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Top Ten Business Plan Killers

It’s disturbing to have to reject a business plan, but sometimes it’s the best choice for all stakeholders. As a volunteer for a lending committee, I wish we could approve every loan application that hit our table; unfortunately it’s not possible. The committee meets as-needed to review business plans and decide whether or not to finance the applicants. We deal with mostly very small businesses seeking small loans, usually under $250,000. Lending to inexperienced, new business owners is one of the riskiest arenas for a lending agency. In spite of this fact, we manage to keep our loss rate to a minimum. Over a period of more than a dozen years, I have observed certain challenges surfacing again and again. The amazing thing about these business plan killers is that they rarely travel alone – they almost always appear in clusters. Here are the top ten business plan killers and what you can do to avoid or fix them:

1. Dreadful Personal Financial Profile

What is the likelihood that one who demonstrates abysmal financial management in his or her personal affairs will miraculously become an effective manager of finances for a business? It’s highly unlikely. It’s a lot more likely that poor practices in one’s personal situation are simply carried into the business. The main difference is that in business a much broader range of people and organizations usually get burned as a result of mismanaged business finances. Red flags pop up in business plans in the form of high credit card financing, garages full of toys (trucks, Seadoos, Skidoos, bikes, boats) 90% financed, poor credit history and no savings. Strategy One: Tidy up your personal finances before applying for a business loan. Pay down loans, clean up any bad debts, collect some business-related equipment and save some money.

2. Insufficient or Non-Existent Owner Equity or Security

Business is always risky, but new business is infinitely more so. Lenders will want to see you personally “invested” in your business. The part of the business you personally own is called your equity. Another way to describe equity is the amount of cash or equipment you put into the business. A lender wants to see that you are invested to the point that you will not be inclined to walk away when the going gets tough. How much owner equity is enough? The amount varies from lender to lender, but less than 10% is inviting scrutiny while 20% or more will make your proposition more enticing. Any savvy lender will insist on seeing you invested to the degree that any financial complications result in you, not them, laying awake nights stressing over how to pay the bills. Security is the surly sister of equity. Your loan application will be stronger if you bring some sort of asset to the table as security. Lenders will be more attracted to assets with a clear resale value of more than the loan. Inventory is usually less desirable because it tends to grow legs and disappear when the going gets tough. Strategy Two: Create some equity to bring to the table. Save money, sell some toys, borrow some love money, or get a second job for a while.

3. Inadequate Market Research

Inadequate market research manifests itself in various cruel ways. It can surface in the business plan as an unconvincing business case. It can reveal itself in the form of too much secondary information (from other sources) and not enough primary market research (that which you gather yourself). Lack of market research can lead to a business plan that is too general – not specific enough. Perhaps one of the most common and perplexing indicators is that the entrepreneur has not talked to or listened to the potential customers. A lender will want to see that you have “turned over all the rocks” in search of knowledge about your business. After reading your business plan, if I feel that I know more about your business than you do, I will not be inspired to approve your loan. Strategy Three: Prove your business case to yourself and to your reader. Persist in your market research efforts until you become “the expert” for your business. You will feel more confident and have an easier time convincing your readers that you know what you are doing.

4. Transmitting and Not Receiving

It’s your responsibility to find that elusive balance between being bullheaded enough to bulldoze your way to success, yet sensitive enough to receive critical information. Your ability to listen to your clients is the key to your success in business. Falling in love with your business idea at the high cost of closing your ears to input will not help you acquire a loan. Business analysts, bankers and customers vote with their money. They have no need to yell at you to get their points across. It’s important to listen attentively when they speak at normal volumes. Strategy Four: Listen and learn. Listen to those who agree with you AND to those who do not. Listen to all who shoot holes in your business idea, they might just be pointing you toward success. When you think you’ve heard it all, listen harder!

5. Dishonesty, Discrepancies, Inconsistencies

One sure way to cheat yourself out of a loan is to give the appearance, intentionally or accidentally, that you are anything less than above board. Any form of dishonesty in your business plan, or during your dealings with the targeted lending agency staff, is a sure way to have your application rejected. Blatant untruths are the more obvious offence, but it is entirely possible to communication underhandedness in other ways. For example, missing or inaccurate information invites questions and sends the wrong message. Conveniently leaving out some of the less obvious, non-flattering financial information (like unpaid long overdue taxes) is a sure way to a “NO”. Strategy Five: Be honest, thorough, and accurate.

