Federal stimulus trickles down
Opinions mixed on benefits to small business
Sat. April 25 - 2009
Peter Schnitzler - pschnitzler@ibj.com
IBJ staff
There’s a smorgasbord available for small businesses in the federal stimulus. The trick is figuring out how to get a plate.
Plenty of local experts are serving up access to the buffet. And some entrepreneurs are digging in. But others consider the stimulus warmed-over leftovers.
“For high-tech, high-growth businesses of the 21st century, there’s nothing in the stimulus bill that helps us,” said Bob Compton, a longtime investor in local businesses who now lives in Memphis, Tenn. “For low-growth and failed businesses of the 20th century, that’s where the bulk of the money is going.”
In February, President Obama signed the $787 billion American Recovery and Reinvestment Act into law. Although some of the stimulus package has begun to trickle down, many small-business owners still don’t know what’s available....
...... Click HERE to view the rest of the article.
Thursday, April 30, 2009
Wednesday, April 29, 2009
Don't Buy a Franchise In a Hurry
Don't Buy a Franchise In a Hurry - click on title to view original article online
Submitted by Granville_Bean on Fri, 2009/04/24 - 22:46.
I have been a franchisee for more than a decade. We don't make as much money as a lot of people in the community seem to think, but we do make more than 90% of the households in America. I read all the horror stories on Blue MauMau, and contrast how people are buying bogus franchises with how we got into our system.
People talk about dealing with sales people who want to sign them up for that deposit or franchise fee. People talk about how THEN they might work in a store "for a few days", or go to a training that takes a week or two.
And they think that a week or two will make them into business people???
What is really scary are the poor folks who decide to buy a franchise BECAUSE THEY ARE GETTING LAID OFF. That is a TERRIBLE motivation because the fearful job-losing employee will want income IN A HURRY. Franchising has been around for decades, perhaps a century, and yet the job-loser will feel pressure to find the franchise and buy it in as little as a few weeks. No, no, no. It can take YEARS to find the right business opportunity.
About that salesperson and that fee: For contrast, in the McDonald's system you have to be approved as a Registered Applicant before you will be considered to buy a store, and you don't pay the fee UNTIL you buy a specific store. And to BECOME a Registered Applicant you have to first prove yourself to be operationally qualified.
You might work in the stores for a year, not a week. You go through four levels of courses and you don't just walk in and attend the course. You have to prove yourself operationally qualified and pass an assessment as to your operational knowledge, before even being allowed into the course. You can't just read manuals in your office or at home, you have to prove yourself in the restaurants. And this is BEFORE you are ALLOWED to pay a franchise fee to acquire a restaurant.
Contrary to sentiment from some of Blue MauMau's columnists and commentators, I am NOT a big fan of "due diligence" to the extent that it implies that if you just hire enough consultants, you can indeed walk right into a business that you knew nothing about 2 weeks ago, and the "diligence" will save you and make your success guaranteed.
Nope. People do come into McDonald's from outside but they gain their own knowledge of the industry before they buy a store. They don't throw it over a consultant's transom and ask if it is okay. And let's face it, most McDonald's franchisees came with prior McDonald's experience.
Corporate franchisor employees aspire to become franchisees (and often do). General Managers with decades of experience buy their stores when the prior franchisee retires. Whether or not they buy their parents' stores, second and third generation franchisees DO buy McDonald's stores.
I am VERY skeptical when people who know NOTHING about an industry except what the franchisor told them, or that plus what they looked up on the internet in two days, think they can run a successful business in that industry just because it is a franchise. And I am ESPECIALLY skeptical about folks who were employees all their lives and who, now that they are laid off, think they will magically be transformed into employers overnight, by virtue of a franchise.
Folks, being laid off doesn't qualify an employee to be a business owner. Being dissatisfied with how your employer treated you as an employee doesn't make you qualified to be an employer yourself. People who run successful businesses have often been entrepreneurial all their lives, they didn't become transformed just because they couldn't find a job. (Lots of them quit good jobs because they preferred to be on their own, the opposite of going on their own because they couldn't find a job.)
So: Don't buy a franchise in a hurry. Be darn careful about buying into an industry you didn't know much about UNTIL you became interested in a franchise in that industry. Be careful of franchisors that want your fee NOW, and then they'll find you a location later.
Franchising can be lucrative because owning a business can be lucrative. Buying a franchise is buying a business. Just because a business is a franchise doesn't guarantee success. Oh yeah, and "concept" isn't worth squat. It's all in the EXECUTION!
Good luck.
Submitted by Granville_Bean on Fri, 2009/04/24 - 22:46.
I have been a franchisee for more than a decade. We don't make as much money as a lot of people in the community seem to think, but we do make more than 90% of the households in America. I read all the horror stories on Blue MauMau, and contrast how people are buying bogus franchises with how we got into our system.
People talk about dealing with sales people who want to sign them up for that deposit or franchise fee. People talk about how THEN they might work in a store "for a few days", or go to a training that takes a week or two.
And they think that a week or two will make them into business people???
What is really scary are the poor folks who decide to buy a franchise BECAUSE THEY ARE GETTING LAID OFF. That is a TERRIBLE motivation because the fearful job-losing employee will want income IN A HURRY. Franchising has been around for decades, perhaps a century, and yet the job-loser will feel pressure to find the franchise and buy it in as little as a few weeks. No, no, no. It can take YEARS to find the right business opportunity.
About that salesperson and that fee: For contrast, in the McDonald's system you have to be approved as a Registered Applicant before you will be considered to buy a store, and you don't pay the fee UNTIL you buy a specific store. And to BECOME a Registered Applicant you have to first prove yourself to be operationally qualified.
You might work in the stores for a year, not a week. You go through four levels of courses and you don't just walk in and attend the course. You have to prove yourself operationally qualified and pass an assessment as to your operational knowledge, before even being allowed into the course. You can't just read manuals in your office or at home, you have to prove yourself in the restaurants. And this is BEFORE you are ALLOWED to pay a franchise fee to acquire a restaurant.
Contrary to sentiment from some of Blue MauMau's columnists and commentators, I am NOT a big fan of "due diligence" to the extent that it implies that if you just hire enough consultants, you can indeed walk right into a business that you knew nothing about 2 weeks ago, and the "diligence" will save you and make your success guaranteed.
Nope. People do come into McDonald's from outside but they gain their own knowledge of the industry before they buy a store. They don't throw it over a consultant's transom and ask if it is okay. And let's face it, most McDonald's franchisees came with prior McDonald's experience.
Corporate franchisor employees aspire to become franchisees (and often do). General Managers with decades of experience buy their stores when the prior franchisee retires. Whether or not they buy their parents' stores, second and third generation franchisees DO buy McDonald's stores.
I am VERY skeptical when people who know NOTHING about an industry except what the franchisor told them, or that plus what they looked up on the internet in two days, think they can run a successful business in that industry just because it is a franchise. And I am ESPECIALLY skeptical about folks who were employees all their lives and who, now that they are laid off, think they will magically be transformed into employers overnight, by virtue of a franchise.
Folks, being laid off doesn't qualify an employee to be a business owner. Being dissatisfied with how your employer treated you as an employee doesn't make you qualified to be an employer yourself. People who run successful businesses have often been entrepreneurial all their lives, they didn't become transformed just because they couldn't find a job. (Lots of them quit good jobs because they preferred to be on their own, the opposite of going on their own because they couldn't find a job.)
So: Don't buy a franchise in a hurry. Be darn careful about buying into an industry you didn't know much about UNTIL you became interested in a franchise in that industry. Be careful of franchisors that want your fee NOW, and then they'll find you a location later.
Franchising can be lucrative because owning a business can be lucrative. Buying a franchise is buying a business. Just because a business is a franchise doesn't guarantee success. Oh yeah, and "concept" isn't worth squat. It's all in the EXECUTION!
Good luck.
Monday, April 27, 2009
Sherpa's Observation
Recently I sat down with some friends who own a very successful restaurant in the downtown area and inevitably the question was raised as to how they were doing in this downturn of the economy. After some more conversation I realized that they were doing fine because they had never taken their eye off the ball or moved away from their original vision--good food, good service, good value!!!!! I looked around the place and it was clean, well organized, freshly painted--in short it projected a great image. A place where one wanted to have dinner or lunch--a sharp contrast from other places I have been in recently which were openly projecting an image of failure and decay, deferred maintenance issues, cut backs in staff/service, smaller portions, cleanliness issues. If business is slipping--return to the basics!!!!!!
