Small Business Blog

Posts Tagged ‘Mistakes’

Guess what? Lenders can’t approve every single mortgage application that crosses their desk.  I’m certain they wish they could, but the reality of the matter is that they deal with primarily really little corporations in search of small loans, generally much less than ,000. Lending to inexperienced, new enterprise proprietors is one particular of the riskiest arenas for a lending company.  That’s exactly where the eye for seeking for individuals traditional, “business program killers” comes in.  These loan providers and investors that you are heading to be meeting with know what they’re searching and they know how to go through between the lines of your company program and what constitutes a “red flag.”  Here are the 5 most widespread killers of a excellent business prepare:

1. Dreadful Personal Economic Profile 

Be incredibly watchful with your numbers.  Classic red flags pop up in company options in the sort of large credit card funding, garages total of toys (trucks, bikes, boats) 90% financed, poor credit background and no cost savings.  Loan companies will be seeking at your personal finances as a way to see how you’ll be capable deal with the finances of the organization.  If you are house is not in purchase then it is likely your business will not be either.

Answer: Tidy up your personal finances just before applying for a organization mortgage. Pay out down loans, clean up any bad debts, collect some enterprise-connected devices and help save some funds. 

two. Insufficient or Non-Existent Owner Equity or Protection 

Enterprise is constantly risky, but new enterprise is infinitely far more so. Loan providers will want to see you personally “invested” in your business. The aspect of the organization you personally own is referred to as your equity. One more way to explain equity is the amount of dollars or products you put into the enterprise. A loan provider wishes to see that you are invested to the level that you will not be inclined to walk away when the heading gets challenging.  Makes feeling, correct?  I mean, how can you ask somebody to give cash for your business if you’re not invested in it fiscally?  

The question then will become, “How much operator equity is adequate?” This quantity varies from lender to lender, but significantly less than ten% is inviting scrutiny although 20% or far more will make your proposition more enticing.  Security is the surly sister of equity. Your loan application will be more powerful if you bring some type of asset to the table as security. Loan providers will be more attracted to assets with a clear resale worth of more than the loan. Inventory is usually less desirable due to the fact it tends to increase legs and disappear when the heading gets challenging. 

Remedy: Produce some equity to provide to the table. Help save income, promote some toys, etc. 

3. Inadequate Marketplace Investigation 

Know your market place.  Seriously.  If you’re getting into a enterprise that involves true estate, the loan company will want to know that you recognize true estate.  Existing present details relating to the market and marketplace, but do not be upset when the only information you can discover is two a long time previous.  The reviews you are attempting to cite could not even be out there or readily available.  Just do your greatest, but maintain in head that you are going to have to truly communicate to your knowledge and expertise regarding doing work in a discipline you.  Lack of marketplace investigation can lead to a business strategy that is as well basic – not distinct adequate.  A loan company will want to see that you have “turned about all the rocks” in search of expertise about your enterprise. Following reading your business strategy, if the loan provider feels that they know far more about your business than you do, they will not be inspired to approve your loan. 

Resolution: Prove your business case to oneself and to your reader. Persist in your marketplace investigation efforts right up until you turn into “the expert” for your company. You will sense much more assured and have an less difficult time convincing your viewers that you know what you are doing.  

four. Shoddy Presentation 

Your company program is a tool for communicating with other individuals. What is your merchandise or services? Who are your customers? How will you industry and distribute your item or services to your consumers? Will you make income? Will your company be capable to repay the loan? Does your strategy talk these points plainly?  You can do the very best market investigation on the planet, but if you can’t communicate it obviously and bundle your organization program professionally, your target audience could not even examine it. 

Resolution: Supply a expert presentation. Inquire a buddy or pay a person to proof, but do a professional work. Demonstrate that you treatment and you will enhance your odds with the lender. Answer the simple organization queries. Who, what, where, why, when, how. There are many business preparing methods (although none surpass the Roadmap!) that will present a framework to preserve you on track. A proper company preparing technique will provide you with a framework in which to place the assortment of data you will gather.

5. Unrealistic Expectations 

Inflated, overly optimistic product sales forecasts or money flow projections will derail your loan software every single time. Enthusiasm should not be mistaken for blinders.  A long term also brilliant will blind the loan companies and scare them off the loan. 

