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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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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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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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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Business: Limited Liability Company

LLC and Your Operating Agreement

A partnership or a Limited Liability Company (LLC)  is a person or an association of persons formed for the purpose of  operating a business enterprise. Like corporate by-laws, the central legal document for a partnership, a Partnership  Agreement (or in the case of an LLC, the Members’ Operating Agreement), governs the workings of the  business by providing a clear outline of the rights and responsibilities of all of the Partners (Members).

A Partnership/Operating Agreement allows you to structure your financial and working relationships with  your co-owners in a way that suit your business. In the agreement you and your co-owners establish each owner’s percentage of ownership , his or her share of profits (or losses), his or her rights and responsibilities, and what will happen to the business if one of you leaves.

It is  foolish to run an LLC without one.  An operating agreement helps your LLC by guarding your limited liability status, heading off financial and management misunderstandings, and making sure your business is governed by your own rules – not the default rules created by your state.
The main purposeis to help ensure that courts will respect your limited personal liability. This is particularly key in a one-person LLC where, without the formality of an agreement, the LLC will look a lot like a sole proprietorship. Having a formal written operating agreement will lend credibility to your LLC’s separate existence.

Finally, the act and exercise of sitting with your prospective co-owners and working out and negotiating the specific details of the operating agreement provisions may reveal a great deal about how cooperative each is.

It’s a good way to find out if you really want the others as co-owners.

Bill Haman, SCORE Cincinnati
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Grow: Fall Success Tips for Your Biz

Suggestions During An Economic Downturn

1. Manage your cash flow. Examine your cash flow analysis and look for steps to strengthen your financial position. Cash flow is the difference between your opening cash plus cash receipts less cash expenditure. Cash flow can be improved by managing your accounts receivable. Try to reduce the amount outstanding by collecting aggressively. Review your inventory to determine if there is any surplus which could be sold to generate cash.

2. Meet with your local banker. Reinforce your relationship and inquire as to any strategies they might recommend. This may also be a good time to ask for a line of credit or to increase your existing line. The purpose would be to buy discounted equipment and/or inventory.

3. Contact any and all vendors and creditors to determine if a discount is available for payment in 10 days. Keep your vendor payments current to protect your credit rating.

4. Examine and develop a number of guerilla marketing strategies designed to stimulate sales.

5. Develop strategic alliances with other businesses to expand market penetration or explore new markets domestically or internationally. Talk with sales people who call on you to look for ideas as to how to cut expenses or for ideas for new or improved products and services.

6. Measure your performance compared to your budget to identify and correct weaknesses.

7. Either reinforce or create a board of advisors. These individuals can be a valuable source of information and advice. Look for individuals with a general knowledge of your business. Look outside of your marketing area if necessary for competitive reasons.

8. Concentrate on your customers. Be certain they receive the best possible service and support.

9. Stay calm; Don’t panic: History tells us that economic downturns will not last forever. The horizon is starting to look brighter.

10. Concentrate on your business. Your main priority should be to maintain your current clients and customers. Focus your energy on what you can control in your business.

11. Ask SCORE for help. It’s what we do and it’s free!

Bill Haman, SCORE Cincinnati
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Leasing: Things to Consider Before You Sign

Before you sign a lease, be sure your business has a solid plan in place.

When considering a lease, consult with an attorney for approved wording. Also, consult with a SCORE Mentor to review your business plan before you sign anything.

When considering a lease, determine:

1. Are you required to carry insurance on your part of the building?
2. Does the landlord have liability insurance?
3. Do you have the right to sublet?
4. Are there provisions for expansion?
5. What restrictions are there on the use of the property?
6. Is there plenty of parking space? (Check  on a busy day.)
7. Is the rent high or low in relation to the area and facilities provided?
8. What provisions are there for renewal or canceling of lease?
9. How much must be spent on renovating, carpet, shelving, counters, decorating? Will the landlord pay for some of this through a build out or refurbishing allowance?
10. Will building codes permit your plans for renovation?
11. Do zoning laws permit your type of business?
12. Will a building permit be required when a structure is changed?
13. Who furnishes heat, light, water and repairs inside and out?
14. Are there mutual waivers of subrogation ?

Be sure to have an real estate attorney and perhaps your insurance agent review the lease prior to signing it.

Check City, County and State offices to learn whether there are plans to build a new highway or relocation of existing ones that might affect traffic flow for the area.

