Location, Location

Today with the emphasis towards online information gathering, communications, and sales, small businesses leaders often neglect to fully understand the importance of physical location to the success of any business.   

While experts estimate one out of three new ventures focus on being online only, they along with many businesses with brick and mortar needs, view the physical location as an afterthought.  For reasons to be discussed below, location (formation and brick-and-mortar) should be ranked third after financial strength and product or service appeal in importance. 

First and often overlooked, it is important to consider location when a company is being formed.  Experts estimate most small businesses are formed within three miles of the founder’s home.  This factoid is not a surprising given a majority of ventures often begin within the founder’s home. 

INCORPORATION

At the basest level, where a company is incorporated or obtains its legal authority should be based on which states, like Nevada, have tax rates that are low or non-existent for smaller enterprises.  These states are also flexible as to physical location for the headquarters so that using a local mailbox center will often suffice.   

Finding the right state for incorporation can save small companies thousands of dollars in its first years.  There are also professional incorporation providers available to ease the process.  Whether the company is a C, sub-chapter S, partnership (LLP), or LLC should be the recommendation of your accountant.  Moreover, it is important for new business people to put themselves behind some legal entity to protect their assets. 

Second, once the legal incorporation is in progress, the next step is deciding if a brick-and-mortar location is necessary.  Leasing an office, shared space, using your kitchen table, converting your garage, are all available alternatives.  The key to these choices is not over committing to more than the company needs in its initial efforts.  Above all, seek to conserve as many liquid funds as possible to stretch out your runway to profitability. 

For products in need of a retail operation, choosing a location is critical to success.  Some of the factors to consider are: 

Type of business location (retail, mobile, commercial, industrial, etc.)

Consider your brand

Foot and car traffic offers ability to generate sales. 
What is the mix of nearby stores and are they complementary 
Rent amount; find out if it can it be kept smaller in the beginning 
Structure lease requirements to give the company grow or contract
Find locations that reduce the cost of build out 
Explore all equipment costs, lease alternatives 
Examine the local labor pool characteristics
Easy to connect with vendors and suppliers

Insure space availability for delivery services 
Determine adequate parking availability for customers 
Evaluate crime statistics involving nearby retail outlets 

Checkout common charges, escalations, extraordinary expenses associated with the location

A recent study by Small Business Digest determined many companies entering their fifth year begin to consider purchasing their first physical property.  For professional services firms, this point occurs about three years later.  For retail stores and distributive companies, these considerations usually revolve around needing extra space.  

Real estate experts are split on the advisability given the high interest rates but the availability of existing buildings often well-suited to the company’s needs at attractive prices make for compelling arguments to purchase.  A rule-of-thumb one real estate expert suggests is to double current square footage needed in choosing new location to allow for expansion in later years. 

In today’s market, with the advent of work-at-home hybrid efforts, office planners suggest waiting until 2026 before purchasing office space.  Also, they point out there is a glut of office space available today that will be augmented by new buildings coming online.  Many will combine in work and living developments which may offer attractive work-life opportunities. 

LOCATION, LOCATION

This has been a necessarily brief overview to a very important small business consideration, location.  There is much more to discussion necessary but small business leaders should keep thinking about location in all of their planning. 

Delivering Bad News

According to surveys conducted over recent years, giving bad news to employees, customers, and vendors is rated one of the most challenging tasks small leaders perform during the work week.

These same surveys indicate that small business leaders believe the task has become more difficult due to the recipients’ changing attitudes.

When it comes to employee reception to negative statements on the part of managers, some small business leaders report extremely distressful reactions bordering on physical alterations. While stopping short of violent personal attacks, employees have been known to destroy property, equipment, or paperwork in reaction to conversations that impart discharge notices, position changes, promotions or demotions, or compensation reductions.

When dealing with clients, small business leaders report rising intolerance on the recipient’s part of even one misstep. Where, in the past, loyalty to the provider would enable the negative information in the context of overall performance, in today’s world, a single step is enough to cause total separation.

When giving bad news to vendors, the reaction can range from cutting off services and deliveries early, bad-mouthing in the industry to the threat of legal action.  While the impact of negative information can be softened, it can’t be erased.

Here are some ways of lessening the impact of negative communication on the company’s internal and external communications.

