Small Business Tips: Employee Training!

In a start-up, the issue of employee training either comes up very late or not at all as you are building the business. Development and learning takes the backseat as the focus is on attracting customers and developing your product or service. This is why startups usually go for skilled talent who are already trained, but you will eventually need to focus on how to handle employee training in your small business.

A good number of owners of most startups have come to regret the fact that they did not put more focus on developing a learning culture early on. Start-ups grapple with limited time and resources but still must find ways to train and develop their employees. Even with a limited budget there are ways you can judiciously develop your staff.

Microlearning Strategies

Microlearning today is offering small businesses the chance to approach employee training in a whole new way. This includes the use of audio/visual content, personalized for every employee to do at their pace, which is very different from the traditional employee training programs. The courses are short and usually specific to employees and niches. With all kinds of microlearning programs and strategies out there, you can definitely begin your business and right away incorporate micro learning strategies.

Encourage Talks

Even without access to traditional corporate training programs, employees can still be trained at the beginning of the business. This includes encouraging them to share the most interesting information, topics, trends, books and new tools, among others, related to their daily duties monthly with the rest of the team. Perhaps the business can formalize this by ensuring a few employees have spoken about various topics of choice every month at a lunch and learn activity for your entire team.

Blog Posting

The start-up’s blog is a wonderful resource to encourage learning among employees beyond being a perfect lead generator. Encourage your staff to keep contributing to the organization’s blog to showcase their understanding and expertise in a specific field. This also has the effect of increasing employee buy-in and employee engagement. Apart from ensuring the employees perfect their brand ambassador qualities, you also encourage them to learn more about the topic and add value in the posts.

Free Online Courses

In about every niche there are free online courses. Rather than wait for months or years until the “right” time to invest in employee training, you might want to encourage employees to make the most of these free resources relevant to the work they are doing. Perhaps creating a target of two online courses annually is a great idea. For employees who have completed the course, a special appreciation should be acknowledged.

Bring Speakers from Outside

There are so many motivational speakers and successful people in your industry ready to offer free talks or speak for a modest fee. Dedicate two hours a month to bringing in outside speakers to inform your team.

Competitions

Competitions can help employees blend and develop together. Quizzes and other challenges can be scheduled every six months relating to the industry with a few prizes given to the winners. Competitions are not just educational but also a lot of fun.

Employee training might not be a concern while you are just starting but a learning culture can be created right from the beginning. If you encourage it as a habit, training does not have to be a class-based, dull affair.

By Brigg Patten

Small Business Marketing

Whether you’re starting a new business or running an existing business, you constantly need to market your products and services. Effective marketing translates into growing your company’s revenue and becoming a successful business.

It is important to studying your industry with a particular focus upon understanding distribution within your industry. For some companies, getting adequate distribution plays a major role in enhancing revenue.

For example, when someone goes into a hardware store to buy a hammer, the manufacturers who have their hammers positioned on the shelves have a major advantage over a manufacturer who isn’t represented.

Yet, having distribution doesn’t guarantee that consumers will purchase your products. Marketing converts prospects into customers. Most people who want to start a business first ask themselves what they want to do. Then, as an afterthought, they contemplate how to find customers.

After studying your industry, but before writing a business plan, create a marketing plan. Who are your customers? How will you reach them? Why will prospective customers want to do business with your company? What distinguishes your company from your competitors? How do your competitors acquire and retain their customers? What have potential customers told you about your products?

Entrepreneurship guru Peter Drucker says good entrepreneurship is market-driven and market-focused. In his classic book, Innovation and Entrepreneurship, Drucker tells the story of William Conner who created an enzyme-compound which dissolves a particular ligament in the eye. Conner built a very successful business based upon this single compound and later sold his business for a small fortune.

Was Conner a research scientist who just happened to be dabbling in ligament-dissolving compounds? No. Was there a widely-known need for ligament dissolving compounds in general? No.