Bill Haman, SCORE Cincinnati
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Customer Service: Got Any? (Cont’d)

Treat the Customer as You Would Like to be Treated.

Customer service begins with the owner. Management and employees must have customer satisfaction continually in mind at whatever staff level. All must have, or be trained to have a positive approach to ensure that the legitimate wants and needs of those paying the bills are satisfied.

If you have a “loyal” customer, the customer can actually become a part of your sales force by spreading the word about your great product/service. The reverse will occur if the customer receives poor treatment from you and/or your staff.

Employees who have one-on-one contact with the customer via the sales route, fielding phone calls, e-mail communication, talking to walk-ins must be knowledgeable about the business, its policies, its product.They must be able to communicate clearly, be calm and diplomatic when dealing with  adversarial customers, be willing to go the extra mile to provide adequate answers and must act as a professional – not resorting to misleading, exaggerated, or false claims about the company, service, or product.

Keep all of your employees in the loop where service is concerned. Make them feel that they are a very important part of your effort to have your company collectively give the very best service possible. Employees should be encouraged to contribute suggestions on improvement or  change in the way you deal with the customer. A sense of participation is a great motivator for strong employee relations.

Great customer service results in more sales. More sales results in more profit.

Customer service…Got any?

Bill Haman, SCORE Cincinnati
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Customer Service:…Got Any?

Improving Your Customer Satisfaction

Recently someone suggested we develop our own customer service seminar Someone else asked: Why, there isn’t any customer service anymore.We all get frustrated when we cannot understand the customer service rep or they can’t understand our problem. Or how about press 3, press 7. press 5 and click.

Today, one of our Score Mentors related how he went into business a few years back with the crazy notion that he would build a business that emphasized customer service and customer satisfaction. Starting from scratch, he laid out plans to build his granite business to $5MM in 5 years and sell it. He accomplished all of the above. He credits his success to providing customer service that the competition did not think was necessary.

In today’s tough marketplace, when a lot of companies have forgotten the importance and the art, maybe you could stand out from the crowd by rethinking and being proactive.

Customer service” is synonymous with customer satisfaction. This is a way to show your present and potential customers that you really care about them and that they are important to you, it will establish your reputation as a company worth dealing with, and will become a vital basis for attracting business. Conversely, poor attitude on your part, indifferent service, exhibiting a discourteous, take-it-or-leave-it manner, failure to have answers to reasonable questions and other negative relationships can ruin you.

You should consider your company as a service organization no matter what type of business it is – be it manufacturing, retailing, servicing. Your focus should be on the customer. How you treat that person/organization will be one of your most important functions. Obtaining orders and making a profit naturally will be your goals, but you first must win and keep the customers. How you succeed or not succeed will be reliant largely upon your company policies and values, and it must permeate through your entire organization.

Tune in for more next week.

Bill Haman, SCORE Cincinnati
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Finance: Loan Considerations of Lenders

Tips to Get the Loan You Want

Bank loans are hard to get now, especially if you are a just going into  business. Some banks have narrowed the types of businesses that they will even consider. Loan criteria varies considerably. However, lenders (banks in particular) generally hold the following points to be important:

• Ability of the business to generate a cash flow sufficient to pay off the loan.
• Appearance , personal traits, “people skills” and body language.
• The manner, clarity and enthusiasm with which ideas are presented.
• A positive first impression is a “must” for you.
• Knowledge of the business and the market in which it operates.
• Reasonable financial projections of sales, costs and income.
• The dominant factor a lender looks for is your ability to repay the loan.
• The adequacy and quality of the equity and collateral you have to offer.
• Personal balance sheet – It is normal for the lender to require your personal signature/guaranty.
• Personal credit rating - Poor credit suggests that you are not a good prospect for the loan.
• Competent management skills and supporting functions (attorney, accountant, mentors).
• Honesty: Something in your personal or credit background that is questionable, disclose it upfront.
• A written business plan that describes the business,  the organization,  projected profit and cash flow.
• Amount and use of loan request- Be very specific and clearly understood.
• Personal contribution (Feet in the fire)-  20-50% from you or your other sources will be required.
  (Existing businesses need to present essentially the same information to a lender)

Review all of the above, get started on your business plan and contact SCORE to get an experienced mentor to help you, at no charge…. It is what we do.

Bill Haman, SCORE Cincinnati
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