The 2% Solution for Disputes among Business Partners and Partnerships

Preparation Avoids Business Partnership Problems that could Kill a Business     

Many people start a business with friends, neighbors, relatives or spouses and it's often a partnership 50/50 arrangement. Rarely is there a written business partnership agreement and this can be a big mistake. These arrangements often work well until there is a problem but then...the problem could be a big problem and the dispute can spin out of control quickly.

Small business partnerships should come with a warning label "Caution: Partnerships work best when the partners document the problem resolution methods before entering the partnership."

If you ever thought you can turn your hobby into a business.......

Many people we encounter think that starting a business based on a hobby is a good idea...it rarely is.

Maybe they've read too many "Do what you love" seminar headlines. The reality is, it's either a business or a hobby and never both.

This recent article in the Wall Street Journal gives you a look into one persons attempt to turn their hobby into a business.

Point. Set. Match. I Lose!

This article published in The Wall Street Journal Small Business Management Section.

Running a small biz is tough, but good and free advice is available!

Excellent info about employment practices for small businesses. The very best medicine is preventive medicine!

Take a look at this blog article by Attorney Alan Bush about overtime perils and pitfalls.

Click Here

So You're Sitting Around the House and You Decide..I want to....

I got it...I think I'll build a small business being a consultant/trainer for people who want to build sand castles!

Yep, here's someone else who figured out how to make something most of us never thought of into an interesting small business.

Read Here...

Time to start thinking, maybe a trip to the beach would help.

Uncertain Times, Reason to Act or Reason to Wait?

I am often asked "when is the best time for someone start a business?". As you might imagine, the answer is different for everyone and even then, the answer is never 100% evident.

If you wait until the risks are minimal the time might may never come, if you leap when the risks are huge your chances of success are reduced. So what to do.......................

My advice is to make sure you have thought about the opportunity and the risks. Knowing that you can never really quantify the risk. Here are a few questions:

• If the business takes a year to get going what happens?
• How much of my own money am I willing to risk?
• How much of others people money am I willing to risk?
• Am I as smart as I think I am?
• Do I have a bullet-proof plan for the first 6 months? If not, why not?

The last item is critical, if you have a bullet-proof, well thought out plan for 6 months...and you can execute that plan, your chances of success go up dramatically. The reason is simple. A great and accurate 6 month plan means you know enough about your market and your customers to give you time to adjust to changes. The ability to adjust is an essential survival skill in business.

If you really want to start a business, focus on a well thought out 6 month plan. Review it with people who are in business, be honest and do your homework. If you've done all that and the opportunity still looks good...jump in..and welcome to the world of the entrepreneur.

The hard work of un-fooling yourself...........

As I've written before, during the 1st quarter of the new year I find myself trying to take extra time to plan and evaluate. Some of this is an natural reaction to reviewing the financials in preparation for filling taxes. Some of it is just my reaction to something I've heard or read somewhere.

During a recent walk I was thinking about something I read in a blog article by Michael Hyatt, by the way, if you are unfamiliar with him I recommend his blog. He writes a lot of good stuff about business and some interesting stuff about managing life. In one of his articles he hinted at something that I reformulated for my own use. What I'm talking about is trying to identify the business and personal habits, processes or practices that I automatically assume make sense but on closer investigation I'll find out the idea either was never a good idea or it's an idea who's time has passed.

Once I decided to take a look I couldn't believe how difficult it is to then decide which things to look at! I decided I'd look back at the prior week for some clues or direction. I had thought that the prior week was really pretty uneventful and not very interesting nor complex. But then I started breaking down the events and connecting the dots it got messy. I'm now convinced that many things are simple but few things are uncomplicated.

I then made the leap of logic that goes like this, "If I'm trying to figure out what I'm fooling myself about, then obviously I've already fooled myself and how will I recognize it?" Now what do I do?

It wasn't nearly as difficult as I thought. Here's what I did. I went to someone in our office and asked the brilliantly insightful question, "What do we do that's dumb?" Much to my surprise (and a bit of disappointment) they didn't need to think about it at all, nearly before the words came out of my mouth the person had listed 3 things.... bang..bang..bang!