Meridian Valuation Services
Click here: Meridian Valuation Services
Looking for a business valuation, equipment appraisal or equipment brokerage? Check out Meridian Valuation Services. I have known and worked with Ed for many years and can highly endorse his professionalism, hard work and honesty.
Looking for a business valuation, equipment appraisal or equipment brokerage? Check out Meridian Valuation Services. I have known and worked with Ed for many years and can highly endorse his professionalism, hard work and honesty.
Thursday, April 23, 2009
Sunbelt IBR In the News...
Fearful business buyers
April 22, 2009
Posted by Norm
You might think people would be hankering to buy businesses, what with the frail economy tripping trap doors beneath more and more jobs.
Not so, says the managing partner of the state’s largest business brokerage.
Ed Mysogland says the Web site for Sunbelt Indiana Business Resource is getting more hits. But the actual number of serious inquiries is at similar levels to the same period last year and even the year before, when the economy was still roaring.
Why? Mysogland is left to speculate. But his informed opinion is that fear of risk is still a formidable barrier to entry. Younger people shouldering responsibility for children and carrying mortgages and student loans are particularly skeptical about taking on additional risk.
“Most people will think twice about small-business ownership,” he says. “Getting a paycheck every week doesn’t sound so bad.”
It’s not as if good deals aren’t available. Businesses are selling for less largely because their revenues and profits are down. Restaurants are still going for 25 percent to 50 percent of revenue, but the total sale prices have slipped because most restaurants are generating less revenue.
What about you? Are you considering buying a business or starting one? What do you think about conditions?
To view the original article online click HERE
April 22, 2009
Posted by Norm
You might think people would be hankering to buy businesses, what with the frail economy tripping trap doors beneath more and more jobs.
Not so, says the managing partner of the state’s largest business brokerage.
Ed Mysogland says the Web site for Sunbelt Indiana Business Resource is getting more hits. But the actual number of serious inquiries is at similar levels to the same period last year and even the year before, when the economy was still roaring.
Why? Mysogland is left to speculate. But his informed opinion is that fear of risk is still a formidable barrier to entry. Younger people shouldering responsibility for children and carrying mortgages and student loans are particularly skeptical about taking on additional risk.
“Most people will think twice about small-business ownership,” he says. “Getting a paycheck every week doesn’t sound so bad.”
It’s not as if good deals aren’t available. Businesses are selling for less largely because their revenues and profits are down. Restaurants are still going for 25 percent to 50 percent of revenue, but the total sale prices have slipped because most restaurants are generating less revenue.
What about you? Are you considering buying a business or starting one? What do you think about conditions?
To view the original article online click HERE
Larry's "HomeRun" Spotlight!
Hit a HOME RUN with one of Larry's Businesses for Sale!
Larry Battershell
Sunbelt Indiana Business Resource
Phone: 317-908-9550
Fax: 317-573-2111
Email: http://us.mc582.mail.yahoo.com/mc/compose?to=inbizsales@aol.com
Visit my blog: http://www.businesssherpa.blogspot.com/
Larry Battershell
Sunbelt Indiana Business Resource
Phone: 317-908-9550
Fax: 317-573-2111
Email: http://us.mc582.mail.yahoo.com/mc/compose?to=inbizsales@aol.com
Visit my blog: http://www.businesssherpa.blogspot.com/
Businesses for Sale
NEW - Liquor Store: Gross revenue $940k/yr. 217 Liquor license. 3500 sq. ft. store. Marion County. Asking $500k plus inventory.
LOOK! New Palestine Pub/Restaurant: Gross revenue $800k/yr. 3-way. Nice kitchen. RE available for lease or purchase. Possible contract!
NEW - Niche Advertising Business: Established 10 years. Homebased business. Asking $50k. H-N819
Downtown Cafe w/ RE: Seats 50 with kitchen. Beer & wine. Freestanding building w/ patio. 1800 sq. ft. Great location on busy street. Real gen with lots of possibilities! C-N797
Family Style Restaurant: Small town w/ RE. 5700 sq. ft. building w/ rental units included. 2008 Gross Revenue $800k. C-N679
Auto Collision Repair: Established 39 years. $2.1 million gross sales. H-N751
Swimming Pool Products: Gross Revenue $1.4million. Owner's cash flow $196,000.
Castleton Sports Bar: Nice! Motivated seller.
Steakhouse: Seats 200. 3-way liquor license. Gross Revenue $1.9million. Owner's cash flow $322,000. C-1598
Retail Custom Lighting Store: N-Side Indy.
NEW - UPS Store: Hamilton County. Gross 2008 $235k. Owner's cash flow $41k. Asking $84k. H-N823
Franchise Pizza/Pub: Long established. Health forces sale! Suburban North.
Downtown Deli: High traffic location. Health forces sale. Gross Revenue $243k. Breakfast & lunch only. Mon-Fri. C-N658
Japanese/Sushi Restaurant: Indianapolis
Driving School: Asking $50k. Price reduced. H-N670
NEW - Franchise Deli: Carmel. Motivated!
High Volume Sports Bar: Suburban Eastside. Kitchen. Dance floor. Pool tables.
Upscale Sushi Restaurant: Gross Revenue $570k/yr. Owner CF $100k/yr. Priced to sell!
Neighborhood Bar w/ Real Estate: Established 40 years. Downtown Indy. 3-way 210 license.
Rural Southern Indiana Bar/Restaurant: Small town. 3-way. RE Included!
Restaurant/Bar: Family owned over 16 years. 3-way. Kitchen. RE available.
Downtown Bar/Restaurant: Gross Revenue $900k/yr. RE available. Great reputation.
LOOK! New Palestine Pub/Restaurant: Gross revenue $800k/yr. 3-way. Nice kitchen. RE available for lease or purchase. Possible contract!
NEW - Niche Advertising Business: Established 10 years. Homebased business. Asking $50k. H-N819
Downtown Cafe w/ RE: Seats 50 with kitchen. Beer & wine. Freestanding building w/ patio. 1800 sq. ft. Great location on busy street. Real gen with lots of possibilities! C-N797
Family Style Restaurant: Small town w/ RE. 5700 sq. ft. building w/ rental units included. 2008 Gross Revenue $800k. C-N679
Auto Collision Repair: Established 39 years. $2.1 million gross sales. H-N751
Swimming Pool Products: Gross Revenue $1.4million. Owner's cash flow $196,000.
Castleton Sports Bar: Nice! Motivated seller.
Steakhouse: Seats 200. 3-way liquor license. Gross Revenue $1.9million. Owner's cash flow $322,000. C-1598
Retail Custom Lighting Store: N-Side Indy.
NEW - UPS Store: Hamilton County. Gross 2008 $235k. Owner's cash flow $41k. Asking $84k. H-N823
Franchise Pizza/Pub: Long established. Health forces sale! Suburban North.
Downtown Deli: High traffic location. Health forces sale. Gross Revenue $243k. Breakfast & lunch only. Mon-Fri. C-N658
Japanese/Sushi Restaurant: Indianapolis
Driving School: Asking $50k. Price reduced. H-N670
NEW - Franchise Deli: Carmel. Motivated!
High Volume Sports Bar: Suburban Eastside. Kitchen. Dance floor. Pool tables.
Upscale Sushi Restaurant: Gross Revenue $570k/yr. Owner CF $100k/yr. Priced to sell!
Neighborhood Bar w/ Real Estate: Established 40 years. Downtown Indy. 3-way 210 license.
Rural Southern Indiana Bar/Restaurant: Small town. 3-way. RE Included!
Restaurant/Bar: Family owned over 16 years. 3-way. Kitchen. RE available.
Downtown Bar/Restaurant: Gross Revenue $900k/yr. RE available. Great reputation.
NEW - High Volume Sports Bar: Hamilton County. $2.4 million gross sales. One of the area's nicest establishments.
NEW - Pizza/Bar/Restaurant: Southeast Indy. RE & house included in sale.
Self Storage Facility: 136 units. 3 acres. Indianapolis.
Winery: Gross Revenue $1.9 million. Nice!!