Conner was a salesman to the medical industry when he decided he wanted to start his own company. Conner went out and spoke with surgeons about the problems and difficulties the surgeons faced. This is what is meant by being a market-driven company. Don’t ask what you want to create. Ask what the market wants created. Learn from the market.

Conner learned that the process for cataract surgery was in general routine and easy, except for one incongruity making the surgery difficult and unpleasant for physicians. During the surgery, surgeons had to cut one eye ligament. This involved some risk to the patient and much stress for the surgeon.

With research, Conner learned that there was an enzyme which dissolved this ligament. After patenting his enzyme-compound, Conner quickly captured and dominated a niche market providing this compound to surgeons who performed cataract surgery. No longer did surgeons need to cut the ligament. They could easily dissolve it.

Had surgeons told Conner about some other need, his business would have moved in an entirely different direction. Having a market focus led Conner to success.

Market-driven companies must be flexible. You never really know where market demand will lead. Filling an existing market need is a great business entry strategy. But, to find such needs, you must get out and talk with your potential customers.

You show me a great marketer, and I’ll show you someone who spends time understanding the real needs and concerns of his market. He talks with customers. You show me a marketer who spends all his time contemplating his own ideas, and I’ll show you an unsuccessful marketer, who creates assumptions about the perceived needs of his almost-customers.

Your marketing strategy must be an integral part of your business. For example, if you’re a personal financial consultant who serves the affluent, your marketing strategy will be greatly different from the marketing strategy of an online bookseller.

Thomas Stanley, author of Networking With The Affluent And Their Advisors, tells us that people who are especially effective in marketing and networking with the affluent are aware of the special concerns of the affluent. One of the greatest needs of affluent business owners, for example, is enhancing their own revenue.

Stanley tells us about a financial advisor who was talking with the wealthy owner of a welding company. Rather than focusing upon the financial advisor’s “me, me, me” interest of getting as much money under his grubby management paw as possible, the advisor focused upon his potential client’s real concerns and priorities.

Upon meeting the wealthy welder, the financial advisor immediately said that he had several clients who owned oil rigs which needed welding services. The financial advisor put the welder in contact with the oil riggers. The welder received much business and opened a multimillion dollar account with the financial advisor.

By showing an understanding of the needs of the wealthy welder, the financial advisor differentiated himself from the multitude of financial advisors who only offered money management.

But, getting a single customer isn’t the greatest benefit of effective networking and serving the true needs of your clients. Serving the true needs of your clients leads to word-of-mouth referrals and client retention.

While the marketing and networking methods of Stanley work for those serving the affluent, what about an online bookstore? Today, for the mass market, personalization is becoming automated.

Jesus Mena, author of Data Mining Your Web Site, says that the goal of online customer profiling, data mining, clustering, segmentation, statistics, pattern recognition of neural networks, and a whole host of other high-tech marketing terms is still to serve the customer better.

By profiling a customer, online sellers can position offers and advertisements that are of particular interest to each customer. Ultimately, you want your marketing, advertising, and offers to resonate with the target market.

Sometimes, a particular company will strike a cord within a population, as did the online auctioneer eBay.com, which, in only a few short years, went from being a new dot-com to becoming part of established Americana. Other times, a particular ad campaign will prove especially successful, as did the entertaining AFLAC Insurance Duck Campaign created by The Kaplan Thaler Group.

While you can’t guarantee marketing resonance to the extent of the AFLAC Duck, renowned sports marketer Jon Spoelstra, author of Marketing Outrageously: How to Increase Your Revenue by Staggering Amounts, says that you must avoid bland marketing at all costs.

Bland messages sent to untargeted audiences get lost in the noise (According to Shel Horowitz, author of Grassroots Marketing: Getting Noticed in a Noisy World, the average adult in the U.S. is exposed to two thousand messages every day).

When brought in as a marketing consultant to revive the Sacramento Kings’ season ticket renewals, which had fallen through the floor, Spoelstra was advised that, even though he wrote a great renewal letter, it wouldn’t be read by the fans, who were now throwing out all correspondence from the team.

