Finance: Your Balance Sheet

How the Balance Sheet Works

Your balance sheet is your “statement of financial position.” Together with the income statement and cash flow statement, it makes up the cornerstone of any company’s financial statements. It is a snapshot of the company’s accounts – covering its assets, liabilities and shareholders’ equity. The balance sheet gives users an idea of the company’s financial position and displays what the company owns and owes. It is important that  investors know how to read and analyze it.

The balance sheet is divided into two parts that must equal (balance out) each other. The main formula behind balance sheets is: assets = liabilities + shareholders’ equity (net worth). This means that assets are balanced by a company’s financial obligations along with the equity investment brought into the company plus its retained earnings.

Assets are what a company uses to operate its business, while its liabilities and equity are two sources that support these assets. Owners’ equity (shareholders’ equity) is the amount of money initially invested into the company plus any retained earnings. It represents a source of funding for the business. This is extremely important as it gives the viewer a picture of how the business is being financed- through the owners’ money (equity) or through the creditors’ money (liabilities). In a business start-up you should look at the assets required to get the business started – and then ask yourself how you will finance that start-up. If you do not have the money to invest in the business, you will have to borrow the  money.

The balance sheet is also a measure of the value of the business if trying to interest partners in investing in a share of the business or in valuing it for sale. Over time you should expect to see the business value (owners’ equity) increasing if the business is profitable.

Ask SCORE for help with all your financial statements.

Bill Haman, SCORE Cincinnati
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Small Business: Perserverance

Perserverance and the Year of the Ox

In Chinese astrology, 2009 is the year of the ox. It is said that the traits of the ox include hard-working and persistence; those that can stick to a task longer and harder than others. They are patient, determined and believe in themselves. And, you may have noticed these traits are common among successful small business owners. As the global economic slowdown approaches the end of its second year, now more than ever, it is time to be persistent.

According to Stocks, Futures and Options magazine (SFO), China’s economy appears to have pulled out of the downturn with miraculous speed and strength; creating 6.7 million jobs.

The evidence is overwhelmingly clear that China’s economy bottomed out in the fourth quarter [2008], says Nicholas R. Lardy, senior fellow at the Peterson Institute for International Economics (SFO, Nov. 2009).

With signs that the economy is slowly, but surely, gaining some momentum internationally, small business owners here in the U.S. are determined and quick to adjust their focus to take advantage of market opportunities. But, to do so first requires a clear understanding that now is the time to increase your marketing efforts. Pulling back now is not an option, nor is failure. To be first in line to capture market share, start with a thorough review of your 2010  Marketing Plan. Contact your local SCORE chapter and schedule an appointment today. Tomorrow, you’ll be glad you did.

Greg Magnus, Richmond SCORE
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Sales: Professional Checklist

22 Points for Sales Success

People buy from people they like and respect. What they expect of you:

1. Product knowledge-customers want to do business with one who knows their products.
2. Look sharp, be sharp-dress in a professional manner. Look successful.
3. Know your customer-develop a profile of your customer. Customer relationship software can be very useful.
4. Be prompt, confirm meetings, and always be early. This goes for returned phone calls. Customers respect sales people that get back to them right away.
5. Take rejection in a professional manner. Ask why you failed. Next time you may be the winner.
6. Always be prepared. Being prepared shows your customer that they are dealing with a professional.
7. Know the players in your industry and maintain contact with fellow professionals.
8. Always give the second or third effort to make sure your customer has total satisfaction with the service you provide.
9. Always ask for the order. Most salespeople are afraid to ask.
10. Your sales presentation should be well prepared and to the point. You are there to get an order. Timing is everything.
11. Know when to listen. You learn more by listening than by talking.
12. Always send a thank you. A follow up note is professional.
13. Always be a fighter for your customer.
14. Always be honest and truthful.
15. Know your competitors thoroughly. Know their weaknesses and strengths.
16. Never take anything for granted.
17. Body language should be watched closely. There is always a message given.
18. Have a plan and work your plan.
19. Paper work is part of your responsibility. Records, order entry, credit collection. You have to be a total salesman.
20. Know when to shut up. If they are ready to buy, do not talk your way out of the sale.
21. Make time for your family. Stay in good condition. A tired horse never runs a good race.
22. Attend a SCORE sales seminar and learn from the pros.

Bill Haman, SCORE Cincinnati
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Marketing: Do You Belong to A Trade Association?

The Benefits of Networking

Many of us get so involved in our day to day responsibilities managing our business that we fail to take the time to utilize the various networking tools available. There is a lot of discussion on line about social networking: Twitter, Facebook, Plaxo, Linked-In are used by many to connect to clients and peers. But, do you currently belong to a trade association? This is a very important network consisting of like kinds of businesses.

