Tuesday, July 20, 2010

Business Plans - A Brief Overview

Today I am going to talk about business plans. The need for a business plan is a highly debated topic. In my view it is a must no matter how big or small your company is. This is an often ignored component of a person starting a business. However, not only should it be done when starting a business, but it also should be done no matter how long you have been operating your business. It does not have to be some long elaborate document if you are preparing it for your own benefit and not for funding. If you are preparing the business plan to get funding you must prepare a complete plan, but if you are preparing a plan to give you an operating basis then at a minimum your business plan should include an executive Summary and a Marketing Plan. I say you should at least do this. With the exception of the marketing plan there is no need to go into great detail. At the end of the show I will give you the reason why you should have a business plan.

An Executive Summary – Today I am going to give you an overall checklist for your executive summary. The executive summary is the most important part of your business plan because it is the first impression you are going to make on the reader. It sets the tone for the entire plan and it tells the reader whether they should read on or not. The executive summary should be 2 to 3 pages and there should be no more than one paragraph about each of the following topics:

• Overview - Emphasize the most compelling and gripping item of your business.
• Top Management – Who are you and what have you done before. If you are the only employee list your advisory board.
• Market – How big is the Market and how fast is it growing.
• Customer Need / Customer Pain – How big is the customer need and give evidence
• Product or Service innovation – How is your product or service better
• Go to Market Plan – Include Staffing, distribution and pricing
• Why now? – Why is the timing of your product good now?
• Competition – Who is the competition, how big are they and what are their strengths and weaknesses.
• Financials – Summary of P & L for 3 to 5 years and what are your capital needs if you are looking for funding.

Marketing Plan – The Marketing plan is the most important component to your plan. Do this section well. The marketing plan is the business. You can sell anything if you market it right. Have someone who you respect in business to review your marketing plan and listen to what they have to say.

Market Planning:

● Do you sufficiently understand your markets, your customers and the competitors?

● Do you have a firm grasp on the customer needs for the next three years?

● Does your current product portfolio keep pace with expected technology changes?

● Do you have a three year product and services plan?

● Do you have the right skills internally to be able to answer these questions objectively?


Sales Planning:

● Do you have a cost effective sales process in place for the next three years?

● Where do you have to evolve to in terms of processes and sales models?

● Do you have the correct sales organizational structure in place for the next three years?

● Do you have documented processes?

● Do you have an effective online sales strategy both internally and for our customers?

Once again I would prepare a complete business plan, but at a minimum if you could just do the executive summary as I outlined and the marketing plan, you will at least completed what I consider to be the bare minimum.

To obtain a terrific FREE E-Book written by Jack Derby of Derby Management entitled “Writing the Winning Business Plan” go to:

http://www.derbymanagement.com/our-services/business-planning/

Jack is an Angel investor and Venture capitalist so he has the perfect perspective in writing business plans.

Saturday, July 17, 2010

Starting A Business? Get an Advisory Board

Even if you have a working partner that may fill one or more of these roles it is always a very good idea to have an advisory board, especially if you are just starting a business. It is ok for you or your partners to fill these roles, but it is unlikely that all of the roles of the advisory board can be filled by management nor is it wise to do so. Even if all of the advisory board roles can be filled by management it is still a very good idea to have people outside of management to bounce ideas off of.

Today there are many opportunities to have an advisory board that will either cost nothing or very little. Develop a relationship with the following professionals and have them part of your advisory board:

CPA’s
Lawyers
Insurance Agents
Part Time CFO’s
A Technical or operations person

When we come back after our 80 second break I will go over each member that I am suggesting be on the advisory board and where they would have value. We will be right back

Ok we are back – Once again here are some of the members you could have on the advisory board.

1. CPA-You are going to need a CPA to prepare your tax returns and possibly to perform a compilation, review or an audit. Usually if you hire a CPA to do these things they will be part of your advisory board. Usually they will be on the advisory board for nothing if you give them the aforementioned tax preparation business and you develop a good relationship with them. CPA’s can also refer you to funding sources and other support services including referring to you more business. A CPA also can give great business insights.