For employees, the most critical element of imparting negative information is for the company to do the telling. Rumor mills can outrun corporate decision-making and can never communicate all of the details.

What’s more, according to communication experts, rumors feature the worst possible scenario first. Make sure information about the company’s decisions, such as whether to fire, demote, cut salary, or retrain employees, is the first heard from the company.

The delay means the company grapevine will work to undermine whatever positives are possible.

No matter how dire or menial the negative news is, ensure there is some positive associated with its implementation. But don’t emphasize the company’s benefit; rather, emphasize whatever positive will accrue to the individual affected and to his or her closest workmates.

Whatever news is being imparted, repeat it at least twice in the initial meeting. Tests have shown that in workplace situations, employees do not hear all of the relevant information when receiving even trivial bad news. It is essential to repeat the news at least twice in the initial discussion; put it in writing and then repeat it verbally one or two days later. At all times, solicit feedback from the employee, who is in no mood to provide any, let alone positive feedback. Accept the fact that accurate feedback will only come in the future.

Communicating bad news to customers requires additional finesse. The customer relies on price, quality, and consistency. When bad things happen, such as a price hike, product scarcity, or missed delivery, the experience affects the buyer-seller relationship far more than positive events. There is an adage: One damn is equal to 10,000 bravos.

The best way to lessen the impact of one bad event is to sandwich the imparting of this news between two positives for the customers. For years, this was the hallmark of IBM sales and servicing. For example: “Your dry cleaning will be free next month. We are sorry, but we burned a hole in your shirt. We have repaired the hole, and it is no longer visible.”

As with employees, it is best to convey the negative information immediately rather than wait until the client asks. The recent run on the nation’s banks was triggered in part by the banks under review’s failure to adequately inform depositors of the difficulties they faced. Had the banks been readily forthcoming, some experts believe, some of these failures could have been avoided.

While vendor relations are usually contractual, providing bad news, such as cutting back on products/services or ending the relationship, needs to be done in accordance with the contract and handled with finesse. Explain why the business is going in another direction, why the quality has slipped, and why we have tried to work with you without success.Above all, remember what the purveyor of bad news wants: Acceptance.

Acceptance is often the most challenging response to obtain.

Nevertheless, bad news cannot wait; share it openly and honestly and be prepared to answer questions.

Funding To Grow

A recent national survey found that 67% of U.S. small-business owners plan to pursue funding for their business in the next 12-months. This despite the obstacles high interest rates and stricter credit standards making it more difficult for all but the most profitable companies to obtain financing.

With the stock market betting the Federal Reserve will cut its interest rate later this year, should small business leaders wait to expand company borrowings? The answer is not simple.

Business loan by Nick Youngson CC BY-SA 3.0 Pix4free

First, small businesses need new loans from reputable lenders to finance products and services as the nation’s economy begins to expand. Delays in finding finance mean the small business has less time to prepare for the expanding sales situation. Depending on when it is recognized, a booming economy requires small companies to find the funds to grow with it.

Three years ago, when the interest rates charged by the Federal Reserve began to climb, many innovative business leaders locked in credit lines at rates, according to banking groups, which insulated them from the highest interest tariffs. Most of these agreements ran for two or three years and are due for review this year. According to these same banking advisors, the rates for renewal for even the highest-quality clients are less attractive. Many companies need more credit line extensions at almost twice the average percentage.

At the same time, banks and other financial institutions spend twice the usual time vetting new customers for corporate loans. Despite the desire for new customers expressed by banks, they are also rebuffing more of these new applicants than at any time in their history. Senior bank officials expect these two dynamics to remain the same later this year and into 2025.

Also, specific industry sectors or industrialists are finding it harder to obtain construction or other speculative loans routinely approved through short-term loans.

Dupaco Community Credit Union

The small business loan sectors also have a seasonality that works against waiting too long for this expected drop. The first and third quarters usually see peak demand for new loans, which likewise come due during these poor times. While this first quarter is not entirely over, early indications are that loan demand and extension requests are up.

Here are four things you can do to ensure that monies are there for you when needed.

               Strengthen your relationship with your current bank and reach out to other institutions.

                Add monies to your deposit history regularly.

                Have your accountant build pro forma balance and income statements to share with your banker.

                Build up a cash reserve in your bank and talk often and candidly with them about your operations.

In summary, act now so your business will have the funds to expand.