Spoelstra guaranteed the letter would be read. The letter was tied to the leg of a three-foot-long rubber chicken wearing a jersey that said, “Don’t fowl out!” The rubber chicken was stuffed into a tubular Fed-Ex container and mailed to fans.

As Spoelstra explains, the Fed-Ex box was the headline. The rubber chicken, the subheadline. The only purpose of the headline is to get the prospect to read the subheadline. The purpose of the subheadline was to get the reader to read the letter. Fans did read the letter attached to the chicken. And, a $12,000 rubber-chicken campaign generated about $2.5 million in extra renewals.

Spoelstra also says that smaller companies with limited ad budgets must measure success in terms of how many dollars of revenue is generated per dollar spent on advertising. Small business advertising must not only build awareness, it must ask for a trackable sale.

By Peter Hapulo

Professionalism in the Business World

If you’re alert, you find business lessons in all sorts of places.

A while ago, my mom had a new power receptacle installed in her house. She selected a company from the Yellow Pages, and the plug was installed. Unfortunately, the job wasn’t flawless, and, in the end, in addition to getting a new power source, the wall also had a gaping seven-inch hole surrounding the plug. And, there were a few extra holes drilled through the floor for good measure.

Being the handyman I am, I decided this would be easy enough to fix. A little plaster patch and wood putty and voila! Better than the best drywall expert in the country! Of course, the intelligent thing to do probably would have been to just call the electrician’s bonding company and let them take care of it. Delegating jobs to others is usually the right choice. And, it’s almost never smart to let someone else’s error cost you time and money. Let it cost the person who made the error.

I have my own theory about doing-it-yourselfers versus delegators and the consequences for successful entrepreneurship. I think many people who do-it-yourself aren’t convinced they can get someone else to do an adequate job. They don’t want to boss someone else around. And, if they aren’t satisfied, they don’t like to complain. Delegators are confident in their management skills. They will assert themselves to get the job done right–by someone else–no matter what it takes, from begging to threatening and everything in between. The only thing they won’t do is pay more money to correct someone else’s error. Entrepreneurs need to learn to be managers. Entrepreneurs need to be willing to enforce contracts to assure other parties perform adequately.

Filling the drill holes with wood putty went easily enough. I was ready for my own This Old House show. But, a little bit of early success is a dangerous thing.

After cutting a piece of sheet rock to fit the hole (helpful hint to do-it-yourselfers out there—Don’t cut sheet rock with a saw. Use a very sharp knife), I placed the piece into the wall and noticed that the plug sat a good quarter inch behind the wall and it was crooked to boot. This wouldn’t do. The receptacle box had to move forward so that the end result would look like a normal wall receptacle.

I called the electrical company to ask them to send someone out to move the receptacle forward. After about nine rings, a guy answered and said, “Hello.”

“Hello,” said I. “Is this So-and-So Electric?”

“Yes.”

Now at this point, several things struck me. First, for a company which advertises in the Yellow Pages, nine phone rings isn’t too great. Second, businesses which deal with the public usually answer the phone, “Hello. This is the So-and-So Company.” They usually throw in: “How may I help you?” A business which is trying to draw customers from the larger public needs a dedicated phone line. And, preferably, someone answering it during business hours on the first few rings.

I explained my plight. There was a slight problem with their installation—a seven-hole in the wall. But, I was on it. I had cut a piece of sheet rock. I explained when I aligned the sheet rock, the plug sat too far back. So, send someone out to move the receptacle box up a quarter inch or so.

The proprietor explained that I just had to move the receptacle forward and the wall plate would hold it in. OK. Send someone out to show me. He responded that “We don’t send someone out to move two screws.”

“Ah, but I want somebody to come and look at it,” said I.

“OK,” said he. But, he’d need to charge me for it.

“That was unacceptable” I told him.

