantee that the value you list for your property is at least 80 percent of its actual value. If it is not, and you try to collect for a loss, you will be held responsible for a sizable proportion of the loss (the value you listed divided by the value you should have listed times the value of the loss). Thus current, correct assessment of property value is important, as is apprising your insurance agent of any changes in your business property that will affect its value.
“Don't even look at a policy under $1 million today,” Bennett recommends of general liability insurance. “We're still sue-happy.” Certain businesses, such as contractors or lawn-care providers who have greater exposures, may well want even more coverage.
Bennett suggests that small businesses carry the same amount of commercial auto insurance as well: $1 million. “It's not much more than you would pay for $300,000 or $500,000 of coverage.”
When it comes to workers compensation, businesses will of course need to comply with state laws. Penalties in Connecticut are stiff for those who don't. Bennett also cautions business owners to keep an accurate tab on estimated payroll. Businesses are audited at the end of the year, and it is better to receive a refund than to have 30 days to make up a shortfall.
Finally, every business should purchase an umbrella policy. An umbrella policy increases the coverage on all your insurance policies, and costs very little. “Don't be in business without one,” Bennett says.
Today there are many other types of insurance which people in certain lines of business will want to consider. Product liability is a must for manufacturers. Ocean and inland marine insurance is advisable for those in the importing and exporting business. Bennett says those who do business internationally should seriously consider kidnap and ransom insurance. Larger firms may feel a need for directors' and officers' insurance to cover them in the event that serious consequences result from any decisions they make.
Make sure any insurance company you deal with is rated A- or better on underwriting lists. If possible, try to have as many of your policies as possible with the same company, as this will frequently get you a percentage discount on all your coverages.
Finally, choose a broker you can trust, and then be sure to give him or her the time to really get to know your business. This will ensure you the best possible guidance in the often-bewildering world of insurance.
Benefits
It is fast becoming axiomatic that in today's tight job market, prospective employees are looking almost as much at the benefits an employer offers as they are at salary. Unfortunately, small businesses are obliged to compete with the big guys for workers. What's a small business to do?
The first step, advises Steve Glick of the Chamber Insurance Trust, is to start with the basics: health insurance. Even a start-up can usually afford short-term health insurance, which is cheaper than a permanent plan. A small company can then purchase a permanent health plan that may offer limited benefits, but at least covers catastrophic illness.
When a business owner feels ready to pump up his benefits package, a second step might include more coverage on the health plan, dental benefits, and group life insurance.
Disability insurance is the next benefit Glick recommends adding. “So many companies” - as many as 90 percent - “are without disability today.” Yet ever more workers are looking for the security that disability insurance provides. While health insurance pays medical bills in the event of a prolonged illness, major surgery, or recovery from an accident, disability ensures that your salary is paid while you are out of work.
Long-term disability insurance in particular (which covers employees if they must be off the job longer than six months) is inexpensive - $10 per person per month, on average. Glick, in fact, recommends that businesses purchase this coverage for their employees first.
Retirement plans are something Glick recommends that a business should consider further down the road. “In order to have a retirement plan, you need profits,” he points out. Companies that want to offer employees something before profits are solid can, however, set up a voluntary 401(k) retirement plan - that is, one without any company contribution.
Once you are ready to consider retirement plans, you will have several different options. Many companies use what are called “money purchase” plans, which are basically a commitment by the company to pay a percentage of a retired employee's salary every year. Other types of plans include profit-sharing plans (of which 401[k]s are a derivative) and defined-benefits plans, which determine a set benefit for an employee and guarantees it.
Glick points out that retirement plans in small businesses usually have a different focus from those used in larger companies. With larger firms, the retirement plan is frequently used as a means of retaining valuable employees. In small companies, on the other hand, the retirement plan is often viewed instead from the perspective of the employer - as a means to help the principals get something out of the business.
Glick stresses that there is more room today than ever before for creativity and customization in the design of benefits packages for small businesses. Frequently it is possible now for even small businesses to offer their employees options - say, a low-, medium- and high-benefit health plan. The key, Glick says, is to work with an independent broker or consultant who can give you an unbiased opinion.