2. Lawyer - You should develop a relationship with a good business attorney. It must be a business attorney. One of the perils of business is that it exposes you to legal situations. Certainly do not use attorneys if you do not have to and there are other opportunities to get more cost effective legal advice like Prepaid Legal Services and others, but you want to get an attorney on your advisory board. Therefore it is a good idea to develop a relationship with an attorney who you can trust and will bill you in a professional manner. I have seen some attorneys bill me $75 for sending a fax! It can get that crazy. Don’t let me get off on that tangent because I will be here for days talking about legal bills. However by developing the right relationship with the right attorney you can have a trusted and valuable advisory board member who you can call when the need arises for legal assistance. Lawyers can also be a source of support services, funding sources and may refer more business.

3. Insurance Agent - There are several situations in business that call for specialty insurance and special protection. A professional insurance agent will be able to identify perils and risks that need to be insured but can also give you sound business advice and can identify risks at the same time. It is important to have an insurance agent because when someone comes up with a unique idea the insurance agent can ad input as to whether the idea will require insurance or if insurance is even available. I used to run a tents sale which was a four day retail sale that occurred in a tent outside of the stores. I never knew that weather insurance was available, but I had an insurance agent on my board and that is how I knew it was available. One year a hurricane hit one week after the sale!! I decided not to buy the insurance that year. Sometimes it is better to be lucky than good!

4. Part time CFO - By using a Part Time Chief Financial Officer you have the opportunity to get a number of financial services on an as needed basis. In addition you have a valuable advisory board member because the CFO will have insight as to the financial ramifications of any idea proposed by the Board.

5. Technical or operations professional depending on your industry - This is where you add someone to your advisory board that has the operations or technical expertise related to your product or service. You may have someone in management but once again it is always a good idea to get perspective from someone outside of management if available.

These professionals on your advisory board may charge a fee. I would be leery of this. My suggestion is to do everything you can to build the right relationships and to promise giving business to these professionals down the line. Do not feel the need to establish the entire group all at once, maybe for now you just have a CPA and an insurance agent and you can begin with them while you are developing other relationships with a lawyer or a technical person.

I have a business associate who says he never has or never worries about any problems in his business. The reason is he gives all problems to his advisory board and lets them figure out all of his problems and lets them assume all of his worries. Advisory Boards can be very helpful and it is worth the time and energy to build the right one.

Another creative way to create an advisory board is sometimes referred to as a “Mastermind Group” This is a group of 4 or 5 business people who become advisory board members for each other. For example you would meet once per month and each meeting is dedicated to only one members business. There is also an organization called Vistage and these are groups of CEO’s from different industries who get together and discuss each others businesses in an objective way.

Another great way to get business advice is through non-competitive peers. When I was in the Ski Retail business I belonged to a buying group. The buying group was made up of fellow ski retail business owners from around the country and of course since most of them were in many different states and therefore were not competitors. I always used to solicit the opinion of many of my comrades in the buying group. You can also do this by simply going to national trade shows. Certainly there are some business segments like manufacturing where everyone in the country is a competitor, but if you are in that situation you can go to trade shows and visit or have an employee visit your competitors booths. You will be amazed at the feedback and ideas you will get from buying groups and trade shows.

Friday, July 16, 2010

Managing Expenses

If you are starting a business the preservation of capital is critical to whether you will be successful or not. This means managing all expenses, but especially the largest expenses. In most businesses the largest part of their expense base is Rent, Payroll Advertising and Insurance. Focusing on managing these expenses will provide you with the biggest bang for the buck.

Rent- Business owners think it is impossible to re-negotiate the rent because you have a lease, but the landlord does not want to lose a tenant, especially a commercial tenant where they would have to do another build out and/or deal with the cost of vacancy. Most landlords understand cash flow problems because many of them have experienced cash flow problems themselves through real estate downturns. What I found to be the best way to negotiate with the landlord is show them your financial statements and show them what concessions you need in the short term based on the financial position of your business. Then show the landlord how you are going to pull through the difficult times and how his rent concessions are necessary in order to pull through. Be as open as possible. If you have to, you can add the concession money to the back end of the lease or you can add another year to the lease as a way to give the landlord something for the concession.

Payroll - There is usually always a way to cut payroll, whether it is by laying off employees or reducing employee hours. Certainly you work to keep your "A" players and let go the inferior workers. In retail, another strategy to cut payroll hours is to change the store opening and closing times so there is only one eight to nine hour shift.

