Sheila Spangler's Quantum Leap Blog

When Good People Do Nothing....

2010-09-27T12:58:00.001-06:00

Last week I did something I have never done before. I wrote a letter to the President of the United States. Now, I don't expect to get a response but somehow just the act of doing it made me feel a little better.

What caused me to do this? I am so perturbed by the 1099 reporting requirement that was hidden in the Health Care Law. Not only have I now written to the President, I have also written twice to my state's elected representatives. A couple of them responded. One response was written in typical "legislator non-speak". He's an attorney so I would have been suprised if he stated a clear opinion.

But I will continue to do what I can even if it is just write letters, make blog posts, tweet relevant articles, and tell everyone I know to do the same. I'm proud of what the Tea Party has done to get attention regarding how angry small town America is with what is happening to our country.

I am sharing a copy of the letter I wrote to the President. May it inspire you to take action too. "The only thing necessary for the triumph of evil (or tyranny) is for good people to do nothing". [quote attributed to Edmund Burke, English philospher]

"Dear Mr. President:
I am writing to ask for your support of the complete removal of the 1099 issue from the health care law. As a business broker and former banker, I can tell you this will unduly burden business owners for no benefit.

I know that you believe business owners are "hiding" income and that this will provide a windfall to pay for healthcare. This is Voodoo Math.

Business owners struggle every day just to make it. Many are liquidating their businesses or simply closing the doors and filing bankruptcy.

Please review history. The country did not get out of the doldrums in the past by deficit spending or increasing taxes. We got out because taxes were reduced which encouraged job growth by the private sector. Government is to serve the people - government is not to "create jobs". You are penalizing the very people who you think you are helping.

Overall, I think the health care law is very bad policy. I also didn't like the way it was rushed through without proper study.

You don't know how tough it is to start and operate a business. If the business owners in this country had known what was in the health care bill when it was being rushed through, they would have risen up and said "no way" as we are doing now.

The only way to get the country out of the situation we are in is to 1) cut taxes (so businesses will have the ability to grow and hire) 2) eliminate unnecessary paperwork on businesses and 3) stop using Keynesian economics. It has never worked before. It won't work now.

The politics of your party have me so concerned that I worry about the future of our country. We need you to change course now. Listen to the people that make this country work. Stop listening to politicians and think tank gurus who have never been in business.

And please stop blaming "rich people". They are rich for a reason - they built or produced something of value. They took a big risk to become successful and most don't get rich the first time. I suggest that you read Ayn Rand's "Atlas Shrugged" to get a sense of how outraged business owners are at this time.

Thank you."

The 1099: A Form of Tyranny

2010-05-30T17:28:00.004-06:00

So business owners..... you thought doing your tax reporting was baaaaaaad before....well it just got worse. Here's the latest from the geniuses in Washington. Beginning in 2012, you'll have to keep track of EVERY EXPENDITURE OF $600 and more so you can send a 1099 to that person or business. And remember before you can fill out a 1099 form, you must have the tax ID number and correct address. Yikes!

Can you imagine trying to get Costco's tax ID number??! Not to mention Chevron, Wal-Mart, Office Max, and every other Tom, Betty, Fred and Sally that you do business with! I have heard some dumb things...but this one really is the grand champion.

This is going to increase the workload of every small business owner in America...and for what purpose? So the IRS can see if we are being honest? Once again, the Democrats have completely missed the boat and are tripping over dollars to pick up dimes. Yes, there are some folks that have "two sets of books" (one showing their real income and one that gets reported to the IRS). However, having all business owners fill out mountains of 1099 forms is not going to easily answer that question of who is not claiming all their income. All it will do is create mountains of paperwork.

First of all, can you imagine the size of staff that the IRS would need JUST to track all the 1099's on one business?!! Think of the work involved for just one large company..... say Bank of America!

There was a recent article in CNNMoney.com on May 5, 2010 titled "Health Care Law's Massive, Hidden Tax Change". Hidden in the 2,409 page health care bill in Section 9006 there is a MANDATE that says beginning in 2012 ALL companies will have to issue 1099 tax forms to any INVIDIDUAL OR CORPORATION from which they buy more than $600 in goods or services in a tax year.

Currently, 1099 forms are only used to track payments to contract workers. But in with this new law, whether you are a sole proprietor or a corporation, you will have to send a 1099 to every vendor, supplier, or subcontractor from whom you purchase goods or services of $600 or more per year.

So here's my question: why are we allowing this dumb law to be enacted? Folks, we need to rise up and protest to our elected officials. Our country is slowly being turned into what Ayn Rand foresaw in her book "Atlas Shrugged".

In her book, government taxation and control became so overwhelming that the "producers" (i.e. business owners) just stopped producing and moved to the mountains and started their own community. Society collapsed because all that was left were the "looters" (i.e. government officials) and the "moochers" (people that don't produce but live off the earnings of others.

Since Obama was elected we certainly have experienced a lot of "change" but change for its own sake is stupid. And right now, there isn't a lot of "hope" that the Democrats understand that business owners are what make this country run.

The National Federation of Independent Business is leading the charge to fight against this ridiculous health care law that contains the 1099 provision. If you aren't a member of NFIB, then join. And if you are a member, then send in your comments. Call and write your Congressman now. We are the future...one way or the other.

In the interest of full disclosure, I am a member of the NFIB but I wasn't asked to write this article nor did I receive any payment to do it. I'm just irritated as hell.

Where Oh Where is the RTC?

2010-02-10T14:18:00.000-07:00

This is no suprise to anyone in business. Small businesses (and big businesses) need customers. Customers come from consumer confidence. Consumer confidence comes from employment (i.e. positive cash flow which allows businesses to create jobs). Employment comes from the free flow of money in the economy.

But here's something that until recently many people didn't think about: Banks control the money supply in the economy. The Government can pump money into banks through low interest rates and programs like TARP but if banks can't or won't lend, then money doesn't flow in the economy. Thus creating the vicious cycle we see now.

Okay, I know....that's pretty elementary. But here's the question I'd like to get an answer for: Can someone tell me why we haven't considered reopening the Resolution Trust Corp that resolved the problems during the S & L Crisis just a few years ago???

Banks would be able to lend and thus "jump start" the economy. Why don't our elected leaders remember the Savings & Loan crisis and learn from it?

In September 2008, Paul Volcker, Nicholas Brady and Eugene Ludwig wrote a Wall Street Journal article about this. Mr. Brady was U.S. Treasury secretary from 1988-1993. Mr. Ludwig was U.S. comptroller of the currency from 1993 to 1998. Mr. Volcker was chairman of the Federal Reserve from 1979-1987. Everything they predicted there has come to pass. You can see the article here: Resurrect the Resolution Trust Corporation

Remember the Resolution Trust Corp? This was the entity set up by the government to handle the "bad assets" from the S & L's in the country. Because the "bad loans" were removed from the existing bank's balance sheet, that bank could recover ...depending upon the rest of its financial strength.

Now there were S & L failures because of how deep their problems ran. But overall, we recovered from that crisis faster because bad assets were corralled and worked out by experienced lenders in conjuntion with private partnerships that purchased the assets. And (even though I'm not a big fan of job creation by the government) jobs were created at the government's "bad asset bank" by hiring experienced bankers to "work out" the bad loans with the borrowers.