Regulatory Requirements Growing

In their desire to increase tax revenue, improve oversight, and strengthen its regulatory grip on small businesses, governmental agencies are close to adding major regulatory requirements.

Image by rawpixel.com on Freepik

Designed also to help identify companies being used to spy on American companies to gain trade secrets, efforts to date for informing small business leaders have been spotty at best.

Let’s start with the change already law and which estimated 20+ million American small businesses are already in violation.  Charged with implementing these new requirements is the Financial Crimes Enforcement Network (FinCEN).  Under the law that went into effect January 1, of this year, FinCEN is bringing into new databases registered information which more substantially disclose who are the beneficial individual owners of the millions of small businesses.  Failure to comply, can result in hefty fines.

Approved by Congress in by the 2021 Corporate Transparency Act, individuals can no longer hide under opaque private companies, foreign entities and other subterfuges when owning, investing, or managing small businesses with less than 20 employees.  Companies must provide additional background, verifiable personal data, and financial information on any person who benefits from the operation of a small business.

In the first months of 2024, only about 400,000 of the nation’s estimate 22 million small businesses had complied with the law’s requirement.  FinCEN intends to step up its educational efforts after the April 15^th Tax Deadline.

Image by rawpixel.com on Freepik

While this registration program poses additional burdens, perhaps the more worrisome issue facing small business leaders is the expanding effort by the Department of Labor and the IRS to further limit the use of casual workers.  It is estimated that in 2022 more workers received 1099s forms than W2 forms.  The former wage reporting mechanism reports to the government of wages earned but requires no contributions to social security or other deductions usually taken from paychecks of full-time employees.

The definition of who is a full time worker and who can claim 1099 status has been under attack for 10 years and the latest series of proposed regulations go far forward of anything previously proposed.  These changes are currently up for review and it behooves any small business leader to become aware of them quickly.

Plus there are two other regulatory issues threatening small business employer-employee interaction. The first concerns franchise workers.  There the Department of Labor is still trying to dictate that an individual franchise owner is part of a large company made up of franchises.

The second, and more ominous, is extending its authority into such areas as home-based childcare and Uber-type businesses.

Staying abreast of these trends is another management requirement facing small businesses this year.  Stay tune, more may be coming.

Bankruptcy

Because by nature they are optimists, small business leaders tend to avoid talking about bankruptcy of their company and/or themselves.

Yet, in 2023, commercial bankruptcies increased by 72% year-over-year, and filings for the discharge of personal debt increased by 18%.  With experts expecting these numbers to go up in 2024, the good news is that they remain below pre-pandemic levels.

Image by Storyset on Freepik

However, small business leaders should still be cognizant of the growing cloud as bankruptcies are becoming more frequent.  “Bankruptcies in all filing categories climbed last year amid the evaporation of pandemic emergency responses, increased interest rates and tougher lending standards,” said ABI Executive Director Amy Quackenboss.

Having identify the trend, there are ways to identify potential issues which could affect your company’s future.

Experts warn that as interest rates remain elevated, financing requirements become more stringent, weakening customer loyalty, increasing geopolitical tensions affecting global supply chains, and growing debt loads, even the strongest companies must remain alert to maintaining financial strength.

Image by rawpixel.com

Based on studies of small business bankruptcies, there are four keys to identifying possible future problems.  This is the so-call company ‘FQ’ of financial quality.

1. Weekly cash summary: Does the company have enough cash to finance the coming week’s financial outlays?  Including payroll, expected materials delivery, loan repayment.
2. Line of Credit: Is there a source of funds available to immediately cover any shortfall in the company’s cash position?
3. Accounts receivable: Are 60% or more of all outstanding debts within 80 days of initial rendering?
4. Accounts payable: Are 60% of bills owed outstanding more than 80 days?

If the answer to any of these four questions is yes, small business leaders should highlight them and take steps to alleviate.  If they persist beyond two months, it is time to institute remedies.

Image by johnstocker on Freepik.

Because many companies, particularly in their early stages, operate on thin margins, FQ guidelines often appear.  This doesn’t mean the company is headed for failure.

However, should they persist for long periods of time, it may suggest that bankruptcy be considered.

As Winston Churchill said: “Success is based on a long series of failure.”

Struggling businesses and families can turn to the proven process of bankruptcy for a financial fresh start.

