If you don't know your competition, you don't know anything!

Do you truly know your competition? If you aren’t investing time to keep up on what your competition you are putting your business at risk. Researching your competition takes diligence and constant effort. As an owner, you need to know your company’s strengths, your competitor’s weaknesses, and how to capitalize on both aspects in your sales strategy. The obvious metric is price, however many consumers and purchasers are motivated by more than price and you need to know your customer’s pain points to sell affectively against your competition.

If you have a true understanding of your competition but do not have a decisive strategy to sell against them then you may need to re-evaluate your business plan. For example, I have a client in manufacturing that makes a specific part for defense contractors. This part is a precision piece that needs strict quality, quick turnaround, and competitive pricing. Now as an owner in this market, if you are not able to improve upon what is important to your customer then you will not be able to take business from the competition. In this case, my client was able to generate a quicker turnaround time and better quality. Although their price was slightly higher, they won the business since their guaranteed failure rate on the part was significantly less than the competitors. In the precision manufacturing industry, this is a key component and can lead to overall lower production costs.

If you can’t beat your competition, then you need to focus to a market where you can succeed.

Where is the recovery for business owners?

There are a number of conflicting reports on the direction of the economy. Bernanke says 3-4% growth this year however every indication I have is this is wishful thinking. Based on my daily conversations with business owners, I can tell you that although conditions have improved the mood for 2011 is subdued. Most clients I have talked to have no plans to hire employees in the next 12 months. Under the current adminstration, owners would rather add equipment or pay overtime than take on another employee expense. It is simpler and more cost affective then having to lay off an employee and pay unemployment benefits.

In fact, many owners are evaluating outsourcing more of their HR and accounting functions to further reduce headcount. As any economist will tell you, to have sustained growth in a consumer driven economy the US will need to have job growth. Based on this mornings jobless claims report, and the prospect of massive layoffs by over budget state governments, we have a long road to travel.

The best advice I have heard for the next few months is to account for every dollar spent, re-evaluate how to further trim costs, and make sure any equipment investment had a payback of 18 months or less.

5 tips to protect your business from $5 gas

Gas and Oil prices are rising and forecasted to possibly hit $5 per gallon by summer time. Business owners need to be proactive to stay ahead of their competition in fighting this new reality. If your business heavily relies on transportation, whether you do it in house or outsource, you need to be prepared. Here are a few ways you can protect your business, as well as potentially profit, from rising energy costs:
-hedge your costs by buying futures in oil contracts
-buy a storage tank to stockpile gas/diesel while oil prices are low
-buy stocks in oil exploration and refining...as the price of oil increases so will the value of your stocks
-Look for fuel efficient ways to manage your fleet, reward drivers through an incentive program for lowest fuel mileage in the fleet
-Upgrade older less efficient vehicles

If you have another strategy that has worked well for your business feel free to comment and share with other owners outside of your area that may benefit.

Mistake #5: Why using your line of credit puts your business at risk

Since interest rates are extremely low, most business owners think putting equipment on a line of credit is a good idea....it's simple to do and doesn't appear to entail much risk. However, unless you have plans to pay off your line within the next few months this mindset can drastically affect your ability to expand.
Interest rates are forecasted to rise dramatically in the next few years due to the massive debt our government is in. When you tie up your line of credit you are taking a large gamble on either being able to pay back your line quickly or betting that interest rates won't rise. A more prudent way to fund the growth of your business is to lock in as many fixed payments as possible over as long of a period as possible. Whether it be an equipment lease or loan make sure the payments are fixed to protect your business from rising interest rates. Save your line of credit for emergencies only ie. if your boiler goes out and you need a quick fix.
A perfect example is a client of mine that utilized their line of credit a year ago to purchase $500k in equipment. They used their line since it was the easy thing to do and interest rates were cheap. The problem is that although interest rates are cheap, their bank accelerated the terms on the line of credit making their monthly payment jump from a few thousand a month to over 20k a month. Now they are in a bind, they can't refinance because their ratios are extremely leveraged and they appear to carry too much short term debt.  In addition, their line of credit has a blanket lien on all the company assets so if they end up defaulting they lose their commercial building as well as all of their equipment.

Mistake #4, Your Employees are stealing from you.

If you don't have an understanding and checks/balances in place with your accounts payable, CFO, or anyone else that manages your money you run the risk of massive theft. When times are tough you can't trust your CFO our accountant to do the honorable thing. Many business owners put too much trust in the people they hire...they focus on the growth of their business and become complacent about what their accounting people are doing. For example, I have a client that had his CFO (who had been with him for 5 years), steal over $800k from the company account. They did this over the period of 2 years by mismanaging company accounts, pretending to pay bills, and falsifying invoices. The way the owner found out was when he had a lien from the IRS slapped on the business for not being current on his previous years taxes. He is still liable to the IRS and the court costs to fight the case are too large for him to afford in his current business condition.

No matter the size of your corporation do not think you are insulated from theft within the corporation. The highest risk companies have 20-100 employees. To protect yourself and the health of your business ask your bank about positive pay features and fraud protection. Also, get your business bank statements sent to your house so you can review personally all checks cut over the last month.

Mistake #3 that jeopardizes the growth of your business

The third major mistake business owners make is not managing their Dun and Bradstreet rating properly. Dun and Bradstreet is essentially a corporate credit report that details the strength and payment history of your company. I have dealt with many clients that made the mistake of not checking their report periodically for errors. One mistake on a large account can affect the health of your business for over a year. Common mistakes are large suppliers you are on net terms with making an error and reporting you late. This can result from their accounting department mis-applying a payment and reporting you 30/60/90 days late. Unless you keep up to tabs you will never know until you seek funding...and by then it is typically too late to get the error corrected.

Another common mistake is old tax liens and judgements showing as outstanding. Although these might have been satisfied years ago your company report may never have been updated. It is best to get this taken care of quickly by sending written proof these issues are satisfied. I have had more than one client get declined for funding simply because their lawsuit information was so old they couldn't come up with the proof showing satisfaction.

Top Mistakes Small Business Owners make that damages their ability to expand.

I deal with business owners daily and am amazed at the common misconceptions business owners have. Most owners aren't aware of how their personal credit, business credit, and outstanding lines of credit dramatically effect their business. Since the credit markets are extremely tight, successful owners need to have an understanding of how to make themselves appear bankable to the underwriters and have access to the best funding possible.

Mistake #1. Not managing your business credit cards properly. In most cases, these credit cards report to an owners personal credit and 1 or 2 late payments can have a dramatic effect on your scores. In some cases, owners trust an accounts payable person to manage these bills. The issue arises when the Accountant doesn't pay attention and is late on a payment. If the accountant gets these bills directly the owner is never aware until they seek funding for an aquisition. Company vehicles typically report to personal credit as well so these accounts also need to be closely monitored.

Mistake #2. Thinking that your credit card interest is too high and trying to renegotiate with the credit card issuer by going late on your card on purpose. The mindset here is that if I am late on my card the credit card company will be more likely to lower my interest rate to keep me from defaulting. I had a customer recently who did this on a small 8k in credit card debt, this dropped their credit scores a massive amount, and now any lending institutions consider them too high risk to lend to. Keep in mind, late payments stay on for at least 2 years...trying to save a few bucks short term while jeopardizing the health of your business doesn't make financial sense.

I will be posting additional mistakes over the next few weeks to keep owners better informed about how they can protect themselves.