He tried to negotiate saying how about he’d charge me for it if it wasn’t done right, but if it was done right, he’d charge me. I wasn’t in the mood for negotiation. In my book, a seven-inch hole in the wall is a job not done right. I shouldn’t even have needed to spend my time on this.

I asked him for the phone number of his bonding company. He said he didn’t give that information out unless a job was done wrong. I popped. I reminded him there was a seven-inch hole in the wall. I told him that information about his bonding company was on file with the Secretary of State. But, he’d better hope I didn’t need to call the Secretary of State to get it.

The proprietor said he’d send someone out. Finally. I had expected that when he heard “seven-inch hole,” he’d respond, “We’ll send someone out right away. We’ll get it corrected.”

Toward the end of the conversation, he asked, “Who are you? I don’t even know who I’m talking to.”

I gave him my name. He’d get someone out, but it couldn’t be Friday. All his people were going deer hunting, and he didn’t have anyone on the weekend.

After hanging up the phone, the statement, “I don’t even know who I’m talking to” stuck in my mind. I should have responded, “a frustrated customer.”

For all this proprietor knew, I was the head of a building association or someone else positioned to send him a large number of business referrals. Word-of-mouth is one of the most important advertising methods. There is a world of difference between a Yellow Pages ad that draws in a one-time customer and a Yellow Pages ad followed up by great service that draws in a customer and converts him into a regular customer and a source of referrals.

I was willing to overlook the initial error. Mistakes happen. Even seven-inch holes in walls. I was willing to overlook a few extra phone rings and a curt “Hello?” But, I would never be willing to overlook a company’s unwillingness to correct its mistakes and a lack of service toward customers. It’s probably just as well for the proprietor, however. He probably doesn’t want any more business during deer season.

By Peter Hapulo

Business New Year Resolutions

We all know what time of the year it is — it’s the time for stuffing turkey in your mouth, being merry, sweaters, and resolutions. Most people make new year resolutions whether they be to lose weight, be a nicer person, or sell more in their business.

The New Year is a good time entrepreneurs can set business resolutions. Evaluate the old. Consider the new. Each entrepreneur will need to consider the nature of her business and decide upon what goals or directions to take. Here are some general ideas for resolutions that could apply to most businesses:

1) Increase sales. Always a good goal! Entrepreneurs often tend to quantify the goals they want to achieve. Set realistic goals to increase your sales. Set specific goals: How will you increase sales of each of your products or services? As several economists are talking about a possible recession, it’s important to realize goals sometimes aren’t achieved not because of lack of effort, but because of business conditions. Understanding the causes of success and failure in business isn’t always easy. For this reason, some entrepreneurs recommend setting activity based goals, rather than broader sales targets. What will you do each day, week, or month to increase your sales? Have measurable activity-based goals.

2) Drop some unprofitable products or services. Drop some unprofitable sales channels. Entrepreneurs too often want to do more. But, time is limited. No matter how good you are, you can’t do it all! Especially for smaller companies, consider if your business engages in areas not justified by the financial or personal reward.

For example, in the world of small, self-publishers today, many individuals are following the lead of POD pioneers like Morris Rosenthal and Aaron Shepard. Rather than fulfilling orders themselves or hiring employees, these author-publishers are outsourcing all fulfillment to POD companies. This can allow greater sales with far less infrastructure than traditional publishing. This allows the authors to focus on marketing and writing.

Dropping areas of endeavor is usually more difficult in larger companies, where institutional shake-ups occur. But, for smaller companies, it’s often more psychological. It’s easy to fall into doing things one way and not change. Stop and reevaluate the “why” of what you’re doing. Ask: “Is there a better way?”

3) Add new products or services. Even the smallest companies need to grow and change. Will your company add any new products or services in 2008? How will you decide which new avenues to pursue?

4) Groom an employee for a higher role within your organization. For most companies to grow, you’ll need to have good employees. Finding them from within and moving them up to higher levels of responsibility is often a good plan. Evaluate how you promote. Evaluate how you evaluate your employees. Who are your biggest stars and why?