Image by jcomp on Freepik.

Optimism For Next Year

Small business leaders should be looking at a more positive economic environment in 2024.

This bold statement is beginning to echo across the nation as we approach the New Year. While there are still pundits arguing for a possible recession, more and more, the nation is seeing signs of positive growth in 2024.

Some advisors are beginning to urge smaller enterprises to begin building resources that enable companies to fill increased demand from clients.  Right now, overseas suppliers of goods have added capacity after three years of slower growth. Locking in costs-of-goods sold should be a priority along with commitments for added inventory in the first quarter.

One harbinger of increased economic activity is advanced bookings for such trade shows as CES for the latest in computer technology for goods and services across industries and the National Homebuilders Show. Both of these massive gatherings report they are sold out in terms of both space and events.

Another possible clue is the first reported reduction in home interest rates reported for so-called Jumbo Mortgages, for large, mansion properties.

For small business leaders, the most important statistic has been credit card sales used to buy business related items. This number, closely guarded by the big card issuing companies, was revealed to be steady according to a report in The Wall Street Journal. More importantly, companies offering operations management services closed the third quarter with a surge of activity, averaging 9% year-over-year.

Card services offering one-year before payment is due contracts for goods or services said new accounts jumped 11 percent in the third quarter.

For small business leaders, there are three key choices in the first quarter of 2024:

1. Be prepared for an economic rebound.

2. Have enough cash or credit quickly available to fulfill increased client demand.

3. Don’t be afraid to jump on any economic expansion.

It is easy to be like Chicken Little and think the sky is falling. Being more optimistic takes courage.

Exit Planning

When a small business opens its front door, the founders should also prepare for the day that door shuts.

From day one, small business management advisors encourage clients to have both an operating philosophy and firm convictions as to what are the founder’(s’) ultimate exit goals. The two together can provide consistent guidelines for management decisions. Unfortunately, even as the business, social, and political environments change rapidly, this dual track is seldom followed.

Any organization’s trajectory ends in one of four ways: long-term success, failure, closure, or limping along until the founder(s) abandonment.

Every founder begins their new venture with boundless energy. Successful entrepreneurs throw their hearts and souls into building a successful enterprise. When asked, the entrepreneur will lay out their plans for some initial period, identify the critical elements to making the venture successful, and devote the money, personal resources, and energy to succeed.

But what? Most entrepreneurs need help deciding that an exit strategy is necessary. In the 20 years, Small Business Digest has conducted interviews and focus groups, less than 4% of respondents in the first two years of their company’s existence had an exit plan. For those leaders in companies entering their third through sixth years, only 18% offered some planning for being ultimately rewarded for their hard work.

But in the hot atmosphere of a company’s formative years, the founder(s)’ personal goals and preferences may prevent them from executing the company’s best exit strategy. 

For example, often working beyond normal levels, employees of newer organizations in all sectors overcome challenges to the company’s future. The success of these efforts generates intense loyalty and sacrifices between employees and founders. As the company meets these obstacles, employees become more invested in its success.  

But in any company’s business cycle, there comes a time when an exit strategy becomes necessary. 

Often, it is a period when the company is “right-sized.” This motto is another term for firing staff. 

For many entrepreneurs, letting staff go is the most brutal and least favored option. Often, small business leaders are not open to cutting staff adrift. This dynamic can cause company leaders to continue leading a bloated organization, thus passing the point where it can fetch the highest price.

If your small business is entering its sixth year, you can look at five to ten more years of success. But today is the time you should be settling on some exit strategies.  

Ask yourself these five questions. Your answers will lead to others, but these are good starting points.

1. How long do you want to work leading this company?
2. How long do you want to work before retiring?
3. Do you have plans to groom a successor?
4. When do you think the company will have its highest profit probability?
5. Are you happy with what you are doing every day?

Your answers may surprise you. The key is determining what you want for yourself and your family.

Start your exit planning today, it will guide you and your business to a more successful future and ultimate exit.

Preparing For The Holidays

In the next two years, many of the tax and regulatory efforts instituted for small businesses will expire.  That is why preparing for the annual end-of-year push is so important this go-around.

If your company has been utilizing these tax breaks and programs, now is the time to seek substitutes or prepare for their end.