NEW - Pizza/Bar/Restaurant: Southeast Indy. RE & house included in sale.
Self Storage Facility: 136 units. 3 acres. Indianapolis.
Winery: Gross Revenue $1.9 million. Nice!!
Tuesday, April 21, 2009
The Global Downturn Lands With a Zud on Mongolia's Nomads
The Global Downturn Lands With a Zud on Mongolia's Nomads
Falling Cashmere Demand Triggers Defaults, Forced Goat Sales and a Livestock Glut
By GORDON FAIRCLOUGH
TSOGT, Mongolia -- Waves from the global economic downturn hit Sodnomdarjaa Khaltarkhuu when bank officials showed up at his tent on the edge of the Gobi desert and threatened to foreclose on his goats, sheep and camels.
Falling demand for cashmere among recession-hit shoppers in the West is cutting into earnings among nomadic herders in Mongolia, whose goats produce the soft fiber used in high-end sweaters, scarves and coats. The result: herder loan defaults.
Mongolians are calling the current situation a financial zud, invoking a local term for unusually harsh winters that devastate herds. After Mr. Sodnomdarjaa couldn't pay back a $2,700 loan, he says bank officials pressed him to sell his livestock -- which he used as collateral. The bank says he misrepresented the number of animals he owned, which he denies. Now a judge has ordered the seizure of Mr. Sodnomdarjaa's family home -- a tent -- if he doesn't come up with the rest of the money soon.
To View the rest of the article click HERE....
Falling Cashmere Demand Triggers Defaults, Forced Goat Sales and a Livestock Glut
By GORDON FAIRCLOUGH
TSOGT, Mongolia -- Waves from the global economic downturn hit Sodnomdarjaa Khaltarkhuu when bank officials showed up at his tent on the edge of the Gobi desert and threatened to foreclose on his goats, sheep and camels.
Falling demand for cashmere among recession-hit shoppers in the West is cutting into earnings among nomadic herders in Mongolia, whose goats produce the soft fiber used in high-end sweaters, scarves and coats. The result: herder loan defaults.
Mongolians are calling the current situation a financial zud, invoking a local term for unusually harsh winters that devastate herds. After Mr. Sodnomdarjaa couldn't pay back a $2,700 loan, he says bank officials pressed him to sell his livestock -- which he used as collateral. The bank says he misrepresented the number of animals he owned, which he denies. Now a judge has ordered the seizure of Mr. Sodnomdarjaa's family home -- a tent -- if he doesn't come up with the rest of the money soon.
To View the rest of the article click HERE....
SBA 2009 Recovery ACT Q&A
Q&A for SBA Participating Lenders
What loans are eligible for the 90% guaranty?
7(a) loans submitted via standard 7(a), CLP, PLP, Small/Rural Lender Advantage, Community Express, Patriot Express, Export Express and Gulf Opportunity loan programs are eligible for up to a 90% guaranty.
Prior to the Recovery Act, the maximum guaranty percentage for most 7(a) loan programs ranged from 85% for loans of $150,000 and less to 75% for loans greater than $150,000.
For most purposes, SBA’s maximum guaranteed amount remains at $1,500,000. So, in order for a loan to receive a full 90% guaranty, the loan amount cannot exceed $1,666,666. For loans greater than $1,666,666, lenders may request a guaranty up to the maximum possible amount.
(See SBA Policy Notice 5000-1098 for additional details on larger loans and multiple loans to the same borrower/affiliates).
Is the 90% guaranty authority retroactive for loans approved from February 17, 2009, the date the bill was signed?
No, the 90% guaranty is effective as of the date of SBA Policy Notice 5000-1097 through the calendar year or until the funds are exhausted.
Has the guaranty amount on SBA Express Loans changed?
No, the 50% maximum guaranty amount remains the same on SBA Express loans.
What 7(a) fees are affected by the Recovery Act?
For all 7(a) loans approved on or after February 17, 2009, SBA will temporarily eliminate the upfront borrower guaranty fees for all eligible loans.
7(a) loans with maturities of 12 months or less still must pay SBA’s ¼ point guaranty fee.
Are lines of credit eligible for the 90% guaranty and fee eliminations?
All loans with a maturity longer than 12 months approved on or after February 17, 2009, are eligible for the fee eliminations while funds remain available. Lines of credit approved on or after March 16, 2009, via Patriot Express or the Caplines program are eligible for up to a 90% guaranty. Lines of credit approved on or after February 17, 2009, via SBA Express are not eligible for more than a 50% guaranty, but qualify for fee eliminations if the maturity is longer than 12 months.
What 504 fees are affected by the Recovery Act?
For all 504 loans approved on or after February 17, 2009, SBA will temporarily eliminate the CDC Processing Fees and the Third-Party Participation Fees. CDC’s will no longer be allowed to collect deposits from small business applicants that would have gone towards payment of the CDC Processing Fee upon loan approval. SBA will reimburse CDCs for the waived CDC Processing Fees.
How long are the fee eliminations in place?
The temporary fee eliminations for 7(a) support an overall program level of $8.7 billion. The temporary fee eliminations for 504 support an overall program level of $3.6 billion. Depending on loan volume in the 504 program, SBA estimates that it will be able to eliminate these fees on loans approved through approximately December 31, 2009.
What if you already paid fees on loans approved since February 17, 2009?
The Agency will make funds available to refund payments for these fees. SBA is still in the process of developing a refund mechanism, but expects to be able to begin issuing refunds by approximately May 1, 2009.
If borrowers have already paid lenders for the fee on eligible loans, lenders must reimburse the borrowers from the SBA refund.
Why are fees being eliminated for 7(a) borrowers and not lenders?
In the Recovery Act, Congress provided funds for fee reductions and eliminations and directed SBA to first reduce the upfront guaranty fee (the fee typically paid by borrowers) to the maximum extent possible before making any reduction in the ongoing guaranty fee (the fee paid by lenders). When SBA estimated the cost of eliminating borrower fees over the stated life of the Recovery Act, it concluded that the available funds would be fully utilized by the reduction in the borrower fee.
Are there any prohibited uses of funds under the Recovery Act?
The Act states that none of the funds appropriated or otherwise made available in this Act may be used by any State or local government, or any private entity, for any casino or other gambling establishment, aquarium, zoo, golf course, or swimming pool. (Further guidance will be issued on this subject in the near future). This applies to loans submitted both through 7(a) and 504 processes.
For loans involving these Recovery Act prohibited uses, lenders may continue to submit applications in accordance with SOP 50 10 5(A) for the maximum guaranty percentage of 75% or 85%, depending on the loan amount, and pay all applicable fees.
Is there a change in how lenders submit loans?
There will be no change to the submission process. E-tran submission is strongly encouraged for all loans processed under a lender’s delegated authority.
What is the new $35,000 ARC Stabilization Loan and when will it be available?
America’s Recovery Capital (ARC) loan program will offer deferred-payment loans backed 100 percent by SBA of up to $35,000 to viable small businesses that need help making payments on an existing, qualifying loan for up to six months. This new program is intended to give small businesses some temporary financial relief to keep their doors open and get their cash flow back on track so they can maintain existing jobs and ultimately create new jobs. Repayment does not begin until 12 months after the loan is fully disbursed. (ARC loans cannot be made to cover payments on an existing loan that was guaranteed by SBA before February 17, 2009, the day the bill was signed into law).
The SBA understands the urgent need that some small businesses have for this program and we are working quickly to deliver the program effectively. Since this is an entirely new loan program, SBA has to create it from scratch. We are moving quickly on this program, to address the structure of the program, develop policies and regulations, and make the system and processing center changes necessary to implement it. Further guidance will be issued as soon as the details and timing are worked out with this program.
What is the change to the 504 program allowing some debt refinancing?
We are in the process of implementing this provision. Under the Recovery Act, 504 projects may include a limited amount of debt refinancing if the project involves expansion of a small business applicant. Up to 50% of the expansion project financing may be to refinance existing debt that was used to acquire fixed assets eligible for the Section 504 program. Specific guidance to implement this change will be issued as soon as possible.
U.S. Small Business Administration • Recovery Act: Q&A for SBA Participating Lenders
What loans are eligible for the 90% guaranty?