5) Decrease costs. For many businesses, this isn’t as important as it use to be. Low margin businesses are always hyperaware of costs. But, informational companies, many service companies, and those with higher profit margins tend to be less sensitive to changing prices. Every company should evaluate its costs of doing business. The end of the year is a great time to really review your company’s financials. Can significant cost reductions be made somewhere? Can modest cost reductions be made somewhere?

Unfortunately, some costs are not in the entrepreneur’s control. Rising oil prices today lower profits directly in trucking, for example. These companies charge more for their services. These costs can work their way into the products or services of many other businesses. Evaluate how sensitive your company is to various inputs and resources. What is on the horizon that could lower your profitability, and how can you deal with it?

Many entrepreneurs would argue you should be doing all of the above every single day. In reality, change often occurs in fits and starts. A New Year is a natural time to re-evaluate your business and your entrepreneurial activities.

Collaborated with Peter Hupalo

CPA’s to Blame for Business Failure?

You would have thought that running a business is easy. I have something you want, I sell it to you and you pay me for it – that’s it, right?

Wrong – there are so many other things to deal with apart from the ‘business deal’! These are the sort of things that make your business fail. I will write a series of posts to highlight some of the pitfalls.

First up:

CPAs/Accountants

Believe it or not your CPA or accountant can make your business fail.

For one, bear in mind that in many cases, CPA’s may deter you from wise business decisions, either due to their ignorance, or their fear of losing control over you.

Secondly, you need to find the right accountant, one who will help you to do some planning, takes the time to go over your numbers with you, in other words someone who really gets involved in your business.

Thirdly, your accounting system should be in the cloud, so that you and your accountant can access it simultaneously. Most importantly it needs to be an integrated system.

If your accountant or CPA recommends Quickbooks, Sage or even Xero and Co., you should leave as they are only thinking about their own convenience. These and other vendors are one trick ponies, they only do one or two things, they do not help you with all the other issues, sales, CRM, help-desk, website integration, social media integration, to name but a few.

Business Data Fragmentation = Business Fragmentation

When you business grows you will need access to ALL your data in one place, if you fragment your data you fragment you business. This in turn can lead to business failure.

Your accountant or CPA should help you to keep all your data together and not only consider their own needs. But to do that he/she needs to be engaged with your business and not just be a bean-counting historian.

This is actually good for the CPA and accountant too, as it keeps you in business and paying their bills. If they do not understand that, you really do not want to be involved with them.

By Stefan Topfer & Fortune DNA

Common Legal Mistakes in Small Businesses

STARTING AND GROWING A BUSINESS draws on practically all your resources. If your background hasn’t exposed you to entrepreneurial thinking, you’ll have lots to learn. One piece of advice comes out again and again when you ask entrepreneurs for some of their favorite tips: Know what you don’t know. And as you’ll see below, if you are short on that wisdom, you may make serious mistakes with the best of intentions. So here are six common mistakes you can avoid just by knowing about them!

Not consulting with a lawyer for key issues or important business document review. This mistake comes first because the consequences are potentially huge. All business start the same way: as ideas and paperwork. If you’re going to invest your life, time and money in a business, don’t you think it’s worth starting it out the right way and ensuring that paperwork experts get a chance to look at it? It won’t cost that much, because they are efficient. After all, they study business paperwork for a living. Their highly trained eyes and years of thinking about the best interests of their clients will always catch something that would take you hours or days to catch, if you catch it at all. Putting it a different way, if you hesitate because of costs, consider the costs of do-it-yourself lawyering if you get things wrong.

Not incorporating, or choosing the wrong corporate structure. Your attorney can guide you based on your vision and plans. The easiest way to start a small business is with a sole proprietorship. The taxes are easily manageable and there is very little paperwork. Unfortunately, if someone accidentally injures themselves using your product, they could end up owning your house, all your stuff, and all your money via a lawsuit. Incorporation means protection for the business owner(s). Protect yourself and your immediate family by incorporating. If you plan never to eventually take your company public, a limited liability company (LLC) is likely your best bet, due to the ease of incorporation and lower taxes than with full incorporation. Not limiting your liability by forming an LLC or corporation is asking for trouble. Fortune DNA offers the best business structures at low prices, with the best service! Check us out here to get a free consultation.