Advertising - I don’t like cutting advertising, but there are ways to cut advertising without making a dramatic impact on sales. If you have been tracking what works for you, then of course you will know what to cut by eliminating the advertising that is not working. Other ways to cut is by reducing sizes of ads, changing from 4 color to 2 color printing, developing more of a web presence using search engine optimization strategies or doing more 10 second cut-ins on the radio versus 60 second spots. If you have not been tracking your advertising then you must make difficult, uneducated choices as to what to cut. Consider this. The better job you do in cutting Payroll, Rent and Insurance the more you will have for advertising and if you monitor your advertising you can be sure to put those additional dollars toward the most productive advertising.

Insurance – Start with health insurance. Get quotes from 4 health insurance providers. What I found is that although rates are basically the same, you will find one creative provider who will figure out a way to cut your Medical Insurance cost to the lowest possible amount. You may also have to reduce the employer paid portion and put more of the cost burden on the employees.

Get quotes from 4 commercial insurance providers. Commercial insurance carriers get very competitive and usually sharpen their pencils on General Liability insurance policies. If you have an umbrella policy, reassess the need to continue it.

Here is an example:

I had a client in the construction business that had an umbrella policy that was costing them $17,000 per year. However the only reason for the umbrella was to bid on huge commercial jobs. The previous year they never won a bid of any of these large commercial jobs. They were not even close. Large commercial jobs were not the market that they could compete in. Their sweet spot was mid range jobs that did not require they carry an umbrella. We dropped the umbrella and saved $17,000.

Most business owners wait until there is a downturn in their business before they assess the size of their overhead. Assessing the size of overhead should be an ongoing process no matter how good or how bad business is. The key to managing overhead is to review your P & L every single month and if an expense is higher than it was the previous year you need to find out why. The next step is to pick 3 expenses every month and get competitive quotes to stay on top of changes in price in the marketplace for that product or service.

Thursday, July 15, 2010

Collect Your Receivables

For those of you who are starting a business I need to prepare you for collections. I would like to talk about doing business with slow paying customers and establishing a credit policy.

Lots of my clients continue to do business with customers who are slow paying or who do not pay at all. Sometimes they do it because they know the customer personally. Sometimes they do it because the customer has been with them for years. Sometimes they do it because business is bad and they need to keep people working and they will do anything to get business. Whatever the reason it is a bad business practice to do business with customers who are slow paying or do not pay at all.

Here is an example:

I once had a client who did business with many of his long time customers who always paid slowly. When I first went to the client’s office they had $150,000 in over 90 day receivables from these slow paying customers out of a $250,000 total receivable balance. These customers were even slower to pay than previous history, but since they were long time customers no action was taken. Times were tough and these customers knew by blowing off my client’s bill nothing would happen. I immediately put all of these customers in collection and we refused to do business with them in the future. Some of these customers still came back to us and paid COD. Overall, collections improved dramatically.

There is no rule of thumb to determine when a customer is slow paying. It is different for every business and the business owner needs to determine in a policy how many days past due is considered to be a slow paying customer.

Establishing a system of collecting accounts receivable so that your receivable strategy is consistent and timely is critical to successful collections. Here is an example of a strategy that if applied consistently and timely will lead to successful Accounts Receivable Collections:

Assume an invoice with terms of net 30 days

Between the 35th and 40th day contact the customer. If the customer is a customer you know pays within 30 to 40 days based on a history that you have with that customer then do not contact until the 40th to 50th day.

If customer does not return your call or you were not satisfied with the customer’s answer then send a 10 day Demand Letter, requiring payment within 10 days or the account will be put in collection.

If not paid by the 11th to 15th day then put the account in collection.

I always use a collection agency that has a legal staff so that if the account is not collected using traditional collection methods legal action can be taken right away with the same staff that did the original collection and is familiar with the case. I only do business with collection agencies that take no more than a one-third fee and have a legal staff. Once again the key to the collection process is consistency and timeliness.

If you are starting a business I hope I was able to convince you to make a credit policy and stick with it.

Tuesday, July 13, 2010

Choosing Suppliers

Before you start a business, make sure you have lined up all of your suppliers, especially if you are a retailer. Many times suppliers protect larger establishments in the market place.