Also and perhaps more importantly, yearend holidays make a big difference for how your business end’s its year.  So plan ahead and execute well to optimize this year’s outcome.

The first thing to do is review last year’s efforts.  In the end, were you able to achieve the goals you set out to accomplish?  Where did you fall short?  What did you learn?

If you did not achieve as plan last year, are you satisfied with your preparations to enter the last quarter and are you revved-up for a gangbuster final push?

To help you, here are things you should be doing immediately:

1. Order supplies: Empty shelves mean lost sales.
2. Make holiday schedules: for staff, customer hours, and yourself.
3. Stock extra inventory: Consumers and companies are waiting deeper into the holiday season to make purchase decisions.
4. Check your website:  Insure that it is up-to-date, recognizes the season, and perhaps offers specials.
5. Decorate: Even if you clients don’t see your decorations, your staff will.
6. Plan a new marketing campaign: The year’s end impels people to make buying or gift decisions, help them choose your products or services with a specially geared marketing plan.

Because we think a marketing campaign at this time is so important, here are six suggestions to implement a successful holiday effort.

1. Develop a time-sensitive discount program for new and existing clients.
2. Send at least three personalized emails to your client and potential new customers and if possible, a snail paced letter.
3. Offer gift certificates or other easy ways for clients to reward others with your products.
4. Cross-sell your offerings and perhaps partner with another company.
5. Have a gift-idea offering on your website and in your emails.

There is one more area of extreme importance to turn your attention to.  That is your finances.

The end of the year is as good time to sit down with your accountant and banker to review your financial situation in details.  Talk first to your accountant to ascertain as closely as possible your tax situation,  Are there 2024 expenses that can be moved to 2023 to reduce your tax liabilities.  Likewise can you move some expenses to 2024 to reduce future tax bills.  It is important you do this while there is still time.

Equally important is meeting with your banker to discuss the company’s financial position.  Talking to him or her will ease any future discussions about the company’s need to obtain cash should some situation arise in 2024.

This year, more than any in the last decade requires small businesses to be looking ahead.  The overall environment is changing and already in 2023 there has been a mark uptick in small business bankruptcies.  Making extra efforts in the final months of this year will help to ensure your company’s growth success.

Pace Yourself

Small business leaders must learn to pace themselves, take vacations, and not decide important decisions when tired.

Making a decision when tired can increase the chances of choosing the wrong alternative, according to risk analysis experts who have studied why people often choose the worst option.

When examining plane crashes, experts point to studies showing pilot fatigue, even after a mandatory rest period, makes poorer decisions, even in dire situations. The National Transportation Board has numerous studies demonstrating fatigue contributes to fatal ancients only slightly lower than alcohol and drugs.

Why, then, should small business leaders worry about fatigue? Because it is contributing factor in many company failures. Moreover, many managers fail to realize they are not functioning at 100% because of continuing tiredness caused by devoting almost all their efforts to the business.  

To succeed, small business leaders must devote almost all their waking hours to the business in its formative years. 

The stress of total commitment often takes its toll as the company moves into its growth years.

During the initial start-up period, the adrenaline drawn from the exhilaration of building the company provides fuel to sustain them. As the years go by, the constant attention to continue the successful trajectory gradually erodes mental and physical resources.

Trying to start and grow a business is stressful, and many people will experience burnout, fatigue, or depression.

Exhausted entrepreneurs can harm their businesses — as their day-to-day decision-making and cognitive skills may suffer.

“Entrepreneurs have one of the loneliest professions in the world,” says business scaling coach Tony DiSilvestro. “One thing I really wish entrepreneurs would do more is talk with other entrepreneurs.”

“Go to the business next door and have a cup of coffee with the owner. Talk about your struggles, learn from each other. Don’t be afraid to be vulnerable, don’t be afraid to ask a question.”

In a recent survey, 55% of small business owners said they had not taken a vacation in two years or more. Another 44% said they did not have an outside person to discuss company issues. Almost 80% indicated they thought about the company seven days a week and most waking hours.

Business consultant Karyn Greenstreet wrote that over 67% of the small business owners she spoke with regularly have told her they’re feeling fatigued, burned out, and lacking motivation.

Some experts think the challenging events of the past few years and the subsequent greater costs of doing business are adding to leadership woes. Some leaders take dealing with these newer issues is stride. But others think dealing with these obstacles has added to the strains and fatigue of company leaders.