To shorten this post I won't bore you with the details but here are the results of looking into the 3 things identified for me:

Starting a Small Business - What's the most important question to ask?

There are many issues to deal with and questions to ask when thinking about starting a small business.

Should I incorporate? LLC? C Corp? S Corp?
What name should I use?
How do I get or set-up my website?
How do I find a CPA? Do I even need a CPA?
How do I get a license to do biz in my state?
What accounting? Quickbooks? Excel?

And the list goes on and on...
But the real most important question is this...................

If I start a small business, how do I get out of my small business?

What is your exit plan? Your goals, time frame, limitations?

If you will think through, with honesty, this question - How do I exit my business?  You will make a better decision about how you go into your business. Do you want to sell the business? If yes, then there are things you need to do when you set up your small business...Want an example?

If you want to sell your business don't name your business after yourself. Believe me, Wizards A/C and Heat Service is easier to sell, and at a higher price, than John Q. Smith, Inc.

Send me your start up questions that relate to your exit plan, I'll take a shot at getting you useful answers.

Ever wonder what an Accredited Investor is? And why it matters......

Under the Securities Act of 1933, any company that sells securities must register with the SEC or file for an exemption if they so qualify.  The Act provides companies with a number of exemptions from federal registration requirements.  One of these exemptions is that the company may sell its securities to Accredited Investors.   Selling securities to Accredited Investors is deemed to be an exemption because the assumption is that Accredited Investors have the skill and knowledge to evaluate and determine the risk of the investment.

The term Accredited Investor is defined by the Securities and Exchange Commission (SEC) and is used to describe investors who have achieved a level of financial sophistication that eliminates or diminishes the need for protection that some government filings may provide. 

An Accredited Investor is:

Do you know yourself? Do you know your clients? What Kind of business owner are you?

I had a chance to meet with John Warrillow recently. He's the author of an excellent new book that talks about business owners and how they think. It's titled Built to Sell

If you have a dream of selling your business or growing your small business into a bigger business that one day can be sold, this book should help you.

If you're a business owner, or hope to one day be a business owner, this book is important for you...if you are an advisor to business owners this book is critical!

What kind of business owner are you? What kind of business owners are your clients?

• Mountain Climber
• Freedom Fighter
• Craftsperson

Take the time to figure it out, it could be worth a lot of money to you one day soon.

Give it a read, I'll bet you'll be glad you did.

Click here for the link to the book.

Thinking about buying a business? Here's a way to figure what is possible

If you want to own your own small business there are really only two ways to get into business. You can start a business from scratch, often called a start-up. Or you can buy an existing business from a business owner who is ready to sell their business.

There is much written about starting a business. The biggest problem with a start-up is in the time it takes a start-up to become cash flow positive and unfortunately many never become cash flow positive and they fold.

Buying an existing business is often a good choice. If you do it right you can be cash flow positive immediately and financing for purchasing a business is often very favorable. In a previous post I wrote about "Why would someone sell be their perfectly good business?" and it talks about why business owners choose to sell good businesses.

If you want to buy an existing, profitable, business you need to answer a couple of questions about your situation before you begin your search.

First, how much money do you have available for a down payment before borrowing any money from any banks, credit cards, etc. It will be very, very difficult to buy a good business without a down payment.

Second, what's the minimum amount of money you need to make from the business to live on once you buy the business.

If those two numbers are reasonably close to each other you have a decent shot at buying a business.

Here is a "typical" deal:

Business earnings (Seller's Discretionary Earnings)  $75,000
Selling Price of business   $200,000
Down payment    $50,000
 Earnings/Salary you need  $50,000
Get an SBA Loan for $150,000
Annual Payments for your SBA Loan $20,500 (10 years @ 6.5%)

Business earnings $75,000 - $20,500 (debt payments) = $54,500 to you the new owner.

Also, when thinking about your down payment there is a mechanism to use you 401(k) funds to buy a business without incurring early withdrawal penalties nor tax obligations.