Eventually all the of "bad loans" were handled - either paid off, properties foreclosed and projects completed. So......why are we keeping "bad assets" on bank balance sheets now? Who's benefiting from this???

Banks can't loan money (even with SBA guarantees) if their "bad asset to capital ratio" is too high. The regulators won't let them. Check out this website to see how your bank's bad asset to capital ratio looks. Banktracker

Hint: in the "old days" (pre-crisis) having non-performing (i.e. "Bad") assets of 3% was a bad thing for a bank. Now, if your bank has less than 100% of non-performing assets to capital ratio, the doors are still open. Why? Probably because the FDIC can't afford to close them. Think of the panic. Think of the cost to us.

Many community banks are in the 50 to 70% bad asset to capital ratio range - meaning that 50 to 70% of their loans (as compared to the bank's capital) are past due, non-performing or ready for foreclosure. This is similar to a consumer having credit card debt equal to or greater than the value of all of her assets including her home. Many banks are technically "bankrupt" and we keep hoping for a better day. But contrary to popular belief: "Hope is NOT a strategy". Having a good plan and implementing it is the only way out of this crisis.

I know when we don't understand history, we are doomed to repeat it. Get the book(s) "The Bankers", by author Martin Mayer. He wrote two books by this name. The first one in 1974 and the other in 1998. (they are available through Amazon). Read them. Then consider what must be done now.

Then let me know what you think.

Do You Have A Sales Force or a "Sale Prevention" Department?

2010-01-18T14:33:00.000-07:00

Have you ever really wanted to buy something yet the biggest reason you didn’t was the sales person?

Maybe it’s me…but I like to be “sold”. Whatever the product or service is, I want the sales person to ask me questions about how I will use it. What do I like about it? What reason do I have for wanting one? What difference will it make in my life? How many others have I considered but not purchased? And why? And so on.

What irritates me incredibly is when I tell the salesperson SPECIFICALLY what I want (in other words, I have made it EASY for him/her to sell to me). I’ve also said, “Look, I know something about this type of gizmo. And so I only want to hear about how I can use it for (name specifics). I know the product has many other features I may grow to love and use. But right now, for the sake of time, I only want you to tell me, can your Whizbang do such and so in this way”?

The sales people I talked to must all be on salary because they would never make it on commission. Or to paraphrase Zig Ziglar: “they must have skinny kids”. This is Zig’s way of saying someone is a lousy sales person.

In the last couple of weeks, I have experienced no less than 3 lousy sales people. I’ve been shopping for a Customer Relationship Management software program (CRM for short). In each case, I have let the sales person know, upfront, what I would like the CRM to do. (And I do have experience in using a CRM. But not ONE of these incompetents asked me that question).

In each case, the salesperson proceeded to go through a preprogrammed “pitch” about the product diving into details that I could care less about. I reminded them (at least 3 times), that while all those features, do-dads, whistles and bells were nice, but I don’t care about that right now. “Please, please just tell me will it allow me to create an email sales campaign with a follow up system that works like this (and I patiently explained it AGAIN!)……”

Finally, after hours of talking to these bobbleheads, I signed up for a trial run on two of the programs. Within an hour, I determined that one was not right at all. The other one appears to be able to do what I want. But I am irritated as hell that I had to waste my time figuring it out for myself!!!

If you are a sales person, take this word of advice: LISTEN TO YOUR CUSTOMER. Then answer the questions they have asked you. Then SHUT UP and listen some more. Then the only thing coming out of your mouth should be questions about their business, how they plan to use your service/product, their experience with your type of product, what they want it to do or not do.

Don’t just assume they want to see a full scale demonstration from A to Z. And the other bad assumption to make is to sit there like a bump on a log. One salesman I spoke at a large internationally known company was either unwilling to answer my questions or ready to go home. I am assuming he’s not on commission.

Bottom line: if you’re in sales (and we all are), ask questions, listen and give your prospect the answers. And along the way, you’ll build trust as you find out more about the person in front of you who wants to give you money. Just give them a reason to part with it. Make sure you have a sales department not a Sales Prevention Department!

Why SBA Loan Production is Down

2010-01-11T14:12:00.000-07:00

This article was just published in the IBBA (International Business Brokers Association) 2010 Winter Quarterly Journal. And here it is for you on my blog.

There was an article recently on CNNMoney.com that said SBA loan production is down 36 percent from 2008. As business brokers, many of us have felt that pinch first hand, but have you wondered why SBA loans have waned along with the rest of the credit market? After all, don’t those loans have a guarantee? Why won’t the bankers make them? I decided to do a little research.

As a former commercial banker, banking school graduate and business broker, I am a big fan of SBA loans. I’ve originated many in the last 20 years. Without these loans, my main street business clients would not have been able to sell their businesses to new owners or expand.

We are suffering through the worst economic crisis since the Great Depression. During the Depression, interest rates were too high and no one could afford to borrow even though there was plenty of liquidity. Today, the problem is different. Rates are low yet liquidity is even lower for banks. Here’s two reasons why banks aren't willing to open the credit spigot:

1) Unhealthy balance sheet. Just because a bank may have paid back TARP, it doesn’t mean the bank is “healthy.” In many cases, problem loans are not being addressed because doing so would cause write-downs, which erode bank capital. The regulators are stepping softly in many cases encouraging bankers to term out loans for longer than normal periods to avoid losses, business closures and panic. But in many cases, the bankers are using a “head in the sand” approach and not addressing problems.

2) Fear of making the wrong decision. Bankers are running scared. The lack of capital and unaddressed time bombs on the balance sheet has made them even more cautious than normal. They are playing a waiting game: waiting for things to get better. But it’s a catch 22. Eventually, someone has to step forward and lead the charge. Of course, just like the eager lieutenant on the battle field, there is always a chance they’ll get shot in the back, too.

You’re probably thinking “Okay, but why don’t banks make SBA loans since they have a government guarantee? Aren’t they completely safe for the banks? What have they got to lose?”

Here are my top four reasons why SBA loan production is down. These reasons are based on experience and conversations with bankers, regulators and debt buyers.

Banks:

• Laid off their experienced SBA business development officers and underwriters when the market melt down happened last year.
• Don't want to learn the program because they perceive the return to be low, and for many, what they don’t understand, they fear.
• Know that even if they get the SBA loan done properly, there is really no assurance that the bank will be able to collect on the guarantee to get “paid back” should the business fail. The loan must be properly underwritten and serviced in order to maintain the guarantee for the life of the loan.
• Don’t like unknowns and right now everything is an unknown. Is the seller’s business really able to withstand a transition now? Does the buyer really have the skills to manage and lead? Is there a hidden problem?

It’s going to be awhile before the credit market loosens. In the meantime, buyers and sellers of businesses have to get more creative and flexible. This means sellers will have to self-finance more of the transaction. That’s good for buyers but not so good for sellers that want to exit the business and not worry about it any more.

In some cases, the business owner may not be able to sell the business at all. So he or she will have to continue to work longer. This is heartbreaking for many business owners. Some have worked years to build their businesses and now see them falter just when its time to retire.