Solution: Be reasonable in your expectations. No issue how lofty your financial aspirations may be, know that corporations are typically not profitable for the very first 6 months to a yr. Estimate your sales conservatively and your expenditures a bit greater than you assume they will be. Preserve the dollars movement reasonable and be sure to consist of ALL costs. 

Retaining in brain these five factors will be a huge assist if you are heading prior to a financial institution.  The prepare is a instrument and ought to be employed accordingly.  Make sure you’re using it effectively that you can speak to its authenticity and accuracy, and that you are reasonable regarding its expectations and your skills.  Loan providers want to aid you and avoiding these pitfalls will make that happen. Speak to www.Ethos360.com for a totally free company prepare consultation.

A business plan is an important document for a venture capital firm seeking for finance. It is the first impression of the company and it is necessary, that it should be made in a sense that it attracts potential investors and lenders in order to grant loan. A poorly written business plan is one of the main reasons of the company’s decline.
Entrepreneur can make number of mistakes in writing a business plan, which badly ruin their business. Many entrepreneurs don’t know the skills of creating a professional business plan and that is the main reason they made following critical mistakes when completing their company’s business plan:
Not clear in explaining the opportunity:
This is the most frequent occur mistake many entrepreneur made. This lack will not attract the investor to proceed to the next stage, giving the loan. Make sure to define your business objective in clear and simple manner in order to attract large number of investors.
Unrealistic projection:
The second most common mistakes an entrepreneur made is adding unrealistic and irrelevant projections. Financial projections are one of the most important sections in business plan that must be relevant and realistic. Give enough time in projecting financials.
Competition:
Every business whether big or small, has competitors. It is essential to describe briefly about your competitors in a business plan. Many entrepreneurs made a big mistake by thinking that they don’t have competitors.
Mistakes and errors:
It is necessary to proofread business plan after completing it successfully. Proofreading will remove all the errors and mistakes a business plan writer made while writing business plan. Write each and every thing you think an investor want to see in your business plan otherwise they will not take your business plan seriously and your plan will cover under dust. Include everything from company overview to financials.

Entrepreneurs who are buying a business tend to get excited and emotional over the prospects of their new opportunity, often forgetting to apply some basic rules which might save them years of pain and suffering. Over the years I have worked with many a number of them and I have seen them make the same mistakes repeatedly. This quick summary should help you avoid some of the more important ones.

Buying A Business Mistake 1. Buying the wrong business

It may not be true. Do what you love and the money may not follow, but I can say, with certainty, that if you buy a business you don’t love, not only will it ruin the business, it can ruin your life. Make sure you have a real passion for whatever it is you’re going to be doing for the next few years. You may be passionate about the product, the customers, or even the marketing or the sales. And of course, make sure the business somehow makes good use of your personal skill set.

Buying A Business Mistake 2. Not doing your due diligence.

Due diligence on a business opportunity goes far beyond the financial statements. Understand the customers, the market, the business reputation and positioning, the vendors, the competitive space, the debt, and a host of other factors. And dig deep. A business may appear to great on the surface, but can have serious problems underneath. An old saying has it that “The Devil is in the details.” Examine them – all of them – before you make your final decision.

Buying A Business Mistake 3. Not understanding why the seller is selling.

An owner may say they want to retire, but the real fact is that he is losing his lease. Another says she is simply tired of the business and wants to move on, when in reality a major competitor is coming to town, and she is scared out of her wits. Find out the real reason the business is being sold. You may still decide to go ahead, and that information may help you negotiate a better deal.

Buying A Business Mistake 4. Not having a good contract

Just like when buying a home, there are many points to negotiate besides the price. There are the payment terms, financing, covenants about the property, inventory issues, accounts receivable, debt and other financial encumbrances like liens, intellectual property issues like trademarks, patents and copyright ownership, non-compete clauses, and dozens of other details. While a strong contract won’t save a bad business, a weak one can kill you. Don’t proceed along any lines where major questions are unanswered. And make sure you hire a lawyer familiar with business purchases to review your agreement.

Buying A Business Mistake 5. Not knowing the real business valuation

It’s easy to overpay for a business when you don’t have a proper business valuation. Most business pricing models have two major components: a base, usually revenue or profit, and a multiplier. To get the base you need a clear view of the revenue picture from previous years. Get financial statements and sales journals going back as long as you can – up to five years. Do the same for expenses. Each industry has its own basic model for comparison. Some industries, such as software, focus on revenue or sales while most others focus on earnings, or an adjustment to earnings called EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization.) The multiplier is also industry based, and can range all over the map. The company’s assets and liabilities – both real and contingent – as well as the strength and consistency of cash flow, also affect the price you are willing to pay. It’s a good idea to get a professional evaluation of the company, if only to use as a starting point or bolster your negotiating position.