Today I would like to give you a check list of items to consider when selecting a supplier. Remember every item I am going to point out and discuss is negotiable:

* Price - that one is obvious

* Price breaks - Price breaks are the quantities needed to be purchased for lower prices to take place

* Terms - When do you receive the product and when do you have to pay for it.

* Freight costs - Who is going to pay the cost of transportation

* Turnaround time - How quickly can you get reorder product. Understand what
the turnaround time is and how quickly you can get product once ordered. Companies with cash flow problems need to time their inventory receipts more precisely so turnaround time plays a greater role. What are the minimum order quantities? Once again this plays more of a role with companies with cash flow problems because sometimes you just need small quantities.

* Minimum quantities - are there any minimum quantities that need to be purchased upfront as well as are there any minimum quantities that need to be purchased in a reorder

* How does the vendor stand by their product? Does the vendor have any warranties or guaranties to you and the end consumer? How do you think the supplier would handle a recall? It is very important that a vendor stands by their product. If something is wrong with the product either quality wise or technically the retailer must have assurances that the vendor will issue proper credit upon the products return. Understand what the vendor's restocking fees are for product incorrectly ordered. Unless the company is in an industry where there are a lot of special orders, vendors should wave restocking charges.

* Restocking charges - Are there any restocking charges should product be returned?

* How efficient is the product to handle - How efficient is it to bring the product through your warehouse, is it easy to ticket and price?

* How efficient is the product packaged - Is the product easy to display? Does the product fit in your merchandise plan? Is the package appealing to your customer? Efficiency in handling the product is important for the receiving department. Remember, anywhere you can save costs throughout the entire process must be considered in the decision from logistics to manufacturing to merchandising/packaging to how efficient the product is to use. For example, although the pink panther insulation is more expensive, it is much easier to install and more recognized in the construction industry making up for any increase in the price of the inventory.

* What type of support are you getting from the vendor to help sell the product i.e. sales reps at big sales events, co-op advertising or signage - I used to get a significant amount of money from suppliers for co-op advertising by just running specials for a week of their product in the store. Does the vendor offer special displays and fixtures that they are willing to put free product on to help pay for the display? In other words vendors could charge for the display but fill the display with free product in order to help pay for the display. The type of support that you get from the vendor to help you sell the product is a big plus whether they are free displays; marketing materials or coop advertising programs these programs tell you that the vendor is really interested in working with you. In the event you run into a cash crunch it is always nice to know that the vendor is willing to work with you and that their credit policies are flexible enough to work through shifts in the economy or industry downturns. That leads me to

* How flexible is the Vendors credit department. Are they people you can develop a relationship with or are they hardliners and difficult people to deal with? It is important that the philosophy of the company's credit department is to be flexible during difficult times. You will probably need their help some day.

* What products that the vendor sells do your competitors sell? This is always a sticking point. You may decide not to carry a supplier’s product that another consideration is what the competitors sell. On the other hand sometimes you can work a better deal with a vendor who is not with a major competitor because that vendor does not have much market share in the market you serve.

* Can orders be canceled without penalty? I need flexibility here, if inventory is not selling the way I expected it to sell I need to be able to cancel orders without a penalty. I hate all these penalties and charges that some suppliers throw at you.

Looking for the best price is obvious, but understanding where the quantity discounts or price breaks as compared to other suppliers is important. Some suppliers offer free freight, so if you are not getting anywhere negotiating prices with the vendor ask for free freight. Have you ever heard of asking a vendor for markdown money? Markdown money is partial credit from the vendor for product that has poor sell through. If you are a credible business and can show the vendor that you gave every effort to sell the product and it did not sell through have the vendor share that responsibility.

What would happen if a major supplier goes out of business? It is important to have a back up supplier not only to protect against a major supplier going out of business but also if a major supplier decides to change your credit terms unfavorably, or cut you off to protect a larger customer in your market, or discontinues a product line that is important to you. I have seen suppliers do all of these things.

Always be on the lookout for a back up supplier. When you go to trade shows identify possible target suppliers and start to develop relationships with them. In the long run it can really pay off and you will be prepared when the unthinkable happens to one of your key suppliers.