The only thing I can say is this: business owners are the toughest people in the world. Just like everything else in your business life, you’re going to have to find a way to fix this yourself. Perhaps we can form a business owner’s co-op and provide loans to each other to take the banks out of the picture. Now wouldn’t that be something?

Who's a Fat Cat?

2009-12-15T12:15:00.000-07:00

Now while I am one of the first to encourage banks to lend, I think it is inappropriate for the Commander in Chief to refer to commercial lenders that make loans to businesses as "fat cat bankers on Wall Street." The "bankers" that got us into this financial mess are NOT the commercial lenders that you see on Main Street in your town. I wonder. . . . .does the President know the difference?

Commercial bankers make business loans. Investment bankers aid in the buying and selling of securities, making a market, and assisting in the negotiation of the transaction. Investment banking is a world away from commercial lending.

The current financial mess started with "innovative financial engineering” from Investment Bankers and Insurance companies NOT because commercial banks stopped making loans. Traditional commercial lenders aren’t very innovative. As Paul Volcker, former Federal Reserve Chairman, said recently, the most innovative thing commercial bankers have done is to encourage the use of the ATM.

I agree that the lack of loans has reduced liquidity for many small business owners. And that is now becoming a problem in itself. However, this isn’t the CAUSE of the reduced lending.

The reason commercial banks have been hesitant to make loans is because they must maintain certain capital ratios as dictated by the Federal Government. In many cases, they have been UNABLE to lend because doing so would cause the ratios to fall below where bank regulations allow. And with many of their previously made good loans that are now turning “bad” because of the economic slowdown, commercial banks have even more problems to deal with. So it is a conundrum. And is not solved by name-calling.

When banks make loans, the economy improves because money circulates. The current credit crisis is a lack of confidence by banks to fund deals. A year ago, they didn’t even trust one another enough to lend to themselves let alone a business owner!

I have a lot of faith in the ingenuity and guts of business owners. Without them, this country wouldn’t be what it is or has been. Business owners DO need help right now. Commercial bankers SHOULD be willing to take risks on them. However, I know that is easy to say and hard to do especially given the circumstances.

So, Mr. President, while I applaud you for encouraging commercial bankers to make loans, don’t put them in the same category as investment bankers. They are NOT the same breed of cat. The biggest thing you could do to stimulate the economy is to cut taxes, stop scaring us with this socialized health care, reduce regulations that restrict commercial banks from making loans, and realize that as President Reagan said: “government is not the solution to our problem. Government is the problem”.

$100 Million Increase for Small Business: Good or Bad?

2009-11-24T10:38:00.000-07:00

The Obama administration is asking that Congress allocate another $100 Million to the Small Business Administration to assist small businesses in getting access to credit. This is a relatively small amount. Think of it this way, it represents one hundred (100) - million ($1,000,000) loans. Using that analogy, that would be equivalent to 2 loans for each state in the union. That's not a lot of stimulus.

Or let's say that the loan amounts average $250,000 - that represents 400 loans (or approximately 8 loans per state). Now don't misunderstand, SBA loans aren't allocated to each state. No, it's first come, first serve by the bankers that are willing to make these loans. And there's something else you should know, an increase in "funding" by Congress is a misnomer. Banks lend the funds for SBA loans. The Small Business Administration provides a guarantee up to 90% of the loan amount. What the government is doing is "allocating" its guarantee for more loans to be made.

It's really a "non-cash transaction" sort of like depreciation expense on your Profit and Loss statement. Depreciation represents money you SHOULD put away to replace the equipment you are using. And at the same time, it reduces your tax bite. The allocation of "funds" for the SBA guarantee doesn't cost the tax payer anything UNLESS and UNTIL, the actual loan goes bad. Most of the time, the loan will perform and the guarantee is never called upon. Therefore, no money is issued from the government to the bank.

I'm not an Obama fan but I do support small business. And without the SBA guarantee, banks simply won't lend to small businesses right now. Bank's credit policies are extremely conservative mostly because they have "bad assets" on their balance sheets and can't afford to take on additional risk.

Utilizing the SBA program is the best idea we've got right now to get liquidity to small businesses. What is a bad idea is the forced health care that Obama is pushing. That alone will cause many "unintended consequences" like increased taxes, more burden on small business, stifled growth, inferior care, etc.

So, yeah, I'm all for increasing the "allocation of funds" for SBA loans because those funds will only be utilized IF the borrower fails. Most of the time, that's not going to happen.

How Do I Get My Business Loan Approved?

2009-10-23T14:42:00.000-06:00

As a business intermediary, I transact business sales, purchases and financing. I am finding that even with SBA guarantees on business acquisitions, the banks want 1:1 collateral coverage even though the SBA guarantee is supposed to eliminate that requirement.

Typically, bankers look at the following items to make a determination of whether your loan will be approved:

Good credit rating for both the company and its owner. (Good is a subjective term and each banker makes a decision as to whether your score is "good enough" for them).
A debt-coverage ratio of 1.25.
At least two years in business
A history of profitability
Management/industry experience
Collateral for loan - type, value, condition
Secondary source of repayment - (i.e. do you have outside income? Do you have other assets such as securities, cash, real estate?)
Current economic climate and how your industry is affected
Character - do you have references? Have you worked in this industry for a long time? Have you managed your business well? Do you run personal expenses through your business and fail to show a profit? Are you honest? Do your customers like you?

Making a commercial loan is an art and a science. These guidelines are in place to assist a loan officer in making a decision. However, a loan officer's "gut feeling" about a borrower is just as important as the other listed items.

If the loan officer doesn't "feel good" about you, she will look for another reason to turn the deal down. And "no" this feeling doesn't have to be quantified.

My suggestion when meeting with bankers and applying for a loan is this:

Behave professionally.
Be prepared.
Have all the required paperwork.
Don't ask: "how much can I get?".
Know beforehand what you want.
Describe the terms you'd like in a friendly yet business-like manner.
Answer the question that is asked of you (and nothing more!)
Don't whine.

If you get a turndown, ask the banker what kind of terms/conditions under which she would make the loan. If the banker says, there is no way you'll get the loan, then consider that this particular bank may be under regulatory scrutiny.

If a banker likes you, and you meet most of the criteria, a good banker should give you some options of how he WOULD do the deal. If he turns you down flat, it may be about you OR it may be about this particular bank.

Bankers aren't going to tell you that the regulators have been there and put them under a "cease and desist" order. You'll have to do your own homework to find out which banks are healthy. A good resource for this is: http://banktracker.investigativereportingworkshop.org/

Bankers are very nervous right now and the loan criteria is a "moving target" depending upon the mood of the approval officer. And remember the banker you meet in person is, in most cases, NOT the final decision maker.

The person you meet will be your advocate if they like you and the deal. However, they also have to be able to "sell" the deal to the final decision-maker.

The larger the bank, the more layers there are between the person that takes your application and the decision maker.

I suggest that you go to a community bank with local decision making authority. Stay away from the large banks because the front line person generally isn't experienced and won't have any "pull" with the decision-makers.

If you are having a challenge with getting financing and you want a second opinion, give me a call or send an email. Good luck!