Here is a sixth mistake that is less obvious to many buyers, yet should actually be the first thing you consider when deciding on a business to purchase

Not having a clear picture of the future

Remember the multiplier I mentioned above? That multiplier is actually the number of years it will take to recoup the price you just paid for the business, assuming it doesn’t grow (or shrink.) Having a clear view of the future – and how much you can impact that future – is the most important information you can have when purchasing a business. If you have to pay 3x earnings, and yet you believe you can double the business in twelve months, that is a good deal. If you have to pay 10x earnings, and you expect 10% growth – it’s going to take a very long time to make any money on the deal.

If you think the industry is going to take off, or you can expand revenues rapidly and flip the business – you may be acquiring in to a gold mine.

Even if it doesn’t work out exactly, you must have some view of the future.

This view includes industry trends, the overall market, regulations, societal changes, technical trends, as well as your ability to grow this particular business through better sales, improved marketing, more products, effective service, documented systems, and increased an capital base. Each of these enhancements can dramatically improve the existing business.

Just because you don’t make these mistakes doesn’t mean you will be successful, but avoiding them will definitely increase the odds in your favor.

It’s common that everyone makes mistakes, especially when they are just starting out.  If you know the most common pitfalls, you’ll be less likely to struggle in your path to starting your first small business.  I’ve rounded up the seven most common mistakes that you should avoid when starting your first small business.

Mistake One: Thinking You Can Make a Million Overnight.  You cannot, I repeat, cannot, become an instant millionaire.  I don’t care how fast you are at website design or how fast some program claims you can be making money online, it simply takes time.  Yes, there are sites that can make it in the first week or so of their publication, but they have money backing them–and lots of it.  For us mere mortals without a million in the bank, building a website and getting it seen online takes time.

Mistake Two: Forgetting to Pay Your Taxes.  Yikes.  But many new small business owners have no idea when, or how much taxes they need to be paying.  Call a tax guy and chat with him about your situation.  Tell him what you sell and how much you’ve been making.  You might have to shell out a bit of cash, but it’s much better than the IRS pounding on your door.

Mistake Three: Not Checking on Inventory Sources.  Many new small businesses drop ship their products.  This means that they select a drop shipper who has something they’d like to sell, and they place that product up for sale on their website.  When a sale comes in, the business owner sends an email to the drop shipper, who then charges wholesale costs for the product.  The drop shipper then ships out the product for the business owner.  It sounds like a beautiful relationship, and often it is.  But sometimes, the drop shipper simply cannot be trusted.  They ship late, they never tell the business owner when a product gets back-ordered, or worse discontinued, and often they have high drop ship rates.  Before using a drop shipper, always do a little research (try Rip Off Report.com).

Mistake Four: Pricing Too High or Too Low.  It’s easy to get carried away and price 500% over wholesale, thinking you’ll make a killing on those designer handbags.  The truth is that 150-200% over wholesale is acceptable, even desirable, and you’ll make a good profit.  Don’t be greedy.  Your only problem comes in when a drop shipper has fees that have to be considered in the price, or if shipping costs need to be determined.  Then, consider how much those fees are, how much the wholesale cost of the product is, and calculate 150-200% over that number.

Mistake Five: Trying to be a Super Affiliate.  Being an affiliate for a product is a fun and easy way to make money fast online.  Promote a good product and you can see decent, if not great, rewards.  However, often, it “looks” like people make a lot of money as affiliates, when actually they are scrambling just to keep their shorts.  It’s common to see affiliates spending ,000 a week in pay per click, just to make ,000 in conversions.  That ,000 in one hour looks pretty good on a sales page, but if it took ,000 out of pocket to get there, that isn’t a wise business decision.

Mistake Six: No Search Engine Optimization.  This one should be a given.  You cannot have a successful website anymore unless you learn a bit about search engine optimization.  You can’t even trust an “expert” to do it for you because they just overcharge and under-perform.  You must learn to do this yourself.  It isn’t hard, and it doesn’t take very much time.  It only sounds scary because it is a concept that has even the gurus scrambling to get their acts together on.  They didn’t learn it because they always had pay per click and affiliates to fall back on.  Their websites never had to perform in the search engines, let alone do well.  Now, we’ve seen the gurus crash and fall because they’ve made this fatal, yet preventable, mistake.