Failing to patent, trademark, or copyright material. Earlier we discussed the hand-made jewelry designer who found out the hard way that she wasn’t the only one with a creative eye and a great idea. This can happen with slogans, songs, images, logos, icons, products, procedures, or a million other things related to building a business and brand. Don’t try to do the research yourself; I guarantee that you won’t know all the places to look. There are corporate attorneys who specialize in patenting, trademarking and copyrighting. In fact, in many cases, that’s all they do. Think of it like this: do you really want to build an entire business around something, only to find out the hard way that you’re not the first to do it, and the person who was first did protect themselves and their idea with a patent, trademark or copyright? That, my friends, is a bad day to be a business owner.

Not having a formal agreement between owners. Owner agreements don’t have to be long. In fact, I think our company’s is only a couple pages. Expert Business Advice CEO, Mike O’Keefe, was my college roommate and the best man at my wedding, but despite our history, when we started Expert Business Advice, LLC together, even we had a formal ownership agreement. It basically just puts in writing who the owners are, how much we each own, what our responsibilities are, what happens if one of us dies or elects to leave the company, how major business decisions will be handled, etc. Also, we are not 50/50 (equal) owners. This can sometimes cause issues for a group of friends who all want to own equal shares, but you must find some way to make it unequal, or you’ll suffer death by stalemate. If two people own a business together and want to be as equal as possible, I recommend a 51/49 per cent ownership split. The money is practically equal, but when decisions must be made, they always will be. If you cannot decide who will be the majority owner, use the oldest tipping mechanism in the book—flip a coin!

Starting a business with a large loan, but not understanding the terms of the loan or how to manage it. Just because you get a hefty business loan doesn’t mean you can start throwing money around. As we have seen, you really need to read the fine print to ensure you don’t have to start paying that loan back right away. And if you do get a huge loan, don’t start hiring all your friends to work at your business. It takes careful analysis to determine how many employees a business requires to run optimally. You friends may think you are wicked awesome for hiring them, but the test of your friendship might come when your loan is spent. I hope for your sake at least one of them has a comfortable sofa.

Working on your new business idea at your old job. Say you design and build widgets. You’ve worked at your job for ten years and just love it. Now you’ve developed a completely revolutionary widget design on your own, in spare moments at work. It will transform the widget industry. You don’t have a non-compete agreement with your employer, so you decide to start your own widget business based on your new design. On your last day at your old job, you print out the designs for your new widget and take the schematics home.

Unfortunately, some time later, you get a letter from your old company’s attorney, claiming that they own your new widget design! I hate to be the bearer of bad news, but I’m afraid most courts would find that your old company does own your new widget. Here’s why: you created your new widget on their time, using their equipment, while they were paying you to design and build widgets for them. You even printed off the schematics on their printer. Oh yeah, they own your widget.

If this scenario rings any bells in your head, meet with an experienced business lawyer and check out your situation. It would be better to figure out how to develop prototypes of your new company’s product under conditions that guarantee the new products are yours, than to have them swept up in costly lawsuits and heartbreak.

By Scott L. Girard

Make your Business Meetings Productive

A familiar device may be the solution to long, unfocused, and unproductive meetings.

The new strategy for running a productive meeting, discussed by Jake Knapp, a design partner at Google Ventures, in a Businessweek article, is also surprisingly simple and inexpensive.

It relies on a $25 plastic device with a battery called the Time Timer.

The Timer Timer is essentially a large, old-school oven timer designed for classrooms. Its large black numbers mark 5 minute increments and a red disc set inside the numbers displays the time remaining.