Economic Recovery: It's About Small Business

2009-10-13T11:19:00.000-06:00

According to an article on Reuter's today, small businesses create over half the new jobs in this country but access to credit two years into the recession continues to be scarce.

I know this to be true, firsthand. I work directly with business owners to sell and buy businesses. A year ago, things were not as tough as they are today to get SBA business acqusition financing. Now, bankers don't even call you back. So much for "relationship banking" the euphemism that many used during the boom cycle.

Hello Congress and President Obama! Stop fussing around with health care. That's NOT the biggest problem right now. The small business community is "sick" because they can't get access to capital.

When banks make loans, the economy improves because money circulates. The current credit crisis is a lack of confidence by banks to fund deals. And the the lack of confidence comes from the banking system's over-exuberance to make mortgage loans to people who didn't qualify in the first place. Now, we're all paying the price.

The only way to fix the problem is to acknowledge it. Address it. Find a solution. And implement it. I'd prefer the government stay away from private industry but it's too late for that as the Democrats race headlong to nationalize banks, health care and auto makers.

Perhaps, small business owners need a direct bailout from the government. But that would only perpetuate the problem and put more people on the government dole-out. And guess who would have to pay for it? Yeah....you, me and the very business owners that need the funds.

So it's best to find another way.

Business owners are finding ways to survive. They are bartering, trading, reducing, revising, and eliminating goods and services. It's a rough and rocky road and we don't know where it will end up.

One thing is for certain, our attitudes about credit and banks will never be the same. This must be what it felt like for my grandparents during the Depression. No wonder they kept their money under the mattress.

Sheila Spangler Wins Nobel Peace Prize

2009-10-09T10:03:00.000-06:00

I normally wake to the sound of gentle classical music in the morning. It is a great way to start the day. The classical sounds fit into that in-between state of wakefulness and sleep. This morning, however, I thought that my dreams had taken an odd turn.

I heard a news announcer say: "President Obama was awarded the Nobel Peace Price today". I laughed to myself and rolled over. Now where would I get such a crazy thought?

But no! When I awoke and checked the Washington Post feed I get everyday there it was in bold letters. What???!!!

Obama got the Nobel Peace Prize for TALKING about what he'd like to do???!!!!

Incredible!! Has the world gone nuts???!!! What are those Norwegians drinking?

How can he be in the same category as Teddy Roosevelt or Woodrow Wilson? They actually ACCOMPLISHED something before they were awarded the prize.

Were the other nominees so lacking that this is the best candidate they could find?

Well, all I can say is that I am going to start working on my own nomination package for next year. With the standards this low, anyone can win. So why not me?

Do Friends Let Friends Open a Business Today?

2009-10-06T17:34:00.000-06:00

If the first time business owner really knew how hard starting and operating a business is….he/she would never do it. And this country wouldn’t be the great place it is.

I say: “Avoid dream-killers but DO your homework”. In other words, if you want to start a business, research the market, the industry, take a personality test to see what suits you, study marketing and learn how to sell.

If you do ALL of that and you still want to go forward….DO IT. And don’t second guess yourself. Because here’s what will happen if you DON”T pursue your dream, you will always regret it.
Mark Twain said: “twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did.”

Why SBA Loan Production is Down

2009-10-03T15:40:00.000-06:00

I am a big fan of SBA loans. I’ve originated many in the last 20 years as a business broker and former commercial banker. Without these loans, my “main street” business clients would not have been able to sell their businesses to new owners or expand.

We are suffering through the worst economic crisis since the Great Depression. During the Depression, interest rates were too high and no one could afford to borrow even though there was plenty of liquidity. Today the problem is different. Rates are low yet liquidity is even lower for banks.

Here’s why banks aren't willing to open the credit spigot:

1) Unhealthy balance sheets. Just because a bank may have paid back TARP, it doesn’t mean the bank is “healthy”. In many cases, problem loans are not being addressed because doing so would cause write-downs which erode bank capital. The regulators know that stepping softly is key to rebuilding the economy and the banking system. Banks are encouraged to term out loans for longer than normal periods to avoid losses and business closures.

2) Fear of making the wrong decision. Bankers are running scared. The lack of capital and unaddressed time bombs on the balance sheet have made them even more cautious than normal. They are playing a waiting game…. waiting for things to get better. But it’s a Catch 22. Eventually, someone has to step forward and lead the charge. Of course, just like the eager lieutenant on the battle field, there is always a chance they’ll get shot in the back too.

So okay but why don’t banks make SBA loans since they have a government guarantee? Aren’t they completely safe for the banks?

Here’s my opinion based on experience and conversation with bankers, regulators and debt buyers.

Banks:
don't have experienced staff in place that understands the program
don't want to learn the program because what you don’t understand, you fear
think its too much work to be involved in the program
know that even if they get the SBA loan done properly there is really no guarantee that the bank will be able to call on the SBA guarantee in the future. The loan must be properly underwritten and serviced in order to maintain the guaranty.

So, it’s going to be awhile before the credit market loosens. In the mean time, buyers and sellers of businesses have to get more creative and flexible. This means sellers will have to self-finance more of the transaction. That’s good for buyers but not so good for sellers that want to exit the business and not worry about it any more.

In some cases, the business owner may NOT be able to sell the business at all. So he or she will have to continue to work longer. This is heartbreaking for many business owners. Some have worked years to build their businesses and now see them falter just when its time to retire.

The only thing I can say is: business owners are the toughest people in the world. Just like everything else in your business life, you’re going to have to find a way to fix this yourself. Perhaps we can form a business owner’s co-op and provide micro loans to each other and take the banks out of the picture. Now wouldn’t that be something?

Obama and Health Care Scare Tactics

2009-08-12T10:34:00.000-06:00

The health care reform debate is getting very loud. If you haven't watched the recent videos of the town hall meetings, check it out on the link in the title of this blog.

I'm not sure what the answer is but I know one thing for sure, in order to understand a situation a considerable amount of time needs to be devoted to research and analysis before making a decision. I think that President Obama is rushing the health care bill through Congress. So is it supposed to be "health care reform" or "insurance reform". What is it exactly? And how is it going to be funded?

Like many other bills that are passed, there are unintended consquences associated with them because no one took the time to consider the impact.

So, I think that if health care is truly so important, shouldn't we take the appropriate time to understand all the issues?

Anytime one side wants to rush the process, you can just guarantee that the other side is going to get screwed.

That, Mr. President, is what regular people in the country are angry about. We are an independent bunch and don't like things shoved down our throats. We don't like being told "we know best and this is good for you". Sounds like what our parents used to say when we were kids.

Government was not put in place to be patriarchal. It was put in place to serve at the pleasure of the citizens. Citizens get to vote and speak up and tell government how things are going to be. Not the other way around.

I read the Wall Street Journal, Fortune, Forbes, Inc., New York Times, and Businessweek to name a few. No one paid me or encouraged me to protest against the proposed healthcare plan. My opinions were formed totally on my own.

I am not convinced that Congress or the President knows what’s best for me. I’m used to making my own decisions. And I know plenty of others who feel the same way.

From the news videos I've watched, it is apparent that the protesters are not an organized bunch. They are young, old, fat, thin, black, white and from many walks of life. Many carry hand made signs.

