Most business owners are so focused on the daily operations of their business, they don’t plan their transition to retirement. Owners might think that they can sell the business and fund their retirement, end of story. That can happen, but things seldom go as envisioned. First of all, most businesses don’t sell. On the popular business-for-sale websites, about 20% of the businesses sell. 80% DON’T sell. (VR Business Brokers success rate is higher, but still less than half). That would be a catastrophic event for your retirement.By the way, those businesses that do sell may not sell for what you expect. There are several ways to value your business; one common method is “fair market value”, which is preferred by most CPAs. This is an academic method favored by the courts that differs from the business broker methodology that is more focused on actually selling the business, a method called the “most probable selling price”. You do need to get your business valued to do your financial planning, make sure you get a realistic valuation from people who are focused on selling businesses.The benefits of planning can help mitigate the above dilemma, and potentially save your retirement. You need to start thinking offense and defense when it comes to your retirement planning. Unlike an employee with a pension and a 401(k), a business owner is responsible for creating their own retirement income. Your offense is your business- and building it up and selling it for the most possible at the best possible terms. Your defense is an alternative to your business- creating a retirement income independent of your business. The natural impulse is to put a big chunk of your profits back into the business so it will grow. The returns you get in your business can’t be matched with investments available, so it seems to make sense to put your money where it generates the most return. Please think again. It may feel like you’re sub optimizing, but you need to sock some money away for retirement. You need to plan for your retirement for your business and for yourself.How soon do you need to start this process? Ideally three years before you want to sell your business you would start preparing your business for sale. Tidy up the books, discontinue unprofitable product lines, move aggressively on costs, develop a management team that makes you replaceable. You need to start your defensive financial planning now. Create a personal financial plan that will provide retirement income a few years down the road. This commonly can’t be done in three years, so the more time the better, but it’s never too late to start, so start now.How do you get started? You build a team. You should create an offensive team to build the business up to sell, and a defensive team to build a more traditional financial resource for your retirement. On the offensive team you might want a consultant to help you prepare the business for sale. A business broker to value and assess the salability of your business. On the defensive side a financial planner to get your personal financial plan identified and funded. Defense should also include life insurance and disability insurance to cover life’s unpleasant surprises. Your accountant and attorney should be notified of your plans, and they might have some input to the process also. Depending on the skills of the parties involved, you might have captains of each team coordinating the efforts of each. This will cost some money. It can be money well spent.How is this retirement effort funded? It is time to start taking some money from offense- your business and putting it into defense- your personal financial resources. A financial plan, insurance, and retirement nest egg need to start drawing more resources away from the business. The income from the business is variable, and it might take some discipline to continue to fund the defensive personal financial resources, but it is important. It also creates a buffer that will help if one of life’s unpleasant surprises comes before you’re ready to retire, and before your business is ready to sell. It takes some discipline to think about your business and your personal finances separately, but from a financial perspective, make sure your business is working for you, not the other way around.Execution is key. If you don’t have a team in mind, get busy identifying them. Check with your existing advisors, and with other business owners for references. You want to get experienced advisors who understand what you’re trying to get done, and can help you get there. Don’t procrastinate another year, get going now. You’ll thank me for creating your retirement.
