ANSWERS TO YOUR SMALL BUSINESS QUESTIONS
Posted 02/03/09
Q: I am part of a small family-owned drywall contracting company, with previous experience in estimating potential projects. My father is the other half of the company, as he has experience in field work. We have experienced some success already, but I’m looking to create structure in our company and lack the experience to do so. What are the steps that I need to take to create clear-cut roles that I should follow? Do my dad and I need to assign responsibilities that we each stick to?
A: Defining roles is always difficult, and is even more challenging when the other party is a family member. Your general goal should be to establish clear spheres of responsibility - and then stay out of each other’s area of expertise.
Gary Naumann, lecturer in entrepreneurship at the Carey School of Business Arizona State University, recommends sorting the critical tasks of the company into functional areas, such as operations, sales, office administration, finance and accounting. Then decide which of you is best suited to overseeing each area.
He suggests dividing and conquering so that you don’t double-dip on every little issue. “In a small but growing business, there is no time for you to confer with each other about all the details of your respective areas of responsibility,” he says. “My experience is that most of what each of you does in those areas should be done independently, thereby reserving the discussion time for those critical issues that require consultation.”
This will become even more essential as you add employees - those who work for you will want to know what is going on and who to consult about various tasks. One tactic Naumann suggests is a “Who Does What” outline that you can hand out to your associates.
“This should not be limited to just the two of you,” he says. “Rather, it should encompass all the key areas of your company so you are able to comfortably delegate certain tasks and everyone in the company knows who the ‘go to’ person is.” This will also help you and your father concentrate on your key tasks.
Of course, with the division of responsibilities will come the challenge of remuneration. Formalizing pay arrangements is a key part of creating an official business structure.
“Compensation of family members is much less likely to be based on any objective criteria,” says Allen Fishman, author of 9 Elements of Family Business Success. “The sooner the family business leader takes control of creating objective standards for dealing with compensation issues, the more likely it is the businesses will survive and flourish into succeeding generations of leadership.”
Fishman recommends putting your policy into writing. “A clearly stated compensation policy often prevents conflict and is the best way to break through the emotional barriers that commonly come into play when discussing compensation,” he says in his book. “It would be best if the family business developed its employee compensation policies to approximate the industry levels to some degree. It’s not at all uncommon for family businesses to employ family members for more than the going rate.”
If your company doesn’t pay salaries and instead splits profits, compensation is generally based on ownership stakes. “From a tax standpoint, you can’t start a business without a document that shows ownership,” Fishman says. “If, for instance, one person runs a warehouse while another runs office operations, the payouts may be the same if they each own 50% of the company - even though their skill sets have different market value.”
Fishman warns that in a very small business, such as a father-son operation, the issue of formalizing ownership stakes often isn’t discussed unless there is a problem - when it’s too late.
“Don’t wait for a feeling of unfairness to arise before you sit down and talk,” he recommends.
“Documenting your visions for the company and how it should be run will help to ensure the company doesn’t break apart in the future.”
Source: http://askfsb.blogs.fsb.cnn.com/2008/12/29/creating-structure-in-a-family-business/
Posted 01/29/09
Q: We started a company with the premise that we would excel in selling our "innovative and exclusive" medical products as soon as our parent company completed all of the RandD involved with our initial product.
We now have acquired exclusive distribution rights to several products including "HIV Rapid Test" which is recognized by the World Health Organzation and the United Nations Aids Task Force.
Our current dilemna is funding for staffing and distribution networking.
A: As to funding and the next step there is no “magic wand” to wave. Most funding for business start ups comes from family and friends in addition to the owner’s own savings and resources.
There is a great deal of good pertinent advice on the web sites for the Small Business Administration and SCORE. You can also browse our resource page on www.MakingItTV.com
My own advice is for you to start selling right now, this week. Put up your web site and book trips to conventions where you can meet potential distributors, customers and even partners. Nothing enlivens the spirit of a new business owner like the first substantial sale.