If you want to be in business for yourself it's always a good idea to get informed and look at all your options.

A New Year's resolution list for small business owners......

In the spirit of the holidays I've decided to give small business owners a ready made, no assembly required, New Year's resolution list. It's only 5 items and it's designed for every business owner.

Here's your list............ yes that means you!

1. Smile more - business life is never as bad as it seems when things aren't going well. From a business perspective there is always a way out...always.
2. Read more - I don't care how long you've been in business nor how smart you think you are...you can learn something from someone else. I suggest that you read things that are not directly related to your industry. Skimming your trade journal every month to see who got fired is not real reading.
3. Plan more - Set aside specific blocks of time, away from the office, where your only job is to think about your business 6 -12 months in the future. In spite of what you may believe, planning is not the same as updating a to do list.  
4. Say thank you more - to your spouse, your parents, your kids (yep, I said kids), to your customers, to your employees, to your vendors, etc. You get the idea, right?
5. Wish less, Do more - I recently read (see #2 above) that the best productivity tool in the world is to do something. Makes sense to me, we can talk about doing something or we can actually do something. If we're talking about doing something it's still on the to do list, if we actually do it...by golly the list is shorter.

There's your ready made, easy to use list. And by the way it's my list also for 2011. And... thank you for reading this blog, I'll try to make it better than ever in the new year.

If you don't use this list I'd love to see your list! 

Happy New Year!!!

Holiday Reading Ideas for a Better Business

My New Year's resolution (well, one of them anyway!) is to provide more tools for small business owners to start or buy a business, then grow it profitably and sell it! As part of that I am kicking off the New Year with a specific book recommendation. Although I can't say I agree with everything in this book it is loaded with ideas that might help get you focused on creating a business that you run, instead of a business that runs you.

Making Money is Killing your Business contributes greatly to the argument that running a business by the seat of your pants is not always a great idea.

A core and unique concept of the author Chuck Blakeman is that a business should throw off money and time. If you start thinking about your business this way I think it will change some of your decision making. In an earlier post, 'Tis the season...  I warned about creating an atmosphere in your business where you are cynical about your business and you lean on an "it's me against the world" view of ownership.

This book gives clear ideas and examples of how to mange that natural tendency.
Don't get hung up in the references to a specific industry. Analyze the concepts and I think you'll be able to apply improvements to your business quickly. Good luck and let me know what you think about the book.

‘Tis the season for presents…..want to give yourself one?

This post is for all the hard working business owners and those who one day hope to become business owners.

Far too many business owners live in a constant state of stress. Their reasoning is “it’s a good stress”. I’m no doctor but I doubt that stress 24/7 is really good for your health.

What do small business owners worry about most? Here’s my list based on discussions with thousands of business owners:

•  Cash flow – too many bills at the wrong time.
•  Employees – too many need baby sitters, not bosses!
• Customers – Is perfection a reasonable expectation?
•  Family – Why doesn’t my family appreciate me working 7 days a week? After all, I’m doing it for them.

Ok, here goes. You knew it was going this way didn’t you. The Uncle Joe talk…..you know, the uncle who told you exactly what he thought about your hair brained thinking when you were 12 years old. Well, I’m your Uncle Joe.

Here’s my recommendation for your New Year’s resolutions for 2011.

1. Stop feeling sorry for yourself.
2. Stop using your business as an excuse for not doing the family things that you just don’t want to do. Helping your family hate your business is not a good plan.
3.  Start thinking about your cash flow problems before you have them instead of waiting until you have them.
4.  Give your employees written and detailed systems so they know what you expect and how to do it. Believe me, they’d rather not listen to your rants any more than you claim you don’t want to give your rants.
5. Only promise your customers what you KNOW you can deliver… then do it. Most unhappy customers are created by you. Did you tell the customer what to expect? Did you deliver? Did your employees deliver (see #4 above)?

There’s your simple 5 step program to giving yourself a Christmas present that will benefit you, your family, your employees and your customers.

Merry Christmas and Happy Holidays!