7(a) loans submitted via standard 7(a), CLP, PLP, Small/Rural Lender Advantage, Community Express, Patriot Express, Export Express and Gulf Opportunity loan programs are eligible for up to a 90% guaranty.
Prior to the Recovery Act, the maximum guaranty percentage for most 7(a) loan programs ranged from 85% for loans of $150,000 and less to 75% for loans greater than $150,000.
For most purposes, SBA’s maximum guaranteed amount remains at $1,500,000. So, in order for a loan to receive a full 90% guaranty, the loan amount cannot exceed $1,666,666. For loans greater than $1,666,666, lenders may request a guaranty up to the maximum possible amount.
(See SBA Policy Notice 5000-1098 for additional details on larger loans and multiple loans to the same borrower/affiliates).
Is the 90% guaranty authority retroactive for loans approved from February 17, 2009, the date the bill was signed?
No, the 90% guaranty is effective as of the date of SBA Policy Notice 5000-1097 through the calendar year or until the funds are exhausted.
Has the guaranty amount on SBA Express Loans changed?
No, the 50% maximum guaranty amount remains the same on SBA Express loans.
What 7(a) fees are affected by the Recovery Act?
For all 7(a) loans approved on or after February 17, 2009, SBA will temporarily eliminate the upfront borrower guaranty fees for all eligible loans.
7(a) loans with maturities of 12 months or less still must pay SBA’s ¼ point guaranty fee.
Are lines of credit eligible for the 90% guaranty and fee eliminations?
All loans with a maturity longer than 12 months approved on or after February 17, 2009, are eligible for the fee eliminations while funds remain available. Lines of credit approved on or after March 16, 2009, via Patriot Express or the Caplines program are eligible for up to a 90% guaranty. Lines of credit approved on or after February 17, 2009, via SBA Express are not eligible for more than a 50% guaranty, but qualify for fee eliminations if the maturity is longer than 12 months.
What 504 fees are affected by the Recovery Act?
For all 504 loans approved on or after February 17, 2009, SBA will temporarily eliminate the CDC Processing Fees and the Third-Party Participation Fees. CDC’s will no longer be allowed to collect deposits from small business applicants that would have gone towards payment of the CDC Processing Fee upon loan approval. SBA will reimburse CDCs for the waived CDC Processing Fees.
How long are the fee eliminations in place?
The temporary fee eliminations for 7(a) support an overall program level of $8.7 billion. The temporary fee eliminations for 504 support an overall program level of $3.6 billion. Depending on loan volume in the 504 program, SBA estimates that it will be able to eliminate these fees on loans approved through approximately December 31, 2009.
What if you already paid fees on loans approved since February 17, 2009?
The Agency will make funds available to refund payments for these fees. SBA is still in the process of developing a refund mechanism, but expects to be able to begin issuing refunds by approximately May 1, 2009.
If borrowers have already paid lenders for the fee on eligible loans, lenders must reimburse the borrowers from the SBA refund.
Why are fees being eliminated for 7(a) borrowers and not lenders?
In the Recovery Act, Congress provided funds for fee reductions and eliminations and directed SBA to first reduce the upfront guaranty fee (the fee typically paid by borrowers) to the maximum extent possible before making any reduction in the ongoing guaranty fee (the fee paid by lenders). When SBA estimated the cost of eliminating borrower fees over the stated life of the Recovery Act, it concluded that the available funds would be fully utilized by the reduction in the borrower fee.
Are there any prohibited uses of funds under the Recovery Act?
The Act states that none of the funds appropriated or otherwise made available in this Act may be used by any State or local government, or any private entity, for any casino or other gambling establishment, aquarium, zoo, golf course, or swimming pool. (Further guidance will be issued on this subject in the near future). This applies to loans submitted both through 7(a) and 504 processes.
For loans involving these Recovery Act prohibited uses, lenders may continue to submit applications in accordance with SOP 50 10 5(A) for the maximum guaranty percentage of 75% or 85%, depending on the loan amount, and pay all applicable fees.
Is there a change in how lenders submit loans?
There will be no change to the submission process. E-tran submission is strongly encouraged for all loans processed under a lender’s delegated authority.
What is the new $35,000 ARC Stabilization Loan and when will it be available?
America’s Recovery Capital (ARC) loan program will offer deferred-payment loans backed 100 percent by SBA of up to $35,000 to viable small businesses that need help making payments on an existing, qualifying loan for up to six months. This new program is intended to give small businesses some temporary financial relief to keep their doors open and get their cash flow back on track so they can maintain existing jobs and ultimately create new jobs. Repayment does not begin until 12 months after the loan is fully disbursed. (ARC loans cannot be made to cover payments on an existing loan that was guaranteed by SBA before February 17, 2009, the day the bill was signed into law).
The SBA understands the urgent need that some small businesses have for this program and we are working quickly to deliver the program effectively. Since this is an entirely new loan program, SBA has to create it from scratch. We are moving quickly on this program, to address the structure of the program, develop policies and regulations, and make the system and processing center changes necessary to implement it. Further guidance will be issued as soon as the details and timing are worked out with this program.
What is the change to the 504 program allowing some debt refinancing?
We are in the process of implementing this provision. Under the Recovery Act, 504 projects may include a limited amount of debt refinancing if the project involves expansion of a small business applicant. Up to 50% of the expansion project financing may be to refinance existing debt that was used to acquire fixed assets eligible for the Section 504 program. Specific guidance to implement this change will be issued as soon as possible.
U.S. Small Business Administration • Recovery Act: Q&A for SBA Participating Lenders
Monday, April 20, 2009
6 Keys to Start a Successful Business
6 Keys to Start a Successful Business
An entrepreneur explains how you get ready to start your business
By: Eve Gumpel 02/16/2009
URL: http://www.womenentrepreneur.com/2009/02/6-keys-to-start-a-successful-business.html
Maria Contreras-Sweet often hears friends and acquaintances eager to quit their job say they want to start their own companies. But the successful entrepreneur and bank owner counsels them to wait. "Do some things in the evenings, on weekends and holidays to push that business forward so you're not burning through your own capital," she recommends. "I began to do research while I still had my corporate job because I didn't want to be on my nickel any longer than I had to be."
Contreras-Sweet is a former corporate executive and one-time government official. She was Westinghouse's government affairs officer for 15 years. She started her own public affairs agency and served as secretary of business, housing and transportation in California Gov. Gray Davis' administration. In November 2006, she started Promerica Bank (short for Promise of America), the first Hispanic-owned bank in Los Angeles in 35 years.
Contreras-Sweet advises would-be entrepreneurs to explore their proposed business concepts carefully. She addressed some of the same issues in an IBM webcast during Global Entrepreneurship Week in November. Here are six things to consider regarding proposed business concepts:
1. Is your concept unique? Entrepreneurs start as small fish in a big pond. If you're planning to start a business, Contreras-Sweet recommends you ask yourself these questions: "What's my niche? How do I distinguish myself in the field? What's the innovation here? What am I fixing that isn't fixed today?
"People want innovation," she says. "They're looking for a distinction, something new, something cutting-edge." Otherwise, you blend in with everybody else.
2. Do you have barriers to entry? Consider whether someone can easily copy your idea. "What if someone comes along with more marketing resources and takes your work and makes it larger?" Contreras-Sweet asks. "Make sure you've trademarked it [and] registered it. What can you do to make yours special that somebody else can't do?"
3. Choose an emerging market. In the tumultuous economy, "You want to be in a place that is growing. You want to be in a place where it has potential to have a long-term viability," she says.
4. You need a good network. Contreras-Sweet says your network should include your personal confidential network, like a good lawyer, accountant and marketer, along with friends and people who'll give you a discounted rate until you grow your business. Also network with what Contreras-Sweet calls "disciples of change"--people who're talking about and promoting your product and thus spreading the word about your company.
You can create your network while still in your job, getting involved in organizations that include your target customers. If you're a government affairs consultant, for example, you might want to hang around legislators. If you're selling dolls, she recommends connecting with children's organizations.
5. You have to have passion. "I call it passion, but it really is endless energy," Contreras-Sweet says. "You have to get up early, work late. It takes a lot of passion, a lot of energy; it takes a lot of yourself. I always say to women that we have to take care of ourselves first, so that we're refreshed--that we have the energy."