Another good thing is to do a relationship check up with your suppliers. See how content or discontented they are in doing business with you. These checkups can give indications as to what their next move might be.

One last rule: Do not over buy inventory as it is one of the most common reasons why businesses get in trouble. This is especially true for retailers and those Starting A Business. Your CFO should prepare an inventory plan. The flexibility to cancel orders without penalty helps prevent you from overbuying. Don’t let suppliers lure you into excessive quantities of inventory!!!

Sunday, July 11, 2010

The Risks in Partnerships

Today I am going to be talking about all of the ramifications of becoming partners with another person. When starting a business many individuals seek partners and partnerships.

Partnerships can be a terrific way to pool resources and a great opportunity to increase your capital reserves. However there are some things that you need to know about having a partner that are very important. When two or more people get into business together there is risk that needs constant assessment. However, more importantly there is and should be an extensive thought process as to whether or not it is a good idea to partner up in the first place. Getting involved in partnerships is a major decision in one's business life.

Partners in business together must have the following characteristics:

* All partners must be logical and unbiased in their thinking. It is not all about one partner. Sometimes the logical business decision can disadvantage one partner over the other(s). It is critical that the partner(s) being disadvantaged is logical in their thinking to be able to separate what is right for the business from what is right for the disadvantaged partner. If this is not the case the partnership is in for some rough going. Is your partner or partner to be logical and unbiased in their thinking? It is critical that they are as you will see in all of the other characteristics that I talk about.

* All partners must eventually be at peace with all decisions. Although it is healthy to have different opinions and constructive arguments, eventually all partners must understand that a decision needs to be made and although it may be contrary to one partner's opinion the dissenting partners must be at peace with the decisions in order to bring the group back to harmony. If this does not happen grudges are formed leading to further problems in the partnership. This especially happens when there are only two partners in a 50-50 partnership (sometimes referred to as a dual suicide) and there is a one to one tie in a decision that needs to be made. One partner wants to go one way and the other partner wants to go the other. The first thing to do is to see if it makes any sense to do a hybrid of both decisions. This means take something from each decision to make a final decision. If that does not make sense then the partners need to collectively determine if one partner has more expertise in the area being discussed than the other partner. This is when egos need to be cast aside. If one partner has more experience and expertise in a particular subject then it is usually best to go with the decision of that partner. Once again you are assuming that the partner with the expertise is logical in their thinking. If the issue is still not settled, then each partner has to look at the risks and opportunities of each point of view. When that is done and egos are cast aside and the risks and opportunities of each point of view are carefully evaluated, then one partner usually sees the other point of view. Can you do this with your partner or partner to be? Are you at peace when your decision is not accepted? Is your partner or partner to be at peace when their decision is not accepted?

* Partners cannot be bitter if they get diluted or when the ownership structure changes. There are many times when a business needs more money and the partners have to ante up or look outside for other funding sources or even close the business. Sometimes there are partners who do not have the money or do not want to invest in the business at the particular point in time when money is needed. These partners who do not participate financially cannot be bitter when their stock ownership gets diluted. One reason a partner may become bitter is the partner who is not putting up money may have been the founder of the business and is now being diluted to where they are a minority stockholder. This is a difficult pill to swallow for a founder. However, it is only fair to the partners who are risking the additional capital that they get additional stock for the risk they are taking. Dilution can also happen when none of the company's partners do not have the money to keep the business going and need to go outside to get money. The dilution when going outside tends to anger minority partners but it is only fair and it is part of the rough and tumble world of commerce.

* Partners must understand the rough and tumble world of commerce. Partners must be prepared for troubled times in the business. Exemplified by, lower salaries, dilution, difficult cash flow problems and personal guarantees. The character of the partners must be in harmony during these periods. One thing most partners do not understand is personal liability. Normally, business partners have to put up personal guarantees to get loans, credit cards and leases. Of course the partners should do everything they can to avoid personal liability, but there are situations where it is the only way to move forward. When all partners sign a personal guarantee it is almost always joint and several which means that all partners are personally liable for the entire amount of the debt. As a result, it is conceivable that a minority partner could get stuck with 100% of the debt. All partners must be aware of this and must agree in writing on how the personal liability exposure of all the personal liability scenarios is handled. In other words just because legally one partner gets stuck, an agreement needs to be reached beforehand on how the partner who got stuck is going to get reimbursed for the other partner's share of the loss.