Mistake Seven: Not Having Enough Content.  As they say, content is king.  For your site to perform well, you need to write some content for it.  You just do.  It doesn’t matter if you can’t write to save your life, you need this part to happen if you want to be successful.  And, the truth is that if you can’t write 300 words about the product or service you are selling, perhaps you shouldn’t be selling it.  Take a deep breath and consider the product you are selling.  What are the highlights?  What are the low-lights?  What are the specific benefits?  What color/texture/fabric/etc  is it?  What would you tell a friend about your product?  What would you tell a complete stranger?  Answer these few basic questions and you’ll be surprised how much content you can come up with.

The idea of writing a business plan seems daunting to many.  In reality, if you start with a solid framework, or a business plan outline, you will find that it goes much faster than you thought possible.  Better still, you’ll learn a lot about your own business as you go through the process.  This article focuses on common mistakes to avoid.  By avoiding these common pitfalls, you’ll create a better business plan that helps your business to succeed and one that resonates with bankers and investors.

Mistake #1:  Trying to write the business plan with just an idea.

Bam! You have an idea.  In fact, you have a great idea.  It is to your credit that you want to put your thoughts to paper and create a business plan.  Yet, you will improve your idea and ultimately your business plan, if you let your idea incubate.  In this fast-forward age, some things are still better developed over time. Think of your business plan not as microwaveable meal.  Rather, as a stew with many ingredients.  Each one must be added in its own time.  Sample the stew and see what to add next.  All along you had the recipe, but you must let it come together over time.  In the end you’ll know when it’s ready to be served.

Remember that it’s a ‘business plan’, not an ‘idea plan.’  The business plan needs to reflect that you have thought through all of the aspects of turning your idea into a business.  Yes, get to it early, but not before you’ve thought through all the critical factors.

Mistake #2:  Outsourcing the writing of your business plan without learning anything in the process.

There are plenty of services that will write your business plan for you, for a fee.  In fact, you can even buy a canned business plan for your type of business.  There is nothing wrong with getting help creating your business plan.  Keep in mind that in the end, you have to execute the plan. If your plan is to serve any purpose you must truly understand it.  Reading a document that was written by someone else won’t qualify as truly understanding the plan.  In a business plan, there are inputs and outputs, causes and effects, actions and outcomes.  It’s important that you understand these relationships.

Get the help you need, but also take the opportunity to learn what you didn’t know before.  For example, let’s say that you needed to go to an outside source for help with the financial projections.  When they are complete, have your service provider walk you through every aspect of the financial statements so that you would be able to explain them to someone else with confidence.

Mistake #3:  Claiming you have no competition.

There is big trouble ahead when a business plan includes the words, “We have no competition.”  To a banker, investor, or experienced business person this translates to, “I have no idea who my competition is.”   It is very important for you to understand who your true competitors will be.  Your true competitors are those organizations where your future customers are spending their money today—money they will instead be spending with you in the future.  That might or might not be a business just like yours.  For example, the motorcycle shop’s biggest competitor might be the boat dealer.

In addition to your direct competitors, be sure that your business plan addresses all of those organizations that will be competing for the same dollars you’ll be going after.

Mistake #4:  Outrageous financial projections.

It’s impossible to know if your financial projections will prove to be accurate.  Yet, it’s fairly easy to tell if they are realistic.  Understand that your financial projections are more of a reality check than anything else.  Accordingly, make sure they are within reason.  More than one wide-eyed entrepreneur has thought they had the next Google on their hands.  Even if they were right, the more likely reaction to seeing a sky-high revenue forecast would be a total loss of credibility.

The source of most unrealistic financial projections is the “top down” forecast.  A top down forecast sounds something like this: “There are billion of widgets purchased online every year.  If we get just 2%, we’ll have a ,000,000 business.”  These forecasts rarely go on to say how the business will get to 2% market share.

Instead, take the bottom up approach.  Show the number of sales that can be made by each sales person (or per site visitor), and build it up.  Then make sure your plan accounts for all of the right resources that will be required to generate and deliver the sales figures.  The reality of your forecasts will start to come into focus much more quickly with a bottom up approach.

Mistake #5:  Not having the right team in mind.