"I find too many of us as women are so giving to our spouses, to our children, to our extended families, to our parents that we forget to take care of ourselves. So how could we possibly bring passion to the workplace when we're exhausted?" she asks. Instead, avoid draining yourself, and make sure you take care of yourself before taking care of everything else.
6. Have good credit. In this downturn, people aren't managing their credit. You need to call creditors and rework your payment schedule or ask them to work with you on the interest rate.
"You've got to maintain a good relationship with your creditors so that they don't mess up your FICO score. When I see businesses coming in here and, based on their FICO score, one person will have a credit card that's giving him a 7 percent or 8 percent rate and somebody else has a 22 percent interest rate on his credit card--because one person's not been paying on time and the other one has. That spread makes the difference as to whether that company makes it or not," she says.
Good credit is also fundamental to getting loans.
"When you have crummy credit, you have to go to private equity or angel financiers or venture capital. Then you're giving someone else a part of your company because you don't have enough credit to take out a loan."
She likens equity capital to marriage. "Once you receive equity capital from somebody, you can't fire them," she says. "Equity partners are there for the long haul. You can't get rid of them that easily. They're part-owner of your business."
Along the same lines, Contreras-Sweet advises would-be entrepreneurs to understand the financial inner-workings of their business.
"Know how to price your product. Know what your margins are. Know what to set aside for research and development. Pay your bills on time," she says. "Master it before you delegate it to somebody else. You need to know as much as the CFO about how your biz operates and its financial condition."
Since starting the bank, Contreras-Sweet has embarked on a long journey, but she's come a long way. "Starting a business isn't a sprint," Contreras-Sweet says. " It's a long, long run, so pace yourself."
Click HERE to view the original article online.
An entrepreneur explains how you get ready to start your business
By: Eve Gumpel 02/16/2009
URL: http://www.womenentrepreneur.com/2009/02/6-keys-to-start-a-successful-business.html
Maria Contreras-Sweet often hears friends and acquaintances eager to quit their job say they want to start their own companies. But the successful entrepreneur and bank owner counsels them to wait. "Do some things in the evenings, on weekends and holidays to push that business forward so you're not burning through your own capital," she recommends. "I began to do research while I still had my corporate job because I didn't want to be on my nickel any longer than I had to be."
Contreras-Sweet is a former corporate executive and one-time government official. She was Westinghouse's government affairs officer for 15 years. She started her own public affairs agency and served as secretary of business, housing and transportation in California Gov. Gray Davis' administration. In November 2006, she started Promerica Bank (short for Promise of America), the first Hispanic-owned bank in Los Angeles in 35 years.
Contreras-Sweet advises would-be entrepreneurs to explore their proposed business concepts carefully. She addressed some of the same issues in an IBM webcast during Global Entrepreneurship Week in November. Here are six things to consider regarding proposed business concepts:
1. Is your concept unique? Entrepreneurs start as small fish in a big pond. If you're planning to start a business, Contreras-Sweet recommends you ask yourself these questions: "What's my niche? How do I distinguish myself in the field? What's the innovation here? What am I fixing that isn't fixed today?
"People want innovation," she says. "They're looking for a distinction, something new, something cutting-edge." Otherwise, you blend in with everybody else.
2. Do you have barriers to entry? Consider whether someone can easily copy your idea. "What if someone comes along with more marketing resources and takes your work and makes it larger?" Contreras-Sweet asks. "Make sure you've trademarked it [and] registered it. What can you do to make yours special that somebody else can't do?"
3. Choose an emerging market. In the tumultuous economy, "You want to be in a place that is growing. You want to be in a place where it has potential to have a long-term viability," she says.
4. You need a good network. Contreras-Sweet says your network should include your personal confidential network, like a good lawyer, accountant and marketer, along with friends and people who'll give you a discounted rate until you grow your business. Also network with what Contreras-Sweet calls "disciples of change"--people who're talking about and promoting your product and thus spreading the word about your company.
You can create your network while still in your job, getting involved in organizations that include your target customers. If you're a government affairs consultant, for example, you might want to hang around legislators. If you're selling dolls, she recommends connecting with children's organizations.
5. You have to have passion. "I call it passion, but it really is endless energy," Contreras-Sweet says. "You have to get up early, work late. It takes a lot of passion, a lot of energy; it takes a lot of yourself. I always say to women that we have to take care of ourselves first, so that we're refreshed--that we have the energy."
"I find too many of us as women are so giving to our spouses, to our children, to our extended families, to our parents that we forget to take care of ourselves. So how could we possibly bring passion to the workplace when we're exhausted?" she asks. Instead, avoid draining yourself, and make sure you take care of yourself before taking care of everything else.
6. Have good credit. In this downturn, people aren't managing their credit. You need to call creditors and rework your payment schedule or ask them to work with you on the interest rate.
"You've got to maintain a good relationship with your creditors so that they don't mess up your FICO score. When I see businesses coming in here and, based on their FICO score, one person will have a credit card that's giving him a 7 percent or 8 percent rate and somebody else has a 22 percent interest rate on his credit card--because one person's not been paying on time and the other one has. That spread makes the difference as to whether that company makes it or not," she says.
Good credit is also fundamental to getting loans.
"When you have crummy credit, you have to go to private equity or angel financiers or venture capital. Then you're giving someone else a part of your company because you don't have enough credit to take out a loan."
She likens equity capital to marriage. "Once you receive equity capital from somebody, you can't fire them," she says. "Equity partners are there for the long haul. You can't get rid of them that easily. They're part-owner of your business."
Along the same lines, Contreras-Sweet advises would-be entrepreneurs to understand the financial inner-workings of their business.
"Know how to price your product. Know what your margins are. Know what to set aside for research and development. Pay your bills on time," she says. "Master it before you delegate it to somebody else. You need to know as much as the CFO about how your biz operates and its financial condition."
Since starting the bank, Contreras-Sweet has embarked on a long journey, but she's come a long way. "Starting a business isn't a sprint," Contreras-Sweet says. " It's a long, long run, so pace yourself."
Click HERE to view the original article online.
Buying a Franchise: A Consumer Guide
Buying a Franchise: A Consumer Guide
When you buy a franchise, you often can sell goods and services that have instant name recognition, and get training and support that can help you succeed. But purchasing a franchise is like every other investment: there’s no guarantee of success.
The Federal Trade Commission, the nation’s consumer protection agency, has prepared this booklet to explain how to shop for a franchise opportunity, the obligations of a franchise owner, and questions to ask before you invest.
I. The Benefits and Responsibilities of Franchise Ownership
II. Advance Work: Before You Select a Franchise System
III. Selecting a Franchise
IV. Finding the Right Opportunity
V. Investigating Before You Invest
VI. Before You Sign the Franchise Agreement
....
Click HERE to view the rest of the article.
When you buy a franchise, you often can sell goods and services that have instant name recognition, and get training and support that can help you succeed. But purchasing a franchise is like every other investment: there’s no guarantee of success.
The Federal Trade Commission, the nation’s consumer protection agency, has prepared this booklet to explain how to shop for a franchise opportunity, the obligations of a franchise owner, and questions to ask before you invest.
I. The Benefits and Responsibilities of Franchise Ownership
II. Advance Work: Before You Select a Franchise System
III. Selecting a Franchise
IV. Finding the Right Opportunity
V. Investigating Before You Invest
VI. Before You Sign the Franchise Agreement
....
Click HERE to view the rest of the article.
Thursday, April 16, 2009
Wednesday, April 15, 2009
Lending Criteria for Start-Up or Purchased Business
Key Factors in Granting Credit:
- Cash flow or debt service coverage
Depends on industry; however, a typical minimum debt service coverage is 1.2x. Debt service coverage calculation being defined as (Earnings before Interest, Depreciation & Amortization less Distributions) divided by (Annual Principal + Interest).