The value in belonging provides several opportunities:
1. Your industry may be faced with different challenges and the ability to discuss common problems and potential solutions with your peers may provide insights that you haven’t thought about.
2. The opportunity to partner with others in business opportunities.
3. The educational opportunities to increase your knowledge.

The ability to stay current and to be “on top of your game” is increasingly important in a fluid market place and trade associations and their networks can be an important part of your business plan.

Continued Success!

Steve Bloom, SCORE Atlanta
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Small Business: SCORE Volunteers

SCORE District Chapter Meeting

Volunteer and meet quality people helping your community.

For a change of pace, I’m providing info on our local SCORE activities. Ken Yancey, SCORE CEO, will be joining us for a regional meeting. This is one of many benefits associated with volunteering with SCORE; you get the chance to meet quality people helping your community.

The Virginia District Chapter Chairs, District Staff and volunteers are meeting in Richmond, VA at the Sheraton Richmond West Hotel on Thursday, November 12, 2009. More than forty (40) volunteers from SCORE Chapters throughout the District will be in attendance.

Mr. Ken Yancey, SCORE CEO, will personally take us through the new SCORE Business Model which will provide the framework for the strategies that will amplify our efforts to help new and existing businesses succeed in the future. A copy of the Agenda is attached for your reference.

I look forward to seeing you all at the meeting on Thursday. Thank you for all that you do for SCORE and the clients we serve.

Sincerely,
Alan Wonsowski, District Director
SCORE Virginia District

Let us know if you’re a Virginia volunteer planning to join us – thanks!

Greg Magnus, Richmond SCORE
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Finance: Is The Money Available?

Funding Your Business

In my continuing quest to receive input on whether the market has embraced the financing initiaitives that the SBA has created, it seems getting banks to participate is an on going challenge. I’ve attached a copy of correspondence between a reader of this blog and myself that validates the current “state of affairs.”

“Hi Steven I left a comment on your blog about the Arc loan program. It is one of few that even mention anything about it. I myself am disheartened about the whole program. I was very disappointed in what the Arc loan program has become. It was a great idea that is now in the hands of banks and has gone no where.
I myself have a small business for the last 8 years and I am ashamed and appalled that this great program wasn’t able to become a success story.
I have been selling my product to local businesses around the Country all this time. I like other small businesses around the Country are what made this great Country. So to see us small businesses overlooked like this is sad. Thanks for touching on this subject.
My other question is that I wanted to know how I would go about creating some sort of Union for Small Businesses. I feel there is no voice for us as a whole. We need to have our words heard.
Any thoughts or ideas would be greatly appreciated

And my response: “thanks for your e mail regarding the failure of ARC this year. I posted last week a comment to your frustration on the blog and can empathize. I currently work with a client for the past 4 months to close a 15k Community Express loan. She has great credit, been in business 3 years and still is being put through a “wringer.” This is not how the program should work.

Forming a small business group to provide direct feedback in theory is a good one, but there are a number of national organizations that purport to do the same. NFIB is the largest and there are at least a dozen more. The challenge is not having programs available, there are a few good ones on the books, it’s getting banks to cooperate. Congress and/or SBA can’t force them to participate. Truth be known, small loan origination, processing, closing and administration is not profitable to banks.

Good Luck and Success for the Future.”

Keep your cards and letters coming.

Steve Bloom, SCORE Atlanta
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Structure: Limited Liability Company

Is an LLC Right for You?

(This information is provided for guidance only.)

All 50 states and the District of Columbia now recognize this popular business type. Because of its simplicity, flexibility and pass through tax characteristics, it is becoming the preferred form of business entity for many small businesses.

This business structure has many advantages, including:

• Independent legal structure separate from its owners
• Helps to separate owners’ personal assets from their business debts
• No loss of power to a Board of Directors.
• Much less administrative paperwork and record keeping.
• Owners have limited liability for business debts and obligations
• Pass-through (Sole Proprietorship and Partnership) taxation (i.e. no double taxation) .
• No limit to the number of owners. One owner may form a single member LLC
• Owners do not need to be U.S. citizens or permanent residents
• Owners can be individuals or other companies or mixtures thereof.
• LLCs do not need to hold annual meetings or record meeting minutes (though strongly recommended).
• Governed by operating agreements. You need a strong operating (partner) agreement.
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The main disadvantages are:

• LLCs may not issue stock to attract investors.
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If not operated as a Company, the “corporate veil can be pierced”. In other words, if it is used as a personal piggy bank, the IRS will disallow the corporate structure. Articles of Organization are filed with the Secretary of State. The enabling legislation is so general and unrestricted that legal advice and great care in preparing the agreement are essential to obtain the desired benefits. The name of the company must include the words “Limited Liability Company, ”L.L.C.”, “LLC,” or “Ltd. Co.” in its name.