The way it works is simple:

1. Bring the timer to the meeting.
2. Set it in a visible spot where everyone can see it.
3. Set the length of time for the timer to run.
4. Watch the remaining time immediately begin disappearing.
5. Create instant urgency.

When everyone knows the time limitation, meetings are significantly more focused and efficient. It also balances participation–it encourages quiet types to say something before the timer hits zero and helps loud types recognize how much time they are taking up.

Basically, the idea is that people don’t lose track of time when its right in front of them.

The Time Timer proves to be more effective than a timer app on a screen. It’s physical presence makes time tangible. It’s easy to see, impossible to ignore, and can’t be dismissed with the swipe of a finger.

It can also be used to time individual topics within a meeting or create additional efficiency by confining mundane independent tasks such as emailing and eating lunch.

That being said, it is important to be selective with when and where it is used. In situations where employees are already feeling the pressure, the timer may add additional stress. Be careful not to turn it into something employees dread.

It’s worth trying the Timer Timer in a business meeting. It may initially elicit laughter, but it will soon become a respected force in the room.

By Courtney Deruy

Mobile Website Tips for Small Businesses

The top 5 tips post is always full of helpful hints and advice for small, home and micro business owners.

1. The number of people with smartphones is growing exponentially. Consumers increasingly expect to be able to access company websites from their mobile devices, so a mobile-friendly version is important. Especially in today’s age. Without a smartphone, statistics show that you’re losing at least 60% of your potential customers.

2. You need to make sure that the mobile version of your website is compatible with all of the major smartphones. This can be difficult, as many of them use different operating systems. Though, fortunately, there are many companies that you can outsource to for such things.

3. Try to distill your most useful website features so that they are usable on the small screen of a smartphone. Things like instant order updates or stock checking are great for people on the move.

4. Ensure that all of the text on your site is readable on a mobile devices and that images or other content will display correctly. Navigation is also a big issue for mobile devices.

5. It is advisable that you delegate the construction of your mobile website to someone with experience of building them. Fortune DNA themselves are starting up a basic website program w/ mobile compatibility at an unbeatable price. Don’t pay providers like GoDaddy thousands of dollars just for a website.

By: Stefan Topfer & Fortune DNA

Small Business Loans – Impossible?

Remember the days when you’d need funding to start or grow your business, and you’d get in your car and head down to the bank on the corner?

You knew your banker personally, perhaps even had kids in the same class at school, or would often see them at your favorite local restaurant. This personal relationship helped fuel a strong financial relationship; you knew exactly where to go to get the loan you needed.

But, the days of driving to your local bank for a business loan are long gone. Not only are community banks getting eaten up by the big banks, but bank lending to small businesses is at an abysmal rate. If you’re a small business owner, and you walk into a bank, you’ve got around an 80% chance of getting denied. Yep. That’s right.

Instead of sitting here, drowning in these depressing statistics, let’s take a look at why this drop in small business bank lending is happening.

Why lending to small businesses is declining

When small business lending took a hit during the recession, most thought it was purely a victim of the economic downturn and would eventually inch its way back up.

However, that hasn’t been the case. The total dollar volume of bank loans to SMBs has declined by 20% since the start of the recession. And, it just continues to trend down. Here is why:

  1. Increased regulation. Post-recession, banks have had to tighten up their standards and be extra-cautious about the risk in their portfolios. Remember, they are making these loans with my money, your money, and your neighbor’s money. Hence the reason they have to be so cautious. Unfortunately, small businesses are inherently riskier than their larger counterparts, which makes banks think twice before extending them credit.
  2. Downturn in community banking. Small businesses have historically had more success finding a loan at a community bank than a big bank. In fact, community banks have 3 times the approval rates on small business loans than the big banks. But, our number of community banks have been declining since the 1980’s, inadvertently hurting America’s job creators. With fewer community banks, there is less opportunity for business owners to find a loan at a traditional banking institution.
  3. Less profit on smaller loans. More often than not, small business owners are looking for smaller loan amounts. In fact, our average loan size at Fundera is $40,000. Other data shows that about 80% of small businesses want loans that are less than $500,000. But, it doesn’t make financial sense for banks to provide these smaller loans. Why? It costs banks just as much to underwrite a $1 million dollar loan as it does a $100,000 loan. Therefore, they can make way more money focusing on larger loans. At the end of the day, banks are businesses too.