Source: Nelson Davis, Executive Producer
Posted 01/29/09
Q: I started my own business a year and half ago. I invested all of my life saving into it (to pay myself a salary and expenses of the company), I am now selling my house to cut down on the spending, and I will live at a friend’s house to keep over head down. My partner invested about $ 10,000 and is willing to invest a bit more but he’s not a big risk taker. We are about to launch our product in a large retail chain in Canada, we are starting with 14 stores and 600 more to go. We need to prove to Corp that we have created a need for their customer and that where we are now. Unfortunately, my partner wants to cut our advertising since we don’t have a lot of money, and I think it’s the worst thing we could do. We are currently working both from our home.
I would like to find an investor or investors to invest in my company, something like dividend. I understand the concept of it but what I don’t understand is where do you get the price for it and how does it work on my side of the table?
So the two questions are: 1. Where can I find investors? 2. How exactly does dividend work for the owner of the business?
A: Investors can be found in many places, including the trade shows that you are already attending. You should have an investors presentation to send (electronically) or give anyone that you meet who shows an interest in business. For example after you decide what portion of the business you would give to an investor you can place an invitation to investors section on your web site.
I believe that Canada has an equivalent to the U.S. Small Business Administration that probably has a lot of good advice on how to make your business attractive to investors. Also much of the general fund raising advice you can see at the United State site www.sba.gov applies where you are. A dividend is what you promise to regularly pay an investor as a return on their investment.
It may be time to reexamine your web site regarding how strong a sales tool it presents.
Source: Nelson Davis, Executive Producer
Posted 01/23/09
Q: How do you deal with an employee who doesn't get along with the rest of the staff?
A: There are two sides to every story. Has anyone genuinely asked the woman what is going on?
Often, workplace dynamics lend themselves to demonizing or scapegoating one employee. Having one person on the outs helps the rest of us to feel connected. An evolutionary psychologist might explain this as a leftover from a time when humans counted on the tribe for survival. A developmental psychologist might point to adolescent norms - think about high school in-crowd stereotypes.
Typically, workplace conflicts begin with someone feeling dismissed, discounted, disenfranchised or disrespected. The trigger for this feeling may be an actual slight or just a perception. Next, the person who is triggered, responds. Sometimes that response will be a confrontation and sometimes it will be of a passive-aggressive nature, like avoiding the others at lunchtime. Then things go back and forth, back and forth. Each side steps on the others toes. Eventually, both sides have long lists of atrocities that have been perpetrated.
The cold-war that you describe is hurting productivity. Who is in charge in this office? Would management consider bringing in a mediator? A wise leader will investigate and either mediate a truce or find some other solution. It may be the American way to either compete/combat or avoid conflict. However, in the workplace, where on-going relationships determine our success, conflict management strategies such as compromise, collaboration and accommodation are much more effective.
Source: http://www.entrepreneur.com/ask/answer12870.html
Posted 08/13/08
Q: I am a minority business owner with 51% ownership in a small food ( Poultry and Egg) brokerage/distribution company. My company owns a 33% share of the processing company that supplies our product. The processing company is not minority owned.
With that said, Can you help me with the following questions:
1. First, do I qualify for Minority Supplier Certification?
2. Can I do business with the Federal Government as a Minority Supplier even though I do not own a majority stake in the processor or manufacturer?
3. How will my ability to obtain commercial contracts, even if granted Minority Supplier Certification, be effected if I am not a processor but a distributor?
A: My advice is to view the two businesses as separate entities. In the one you own the majority of; it seems that you can qualify as a minority owned business. You can apply for certification with the Minority Business Development Council in your area. Go to www.NMSDC.org to learn more about the various councils and the certification process.
For major contracts with the Federal Government, you may want to seek 8-a certification. You can learn more by going to www.SBA.gov.
Distribution is a legitimate and important part of the business “food chain” and on paper won’t be viewed any differently from any other business.
Source: Nelson Davis, Executive Producer
Posted 05/30/08
Q: Don't most small businesses fail?
A: Although it's true that many new small businesses go under within their first year or two, there are usually reasons that can explain their failure. If you're aware of the pitfalls associated with the start-up of a new enterprise, you can take steps now to maximize the chances that your business will succeed.
Don't start a business you know nothing about. If you're a pastry chef, don't open an auto-body shop. Your experience, skill, and knowledge of the business you wish to run are key to its success.