- Sources of repayment
- Credit history (business and personal on the owners)
- Feasibility of project
- Owner's equity position in project (General rule: 20% down payment or equity is required)
Required Financial Information - Start-Up Business
- Personal financial statements of all owners who own 20% or more of the business
- Last 3 years of federal tax returns for owners
- A Business Plan that includes:
1. Description of product or service
2. Ownership information, resumes, and responsibilities
3. Market analysis, including competition
4. Contingency plans
5. Loan request and uses of monies
6. Beginning balance sheet, reflecting owner's equity in business
7. Projected cash flow for 2 years, first year should reflect month-to-month
Required Financial Information - Purchased Business
- Last 3 years of federal tax returns of the business
- Year to Date balance sheet and income statement for business
- Recent Account Receivable & payable agings (if applicable)
- Inventory listing (if applicable)
- Personal financial statements of all owners who will own 20% or more of the business
- Last 3 years of federal tax returns for owners
- Business Plan
- Projected cash flow for two years
Tuesday, April 14, 2009
Franchise Article: Don't Be Foolish
Don't Be Foolish, They Don't Love You - click title to view original article online
Submitted by Mark Frank on Tue, 2009/03/31 - 20:12.
A friend let me know that a mutual friend; someone we both know well, recently closed his franchise business. The particular friend and subject of this post cashed in his company profit sharing account with about 100K net (ten years of service with the company) and borrowed an additional 400K in opening his franchise two years ago. When all this was in the initial phase and only an idea this friend called and since this is the business I’m in asked, “what should I do before entering into a franchise agreement”, I provided for free what I normally charge others for, hoping he would take my advice.
A couple of times before he signed the agreement he asked fairly standard questions and I provided honest and time proven answers I’ve learned through experience. I was troubled by his responses and in some instances lack of response he provided. I got the feeling he had fallen in love with the franchise and was not willing too find conflicting facts; his mind was made.
He was unable or unwilling to push hard enough getting specific and verifiable answers to even the most basic questions; every corporate response was clouded in secrecy and propriety. Calls to franchisees were not much more revealing, he reached out to at least 25 franchisees and only spoke with one and that franchisee was not of much value in terms of information. All the while the franchise sales pitch continued, weakening under the overall pressure and rationalizing that the company has over 100 franchise owners and they must have already done the work, he signed up.
The reality of his situation is now different than the original Alice in Wonderland depiction. His business is gone, along with his money; he has substantial bank debt, a long term personally guaranteed lease, an additional personal loan, his home signed as collateral, no job and significant challenges in his marriage that he and his wife may not overcome. Troubling too, he has no job and may actually be forced to move in with his in-laws, assuming his marriage survives.
My friend is well educated and intentioned, his success in his corporate work life should have translated into success in his business, but in this instance it didn’t. While he looks in the mirror and blames the economy the real reason for his failure is that he did not complete a modicum of due diligence and bought the franchisor’s music lock-stock-and- barrel.
I’ve seen this happen time and time again, intelligent managers making poor franchise decisions. At least twice in the past four years friends have made disastrous decisions because they fell in love with a franchise business model as presented, making this life-changing decision based upon little more than a peek under the tent. Anyone considering franchising should take due diligence very seriously and like the old maxim about marriage, while looking keep both eyes fully open and once married keep both eyes half closed.
Did the franchisor break any laws, more than likely not? Were proper documents provided, more than likely yes? Was the franchise honest, more than likely yes (at least in answering those questions asked)? Was the franchisor an open book and absolutely transparent? No. There is not one franchisor in the world, even world-class franchisors that will absolutely provide every ghost in the closet scenario for you as a would-be franchisee.
The franchisor’s job is not protecting you from yourself, but rather selling franchisees. In the case of smaller upstart franchise operations in particular selling is virtually all they care about. As they grow and mature greater care is taken regarding the selection process. The job of the prospective franchisee is making a well-informed decision considering all the facts (those pesky little things) beforehand. You're being sold and as such should have your guard up. You wouldn’t buy a car because you like the sales pitch, the salesman, or well appointed restrooms? I doubt the size of the conference room; the sales manager's nice suit and polished presentation would be considerations in the deal.
Yet, purchasing a franchise simply because the franchise broker is a good salesperson, or the franchisor put his arms around you and told you how wonderful you are and how much he wished he had more franchise owners like you. No, your job is finding answers, never rest until you have determined the facts as presented are verifiable; this is your life after all. Historically, I have found most put forth too little effort before making a franchise decision, blinded by the clever sales pitch of the franchisor (they’re getting better all the time) during the early courtship stage.
I written before about this, as have hundreds of others, there is absolutely no shortage of information on the Internet and print designed too help any person make a better, more informed decision, if one will only take the time and put forth a little effort. Do I feel sorry for my friend? Absolutely. Could this disaster have been avoided with a little effort and perhaps a few dollars comparatively speaking, absolutely? There are no shortcuts for due diligence, either complete it in earnest yourself, or hire someone who will.
Submitted by Mark Frank on Tue, 2009/03/31 - 20:12.
A friend let me know that a mutual friend; someone we both know well, recently closed his franchise business. The particular friend and subject of this post cashed in his company profit sharing account with about 100K net (ten years of service with the company) and borrowed an additional 400K in opening his franchise two years ago. When all this was in the initial phase and only an idea this friend called and since this is the business I’m in asked, “what should I do before entering into a franchise agreement”, I provided for free what I normally charge others for, hoping he would take my advice.
A couple of times before he signed the agreement he asked fairly standard questions and I provided honest and time proven answers I’ve learned through experience. I was troubled by his responses and in some instances lack of response he provided. I got the feeling he had fallen in love with the franchise and was not willing too find conflicting facts; his mind was made.
He was unable or unwilling to push hard enough getting specific and verifiable answers to even the most basic questions; every corporate response was clouded in secrecy and propriety. Calls to franchisees were not much more revealing, he reached out to at least 25 franchisees and only spoke with one and that franchisee was not of much value in terms of information. All the while the franchise sales pitch continued, weakening under the overall pressure and rationalizing that the company has over 100 franchise owners and they must have already done the work, he signed up.
The reality of his situation is now different than the original Alice in Wonderland depiction. His business is gone, along with his money; he has substantial bank debt, a long term personally guaranteed lease, an additional personal loan, his home signed as collateral, no job and significant challenges in his marriage that he and his wife may not overcome. Troubling too, he has no job and may actually be forced to move in with his in-laws, assuming his marriage survives.
My friend is well educated and intentioned, his success in his corporate work life should have translated into success in his business, but in this instance it didn’t. While he looks in the mirror and blames the economy the real reason for his failure is that he did not complete a modicum of due diligence and bought the franchisor’s music lock-stock-and- barrel.
I’ve seen this happen time and time again, intelligent managers making poor franchise decisions. At least twice in the past four years friends have made disastrous decisions because they fell in love with a franchise business model as presented, making this life-changing decision based upon little more than a peek under the tent. Anyone considering franchising should take due diligence very seriously and like the old maxim about marriage, while looking keep both eyes fully open and once married keep both eyes half closed.
Did the franchisor break any laws, more than likely not? Were proper documents provided, more than likely yes? Was the franchise honest, more than likely yes (at least in answering those questions asked)? Was the franchisor an open book and absolutely transparent? No. There is not one franchisor in the world, even world-class franchisors that will absolutely provide every ghost in the closet scenario for you as a would-be franchisee.
The franchisor’s job is not protecting you from yourself, but rather selling franchisees. In the case of smaller upstart franchise operations in particular selling is virtually all they care about. As they grow and mature greater care is taken regarding the selection process. The job of the prospective franchisee is making a well-informed decision considering all the facts (those pesky little things) beforehand. You're being sold and as such should have your guard up. You wouldn’t buy a car because you like the sales pitch, the salesman, or well appointed restrooms? I doubt the size of the conference room; the sales manager's nice suit and polished presentation would be considerations in the deal.
Yet, purchasing a franchise simply because the franchise broker is a good salesperson, or the franchisor put his arms around you and told you how wonderful you are and how much he wished he had more franchise owners like you. No, your job is finding answers, never rest until you have determined the facts as presented are verifiable; this is your life after all. Historically, I have found most put forth too little effort before making a franchise decision, blinded by the clever sales pitch of the franchisor (they’re getting better all the time) during the early courtship stage.
I written before about this, as have hundreds of others, there is absolutely no shortage of information on the Internet and print designed too help any person make a better, more informed decision, if one will only take the time and put forth a little effort. Do I feel sorry for my friend? Absolutely. Could this disaster have been avoided with a little effort and perhaps a few dollars comparatively speaking, absolutely? There are no shortcuts for due diligence, either complete it in earnest yourself, or hire someone who will.