Bill Haman, SCORE Cincinnati
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Finance: Challenges Revisited

Expert Answers to Your Loan Questions

I received a comment from Johnny on one of my previous blogs regarding a lack of capital available to small business. I’m always interested in your comments and experiences so please share your thoughts with the rest here on the blog or in SCORE’s online community.

Johnny’s comments are as follows:
The Arc loan program started out as a great idea and that’s it. The banks have taken this great loan idea and have done nothing. Many banks are not even involved. One of the major banks in the United States (Bank of America) always professing they are the leaders in looking out for the small business is not even involved.

I have a small business for the last 8 years. I sell my product to Boutique stores across the Country. What I do and others like me are helping to push this economy into a better place. This Country was built by small businesses and now when we need the help of banks and our government we get nothing. There is no voice for us small businesses. I am appalled and ashamed for a recovery loan program that had so much promises and potential, fizzles out in the hands of our American banks. All while our government and elected officers do nothing. This country is run by our major banks and what financial gain they can get. The small businesses are pushed aside.

And my response:
Johnny I understand your frustration and my experience is that your financing challenges are systemic. One important clarification, there are a number of new initiatives currently being formulated inside the SBA to try to provide more liquidity to the capital markets. The issue is not whether SBA understands the problem, its that solutions currently provided can not be force fed to SBA lenders. Let’s all hope that the new program upgrades will provide capital to a very important part of our GDP: SMALL BUSINESSES just like yours.

Steve Bloom, SCORE Atlanta
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Start: Writing Your Partnership Agreement

Key Items to Include

1. Name and location of the enterprise.
2. Duration of the enterprise. Define method of termination.
3. Purpose and goals of the business: roles, duties and responsibilities.
4. Capital contribution of each party.
5. Whether the Parties may make additional contributions, and, if required, what if one Party refuses to contribute.
6. The level at which Capital Accounts of the Parties must be maintained.
7. Participation of each Party in profits and losses.
8. A wage for actual time spent running the business (Guaranteed Payment to Partner (Members).
9. Acceptable level, timing and treatment of party draws or guaranteed distributions.
10. Duties, responsibilities, authority and limits of authority of each party.
11. Amount of time to be contributed by each party.
12. Prohibition of outside business activities by parties that would be in competition.
13. Will the enterprise be managed by the parties or appointed managers?
15. Method of admitting junior parties, without capital.
16. How a party’s share of the business is to be valued.
17. Method of determining the value of Goodwill.
18. Method of liquidating the interest of a deceased or retiring party.
19. Process for continuing the business if a party dies or wants out.
20. Age at which a Party must withdraw from active participation, and arrangements for adjusting his salary and equity.
21. Period of time in which retiring or withdrawing parties may not engage in a competing business.
22. Basis for expulsion of a party.
23 How the protracted disability of a party will be handled.
24. Prohibition of the owners or their heirs pledging, selling, or in any other manner disposing or transferring their interest in the enterprise except to other owners, and/or provisions that the other owners have first refusal to acquire such interest, including reasonable time periods for making payments therefore, and the basis for computing the value of such interests. (There can be substantial consequences from an owner’s buyout, depending upon how the agreement is worded – this should receive professional assistance.)

Bill Haman, SCORE Cincinnati
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Small Business: Google Tools

Google Tools to Enhance Your Biz

Google offers a wide variety of free tools that help small business owners manage documents, photos, blog subscribers and the list goes on. Here are a few of the tools my company frequently uses:

1. Google Docs: Share documents on the web with your associates, clients and business partners. Instead of emailing attachments back and forth, creating multiple versions, share your documents online and everyone can edit the same document (one copy, no more hunting for the latest version).
   • Upload from and save documents to your desktop
   • Edit anytime, from anywhere
   • Pick who can access your documents
   • Share changes in real time
   • Files are stored securely online and best of all, it is free.
2. Feedburner: If you own a blog, you probably want to give your site visitors the opportunity to subscribe so they can automatically receive updates when published. Feedburner is an excellent tool for this purpose.
3. Picasa: Fast and easy photo sharing that allows you to organize and edit your digital photos and create online albums to share with business colleagues and clients, as well as your friends and family.
4. Blog Search: Keeping track of blog updates and news specific to your industry can be a real challenge. Using “blog search” helps you find news and info from just blogs.
5. GOOG-411: Google’s 411 service is free and easy to use. It allows you to find and connect with local businesses using the phone. Just dial: 1-800-GOOG-411 (1-800-466-4411).

Tell us about your favorites – leave your comments – thanks!

Greg Magnus, Richmond SCORE
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