Human Resources
There is no question: Finding good people nowadays is a big problem for small businesses. As a result, says Maria Fisher-Proulx of Future Directives, LLC, of Cheshire, finding ways to retain the good people you have has become more important than ever.
Actually, the same things serve both to retain and to attract employees. As most employers have already discovered, pay alone is not enough. Fisher-Proulx says that recent surveys show that workers nowadays are looking for several things from a place of employment:
n Ways to balance home and work, which may include flexible hours, paid time off with no reason required, the option to work from home
n Open communications and a friendly environment
n Different types of benefits, such as an incentive program which allows them to earn money beyond their regular paycheck.
While the best thing is to keep people, if a business owner must hire, Fisher-Proulx suggests that a recruiter is the way to go in the case of higher-level positions. “What you want,” she says, “is someone who is not looking for a job.”
For lower-level positions she recommends a hybrid approach: using the Connecticut Job Bank, placing a classified ad (make sure it simultaneously is posted on the newspaper's Web site), sending notices to employment agencies, working with appropriate schools to find a recent graduate, and using computer job sites. With respect to schools, try to build a rapport with someone in the guidance office.
“A lot of people do their recruiting through the computer now,” says Fisher-Proulx. If you would like to try this approach, she suggests going into a search engine and doing a search on job sites. Investigate each one, and then pick the one that you feel is best. There may be some charge.
When trying to select from among several candidates for a position, there are several things to be on the lookout for:
n Prospective employees who have a big gap in their employment history. If you notice this, find out the reason for it.
n People who have had a series of jobs in 12 months' duration or less. This is usually a clue that there is some kind of problem.
Keep in mind that it is perfectly acceptable - and frequently helpful - to conduct telephone interviews with candidates first, as a sort of preliminary screening. During an interview, whether on the phone or in person, try to find out why a candidate left his or her last job. Ask what the employee's supervisor said at the last review - and later contact the supervisor and ask the same question.
Be sure to check references, as these can tell you a lot about an applicant. Finally, in order to do your best to ensure a lasting relationship with a new hire, make sure that there is a good “fit” between a candidate's résumé and the description of the job he or she is applying for.
Marketing
The Web is the most significant new factor in marketing. However, as Al Papsun of Papsun Consulting in North Haven points out, the Web can be both a blessing and a curse for small businesses.
“A lot of folks are rushing to the Web as a panacea for marketing ills. A lot of businesses are doing it because they feel they ought to,” he says.
“They have an under-appreciation of what it costs to maintain a Web site, and a poor Web site detracts from your business, siphons off valuable energies.” Papsun notes that good Web sites are typically underwritten by huge amounts of capital, which small businesses can seldom afford.
“Many traditional industries haven't been affected by the Web in the way many folks think,” Papsun says. For these, the Web is at best an adjunct to standard marketing approaches.
Also, Papsun points out, “People still like things they can touch and feel. There is a growing undercurrent of skepticism about the Internet. A good marketer can capitalize on some of that negative resentment by using resources wisely in traditional media.”
“The basic things in successful marketing have not changed,” Papsun says. These can be boiled down to three simple rules of thumb:
n Simplify your message
n Clarify your message
n Deliver what you promise
Papsun counsels businesses to exploit first the things that are least costly. He notes that many start-ups in particular squander their marketing resources in a very short period of time.
Networking costs next to nothing and can be a very effective marketing tool in many industries. “Most people don't make enough use of networking,” Papsun says. Companies that deal in service-related products often find networking particularly effective. So, too, do manufacturing concerns.
For the latter, networking is actually even more important than in many service industries. Since few manufacturers sell directly to end-users, it is essential to be in contact with the people at client companies who make purchasing decisions.
Once a small business' client roster is stabilized, it makes sense to look at more costly marketing tools, such as radio or newspapers.