Are you a business owner that wants to grow? Part 1

This is Part 1 of what will be several posts about growing your business. I'll cover some free ways to grow and I'll also talk about growth opportunities that aren't free.

I meet many business owners who want to grow but very few know how to grow.  Let's look some common ways to grow your business.

Low cost/no cost growth.

Train your people better so they get the most sales out of every customer encounter. 

        Example - How many times would you have ordered dessert in a restaurant if someone would just ask? At a restaurant that is missing opportunity, the server sees that I am finished with my dinner and the server walks up and asks "Would you like anything else?" My response, "No thanks."

At a different restaurant, the server sees I've completed my meal and asks "how would you like a slice of blueberry pie or a hot fudge sundae?"  I don't know about you but for me it's a lot easier to say no to the first server than the second one.

What's it mean to the business owner? If a dessert costs $5 and the restaurant serves 100 people per night, getting just 4 more people out of 100 people per night to order dessert means $7,300 per year in additional sales and the cost on that sale is the lowest you can have. All the help is already paid, rent doesn't go up, light bill is the same, etc. So the owner of that business could make $7,300 more per year because his servers just asked the same question a different way. That's as close to free money as a business owner can get.

Every business has these kinds of opportunities regardless of the industry. Take a close, a very close, look at your business and you will find opportunities to increase sales to your existing customers. Often the secret to good selling is knowing how to ask good questions. Are your people asking the good questions?

Small business owners and risks related to employees work claims

This morning at a meeting I was talking to an employment attorney I know and the topic got around to small business employment practices and the risks that small business owners might not realize they are taking.

Among many items we discussed 3 stood out. Many small business owners we meet with are unaware of the consequences that could result from their lack of attention to human resource (HR) legal issues. Here's my list and my take on each one of the topics the attorney reviewed. Obviously seek competent legal advice before taking any actions:

1. Getting Confidentiality Agreements from employees - I rarely see businesses that have taken this step but I have seen many, many cases of businesses who were damaged and could not go after the offender. The more important the employee the more important this could be.
2. Documenting overtime practices, payments and procedures - failure to properly pay employees for overtime can have expensive and painful consequences. Those painful consequences could, in some cases, go to the business owner personally, without the corporate shield so many depend on.
3. Making sure that employees who are not paid by the hour are classified, managed and have responsibilities that are appropriate for the hourly exemption requirements in employment laws. According to the attorney, just because a business owner and an employee agree to weekly pay, instead of hourly, it doesn't necessarily mean the business owner is not obligated for other expenses and claims which may include back pay for overtime and the significant penalties that could be assessed.

This is a good time of year to start reviewing your employment practices and get good advice from an HR professional or attorney. Also, this is not just an issue for big companies. If you have employees you have risks, generally it's wise to spend a little money now to avoid a bigger problem later.

Interesting Small Business Tax Information

Time to start [preparing for 2010 and 2011 tax issues...the IRS never sleeps! Here are a few small business tax items that may apply to you. Talk to your CPA about them.

Deduction for Start up Expenses Increased.  For 2010 only, the amount of start-up expenditures deductible in the current year increased to $10,000.  Any remaining start-up expenses can be deducted ratably over 180 months.

Self-Employed Health Insurance Deduction.  For tax year 2010, health insurance costs for a self-employed taxpayer and his family are deductible in computing 2010 self-employment tax.

Small Employer Health Insurance Credit.  For 2010 through 2013, the health care act provides small employers with a tax credit for providing health insurance for their employees.  The credit is limited to businesses with no more than 25 full-time employees with annual full-time equivalent wages averaging no more than $50,000.

 

More to come. It's time to start your tax planning.

Consult with your CPA before making decisions.

Need an SBA Loan? Here's a list of SBDC locations

Here's how to find the Small Business Administration's Small Business Development Centers nearest you.

Contact one of these offices to see if your business qualifies for an SBA Loan

If you want to buy a business go to Sunbelt Business Brokers to find an office near you.

For articles about how to Buy a Business visit our article library.

Articles:

What Do You Buy When You Buy a Business?