Some signs of Fatigue:

1. Feeling exhausted and overwhelmed

No energy to do the work you used to love doing and dread the To-Do list  

2. Feeling frustrated and cynical

Issues cloud the excellent work happening in your company 

3. Thinking well is a chore

Forgetting things and making decisions takes time and effort.

4. Dropping your performance

Personal work standards are slipping.

5. Work is always with you, even at home

The office is always with you.

6. People skills are eroding

Other workers avoid a short-tempered, abusive boss.

7. Nothing seems good enough

Negatives come first in any situation, and the positives are ignored.

8. Socialization is no longer important

Socialization is nonexistent at work or home.

9. Sleep comes hard

Taking medication is an important sign of stress.

10. Health issues arise

Well-being is an important sign of fatigue or worse.

Some suggested solutions:

When stepping away from the job that is causing stress isn’t possible — and for most people, it’s not — there are still tools entrepreneurs can use to fight their burnout:

· Get enough sleep 

· Delegate more and 

· Hire people to do the jobs you don’t enjoy

· Find a passion outside of work 

· Devote more time to family and friends

· Walk outside more 

· Join or start conversations with other entrepreneurs

· Strengthening social relationships 

One consultant said she did not care what her clients did as long as it was different.

But the most important thing is to recognize tiredness when it happens, not after making a catastrophic decision.

Customer List Value

When Bed Bath and Beyond finally gave up the ghost and Big Lots entered into an agreement to buy certain assets, the acquiring company emphasized that the company’s purchasing and email lists were the most important assets. 

That statement for any small business leader reaffirmed why customers and sales lists are so important to long-term company success. Where a consumer-facing or B-to-B entity, customer lists can become an ongoing asset. But, like any asset, lists must be carefully nourished, pruned, and protected. 

Let’s start with the need for any corporate entity, big or small, to capture all the mail addresses and as much information as possible from every contact made to the website, switchboard, or call center. The mantra for every employee must focus on them that potential sales prospects are any individual who contacts the firm for information. The company recipient should be asked for their email address, phone number, and name at the beginning of the conversation. No matter the call’s outcome, the company has a potential new client. 

Smart corporations capture these recorded calls and their data in a central Customer Retention Management (CRM) database. Such a program needs to be instituted almost from the first day a company begins. 

Many executives point to studies about the reluctance of individuals to share their personal information. At a recent call center training seminar, one industry leader offered one solution for gaining the new contact’s information.  

Have the call center or any employee ask for a callback number if the conversation is unexpectedly cut-off.  

The speaker said such requests are complied with more than 80 percent of the time. In most cases, the company will gain direct access to a new potential client since the person making the call had some interest in the firm’s offerings. 

Once such contact data is available, establishing stronger communication links with the prospect is the second most important task. Because of the anti-spamming laws, it is important to obtain opt-in permission before proceeding.   

Yes, any data record must be the gateway to potential sales. SMB leaders must consider databases as swirling oceans with prospects ready today to buy, others looking to purchase in coming months, and other years away from acting. These records combine into an asset that is hard to value but harder to ignore. 

Certainly, Big Lots didn’t.  

But like any asset, data records must be constantly updated with fresh additions. Beyond adding records, it is important to encourage conversation between company and contact. Periodically, every record in the list must receive information of value to them rather than the company. Semi-annually or more frequently, each record is contacted with factoid snippets to make their job easier. Having a call to action on a contest open only to them is equally as important.   

Whatever message is delivered, each record is personalized, has a method for opting out, and encourages responses by offering a benefit to the recipient. The cost of these efforts can be offset by the sales they generate. 

Saying goodbye is always hard. Pruning your lists is even harder. Deciding to drop someone off any list should be on three bases. 

1. A person demands removal. 
2. Failure to respond for some length of time. 
3. Change in status or is deceased. 

Aside from these reasons, given the relatively minor costs of sending online information, maintaining a large and growing list makes sense. Repetition and reminders result in sales. Make sure you stay in the forefront of any potential customer’s mind. 

One more thing, snail mail is still an effective sales tool, and your database would be more valuable with street addresses and corporate addresses. Start with your current sales list and link as many physical locations as possible with their email. Together, they make a powerful, income-producing tool to drive business growth.