Papsun recommends that companies utilizing traditional marketing media take a quieter, as opposed to a “noisy” approach. “Underplay what's being said. Make use of white space,” he suggests. “Gen X magazines are an orgy of loud colors and graphics. The consumer is glutted with media messages.”
Manufacturers need to differentiate themselves, particularly in terms of cost and quality, he advises.
If a small business does decide to use the Web as part of its marketing mix, Papsun cautions the owners to know exactly why they are using the Web and specifically what they are trying to set up. Doing a good cost-benefit analysis beforehand is recommended.
Papsun asserts there is not necessarily anything wrong with using a Web site basically as an ornament - to lend a company visibility and credibility. That's okay - as long as you are not spending too much doing it.
If you do intend to use the Web as a marketing tool for your business, be sure to include your Web address in all other media you utilize.
Web Presence
“Most people treat their Web site as an advertisement,” says Eric Peterson, e-commerce developer for Cheshire Webmaster Services. Indeed, he says, the best use a small business can make of the Web is to port its existing business to the Internet.
A Web site should be a place customers and potential customers can go to get all the information they need about your business. This enables you to “prequalify” customers. Take, for example, a banquet facility. Customers will no longer take up the staff's time with questions about facilities, menus and available packages if they can be referred to a Web site for the same information.
“People are going to go to your Web site to try to figure out if they want to do business with you,” says Peterson. “Price alone won't do it.”
In order to win over new customers with your Web site, Peterson recommends the use of multimedia presentations that allow potential customers to tour your facilities and meet the management.
He also strongly suggests that all of a company's products and services be available over the Internet, with the company's inventory tracking linked to its Web site as well, so that customers can instantly determine an item's availability.
“People want to do the work themselves,” he says. They also want to be able to find information and answers quickly. Not long ago a purchasing department had to go through a lengthy procedure to get the requisite three bids for every item the company needed to order - getting catalogues mailed from several vendors, then sifting through the catalogues once they arrived. Now it is possible, with companies properly set up on the Internet, to get three bids in five minutes.
“Business-to-business is everything,” says Peterson. “That's where the real money is at.” So important is it to be able to do business with other businesses over the Web that Peterson strongly advises companies to redesign their business, if necessary, so that it is Web-enabled - that is, so that customers can tell whether a product is in stock and then place an order.
When it comes to selecting a name for your Web site, Peterson recommends going with something people already associate with your business. “You want to feel the Web site is an extension of the business,” he says.
Another smart move is to register whatever domain name(s) you may be considering as soon as possible, before someone else snatches it (them) up. Having a registered domain name allows you to change your Internet service provider without there being any effect on your e-mail address. You can register a domain name for a year for just $35 at www.register.com.
Peterson cautions small-business owners not to believe ads that claim they will put your site in the top ten that come up on search engines for just $50. Such an accomplishment, he says, takes more than $50 worth of strategy. A more practical method of publicizing your Web site is to know who your customers are and where else on the Web to find them. Once you have identified other sites where potential customers are likely to visit, look into getting a billboard up on those sites.
Telephones & Communications
“There is a huge change underway in the way phone systems are being designed,” says Michael LeBlanc, president and CEO of LeBlanc Communications Group Inc. in Norwalk. The last big change was 12 years ago, when systems started to incorporate voice mail. The current innovation, which is already having a major impact on all facets of business communication, is called computer-telephony integration - CTI, for short.
Basically, CTI connects your telephone system with your computer system. This makes possible a myriad of convenient, time-saving features. These include having calls (identified by caller ID) pop up on your computer screen; having the appropriate information from your customer database pop up on your screen as soon as a customer calls; and unified messaging, in which three types of messages (e-mail, voice mail and faxes) are all available in one place - displayed on your computer screen.
Another major advantage provided by CTI, by making use of the Internet, is the ability to connect your main office's phone system with others across the country so that they can be accessed by three- or four-digit local dialing.