Thursday, April 9, 2009
Wednesday, April 8, 2009
When It's Time to Shutter Your Business
When It's Time to Shutter Your Business
By KAREN E. KLEIN, BUSINESSWEEK.COM
Posted: 2009-04-06 17:02:55
Filed Under: Small Business, Management
If your best offerings just haven't sold, the entrepreneurial excitement is gone, and you're not staring down problems, it might be time to move on.
"Six years ago I tried to start a fashion clothing company. I did all the things I was instructed to do and put in countless hours that led nowhere. Everyone I spoke to loved my idea and no one can understand why I haven't made any money. Can you give me any advice?" -- J.P., Los Angeles
Business lore is replete with stories of tenacious entrepreneurs who hit it big after years of trial and -- mostly -- error. But if your company is not making a profit, and doesn't seem likely to after six years, it is probably time to look for a new venture, says George Cloutier, a business turnaround expert with American Management Services in West Palm Beach, Fla.
"The capacity of small business owners to hang in and stick it out continuously amazes me, even after 25 years in this business," Cloutier says. "But when your financials are not working and you're losing money faster than you can bring it in, or find it from investors, that's a strong suggestion that your products are not being accepted."
What went wrong? It's impossible to tell without a professional evaluation of your business plan, product line, capitalization, sales efforts, and other details. But Cloutier says there are common mistakes that often doom startups: flawed business models, poor product introduction, undercapitalization (you need at least $100,000 to fund a new fashion line, he says) and bad timing. (See a previous interview with Cloutier for advice on setting up a business to profit from its inception.)
"Many entrepreneurs think that a nice Web site will make a business work. But especially in fashion, you have to be all over the industry, showing yourself, working directly with clients. Manufacturers' reps can't do the selling for you. And now that we're hitting the wall in the economy, and angel investors are not around anymore, the chances of turning this around are tough," he says.
Never Risk Losing Everything
The positive feedback you received about your idea is outweighed by the fact that customers are not buying, Cloutier says. "The positive feedback you need is products selling, especially in a do-or-die situation."
Robert Chell, an organizational psychologist who does small business consulting in Indian Wells, Calif., agrees: "In starting companies, friends often tell us what we want to hear, not what we need to hear. When we are heavily invested in an idea, we often distort what we hear or we do not effectively listen because we are too busy attempting to refute it," he says.
When should you think about quitting? Joe Kennedy, author of The Small Business Owner's Manual, says maybe it's time when you've already unleashed your best products and ideas into the market and they did not work out well. Other signs include not being excited or enthusiastic about your venture and losing touch with why your competitors are succeeding, or not.
"If you could lose everything if the business continues at the current rate," you should consider closing up shop. "Never put everything on the line," Kennedy says, particularly in a down economy when you suspect your company is too financially weak to survive.
Consider a Partner or an Advisory Board
If you're absolutely committed to your company and want to continue trying, evaluate your own strengths and weaknesses and consider hiring or partnering with someone who has the skills you lack, says Paul O'Reilly, a small business consultant with O'Reilly & Associates in Los Angeles.
"Since so many talented people have been laid off, there may be someone out there ready, willing, and able to invest their time and energy into your company. In other ways, these tough times may make finding anyone willing to take a risk a tough task," he says.
Get help creating a business plan, if you don't have one, through an entrepreneurship program at your local community college or university extension course. You might also consider creating a board of advisors, O'Reilly suggests, who could serve as a support system and sounding board. "Small businesses usually lack this kind of support and, thus, often feel isolated and unsure of whom they can ask for advice and feedback," he notes.
If you can increase your efforts toward achieving your goal, find a new goal, or find a new way to reach your goal, you're more likely to succeed eventually -- if you have a sound business model and desirable product line to begin with, Chell says. If you find yourself spinning your wheels with anxiety, leaning on defense mechanisms or rationalization, and using escapism rather than confronting your problems head on, it's probably time to move on.
Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.
By KAREN E. KLEIN, BUSINESSWEEK.COM
Posted: 2009-04-06 17:02:55
Filed Under: Small Business, Management
If your best offerings just haven't sold, the entrepreneurial excitement is gone, and you're not staring down problems, it might be time to move on.
"Six years ago I tried to start a fashion clothing company. I did all the things I was instructed to do and put in countless hours that led nowhere. Everyone I spoke to loved my idea and no one can understand why I haven't made any money. Can you give me any advice?" -- J.P., Los Angeles
Business lore is replete with stories of tenacious entrepreneurs who hit it big after years of trial and -- mostly -- error. But if your company is not making a profit, and doesn't seem likely to after six years, it is probably time to look for a new venture, says George Cloutier, a business turnaround expert with American Management Services in West Palm Beach, Fla.
"The capacity of small business owners to hang in and stick it out continuously amazes me, even after 25 years in this business," Cloutier says. "But when your financials are not working and you're losing money faster than you can bring it in, or find it from investors, that's a strong suggestion that your products are not being accepted."
What went wrong? It's impossible to tell without a professional evaluation of your business plan, product line, capitalization, sales efforts, and other details. But Cloutier says there are common mistakes that often doom startups: flawed business models, poor product introduction, undercapitalization (you need at least $100,000 to fund a new fashion line, he says) and bad timing. (See a previous interview with Cloutier for advice on setting up a business to profit from its inception.)
"Many entrepreneurs think that a nice Web site will make a business work. But especially in fashion, you have to be all over the industry, showing yourself, working directly with clients. Manufacturers' reps can't do the selling for you. And now that we're hitting the wall in the economy, and angel investors are not around anymore, the chances of turning this around are tough," he says.
Never Risk Losing Everything
The positive feedback you received about your idea is outweighed by the fact that customers are not buying, Cloutier says. "The positive feedback you need is products selling, especially in a do-or-die situation."
Robert Chell, an organizational psychologist who does small business consulting in Indian Wells, Calif., agrees: "In starting companies, friends often tell us what we want to hear, not what we need to hear. When we are heavily invested in an idea, we often distort what we hear or we do not effectively listen because we are too busy attempting to refute it," he says.
When should you think about quitting? Joe Kennedy, author of The Small Business Owner's Manual, says maybe it's time when you've already unleashed your best products and ideas into the market and they did not work out well. Other signs include not being excited or enthusiastic about your venture and losing touch with why your competitors are succeeding, or not.
"If you could lose everything if the business continues at the current rate," you should consider closing up shop. "Never put everything on the line," Kennedy says, particularly in a down economy when you suspect your company is too financially weak to survive.
Consider a Partner or an Advisory Board
If you're absolutely committed to your company and want to continue trying, evaluate your own strengths and weaknesses and consider hiring or partnering with someone who has the skills you lack, says Paul O'Reilly, a small business consultant with O'Reilly & Associates in Los Angeles.
"Since so many talented people have been laid off, there may be someone out there ready, willing, and able to invest their time and energy into your company. In other ways, these tough times may make finding anyone willing to take a risk a tough task," he says.
Get help creating a business plan, if you don't have one, through an entrepreneurship program at your local community college or university extension course. You might also consider creating a board of advisors, O'Reilly suggests, who could serve as a support system and sounding board. "Small businesses usually lack this kind of support and, thus, often feel isolated and unsure of whom they can ask for advice and feedback," he notes.
If you can increase your efforts toward achieving your goal, find a new goal, or find a new way to reach your goal, you're more likely to succeed eventually -- if you have a sound business model and desirable product line to begin with, Chell says. If you find yourself spinning your wheels with anxiety, leaning on defense mechanisms or rationalization, and using escapism rather than confronting your problems head on, it's probably time to move on.
Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.
Tuesday, April 7, 2009
Hotel Industry Trends in 2009
Hotel Industry Trends in 2009 - By Daniel Edward Craig
(click on article title to view original article online)
The new year has begun and so far it's not pretty. With the hotel industry facing the lowest occupancy rates since 1971, a number of alarming trends are emerging. In the midst of all the doom and gloom I thought I'd take a more lighthearted approach to my predictions for the hotel industry in 2009.
1. Everything learned in revenue management training will go out the window. Hysteria will rule the day as hotels drop rates, get indignant when competitors lower rates in response, and then panic and drop rates even further. All inventory will be treated as distressed inventory, erasing years of brand-equity-building and training travelers to look for the best deals on third-party websites. It will take years to recover from these rate wars, and the only victor will be the traveler.