There’s no vast Republican conspiracy. The Democrats are giving them way too much credit. People are exercising the rights that our Founding Fathers put in place over 230 years ago. I wish they were here now so we’d have someone looking out for our rights.

snopes.com: An Open Letter to President Obama

2009-08-11T18:19:00.001-06:00

A friend of mine just shared this with me. It is a letter written to President Obama by Lou Pritchett who is a former Vice President of Proctor and Gamble where he worked for 36 years. He is also the author of the book Stop Paddling and Start Rocking the Boat.

He wrote this letter in May 2009 and sent it to the New York Times. However, the Times didn't acknowledge or publish it. Hmmmm. Guess they didn't think it newsworthy. Perhaps they believe if you don't acknowledge the truth, it will make it less truthful. Kind of like as ostrich sticking its head in the sand and saying "if I don't see you, you can't hurt me!"

The letter found its way to the internet. Snopes.com verified that the letter was indeed written by Lou Pritchett.

This letter pulls no punches. It says what many entrepreneurs, business owners and capitalists are thinking right now. Read it and make your own decisions.

snopes.com: An Open Letter to President Obama - Lou Pritchett

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Does the SBA Chief Really Know What It Will Take?

2009-08-10T11:28:00.000-06:00

I know I've been on a "kick" lately making comments regarding banks and SBA loans. It's probably a curse of some sort since I was a banker for many years. I promise I'll write some stuff about buying and selling businesses too. It's just that getting financing is so KEY to putting a buy/sell transaction together.

If we don't figure out how to fix this and get credit flowing and businesses moving again, its going to worsen the situation.

Today, I saw a headline in the Wall Street Journal from an interview with Karen Mills, the SBA Chief. Here's my response to the article.

I strongly disagree with Ms. Mills when she says the "health care” is the number one concern of small business owners.

I work with small business owners that want to sell, buy and finance their businesses. I can tell you, the only reason health care comes up in the conversation is because business owners are terrified about what the Obama administration is attempting to do with health care in this country.

Adding a tax to pay for health care will cause many to go under or at least go “underground” by hiding their income. Imposing a “government option” to compete with the free market is a bad idea. Look at France and England. Their costs are out of control and people are not getting the care they need.

Some people say that British dogs have better health care than the humans do (Wall Street Journal article from 8/8/09). Why follow that model? Doesn’t make sense to me.

While I think that the changes to SBA (eliminating fees and increasing the guarantee) are extremely positive, doing just that is not going to make banks lend. The banks must make the loan and if the borrower should default is when the guarantee is called upon.

And what's more, the SBA loan package must be put together perfectly - i's dotted and t's crossed - or the SBA won't fulfill the guarantee. And the guarantee can only be called upon after the bank has liquidated the borrower's collateral and attempted to get payments.

So while improving the SBA program is great, it is not a panacea to solve small business owners’ problems. Someone needs to ask the banks why they aren’t able or willing to make the loans. Hint: its about federal regulators tightening the reins on their portfolios. There are many variables to the credit situation and fixing one thing will not cure it.

Tough Times Call for Asking Questions of the Right People

2009-08-06T11:07:00.000-06:00

I saw an article in today's NY Times Blog. I couldn't resist replying...even though I don't live in New York. Senator Frank Lautenberg (D) of New Jersey is making the rounds and asking small business owners what their needs are and if they are aware of all the services that the Small Business Administration provides.

They are listening to business owners tell about issues regarding the lack of financing....specifically SBA loans. This is a good start and there needs to be more of this by our elected officials. And they need to keep digging deeper. Here's the comment I sent to the Senator today.

"I am glad that you are attempting to get to the bottom of the small business credit crisis. I am a Business Intermediary - I work with business owners to buy, sell, grow and finance their businesses. And I am quite familiar with SBA loans and bankers (having been one myself for over 20 years and a graduate of Pacific Coast Banking School). Here is my opinion on what is happening regarding SBA loans.

In my opinion, SBA loans aren’t being made because the banks are under extreme scrutiny by the Federal Regulators to keep a clean loan portfolio and cut down their risk.

Even though the federal government has “allocated funds” for SBA guarantees…..this is not necessarily real money. It is merely an allocation of the amount the government is willing to risk if SBA loans default. Even with SBA guarantees, banks are still taking a risk on the unguaranteed portion of the loan.

The commercial bank has to agree to make the loan using the banks rules which are superimposed over that of the SBA rules. Just because SBA may be willing to guarantee the loan, the bank may not necessarily want to make the loan.

When I was a commercial banker, I underwrote and approved many commercial and SBA loans. Each bank has a loan policy which varies depending upon management’s tolerance for risk and their understanding of a particular industry or loan type.

Additionally, a bank’s risk tolerance is governed by how hard the bank regulators squeeze them about their current loan portfolio. And finally, there are just some banks that just won’t make an SBA loan. They don’t know how, don’t want to learn, and it won’t matter how much the government allocates for the SBA guarantees.

If the bank does make the SBA loan, the package has to be done perfectly or the bank risks not being able to exercise the government guarantee. That’s one reason why SBA loans take so long and require mountains of paperwork.

So what we have is a “stalemate” with one foot on the gas (the allocation of guarantee) and one foot on the brake (bank regulators). I don’t know what the ultimate answer is….but I do think that our elected officials need to talk with bankers about why they can’t and won’t make loans.

My suggestion to borrowers is: seek an SBA loan from a “Preferred Lender”. See the website http://www.sba.gov/ for a list of these lenders in the country. They have the training, knowledge and ability to make SBA loans. Also, I suggest that you start with smaller banks that have local decision-makers to make your pitch. But due the prior circumstances I mentioned, the bank still may not make the loan."

Hey, who knows if he'll even read my comment. But I feel better for having sent it. What have you done today to let someone know how you feel?

Why Lowering Loan Rates Won't Boost SBA Loans

2009-07-24T11:56:00.000-06:00

Today’s article on Heraldnet.com says: "Congress is puzzling over how to improve lending rates to small businesses in light of a lackluster performance from loan programs through the Small Business Administration."

The crux of the small business credit crunch is not about interest rates or lack of investors willing to purchase loans….although both play a part….its about credit quality.
There is a key piece of the pie that no one is talking about. That is: investors want to buy perfoming or “seasoned” loans that have been in good standing for a significant period.

A “seasoned loan” is one where the borrower has made payments on time since the loan was originated, the collateral value hasn’t deteriorated and there are generally no issues or problems. That means that any SBA loan made today would generally require 12 months of good performance before an investor would be willing to purchase it at the current premium.

However, if during that “seasoning period” the borrower goes into default (i.e. stops making payments) the loan can’t be sold at the premium the bank hoped to get. So the bank is stuck with a bad loan. This is why many lenders have slowed down their SBA lending.

With poor credit quality comes liquidity issues for the bank. This is VERY simplified but here’s the process: if the bank can’t sell the loan, then there is no influx of cash to make the next loan. And if the loan goes “bad”, the bank doesn’t get the cash flow from the payments to continue operations. It can be a vicious cycle.