I hear this day in and day out; “My bank turned down my business loan request, now what do I do?”And, it is not just those talking to me personally but I see this same statement on forums and in discussion groups around the globe.If your bank says no, then you just have to look at the many other business lenders and their options that are out there.Banks don’t necessarily look for ways to approve business loans; they look for ways NOT to approve them. Give them one excuse and it is over.But, there are other lenders out there that want to make business loans – in fact, as lending is all they do, they have to make business loans or close their doors. So, they actually look for ways to make these loans (read: they work with you).Now, if you can get a business loan from a bank – then by all means. But, if your bank says no that does not mean your hunt is over.So, where do you look?You start by looking inside your own business.All lenders, especially those that lend to small businesses, lend against cash flow. Now, I know that you might have heard horror stories about debt ratios, collateral and credit. But, regardless if you have all those other categories or requirements, if you don’t have solid cash flow – then you have no real chance of getting a business loan; regardless of the lender.Even with banks, they may hoot and holler about all those other criteria items but when they really sit down to underwrite credit, they focus on your business’s ability to generate enough positive cash flow to make those monthly payments – period.If you have overall cash flow (from all lines of business in your company) – more money moving into the business than out of it (profitable or not) – then most banks will at least review your deal.So, focus on your cash flow and let that be the star of your business when applying for business capital.Now, however, let’s say you don’t have solid cash flow. Let’s say that your business is barely making it on an “all company” scale. However, you do have some opportunities that will bring in some revenue (cash flow) over the next few weeks or month.Well, there are many small business lenders out there that will lend against those cash flow events.Examples:You receive a large order from a strong customer but don’t have the cash on hand to start or complete that order. There are purchase order financing companies that will lend your business enough capital to complete that order (including to cover any needed labor). You complete that order, get paid, and then pay back the lender.Simple enough and all based on your cash flow prospective or a single cash flow event and not your entire business.Or, you have completed a job order and shipped it to your customer (with payment invoice). However, your customer is not expected pay you for 30, 60 or 90 days. Well, your business can factor that invoice for capital today to ensure that your company can pay its employees and suppliers or to start work on that next job order.There are working capital financing companies that will factor (provide your business cash) against those non-paid invoices and provide your company with the capital it needs now – focusing on these single events and not your entire business. Then, when your customer pays you, you repaid the loan.Or, your business has been generating sales to customers day-in and day-out. But, your business is not yet profitable – meaning that your company is still seeing more cash flowing out of the business then into it (a common situation for young and growing companies).But, you can remedy this negative cash flow condition if you can just get your hands on a little more cash to buy a new machine, launch a new marketing campaign or purchase more or new inventory.Well, there are lenders that will leverage your business’s ability to consistently bring in cash flow from your customers – regardless if your business is profitable or not, has collateral or not or that meets all those other stringent criteria that banks use to underwrite business loans.Some will lend against your credit card receipts (those receipts from purchases made by your customers via credit cards). Some will lend against all customers’ payments including credit/debit cards, cash and checks.And, some will lend against whatever cash flow you have flowing in and out of your bank account – called bank statement loans (loans that follow your cash and not based on your business’s financial statements).So, just because your bank or lender says no to your business due to overall company wide cash flow issues, you still have options that will allow your business to access capital and start moving forward.To begin, you have to look inside your business to see where your cash in-flow is coming from. Then, look for lenders that will underwrite a business loan based on that method of cash flow.If you have future cash events – events that bring in cash to your business in the very near future – and you need capital to help grow your unlock those potential revenue generating opportunities then look for lenders that will factor against those events.One of the most guiding principals of any successful business is its ability to leverage its assets and processes to grow that business. So, why not leverage your ability to generate cash flow and get the business loan your company needs to get to that next level – regardless of what your bank might says.
How To Write A Business Plan In my previous article, I talked about how you can plan your business startup. I defined a business plan as a written description of the future of your business. This is a document that indicates what you intend to do and how you intend to do it. I further explained that if all you have is a paragraph on the back of an envelope describing your business strategy, you have written a plan, or at least the beginning of a plan. I also said that a business plan consists of a narrative and several financial worksheets.I mentioned that the ‘writing of a business plan’ as one of the pivotal steps involved in setting up a successful business. By now you should understand the need for writing a business plan. Writing a business plan, for a traditional brick and mortar business, will probably take a lot of time. It may take up to 100 hours or even more. For obvious reasons, a new business needs to carry out a lot of research before a business plan can even be developed.For an online business, a detailed and in depth business plan is usually not necessary unless you are trying to combine your online business with a traditional business. For most online business startups, the detail involved with planning a traditional