6. Not Answering the Key Business Questions Clearly

Your business plan is a tool for communicating with others. What is your product or service? Who are your customers? How will you market and distribute your product or service to your customers? Will you make money? Will your business be able to repay the loan? Does your plan communicate these things clearly? Strategy Six: Answer the basic business questions. Who, what, where, why, when, how. There are many business planning systems (although none surpass the Roadmap!) that will provide a framework to keep you on track. A proper business planning system will provide you with a framework in which to place the assortment of information you will gather. Choose a system and use it.

7. Shoddy Presentation

You can carry out the best market research on the planet, but if you can’t communicate it clearly and package your business plan professionally, your target audience might not even read it. Strategy Seven: Provide a professional presentation. Ask a friend or pay someone to proof, get someone to keypunch the plan if you need to, but do a professional job. Demonstrate that you care and you will increase your odds with the lender.

8. Pie-In-The-Sky

Inflated, over optimistic sales forecasts or cash flow projections will derail your loan application every time. A future too bright will blind the lenders and scare them off the loan. Strategy Eight: Be realistic in your expectations, even if you believe you will be floating on a sea of cash within months. No matter how lofty your financial aspirations might be, know that businesses are usually not profitable for the first while. Estimate your sales conservatively and your expenses a bit higher than you think they will be. Keep that cash flow realistic and be sure to include ALL expenses.

9. Fish-Out-Of-Water Syndrome

This is what happens when someone tries to get into a business they know nothing about. It becomes evident when the owner background reveals that the applicant has no prior experience in the area of expertise that is the main focus of the business. For example, a heavy-duty mechanic might seek to start a small restaurant. Not an impossible leap, just risky. Strategy Nine: Know your business. It is so important to have a base of knowledge about your business and experience where possible. Many successful businesses arise from disgruntled or displaced employees who feel they can do as good as or better than their employer. Enhance this background experience with solid market research, the Internet, courses, books, tapes, and trade publications. Knowing your business will increase your confidence and enhance your loan options.

10. Too Little Too Late

This point pertains to existing businesses in search of financial assistance after things have already gone sideways. Too often we see the application when the accounts receivable is out of control or major suppliers have already been hung out too long for scary large sums of money. Other aspects of this condition are collectors hot on the trail and long overdue taxes. It’s really difficult to get excited about loaning money to pay for bills that should already have been paid. Strategy Ten: Be decisive when your business gets into rough financial waters. Make the tough decisions early and then act on them quickly. If your recovery plan involves a loan, you are far stronger coming to the table early with a well thought out plan, than later with a plea for assistance to pay back taxes.

Three Deadly Weapons That Will Wreck the Sale of Your Business

Here are the Three Deadly Weapons that can wreck the sale of your business. These weapons are based upon experience, discussions with many business owners, and many years of representing businesses in and out of the courtroom.

In selling a business, you can learn how to avoid the three mistakes that will literally cut the sales price of your business in half. Think about having a business that should be worth $750,000 but only being able to sell it for $375,000.

There are 700,000 businesses that will come on the market and change hands every year. That number represents 30% of 2,500,000 businesses that owners will want to sell every year. 70% of the businesses do not sell. Many of those end up being liquidated for lack of a buyer.

If you do not pay attention to three factors in selling your business, you literally may only receive half of what you should get.

1. Not Understanding the True Value of Your Business.

Albert wants to sell his business that has a ten-year track record. The business provides Albert an income of $150,000 per year in the retail area. Albert has done his own valuation of what he thinks the business should sell for and wants a price of $1,500,000 for the business. That price is a factor of 10 times the net income. Unfortunately, in the retail sector of Albert’s business, the going rate is a multiple of three times the net income or $450,000.

Because of his unrealistic price, Albert will not be able to sell his business.

2. Not Understanding How The Sales Proceeds Will Be Taxed When Received.

Janet owns a business in a corporation. The sale is proposed to her as a sale of assets and no assumption of liabilities. Although the sale of assets will be treated as a long-term capital gain at the corporate level, she has not considered how she will get the money out of the corporation and into her hands personally. Unfortunately, she has also signed the Purchase and Sale Agreement without consulting her attorney or her accountant. How much tax will she have to pay?

There are a number of options that could have been considered on how to structure the transaction. Unfortunately, you have to game plan and run the numbers on all of the options BEFORE you sign the purchase and sale agreement. Some owners have actually unintentionally structured transactions by not planning advance with the result that they were taxed at ordinary income rates rather than long term capital gains rates!

3. Business Owners Selling Must Follow The Boy Scout Motto – “Be Prepared”

After working for twenty-five years, two owners decide that they want to sell their business and retire. They begin working less and have not trained anyone to do the technical things that they do so well. Of course by working less, less technical tasks get fulfilled and less income rolls in. The best preparation would be to sell before income goes down and better yet have installed the six systems that literally double the value of your business.