With the stress already being experienced by bank balance sheets, and scrutiny from regulators requiring write downs, many lenders simply choose not to play right now. It’s not worth the risk. For stats on banks click this link: SBA Loan Slide

The Treasury’s $15 billion plan to buy up SBA loans may work providing that lenders can get comfortable with giving up some ownership to participate in the program.

Originally, many SBA lenders said “no” to the Treasury’s plan because they either had no stock to offer the government or were a division of a large corporation.

Now the government has dropped the $500,000 salary cap requirement. And the Treasury is considering whether to offer SBA loan originators a deal in which the SBA lender could issue stock to the government and then immediately repurchase it. This would be required because of the stimulus package “rules” in the legislation.

It’s not a done deal. And for now because of market uncertainty banks aren’t going to open the spigot full-blast for SBA loans (or commercial real estate loans). It will be more of a trickle effect. Hopefully, it will be enough to keep small businesses afloat.

I think history will show that the lack of capital to small business owners prolonged this recession/depression. There’s always a lesson to be learned. Unfortunately it generally comes after the fact.

Starting (or buying) a Business is NOT Risky

2009-07-16T11:27:00.000-06:00

Good News for those of you contemplating starting (or buying) a business right now! According to a New York Times article, businesses are NOT more likely to fail during a recession. Yippee!

The article says that those started during a recession have just as much chance of survival as ones started in good economic times. Okay so what's the downside? Well, only 48.8 percent of new businesses started are still operating five years later.

And from personal experience, I believe this is accurate. So why don't more businesses survive past the five year mark? Here's what I think (and my opinion is based on numerous analysis of small business owners financial situations) -

Half the businesses started don't last beyond 5 years because:

1) the owner runs out of funds and can't borrow more. The owner may have a great product or niche but the learning curve in starting and running a business was greater than the cash flow generating ability of the business.

2) the owner is tired of "doing-it-all". The is the classic tale of woe told by Michael Gerber in "The E-myth". Most people who start businesses are technicians....not entrepreneurs. So after five years, the owner is simply exhausted from "making the pie, marketing the pie, managing the store, cleaning up the mess" and doing it for little or no income.

3) the owner experienced a personal tragedy - death, divorce, disease - that couldn't be overcome

4) BUT THE BIGGEST REASON is (drum roll......): the owner didn't know how to market his/her business. Marketing was considered a variable expense and done randomly depending upon the sales people that showed up to sell a Yellow Page or newspaper ad. Learning to become a "marketer of your business rather than a do-er" to paraphrase millionaire-maker Dan Kennedy, is the MOST IMPORTANT thing you can do as a business owner. A systematized marketing campaign that puts your business in front of your customers and prospects all the time keeps money coming in the door....in good times and bad.

And what's more, ANYONE can learn to do this. If you'd like more information, contact me directly.

Or click this link right now to get some FREE information that you can use in your business right now: Grow Your Business in Any Economy

Don't wait. If your business fails, it's NOT because of the recession. It's because you didn't know what to do.....so get educated about it today!!

Washington Post Article - "White House Eyes Bank Bailout of Small Business"

2009-07-13T13:28:00.000-06:00

There is talk from Washington about giving small business owners a “bailout”. This is a step in the right direction. However, some additional thought needs to be undertaken before rushing headlong into approving another non-workable government solution. Here are some key things to remember - the Small Business Administration does not make loans. The SBA provides a guarantee to banks that make the loans.

If banks aren't going to change their standards to approve these "rescue loans", then there is no rescue. And I know from personal experience that bankers superimpose their rules over that of the SBA. (I was a commercial banker for over 20 years). Just because the SBA says it’s possible to make a loan a certain way ….it doesn’t mean that bankers will make the loan.

And let’s not make the proposed small business bailout a paperwork jungle. The widely touted ARC "America's Recovery Capital" (SBA loan of $35,000 to small business to help them stay current on other debt) is very onerous for bankers to process. In visiting with commercial bankers, they tell me that the paperwork for ARC loans is about 4 inches thick. Doing an ARC loan is every bit as time consuming and difficult to put together as a regular SBA 7(a) loan. But the kicker is….it is only $35,000 and some bankers consider this a waste of their resources.

In fact one banker at a regional bank said that other bankers are referring ARC loans to her. Why? Because the other banks don't want to take the time to do them. There is no profit in it for them. This particular loan officer and her bank are making ARC loans because they know in the end; they will get some "political capital" out of it. They'll be able to say - "we made loans when others wouldn't". It’s probably a good strategy since bankers' reputations have become worse than used car salesman. (No offense meant…but that is a reality).

Here's a suggestion, before approving this small business bailout make sure it is really going to be a bailout and not a paper shuffle that Congress can claim "we did something". Let's do this right. We only get one shot.

Guest commentary | Small Business Administration can expand small businesses access to capital - Kansas City Star

2009-07-07T10:28:00.001-06:00

Guest commentary | Small Business Administration can expand small businesses access to capital - Kansas City Star

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What's the Best Way to Get a Business Loan Today?

2009-06-27T19:07:00.000-06:00

Check out this interesting answer on Yedda

Like to open another business and hire people to do work. My concept works.
Getting a business loan from a bank these days takes preparation, patience and at least 20% of the cost to purchase the business in your own cash. The preparation part should include a well developed and researched business and marketing plan...plus financial projections.

If you don't know how to do this (or don't want to) find a competent professional to help you. Accountants, consultants, and business brokers may provide the resources you need.

You will need to "paint a picture" for the banker regarding the business you'd like to open or purchase. Additionally, you'll need to "sell yourself". Prepare a resume with your past relevant experience (relating to business ownership, managment, leadership).

Don't go in and ask the banker "How much can I get?" Figure this out before you go. Nothing says 'greenhorn' like this question. You want to build the banker's confidence in you. So you absolutely must do your homework before talking with any banker.

And when you do your research be sure to separate your emotions from what you want to do versus what the market will support. Just because you've always wanted to open a sushi restaurant (for example), it doesn't mean your town will support another one. Look to see what people WANT to buy and then find a way to fill that want.

And remember people buy what they want....not necessarily what they need.

So once your plan is done, you have your 20% cash down, then go shopping for a banker. I suggest that you look at the Small Business Administration website (www.sba.gov) to find a list of the Preferred Lenders for SBA loans in your area. These banks tend to have the best qualified bankers to help business owners get started.

Good luck to you!
Topics: business, career
Answered by BusinessDiva on June 28, 2009
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Are there any good bankers left?

2009-06-26T10:33:00.000-06:00

As a former commercial lender, I'm appalled that bankers are forcing small businesses into bankrupcty rather than doing a workout. According to Business Week, business bankruptcies are up more than 40% over last year. (see article "As Bankruptcies Surge Fewer Emerge" )

Banks have "fragile" balance sheets right now. Here's why: They reduced their credit standards to follow the crowd. Now they are paying the price. Just like small business owners are paying the price through reduced sales, profits and access to credit.

I've personally noticed that the unwillingness to work out of problem situations is especially true of the large banks. The locally owned independent bankers are much more likely to work out payment arrangements with business owners. Probably because the decision-makers live in the community in which they serve. Its more difficult to be hard-hearted when your neighbor, club member or friend is requesting that you help him save his business.