When you stop and look at the reasons banks have cut their lending to small businesses, it makes sense. But, it is still frustrating that business owners are having to face so much rejection. That being said, small business owners need to learn to approach their loan search differently. It’s no longer about expecting the banks to give you credit; it’s about being aware of multiple ways to fund your business and preparing to try a few different sources.

By Meredith Wood

How to Figure Out Small Business Credit Reporting

Your company’s credit reports directly affect your ability to compete and grow. Unlike a personal credit report, anyone can pull your business credit report — they don’t need your permission. “You want to make sure you have good business credit because it’s one of the primary ways businesses decide whether to do business with you,” says Amber Colley, director of sales partnerships for Dun & Bradstreet Credibility Corp. “They are making critical decisions to determine whether to sell to you, lend money to you, and to determine whether you’re a viable partner.”

“We do pull a business credit report, there’s no doubt about it,” agrees David Goldin, president and CEO of AmeriMerchant, a New York City firm that provides merchant cash advances, business loans and inventory purchase programs. “It’s one piece of the puzzle.”

Your business credit record may influence not only a company’s decision about whether to do business with you, but also the terms of any deals they offer. “Interest rates can be determined on the content of your business credit report, insurance premiums can be determined on this data, as well as terms and pricing with your suppliers,” says Colley.

How to check your business credit report
You can confirm that your small business is listed with Experian, Equifax or D&B by searching their websites at no cost. Note that if you operate under a DBA (doing business as) license, you may see search results returned in your legal name or the company name. In either case, if your small business comes up in the results, your company has a credit report with that bureau.

Each company offers an assortment of individual reports and ongoing credit monitoring. For example, you can access a copy of your D&B credit report for free using the Company Update feature (you’ll need to first apply for a free DUNS number — a unique nine-digit identification number for each physical location of your business); D&B’s free Credit Signal product will also show if your credit score has changed (but not the actual score) and track how many times your file is being accessed. At the other end of the cost spectrum, Experian’s $1,500 a year Business Credit Score Pro subscription plan allows you to access your report 30 times a month and includes your business credit score as well as a host of other features (though the company recommends its $129/year Business Credit Advantage package, which gives you unlimited access to your own report).

That will help you pinpoint areas of weakness that may present your company as a higher credit risk. It will also give you the opportunity to identify and challenge any suspicious or fraudulent activity that has had a negative impact on your report, including business identity theft. “We always recommend that they’re constantly monitoring their business credit report,” Ward says, “and certainly, if there are adverse actions, we’ll take care of those immediately.”In keeping with consumer credit practices, Experian will also provide you with a copy of your business report at no charge if your company has been denied credit by a prospective lender.

Unlike consumer credit files, business reports cannot be frozen if the company’s owner finds something amiss, but owners can dispute information by way of a fraud statement, also known as a fraud alert. “It’s important to understand that a fraud alert is not a security freeze,” Ward says. “A fraud alert is a message that displays on the business credit report for lenders to see so that they can take additional cautionary measures and actions on the verification of the business.”

So then… how do I build business credit?
Well, you need to setup proper trade relations with specific vendors that report to the credit agencies. Not only this, but you must acquire a D.U.N.S. number, as well as ensure all your information is correct. You may also build business credit using personal guarantees to expedite the process, but that’s only if you have good personal credit. Fortunately, Fortune DNA offers a business credit program for a low, reasonable price. If interested, visit www.fastcreditconcepts.com. We’ve serviced thousands of clients, and we have one of the largest selections of vendors to choose from.

By Randy B. Hecht, Elaine Pofeldt & Fortune DNA