“In the old days,” says LeBlanc, it cost $50,000 to $100,000 to connect phone systems in different parts of the country.” Now the cost of such a convenience is within the reach of even small businesses. In fact, says LeBlanc, CTI phone systems cost only five to ten percent more than regular systems.
Where can you go to get reliable advice about the new systems? LeBlanc advises business owners to find a company that is thoroughly versed in telephones, computer networking and the Internet. Talk to two or three companies and check references, he says. Be sure any company you decide to work with backs up its sales and installations with support.
Another tip: Good, free advice is also available from hardware salespeople. Currently 3Com is leading in the way with CTI phone systems for smaller businesses.
How many phone lines should your business have? LeBlanc says that a small office generally needs more lines to start out than most people think are necessary. You need one line the number of which everyone knows, another line for calls to the main number to roll over to (number known only to company insiders), a dedicated fax line, and a line for your computer.
As your business grows, the telephone company rule of thumb is that you need two lines for each employee. LeBlanc says this is not always the case. In businesses with very heavy phone use, you may need two lines per person, but he says that with the right equipment you can reduce the number of lines. A single T1 line, for example, can support ten phone numbers feeding into it. Eight hundred numbers can be piggybacked onto existing lines and numbers. Here, again, a well-qualified consultant can help you to work out the most economical arrangement for your business.
The selection of a long-distance carrier has been a source of bewilderment and confusion for many business owners ever since deregulation. To simplify the process, LeBlanc recommends looking under “Telecommunications” in the Yellow Pages to find out what carriers serve your area, then giving each carrier you want to consider a copy of a recent phone bill and asking them to tell you what it would cost with their service.
Once you have selected a carrier, LeBlanc says, be sure to get a promise of a permanent rate in writing. And because things change so rapidly in this industry, make it a regular practice to reevaluate your phone service at least once a year. The carrier that gave you the best rates in 1999 may not do so in 2000.
LeBlanc also notes that many carriers also now offer local service as well as long distance. Some of these alternative carriers have their own equipment in SNET offices (called “co-locating,” a practice mandated by the FCC), while others simply resell SNET service at a slight discount. Both are worth looking into.
Keep in mind that a carrier currently just reselling SNET may soon become a co-locater and be able to further lower your local rate.
Computer Systems
The place to start when setting up your business' computer system is not with the hardware, or even with the software, says Rick Bassett, president and CEO of Bassett Computer Systems in North Haven, but with identifying exactly what it is you want to accomplish with the computer.
For example, say you decide you want to use the computer to make your sales force more productive. With that specific goal in mind, you are then able to pick out an appropriate salesforce-automation software package. You then make sure you have the hardware that is specified by the software package. So the basic order is: business goal, software selection, hardware selection.
In order to select the software packages that best meet your needs, Bassett recommends doing research over the Internet. Or, if you are willing and able to pay for advice, meet with a consultant.
Hardware selection has gotten much easier in recent years, largely because almost all programs today are set up to run on either NT or Novell networks. Far fewer run on Linux. Prices have also come down. Many people, says Bassett, make the mistake of buying a computer that meets only the minimum specifications required for their software packages. Do this, he says, and you are likely to find yourself replacing your computer before even 12 months has elapsed.
“Go out and buy the most powerful computer you can afford,” he suggests. This strategy will often result in a system that will last two or even three years - which in the end will save you money.
For businesses using just a few computers, Dell or Gateway is fine, says Bassett. “These companies provide good support for this level.” If you contemplate running a network of five stations or more, however, you will be better off contacting a systems-integration house. This will ensure better support for both hardware and software problems.
If all you need is a small network that does not involve a server, start-up network kits are available that are fairly easy to install yourself. Larger, server-based networks, however, should be installed by a pro.
When it comes to setting your system up for Internet access, Bassett recommends a DSL line or a cable modem, if available in your area. If not, simply fall back on a 56K modem. Larger small businesses may want to consider a shared Internet connection employing a server. This set-up permits 20 people all to use the Internet simultaneously.
|
Go FirstGo PreviousGo
NextGo LastGo
to Index
|
|