I am working with some business owners in this regard. In my prior life as a commercial banker, every one of the banks I worked for referred to themselves as a "relationship bank". Well, it is apparent that the "relationship" only works one way. That's NOT a relationship that anyone can be in successfully for the long-term.

Come on bankers, small business owners need you now more than ever. Don't follow the crowd like you've always done. We need bankers with the mental toughness and guts to take a stand and do what's right for business owners.

Credit Squeeze Affects Small Business

2009-06-19T12:15:00.000-06:00

The banks encouraged small business owners to get into this mess (with easy credit and low interest rates) and they are going to prolong it by cutting limits and raising rates. And there are virtually no other options for small business owners....other than paying cash.

And if your clients don't pay for 30 or 60 or more days, then a huge financing gap occurs. That gap, in the past, has been covered by credit cards and unsecured credit lines that banks handed out like lollypops as recently as 18 months ago.

I'm not saying each of us aren't responsible for our actions. But business owners make calculated risks. We ask: Should I go into debt to start up a new company? What happens if I fail? And what happens if I never attempt my dream? Every business owner starts out thinking they have the best new idea or service to offer the buying public. If we didn't believe that, no one would go into business.

So we take that "leap of faith". We may use a credit card to finance the startup or inventory purchase...because we know that if we don't take that chance, we'll never see the reward.

Now, however, the risk is even bigger. This country was built and continues to run based on innovation and the work ethic of small business owners.

Bankers: we need you to recognize that without us, you don't have a business. Find a way to be innovative and proactive with business owners. Your future and ours is at stake.

How Will I Know How to Buy the Right Business?

2009-06-17T20:09:00.000-06:00

Check out this interesting answer on Yedda

I know that there are business professionals who will guide people to buying a business
The only person that knows the right business for you.....is you.

But before you start looking for a business, you should ask yourself - What am I good at? What do I like to do? What niche needs to be filled (i.e. what are people seeking and want to buy)?

Then once you know the answers to those questions, start looking at businesses for sale. There are several "business for sale" websites that you can view. Just Google - "buy a business" and start looking. This will give you an idea of what is currently available.

However, if you decide that there is a particular type of business you really like, are good at or believe there is a need for, then you may want to consider approaching a business owner that has NOT listed the business for sale.

A good business intermediary (a.k.a. business broker) will be invaluable to you. How do you know if someone is qualified to help you? Once again, ask some questions. Here are some examples: how long have you been a business broker? What is your education and training? Do you have a special license? Do you have references that I can call? Are you a member of the International Business Brokers Association? Do you specialize in selling a particular kind of business?

Most competent professionals will not hesitate to answer these questions for you.

One other thing to remember: A real estate license may be required in some states for a broker to sell a business (with or without real estate). But the important thing to know is that just because someone has a real estate license or is a realtor (which means the person is a member of an organization for real estate licensees), it does NOT mean they know how to help you buy a business.

Hope this helps.
Topics: business, business and finance, business plan, business.
Answered by BusinessDiva on June 18, 2009
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Buying or Selling a Business - What Should You Do?

2009-06-16T10:34:00.000-06:00

Check out this interesting answer on Yedda

Buying or selling a Business
Buying or selling a business is complicated. There is a lot to know and a lot to do. Before you get started, I recommend you do some homework. For example, there are numerous books available about how to buy a business. There aren't as many for selling.

Then once you've educated yourself a little, I suggest that you find a competent professional business intermediary to help you. Why? Because two or more minds are better than one. And it helps you keeps your emotions in check during the negotiation phase.

Don't think buying or selling a business is emotional? Every decision we make is an emotional one and then we justify it with logic. A professional intermediary can help you separate the emotion from the facts.

If you are determined to do it yourself, there are some resources,but again, buying or selling a business is (besides your home), the biggest financial decision you will make. Why on earth would you risk your hard-earned capital without getting help?

So when you look for assistance, make sure you ask several questions such as: how long have you been representing clients to buy or sell businesses? What kind of licenses do you hold? What is your education and training? Are you a Certified Business Intermediary? How many transactions have you successfully handled? Do you represent both buyers and sellers? How will I know that you have my best interests at heart?

These will get you started. Good luck in your new venture.
Topics: buying or selling a business
Answered by BusinessDiva on June 16, 2009
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How do I use my specialized knowledge to make money online?

2009-06-15T11:09:00.000-06:00

There are legitimate ways to help people and sell your knowledge on-line. I recommend that you follow some successful information marketers. They can show you how to turn your knowledge into a product that people will purchase. Here are two sources for you: Ali Brown

She is a top-notch successful online entrepreneur. She coaches thousands of solo-preneurs (mostly women) in using their knowledge to help others. I also highly recommend that you seek out Dan Kennedy and Bill Glazer (in fact they are Ali's mentors). Go here now for free information

This will work for you. You just need to learn what to do and then, implement, implement, implement!!! Good luck.

Topics: business, career

Answered by BusinessDiva on June 15, 2009

View the entire discussion on Yedda

Small Business Closing....What to Do

2009-06-13T13:28:00.000-06:00

Recently, I was asked what to do about closing a small business. Here's my answer. Hopefully, none of you will have to experience this....but if you do, here's some information to get you started.

Hello Jenn:

First of all, I am sorry that you have to close your business. Owning and operating a business is tough....even in the best of times.

You may consider hiring a business broker to help you sell what is left of your business. But before doing that, please ask yourself the following questions: Did a bank provide financing to startup your business? If so, the bank will most likely have a "first lien position" on all your assets. So when you sell those assets, the funds have to go to the bank first to pay down any of the debt. If not, then you are free to sell those assets. What assets do you have to sell? Inventory? Furniture, equipment? What is the market value (i.e. what do you think it would sell for)?

Are you currently in a leased space? If so, make sure you talk with your landlord and find out what his/her requirements for you will be. In other words, will he/she let you sub-lease the space? Or will they let you out of the lease right now? What does your lease agreement say? This is where you may want an attorney's advice. Or a good business broker or commercial leasing agent can provide help here too.

I wish you the best. And remember don't let this get you down. Every successful business owner has experienced something like this. It is what you do about it that matters. In other words, pick yourself up, dust yourself off, make a new plan and get out there and start again.

Sincerely,

Sheila Spangler

Don't Cast Pearls Before Swine......

2009-02-01T16:18:00.000-07:00

Don’t Cast Pearls before Swine
By Sheila Spangler

What does it mean? Here’s my definition. “Don’t give un-paid advice to people who are unable or unwilling to implement the value of that advice”.

I met a business owner who has fluctuating cash flow and profits….like many people these days. He has a pretty good enterprise. It is currently cash-flow positive but it has reached a plateau.

The business is at a critical juncture. Should we figure out how to dramatically increase sales and profits? Or should we cut costs, like our accountant advises?

In this case, “more is better”. Creating and implementing key business strategies, can profitably increase sales without raising expenses. I uncovered the hidden opportunities, identified weaknesses and what to do about them. I laid it out in a comprehensive marketing plan. He loved it!

By the way, you may be wondering why anyone would prepare a strategic business and marketing plan. Here’s why.

If you want to exit your business someday and have the highest value possible, building sales and profits through a measurable and reliable marketing system is the most important thing you can do.