* Your Partner must be as passionate about the business as you are. If your partner(s) does not feel the passionate fire about the business and that burning desire to succeed at the same level that you do then it is best not to go into partnership. If every partner isn't sharing the same enthusiasm and the same commitment level then friction is likely to develop because it will show in the effort exerted. Many partnership problems stem from one partner not thinking the other partner is carrying their weight. More times than not this starts with the energy level which is fueled by the passion the partner has for the business. If it is not the same as yours it is almost a certainty that you will not think your partner is carrying their weight. You will develop resentment and then trouble ensues. By the way, if you do not feel a passionate fire about the business you are starting or if you do not have a burning desire to succeed then forget about finding a partner, you are best served not starting a business at all. In future articles I will address the attitude you have to have when starting a business.

* Not all partners are created equal with regard to salary and work hours. Partners must understand that different partners take different skills to the table. Some of those skills are more valuable to the business than others. The business needs to pay more money to the more valuable skill sets. This is difficult for many partners to understand. Partners think that they are all equal when it comes to salary. You would not pay an assistant store manager the same as a CFO. Comparisons need to be made as to the open market value of each partner in order to determine the proper salary. It is highly improbable that each partner will work the same amount of hours in the business. Some partners simply have more things they have to attend to outside of the business. Both the role the partner plays in the business and the hours worked make it improbable that you both should command the same exact salary. These things need to be discussed up front and agreed upon in advance of the relationship. How profit ultimately gets split is a different story. Profit should be split based on the percentage of ownership in the company and have nothing to do with salary and hours worked.

* Only one person can run the company and the day to day of the business. It is a good idea for one partner to take the lead role in the business. That way one person will be viewed by the suppliers, customers and employees as the point person. Sometimes this can make the partners not taking the lead role feel inferior and bitter. Before the partnership begins, this issue needs to be addressed. Although it is important for the suppliers, customers and employees to have one point person, the suppliers, customers and employees need to know that you have a partner(s) so they understand how decisions that may have been made can be changed.

* There is no room for "I told you so". If either you or your partner(s) or prospective partner(s) are "I told you so" people the partnership is doomed to fail. For example, let's say that you are in a 50- 50 partnership with one other person. Let's assume for this example that a very difficult decision has to be made relative to the hiring decision of a key employee. Let's also assume that you think person A is the best choice and your partner thinks person B is the best choice. Let's also assume that you go through the logical steps outlined earlier when there is a gridlock between partners. Let's assume that after that logical process your choice (Person A) is chosen and eventually hired. Your partner grudgingly agrees. Person A turns out to be a problem employee and a bad choice. Your partner tells you repeatedly that they told you so and that it was a stupid decision to go with person A. How do you like that? Partners have to realize that bad decisions are going to be made in a business and no matter which partner was leaning which way the worst thing one can do is say I told you so. It will create bitterness and will destroy the partnership.

* I am sorry but majority rules. When one or more partners control the majority the majority rules the day. No matter how unfair one thinks that is. It is simply an absolute law in business. Yes, that means the majority can make all of the decisions and if you are a minority partner you are going to have to live with that no matter how much money you put into the venture. Some partners cannot deal with this fact and before you enter into a partnership with someone please make sure they understand the consequences and think through all of the possibilities that can occur because of this absolute rule!

It is important to note that these partnership parameters laid out in this article includes offering employees stock options or grants. When you offer employees stock options or grants they are partners! If you do offer employees opportunities to own stock then make sure it is at least vested. Vesting means that they have to work a certain amount of time or certain very specific goals are achieved before they actually are a stockholder.

The best thing to do with this information regarding partners is to review all of these points with your potential or current partner beforehand and document what you have agreed to so that when these situations come up and emotions get high you can refer back to what you agreed to in calmer times. Partners need to go into these business deals with their eyes wide open and need to take into account all the factors that are involved in partnerships.

Here is my final word of advice. When you go into partnership with one or more people you need a partnership or stockholder agreement and make sure the points covered in this article are covered. Believe me, this is a must.