How to use an SBA Loan to Buy a Business.

Can Owning a Small Business Make You Wealthy?

FULL LIBRARY OF ARTICLES 

Is the small business owner world upside down?

This post falls under the category of "what the heck is going on"!

The following is from a small business consultant who talks to small business owners several times a week and has done so for about 10 years. Their name is being with held for obvious reasons.

They say, many of the following are found to be true for abut 75% of small business owners:

• Business owners who sleep very well ....probably shouldn't.
• Business owners think because their employees don't complain the employees are happy
• Business owners whose employees complain blame it on the government
• Business owners personal spending is often unrelated to their personal income, some spend a lot more than they make and some spend a lot less.....very few are break-even
• Business owners who are chronically behind in paying suppliers are often right on time replacing their boat.
• For every one minute a business owner spends talking to an employee (shouting instructions doesn't count) they spend 54 minutes talking to sales people about a new copier.
• Whenever a customer says "your price is too high" the business owner believes it.
• Whenever a customer says "your price is too high" the business owner grumbles about how his competitors are losing money.
• A business owner would rather pay 5% more to a vendor than lose his invitation to the vendor's hunting trip.
• For every one minute a business owner spends getting expert advice they spend 92 hours giving it.

Ouch..................

What is an "S" Corporation?

An S Corporation is a form of business classified for federal income tax purposes as a corporation that has elected to be taxed as a pass-through entity, in a manner similar to a partnership or sole proprietor.  Unlike a regular corporation, or a C corporation, an S corporation (both names derive from sections of the Internal Revenue Code) generally is not subject to federal income tax.  Instead its income is reported on the tax returns of its shareholders, and they have the responsibility for paying the tax.  If there are losses suffered by the corporation, they also pass through and are reported on the shareholders’ income tax returns.

               Because only the shareholders, not the corporation, are taxed, S corporations avoid the problem of double taxation associated with C corporations.  This is the biggest draw for creating an S corporation, particularly for closely held corporations.

               Shareholders in an S corporation, like shareholders in a C corporation, generally have limited liability arising from corporate matters, even though they pay taxes as if they were partners or sole proprietors.  In addition, when the corporation is eventually sold, there can be reduced taxable gains, as compared with the sale of a business operating as a C corporation.

               On the downside, the limitation on classes of stock in an S corporation provides less control over the company and the value of its stock.  Potential outside investors likely will not be attracted by the pass-through tax characteristics of an S corporation, nor by the limit on the number of shareholders.  Although corporate taxes are avoided, there is still a requirement for filing an informational tax return every year for a corporation with more than one owner.  Finally, if avoiding formalities is an important consideration, it should be noted that, like any other corporation, an S corporation must follow the requirements for having regular meetings and keeping company minutes. 

               The balancing of the advantages and drawbacks of S corporation status in any given case is sufficiently complex that it is advisable to seek professional advice before making this important choice.  

Note: This article provided by Craig Welscher a Houston, TX based attorney. You can contact Craig through www.welscherlaw.com

Document My Systems?.....Which Systems?

Recently I wrote a post about how businesses should document their systems to improve their profits and value.

I received some feedback that went something like this..

"Which systems, there are a million systems in my business!"

Well, you're correct. Even a small business has many different systems. How you answer the phone, how to install the widget, how to log into your QuickBooks, it goes on and on.

So where should you start?

My advice is to make your first written/documented system the one that is most critical to the success of your business. That means you can rule out how to log on to your computer, how to check voice mail, how to refill the paper in the copier.

Here are some examples of critical systems for various businesses:

• If you have a staffing firm you need a great system for interviewing potential hires.

• If you  have an auto repair shop you need a great system for diagnosing car problems.

• If you own an ice cream store you need a system to make sure the ice cream temperature is always perfect.

What's the most critical system for your business? You'll need to decide, then write it down, diagram it, draw it... do whatever you need to do to make sure that someone can do it if you're on a sail boat in the middle of the ocean.

If it's in your head it's only useful to you, if it's documented it's valuable.