I work with business owners who want to maximize the value of their business to fulfill their dreams. Those dreams may include travel, children’s education, or personal goals such as writing a book, teaching, saving the rain forest, etc.

The quickest way to build value in any company….your company…. is to identify the value your business offers, target your customers and do what it takes to keep them coming back.

Why? Because nothing happens in your business without a sale. You can’t pay yourself, your employees or the rent without selling something. And sales lead to profits. Profits lead to business value. No sale, no profit, no value.

Back to the story.

The owner’s ‘business partner’ hadn’t been involved in any of our meetings. In fact, I hadn’t known there was a business partner?! What?

Didn’t you do your homework, Sheila? Didn’t you check the corporate ownership articles and even ask the owner if he was the final decision maker? Well…..yes.

However, what I didn’t know was that the owner had given OWNERSHIP POWER to an EMPLOYEE. This is not a legal transfer of power but one that happens every day in business.

An owner trusts a long term employee’s opinion. Sometimes it’s warranted, sometimes it isn’t. That is not important to this story. But what is important is that I should have found out by asking the right questions up front – such as “who else in your company (owner or trusted employee) besides you will have a say in making the decision to hire me?”

So what does this have to do with “casting pearls before swine”? If you are spending time to build your business by attracting the right customers make sure you are talking to all the people who have the ‘authority’ (written or unwritten) to make the decision.

Otherwise, you may as well take those expensive gems (called knowledge gained through years of hard work) and throw them in the muck. Hogs don’t care about pearls……they just want to eat and lie around in the slop.

I grew up on a farm where we raised hogs. Big, meaty, healthy swine….some black, some white. Always stinky. My father used to joke that “it was the smell of money”.

However, smelly or not, it was my responsibility to feed and water those hogs twice a day. And during the summer, my brother and I would race to the hog sheds to see who could reach the water hose first.

Why? Because pigs don’t sweat. They can’t. No sweat glands.

They have to be showered down and love to have a mud hole to lie in. And if you’re a farm kid, spraying water from a hose that has been lying in the sun all morning in 100 degree heat can be quite exciting for the pig! Not to mention entertaining for the farm kids.

And you thought that old saying “sweating like a pig” meant that you were working hard. No, it really means that you rely on someone else to provide you with a shower, a meal and a place to sleep. As long as you get these things, nothing else is important. Pigs don’t realize that their sole purpose is to grow into big, fat hogs. And we all know what happens to them.

So what happened with the business owner? Nothing. He and his ‘partner’ are too busy right now to consider implementing a plan to grow their sales and profits. What??!!!

The sun is out, the mud hole is freshly filled and there’s still some grain in the trough. Yep, I’m just gonna lie here for awhile. But thanks for all the FREE advice (advice not taken). We’ll get back to you when the mud hole goes dry…….

In other words, we’re too busy running the business the same old way we always have. We do wonder, though, why things don’t seem to get any better. Oh, it’s the ECONOMY! That’s it. It’s not us or the way we do things. Noooooooo…….it’s the housing market, the credit crisis…….yep.

Now, is this business going to close down tomorrow? ABSOLUTELY NOT! And, this is another important lesson. Its doing okay but it could be doing so much better without a great deal more work…… just different strategies.

Now is the time to implement change. Do it when things are still okay, not when the business starts to falter. Unfortunately, this is when most business owners think about it. Then they make mistakes because they are desperate for positive results.

Whew! Back to the mudhole!

Remember: “Pigs get fat but hogs get slaughtered”.

Are You Gambling With Your Business?

2009-01-29T16:57:00.000-07:00

Over a year ago, a client of mine sold a very successful business. It had been in operation for 14 years. It was profitable and provided the prior owners with a nice lifestyle.

Within a year, the new owner is “on the ropes”. Now some of you may blame the economy. I know differently because I know what really happened.

He didn’t take care of customer service issues with current customers and he didn’t go out and bring in new customers. And even when he was gently informed of this by several clients and business owners (me included), he blamed others for the problems.

The prior owners were constantly marketing and they really weren’t what I’d call experts at it. But they stayed in front of their customers and made new prospect calls every week.

The new owner was “overwhelmed” and spent too much time micro-managing employees and being overly concerned about equipment. (If his business was busting at the seams, then he should be concerned with tinkering with the equipment for more efficiency but if you aren’t running at full capacity…..you’ve got BIGGER problems!)

He should have been overly concerned about making sales. Now, his business is listed for sale and the broker says “Make offer. Owner must sell”.

The reason small businesses don't survive the first two years is because the owners generally have used up all the working capital learning how to run a business. Some call that "under-capitalized". I call it "owner's education" paid for with the owner's investment.

Really, though, its “gambling”. New business owners “gamble” their investment because they don’t know how to run a business….and in many cases are too starry eyed to seek good advice.

If you want to start or buy a business, first determine why someone would do business with you. Most people go about it backwards...that is, they have an idea to start a restaurant, let's say. However, there are already hundreds of the same type in their town. What is going to make customers choose your business over others?

What is your unique positioning? How are you going to keep customers coming back time after time? If you think that "good food" and "good service" is the complete answer, your business will fail.

If you want to succeed:
1. first identify a market
2. understand customer wants
3. build a complete marketing system to attract and keep customers.

Easy? No. Do most people know how to do this? No.

Should you hire an advertising agency or PR firm to help you? No. They don’t know how to do it either. They’ll just charge a big fee for the graphic design and “award winning” ads. What you need is results not awards.

Go to the library and start reading books by great marketers and business experts like Michael Gerber, Dan Kennedy, W. Clement Stone, Claude Hopkins, Joe Sugarman, etc. Then decide to go forward...or not.

I provide customized sales, marketing and operational plans for my clients to increase the value and sale-ability of their businesses. The biggest value gained is through making a profitable sale and systematizing your sales and marketing processes.

Before you can sell a business for a good price, you have to make a profit. Profit equals value. And it doesn’t matter how many fixed assets you own in the business. If you can’t make a profit with those assets, your business is only worth the liquidation value of the hard assets.

Banks will finance profitable businesses. Buyers will buy profitable businesses.

How do you make your business profitable? You must make a sale that is in excess of expenses. And you must do it over and over again. Consistently.

You must also KNOW your customers. This means:

Name
Address
Buying habits
Frequency
Value to you

Most businesses don’t track this and then when the economy changes, they wonder where their customers went. If you KNEW your customer, you could prevent this.

That's where the systematized STRATEGIC marketing plan comes into play. No plan, no sale, no profit, no value. If you aren't willing to invest in your education BEFORE you start your business, then don't start one.

You might as well go to Vegas and put all your money on the craps table. Your luck will be about the same.

Don’t run out of money figuring out what works. Be smart. Educate yourself about sales and marketing before it’s too late or hire the right people to implement it for you. This is critical. It’s not easy. But if it was, everyone would be wealthy.

Successful business owners are the toughest, most resourceful, resilient people I know. Think of John Wayne and you’ll start to get a good idea of what character traits you’ll need to run a business. Tough, honest, fair, did the right thing, did whatever it took. He sometimes got shot or beat up…but he always fought back. Are you John Wayne?