To kick off National Small Business Week I asked some people working in business development to tell me what pitfalls they would avoid that could derail a business.
“’Pad’ your initial request – don’t ask for the moon but ask for enough to get the business operating and ramped up fully including any money to cover costs while sales are building (sometimes referred to as your ‘burn rate’). Once your lender ponies up for the initial loan, you will find it impossible to come back to the well again, at least until the business is meeting projections for a period of time and turning a profit.”
“Never ask for 100% financing – lenders want you to have your own skin in the game. For a startup, this usually means cash up front and not from debt such as a Home Equity Line of Credit. This shows preparation and dedication to your ‘cause.’”
“Proper care and feeding of your banker means that you communicate as required, including providing financial statements on schedule. AND never surprise them with bad news, such as in the form of a ‘bounced’ loan payment. Any challenges should be discussed with your lender early on and should include proactive, realistic solutions, and timeframes.”
Lewis Hagler – Colorado Enterprise Fund Director of Credit
“Monthly and quarterly reviews of your P&L Statement and Balance Sheet are essential. If you do not understand what is important in these reviews, consult with your CPA or work with the LBDC to improve your financial knowledge. Once you understand these important aspects, it becomes commonsense. You soon realize that a profit on the P&L Statement does not necessarily mean a viable business. Cash-and-flow projections hold the key; this understanding comes from the Balance Sheet side of the equation.”
Robert T. Coffey, D.V.M. – LBDC & Larimer SBDC Consultant
“Many business owners get caught up in working in their business instead of on their business. You need to know what your strengths and weaknesses are – do what you love and (eventually) hire out the rest.”
“Focus on time blocking – many people get very scattered with all the tasks that need to be done each day. Practice focusing on one thing at a time and using the ‘Do not disturb’ feature on your computer and phone until you are completed with a task.”
“Practice the Pareto 80/20 rule. Focus on the 20% of tasks that will yield 80% of the results.”
Charity DeVries – LBDC & Larimer SBDC Consultant
“The major pitfalls that I see are the lack of understanding of the importance of being diligent about managing the cash flow of the business. Also, asking what is the purpose of the business and what are you selling? Sell solutions not things.”
Bob Jones – LBDC & Larimer SBDC Consultant
“Many small businesses aren’t charging enough for the services or products they are providing. Pricing is a useful tool that’s under the control of the businessperson, but executing it properly is a functon of knowing your competition, understanding your cost structure, and knowing your strategic direction.”
Mike O’Connell – Larimer SBDC Executive Director
“The biggest pitfall I’ve seen (and experienced in my own business, InnovatioNews) is a faulty feedback loop. When you haven’t surrounded yourself with advisors who are able to both question your decisions and support your conclusions, it’s easy to continue making the same mistakes over and over.”
“Without outside confirmation, individuals question themselves, the decisions they’ve made, and begin to distrust their instincts.”
“The good news is bringing additional advisors in to help assess the real issues can usually solve this problem. Everyone needs mentors.”
Lee Porter – LBDC & Larimer SBDC Consultant
“Before Starting a Business you must make financial projections and know that you can make money in your new business. Know how much you will charge for your service or product, how you will be paid, what your business expenses will be, and how much capital you will need to start your business.”
“Have a source of income to fall back on when starting a business. If you have personal savings, be sure you have enough to cover a year of personal living expenses as well as projected business start-up costs. If you are going to the bank for a loan, be sure you are asking for enough money. It is difficult to secure a new business loan, and near impossible to go back within the first year when you discover you did not ask for enough capital to get the business through start up.”
Andrea Grant – Larimer SBDC Consultant
“I think one of the biggest pitfalls that can derail a business is that a person can’t know ahead of time all of the different challenges that will appear as they begin to take their business from the idea world into the real world. There is always a point in the middle of creating where we reach an unanticipated difficulty. It might be a problem to solve, a weakness to overcome, an obstacle to surmount, a surprise from a competitor, or a change in the marketplace. It’s easy when these difficulties arise to begin to question the validity of your idea, or your own level of confidence in your business. No matter how good your planning is, it never unfolds as you imagined it would, but if you acknowledge that there will be challenges, you won’t be as likely to back down when they show up.”
Franklin Taggart – LBDC Consultant
Which will you choose?
“Listen to family and friends tell you they love your new business idea and to follow your dream. OR Research the industry and market to understand the potential opportunities and risks.
Decide to only focus on your business and NOT on competitors. OR Research competitors to understand how your business is unique.
Your business plan strategy is in your head. OR You create a business plan to help you think things through, research if not sure of the facts and look at your ideas and processes critically. Your plan will include the external business environment, internal business analysis and financial projections.”
Kathy Stewart – LBDC Consultant & Community Liaison