2. Travelers will become more demanding and less forgiving. Smelling the hotel industry's desperation to fill rooms, travelers will demand even deeper discounts and more value add-ons, while at the same time refusing to tolerate the cuts to services hotels will be forced to implement to stay afloat, posting nasty comments on TripAdvisor like 'Save your money! This hotel has gone to hell!!'
3. Service levels will nosedive. The labor shortage crisis of 2008, when hoteliers blamed poor service levels on the lack of employee resources, will give way to the job shortage crisis of 2009, when hoteliers will blame poor service levels on tight labor budgets. Managers will be forced to cover frontline shifts to save labor costs, thereby revealing they have no clue how their department operates, resulting in a deluge of missed wakeup calls, accounting errors and guests checked into occupied rooms.
4. Eco-friendly initiatives will be tossed into the recycling bin. Faced with the realization that going green costs money, hotels will opt for programs that guilt the guest into making the sacrifices, such as the now-ubiquitous optional towel and sheet replacement program. Having discovered that guests will tolerate plastic recycling bins and off-white tissue paper, hotels will begin to phase out those adorable little bottles of shampoo, blackberry jam and Dijon mustard in favor of 'eco-friendly' (cheap) bulk offerings.
5. Automation and do-it-yourself options will replace costly employees. Hotel managers, faced with the horror of having to deal with guests themselves, will consider previously unthinkable initiatives like automated check-in kiosks. New labor-saving programs will include make-your-own-bed-and-breakfast packages, do-it-yourself luggage carts, and computers standing in for concierges. Meanwhile, all gratuitous positions created during the halcyon days, like 'tanning concierge', 'dream butler' and 'pillow consultant', will be summarily retired.
6. The trend toward offering more healthful food choices in restaurants, room service and mini-bars will be reversed as hotels realize that cheeseburgers, Coke and Kit Kats sell better and are more profitable.
7. Lifestyle hotels will spring up as quickly as Starbucks outlets are closing. Customization will be taken a step further, with such options as the daily repainting of rooms to match the guest's wardrobe, smart lighting that adjusts according to the guest's mood, and hotels designed exclusively for germophobes, anarchists and narcissists. Meanwhile, lifestyle hotels will continue to confuse guests with cutesy names for traditional positions like 'comfort consultant' for housekeeper, 'personal nutritionist' for waitress and 'ambassador to happiness' for front desk agent.
8. Complimentary amenities will mysteriously vanish. 'Amenity Creep', the one-upmanship game hotels played during prosperous times by adding superfluous items like lip balm, wrinkle cream and nose-hair trimmers, will give way to 'Amenity Retreat', in which all but essential items will be removed and guests will be charged for non-essential items like blankets, soap and hot water. Meanwhile, dog-friendly hotels will be phased out as hotels realize that dogs are not hotel-friendly.
9. The boutique-hotel-as-nightclub trend will spread to traditional hotels like Ritz Carlton, Fairmont and Four Seasons. Lobbies will morph into late-night clubs, with Bach concertos replaced by techno grooves from in-house DJs. Traditional doormen in Beefeater-style uniforms will be supplanted by lobby hostesses in booty shorts, and the mantra 'It's my pleasure, sir' will surrender to 'Hey, no problem, man.'
10. Standalone hotels will be a thing of the past. Mixed-use developments, in which hotels are housed in the same complex as condos, retail outlets and office space and condo owners shoulder the burden of costly hotel construction by paying for access to services they will never use, will expand to include hospitals, churches and crematoriums to ensure guests never check out.
About The Author
Daniel Edward Craig has worked for luxury hotels across Canada, most recently as general manager of Opus Hotel in Montreal. His blog provides a frank and entertaining look at issues in the hotel industry at www.danieledwardcraig.com. Craig's third mystery novel, Murder at Graverly Manor, comes out in April 2009.
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The new year has begun and so far it's not pretty. With the hotel industry facing the lowest occupancy rates since 1971, a number of alarming trends are emerging. In the midst of all the doom and gloom I thought I'd take a more lighthearted approach to my predictions for the hotel industry in 2009.
1. Everything learned in revenue management training will go out the window. Hysteria will rule the day as hotels drop rates, get indignant when competitors lower rates in response, and then panic and drop rates even further. All inventory will be treated as distressed inventory, erasing years of brand-equity-building and training travelers to look for the best deals on third-party websites. It will take years to recover from these rate wars, and the only victor will be the traveler.
2. Travelers will become more demanding and less forgiving. Smelling the hotel industry's desperation to fill rooms, travelers will demand even deeper discounts and more value add-ons, while at the same time refusing to tolerate the cuts to services hotels will be forced to implement to stay afloat, posting nasty comments on TripAdvisor like 'Save your money! This hotel has gone to hell!!'
3. Service levels will nosedive. The labor shortage crisis of 2008, when hoteliers blamed poor service levels on the lack of employee resources, will give way to the job shortage crisis of 2009, when hoteliers will blame poor service levels on tight labor budgets. Managers will be forced to cover frontline shifts to save labor costs, thereby revealing they have no clue how their department operates, resulting in a deluge of missed wakeup calls, accounting errors and guests checked into occupied rooms.
4. Eco-friendly initiatives will be tossed into the recycling bin. Faced with the realization that going green costs money, hotels will opt for programs that guilt the guest into making the sacrifices, such as the now-ubiquitous optional towel and sheet replacement program. Having discovered that guests will tolerate plastic recycling bins and off-white tissue paper, hotels will begin to phase out those adorable little bottles of shampoo, blackberry jam and Dijon mustard in favor of 'eco-friendly' (cheap) bulk offerings.
5. Automation and do-it-yourself options will replace costly employees. Hotel managers, faced with the horror of having to deal with guests themselves, will consider previously unthinkable initiatives like automated check-in kiosks. New labor-saving programs will include make-your-own-bed-and-breakfast packages, do-it-yourself luggage carts, and computers standing in for concierges. Meanwhile, all gratuitous positions created during the halcyon days, like 'tanning concierge', 'dream butler' and 'pillow consultant', will be summarily retired.
6. The trend toward offering more healthful food choices in restaurants, room service and mini-bars will be reversed as hotels realize that cheeseburgers, Coke and Kit Kats sell better and are more profitable.
7. Lifestyle hotels will spring up as quickly as Starbucks outlets are closing. Customization will be taken a step further, with such options as the daily repainting of rooms to match the guest's wardrobe, smart lighting that adjusts according to the guest's mood, and hotels designed exclusively for germophobes, anarchists and narcissists. Meanwhile, lifestyle hotels will continue to confuse guests with cutesy names for traditional positions like 'comfort consultant' for housekeeper, 'personal nutritionist' for waitress and 'ambassador to happiness' for front desk agent.
8. Complimentary amenities will mysteriously vanish. 'Amenity Creep', the one-upmanship game hotels played during prosperous times by adding superfluous items like lip balm, wrinkle cream and nose-hair trimmers, will give way to 'Amenity Retreat', in which all but essential items will be removed and guests will be charged for non-essential items like blankets, soap and hot water. Meanwhile, dog-friendly hotels will be phased out as hotels realize that dogs are not hotel-friendly.
9. The boutique-hotel-as-nightclub trend will spread to traditional hotels like Ritz Carlton, Fairmont and Four Seasons. Lobbies will morph into late-night clubs, with Bach concertos replaced by techno grooves from in-house DJs. Traditional doormen in Beefeater-style uniforms will be supplanted by lobby hostesses in booty shorts, and the mantra 'It's my pleasure, sir' will surrender to 'Hey, no problem, man.'
10. Standalone hotels will be a thing of the past. Mixed-use developments, in which hotels are housed in the same complex as condos, retail outlets and office space and condo owners shoulder the burden of costly hotel construction by paying for access to services they will never use, will expand to include hospitals, churches and crematoriums to ensure guests never check out.
About The Author
Daniel Edward Craig has worked for luxury hotels across Canada, most recently as general manager of Opus Hotel in Montreal. His blog provides a frank and entertaining look at issues in the hotel industry at www.danieledwardcraig.com. Craig's third mystery novel, Murder at Graverly Manor, comes out in April 2009.
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