Finally, keep in mind that new businesses are nothing more than the wisdom of the people behind them.  They have no current customers, contracts, or sales backlog.  The new business is totally dependent on the team.  Collectively the team should be fully experienced in all aspects of the industry and markets your business will serve.  Yet, when you are at the business plan stage, it is unlikely that you will be in a position to hire your full team.  There are two steps you can take early on that will provide fuel for your business and your business plan.

First, map out the key positions for which you intend to hire.  Clarify their roles and the qualifications.  Prioritize your list of early hires, recognizing that sometimes things fall into place due to timing.  If possible, identify specific individuals who are enthusiastic about joining your company when you have funding or reach a certain milestone.   With their permission, incorporate their information into your business plan.

Next, work to assemble a board of advisors who have relevant experience.  Advisory board members, depending on the formality of the arrangement, often work at no cost in the early stage of the company.  Identify individuals who could provide mentoring in specific areas.  Again, with their permission, list these advisors in your business plan’s team section.

Going Forward

A business plan is a working document that will help you to refine your vision and execute a successful plan.  Adhering to the discipline required to write a solid plan will propel your business forward.  Start with a solid business plan outline or business plan template.  As it’s said, nobody plans to fail, but too many fail to plan.  Be sure you “plan” to succeed.

One of the greatest benefits of a business plan is the opportunity it presents for you to make key mistakes on paper rather than in dollars and cents. The type of thorough research and strategy that a business plan requires for funders requires should also make it the type of internal planning document which will be a great tool for you to manage with going forward.

Here are a few of the potentially costly mistakes that a business plan can help avoid.

Haphazard Marketing

If you have not carefully chosen your customer target markets, you run the risk of marketing too broadly. If you are spending dollars on local TV ads to reach cable-watchers when you should really be targeting select groups or associations, you may be wasting money on ads that have little return for the business. Seeking wider awareness of your business may be useful if you need to achieve a much larger customer base to be successful, or if you have little competition within the vicinity. If you think through your customer niche more clearly on paper, you can be much more cost-effective in your pay.

Hiring at the Right Time

By planning through the schedule of the launch and early operations of your business, you should be able to time the hires you need to make. To do this, work back from when you need a fully trained employee to allow time for training, interviews, and job advertisement. Depending on the skill involved in the job and the availability of that type of employee in the labor market, you may need anything from a couple weeks to a few months of lead time for this process. Without this type of plan, you may hire employees too early, wasting money on excess capacity before you need it, or too late and deal with operational bottlenecks or lost opportunities in the meantime.

Once you present a business plan to an investor or lender, questions may begin to fly at you. If this happens, do not be alarmed! It is evidence that they are truly interested in your business. You can prepare for these questions by running through potential questions, like these seven, ahead of time.

“Why did you choose to begin with this target market?”

“We have to start somewhere” is not a great answer. Consider why the costs are lower or returns greater with your chosen first target market, or, better yet, how tackling that market first will make entry into additional markets easier later on.

“Why can’t competitors imitate your competitive advantage?”

Know the strengths, weaknesses, and branding of your competitors to understand what will stand in their way from doing what you are doing. It could be that your competitive advantage is contradictory to what they are trying to do or that you have protected intellectual property in your business, for example.

“Why is your team best qualified to launch this company?”

Funders know that there are potential managers in the job market who could be hired to run a startup like yours. Know how your chosen team combines industry, functional, and leadership experience with an understanding of startups.

“What best practices of the industry will your business use?”

Study best practices companies in the industry use to become more efficient and know which will translate into your startup, which can be implemented only as you grow, and which will not be possible because of their conflict with your underlying strategy.

“What is your unique selling proposition (USP)?”

If someone asks what makes your new business unique, you had better have an answer. This should be stated explicitly in the business plan.

“What would it take to reach break even sooner?”

Be prepared to defend the time you estimate it will take for the company to break even and to start making a profit. If funders want to see you break even sooner, know what it would take in terms of different staff, additional resources, or increased investment, but do not be too quick to push your schedule up. This only shows funders that your estimates were based on flimsy assumptions to begin with.

“What are your projections of growth based on?”

Be able to explain the assumptions about the market and your company’s conversion rates (of potential customers to actual customers, for example) which led to your projections of growth. You should know how your projections compare to other success stories in your industry and in other industries so you can be sure there is precedent for the growth you anticipate.