business is not required. However, it would still be beneficial to you if most of the topics were still covered, even if only briefly. Having a written plan in front of you will help you to focus on important aspects of the business.You may not have thought much about your competition or outsourcing some of your work, but things like that will impact your ability to make a profit. And you will find this especially so in the beginning phases of your business. Even you are just opening a lemonade stand in the front yard, you will still need to know what Susie is selling her lemonade for on the next street over!So, although a detailed business plan may not be required for an online business, I am going to include it here so you can at least look at and consider each section and determine yourself if it applies to your business.Here I shall be discussing the basic steps involved in writing a business plan:1. Executive Summary: The first step involved in writing a business plan is the executive summary. Here, include everything that you would cover in a five minute interview.Explain the fundamentals of the proposed business: What will your product be? Who will your customers be? Who are the owners? What do you think the future holds for your business and your industry?Make it enthusiastic, professional, complete, and concise.If you are applying for a loan, state clearly how much you need and be precise in how you are going to use it. Also include detail about how the money will make your business more profitable, thereby ensuring repayment of the loan.2. Business Description: After the executive summary, you need to write a short description of the business you are going into. You need to give a general description of the industry your business belongs to. You will write about your company’s mission statement, goals and objectives, business philosophy, as well as its legal form of ownership (sole proprietor, corporation, LLC, etc.).Describe your most important company strengths and core competencies. What factors will make the company succeed? What do you think your major competitive strengths will be? What background, experience, skills, and strengths do you personally bring to this new venture?3. Marketing Analysis/Strategy: The next thing to write (after the general description) should be your marketing strategy. For new or existing businesses, market analysis is an important basis for the marketing plan and will help justify the sales forecast. Existing businesses will rely heavily on past performance as an indicator of the future. New businesses have a greater challenge – they will rely more on market research using libraries, trade associations, government statistics, surveys, competitor observations, etc. In all cases, make sure your market analysis is relevant to establishing the viability of your new business and the reasonableness of the sales forecast.4. Location: Writing down the location of your business is very important. Locations with greater customer traffic usually cost more to buy or rent, but they require less spending for advertising to attract customers. This is especially true of retail businesses where traffic count and accessibility are critical.If an online business, you need to go into detail how you will attract customers to your website. General statements like “I will use Face Book ads and email marketing” will contribute almost nothing to helping your cause unless you have detailed statistical analysis of tests you have conducted or of another similar business you have been associated with. If you do not have any data upon which you reference your estimates, it could show lack of proper thought to the remainder of your business plan.5. Competitive Analysis: Business by nature is competitive, and few businesses are completely new. If there are no competitors, be careful; there may be no market for your products. Expand your concept of competition. If you plan to open the first roller skating rink in town, your competition will include movie theaters, malls, bowling alleys, etc.6. Management and Operations: Because management problems are the leading cause of business failures, it is important to discuss management qualifications and structure. Resumes of the Principals should be included in supporting data. If your business will have few employees and rely heavily on outside professionals, list these key people and their qualifications. If you are seeking financing, include personal financial statements for all of the principals in the supporting data section.7. Personnel: The success of any company depends on their ability to recruit, train and retain quality employees. The amount of emphasis in your plan for this section will depend on the number and type of employees required.8. Projected Financial Statements: These statements are usually helpful, but not necessary. You will develop and describe your strategies for the business throughout your Business Plan. In the financial section, you will need to estimate the financial impact of those strategies by developing projected Income Statements, Balance Sheets, and Cash Flow Statements.It is usually recommended that these projected statements be on a monthly basis for at least the first twelve months or until the business is projected to be profitable and stable. Activity displayed beyond the monthly detail may be in summary form (such as quarterly or annually). The forecast period for most business plans is two to four years.9. Summary Section: This section is where you will be able to attach or explain any detail not applicable to the previous sections. This section should be used to provide the financial statements of the Principle’s involved in the business and any other data you think an investor would be interested in seeing.The main thing to remember in this section is not to provide new data, but to explain in detail data that has already been provided and to provide the support for that data.When you sit down to compile all of the elements of your business plan, make sure you have each section able to stand on its own merits. This means you should not reference other sections sending the reader (your potential investor) back and forth between sections.Do not try to write your business plan in one sitting. As I mentioned in the beginning, for a traditional brick and mortar business, it could take in excess of 100 hours to compile all of the information needed into a comprehensive but yet understandable document. For online businesses, probably not that long. But your final product should be well thought out, well documented and easily understandable.