Saturday, July 10, 2010

Understanding Personal Liability Exposure

One thing that business owners never put much stock in, is knowing exactly where they are personally liable. Many business owners think that the corporation protects them from everything. This could not be further from the truth. The corporation protects you from most things, but not all things.

In my view identifying, assessing and mitigating risk is the most important functions in my role as Part Time CFO.

One of the first risks I am going to identify for the new business owner is Personal Liability Exposure. The first things I investigate are bank loans, equipment leases and property leases. If these exist there is a strong likelihood of personal guarantees. Although the corporation is the primary guarantor of the loans or leases it is inevitably backed by the business owner's personal guarantee. The next thing I look at is if there are any personal guarantees with inventory suppliers. This is one the hidden sneak up on you type of risks. When one fills out the credit application to do business with an inventory supplier, more times than not there is personal guarantee language in a separate section of the application. One way to flag this is if you have to sign twice on a credit application, one of those signatures is probably a personal guarantee. Anytime I am filling out a credit application for a client I always cross out the personal guarantee language section and do not have the client sign that section. However, most business owners feel it is part of the application and fill it out and when they do, they become personally liable and exposed on their inventory purchases. This is a major risk. If you cross it out and the supplier calls you back and requires it, you can assess at that point how important the supplier is and whether or not you want to take that risk. In most cases suppliers look at the business owner signing the personal guarantee as bonus security and they do not care if the the customer crosses it out.

Here is another area of personal guarantee that goes unnoticed.

All fiduciary taxes such as payroll taxes, payroll withholding, withholding's of medical insurance premiums and sales taxes must be paid. If left unpaid, this will create more personal liability especially for whoever is the treasurer of the corporation. Unpaid corporate income taxes may also create personal liability.

Company credit cards outstanding represent more personal liability risk for the business owner. The business owner or CFO should at least look at the possibility of one of the versions of the Corporate American Express Card that have no personal liability to the business owner. I recently got one for a client. They are not easy to get, but it is well worth looking into to see if you qualify.

Generally speaking the business owner usually thinks nothing of the personal liability exposure in the areas I just mentioned until the business is in trouble and someone alerts them to the exposure. Whatever services the business owner needed whether it is a bank loan, inventory, a credit card etc..., they needed it and that is fine, but what I am saying is at least know your exposure. In other words I understand why you signed the personal guarantee, but it is critical that you are aware you signed it and that you know where you have personal guarantees. For example, if you know you have a personal guarantee with an equipment lease and your cash flow dictates that you can pay either a telephone bill or the equipment lease payment but not both, by knowing you have a personal guarantee with the equipment lease, in my view it is wise to pay the equipment lease first. It just makes sense for your own protection.

The overall risk that must be assessed regarding personal liability is what is the likelihood that the company will not make its loan payments, its lease payments, its credit card payments or its inventory payments or whatever payments there is personal liability exposure? Are these payments current now? Is the current and projected cash flow strong enough to at least make these payments? If not, has the owner begun to research and utilize asset protection strategies to protect their personal assets should they come under attack? These are the questions you need to ask yourself. So the suggestion is, if you currently own a business or if you are starting a business, identify assess and mitigate your personal liability exposure. If you are not in business as of yet understand that the corporation is not going to fully shield you from personal liability and understand the areas where you will be personally liable. If you have a business partner make sure they understand what the personal liability exposure is and how you are going to share that risk.

Starting a Business

The eagle asks the question while teaching their young to fly:

Why does the thrill of soaring have to begin with the fear of falling?

My answer is:

If it were not for the fear of falling there would be no thrill of soaring.

When you achieve success in business you experience the thrill of soaring. However there are many times along the way that you fall on your face! The most unexpected things in the world happen when you start and operate a business. Things that you never think could happen in a million years. Some are Positive things, but also negative things. This blog will not eliminate those negative things from happening. This blog will only serve to reduce those negative things from happening allowing you more opportunity to create the positive things to happen.

In this blog I will try and capture all of the challenges along with recommended solutions to do everything I can to help you achieve that thrill of soaring.

Below is link to a podcast I did that provides a good start to the challenges of starting a business:

Podcast on running your business like a business

And to you "All of the Luck and Success in the World in Starting a Business!!"