One needs to begin preparing to sell a business probably years before the business is sold or even offered for sale. There are six systems that every business must have. Without them, the business is not an investment that buyers drool over.

This test will tell you whether your business has those systems:

1. If you take off all of next week and do nothing in your business, what will happen to the income of the business?

Increase Decrease Unaffected (Circle one)

2. If you take off all of next week and do nothing in your business, what will happen to the flow of new business?

Increase Decrease Unaffected (Circle one)

3. Do you have a written business continuity plan? Yes No

4. Do you have videos or audios of your plans for the business over the next three years? Yes No

5. When someone calls your office to schedule an appointment, does someone different answer the phone and/or do they have a set script to use to answer the call and close the appointment? Yes No

6. Who is your favored buyer for your business?

Do you have a name ready or do you have no clue whom the buyer would be?

7. If you do not come back from your next appointment, ever, who will sign checks at your company?

8. Will your death cause your company’s lines of credit to be called due?

Yes No

9. Do you have a checklist to be followed if you are suddenly disabled and unable to care for the business? Yes No

10. Are you ready to learn how to implement the necessary steps for an effective exit strategy? Yes No

How To Succeed In Any Network Marketing Business – Tips For Network Marketers

Before you start investing your time and energy in your newly created MLM Home Based Business you need to know the things that are required to help you succeed. Most net workers give up after a few months in the business simply because they were unable to create a full time income from their opportunity. Situations like this do not have to happen.

Network marketing is a business of style that gives you the Freedom to make whatever choices you want and create what ever level of income you desire. Why not take the time to learn what it takes to succeed in a MLM Business with any company and apply them to your business.

Successful Network Marketers have made it to the top of every company they are involved with irrespective of what products or compensation plan. Reason for their success is based on the following techniques.

1- Effective Positioning

Are you practicing Effective Positioning? How do you position yourself to your prospects? Effective positioning is placing or showing yourself and your business to prospects in a way they will see you as a REAL LEADER that can help them succeed. In order to start practicing effective positioning, learn every thing about your business, pay plan, products etc and be armed to answer your prospects questions yourself. With this they will start seeing you as a leader. People want to associates themselves with leaders and leaders have followers. How do your prospects find you online and off line? Look for a convenient way that puts you as an expert in the field. Have you ever done a 3way call? Picture this scenario: You call John (prospect) to tell him about you business, and he has two simple questions about the pay plan. You dial Mark (your sponsor) to answer John’s questions. Who does John see as the leader and expert? You or Mark? Mark obviously. You see the positioning stuff. When you start practicing effective positioning in your business, you will have prospects calling you and asking you for more information.

2- Leading with your Product

Are you leading with your product or your opportunity? Most Net workers make the mistake of leading with the opportunity. If prospects do not see the benefits of your product or service, how do you think they will join your business? Selling the benefits of your product and increasing consumption should provide you with enough retail profit to keep you going. Once consumption of your product increases so does the opportunity for new distributors. At this point you can comfortably sell your opportunity without fear. The difference with leading with the product or the opportunity is this. If people join your business because they think they can make money fast, then it is obvious that they will leave as soon as the next big opportunity comes knocking and your will business collapses. If they join your business because they fell in love with you product and are passionate about it then your business has a 99.9% chance of succeeding. The benefits of your product should lead the prospect to join your business not the opportunity.

3- Leads

What is the life line of your MLM Business? Leads. Most net workers do not take this seriously. To succeed in any Network Marketing business you need a steady flood of hungry prospects reaching out to you on a daily basis asking you for more information. You can never have too may leads….But how to get them is the question. There are tons of ways to make this happen ranging from home gathering, meetings, newspaper adverts, internet etc. I recommend the use of the internet for this as it is the path of least resistance. Create yourself a lead capture page that is dealing with the benefits provided by your product or service. Once set drive traffic to your site using social networks like Stubleupon, myspace, facebook, YouTube etc to get free leads. Other forms of getting leads include purchasing leads from lead dealers. Also Pay per Click advertising can put literally hundreds of even thousands of prospects in front of you everyday. Note that without leads your business will not succeed.

To succeed in any MLM Home Based business the above factors are very essential for anyone who is serious about their business. Positioning yourself effectively makes your prospects see you as a leader and expert and will want to partner with you in your business. Leading with your product is a key thing you must do. If people fall in love with your product then your business has 99.9% chance of success. A steady stream of hungry prospect is the final key that will propel you to the top. Choose a strategy to generate your leads and be good at it and then move to the more advanced methods.

By putting this fact into action, you can guarantee your success in any MLM Home Based Business.

Best Home Based Business

Knowledge is king, but applying it is what makes a business a business. Elisha A.