You'll want to conduct extensive market research to determine if the product or service you will offer is currently in demand. Define who you're marketing to and target your message to them. Also, consider the most favorable time to market your product or service (e.g., toys at Christmas). Of course, another key to your success is location, location, location. Finally, plan your advertising campaign and consider how you will distribute your product or service.
Pay attention to your competition. Be sure your product or service offers your customers something your competitors do not.
Set up a written business plan detailing the design of your business growth. Organize a start-up team of people who have abilities you lack. Determine how you will obtain the capital to finance your project, and be sure you have adequate capital. More importantly, make sure you have enough to live on. Many new businesses do not generate income immediately. Finally, include in your business plan an exit strategy for closing the business should things not work out as you had hoped.
Source: http://www.360financialliteracy.org/
Posted 05/16/08
Q: Can I borrow money from my wholly owned business?
A: Yes, you can borrow money from your wholly owned business. Generally speaking, the terms of the loan must be reasonable and must be properly documented. Otherwise, you run the risk that the IRS could reclassify the proceeds of the loan as compensation or dividends, leaving you with an unanticipated tax bill.
Troubles may arise if you fail to structure a loan that is reasonable, based on current market conditions. The IRS can impute interest on the loan if the interest rate is too low, which would result in the business paying taxes on interest that was not received.
The loan should be documented with a promissory note signed by you and an authorized representative of the business. The note should include details regarding the amount loaned, the repayment schedule, and the interest rate. You should make the payments as required under the agreement to avoid the reclassification of the loan. Consult your tax professional to make sure that your loan will pass muster in case of an audit.
Source: http://www.360financialliteracy.org/
Posted 05/09/08
Q: What are a few unique and inexpensive ways to advertise my business?
A: Every business must first identify exactly who their ideal client is before they do any advertising. Next, they must identify where this client is searching for the product or service you have and how they make their decision to buy. Only when these items are understood should you decide on marketing or advertising your business. One of the best and least-expensive ways to advertise today is to start you own blog and insert stories about your product or service through various articles you write specifically for your ideal client. This way, you are sharing and selling at the same time. Make sure when using this tactic that you give great content to the end user.
A second way to advertise inexpensively is to barter with other people who have Web sites that cater to your ideal client. This way you can save any costs for a banner ad on their site and trade your product or service or a spot for them on your site. Many people are in the same boat trying to save money; why not help each other?
Source: John Asseroff
Posted 04/22/08
Q: What's the difference between a Limited Partnership (LP) and a Limited Liability Partnership (LLP)?
A: LPs are entities in which there is at least one general partner (with full personal liability exposure) and one or more limited partners, with personal liability protection. The general partner manages the business; limited partners are “silent investors,” putting up capital and, hopefully, reaping financial rewards. A limited partner cannot participate in the management or control of the business. A limited partner’s financial exposure is the amount he or she invests (the capital account), or has committed to invest, in the LP…nothing more. A limited partner is not liable for the debts and obligations of the partnership or of other partners.**
LLPs can only be used for certain types of professional practices (state law delineates the professions). Generally, LLPs are used for the practices of accountants, attorneys, physicians, dentists, architects, veterinarians, licensed masseurs/masseuses, and another other disciplines treated as professions under state law. The business must be limited to rendering professional services of the licensed owner-partners. LLPs can limit the liability of partners for all things other than personal acts. For example, an LLP comprised of attorneys can limit the liability of the partners on a lease of the LLP or a lawsuit arising from a third party being injured on the premises. It cannot limit the liability of attorneys for their personal malpractice in the practice of law. Important: Depending on the circumstances and state law, an LLP can shield innocent partners from the consequences of malpractice by an offending partner. A partner’s personal assets are generally at stake in a malpractice action against another partner if the partner was supervising or directing the actions that gave rise to the action.**
Source: BizFilings
Posted 04/14/08
Q: I have a gift store online, do I need to get liability insurance and where do I get it from?
A: Even though your store in online only, liability insurance is a good idea. If a defective product harms someone, they might be inclined to sue the retailer as well as manufacturer. Liability insurance can be reasonably priced for most businesses and you should simply ask the broker who provides your other insurance policies.
Source: Nelson Davis, Executive Producer
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