Monthly Archives: October 2009

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The Best Prospects

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We are all looking to expand our client base and bring in more business.  Most of us are out there spreading the word about our products and services, meeting and greeting, delivering an expert elevator pitch to whomever will listen and positioning ourselves as experts within our field.

If the gods smile, our efforts will deliver unto us a decision maker and a real sales call. How can one increase the odds of making that happen? Effective prospecting is the method.  Prospecting is a vital function for all Freelancers and business owners.  If  the goal is to have a successful business, then we must make a practice of continually replenishing our sources of potential clients.

First,  let us dispense with the myths.  Prospecting is NOT sales.  Prospecting is a tactical function of sales.   It is the process of identifying and qualifying businesses and individuals who have the potential to become paying customers.

Prospecting is NOT a numbers game. Time = money and you have no time to chase so-called prospects who have a low probability of becoming a customer. You want only those with motive and money to hire you or patronize your business.

Prospecting need NOT be hugely time consuming.  Plan to budget about 15% of your weekly or monthly calendar for prospecting.  Make the time to keep your pipeline filled.

Contrary to common belief,  prospecting is NECESSARY even when billable hours are high and sales are strong.  Because business always waxes and wanes,  it is important to use the good times to create opportunities that will sustain  in the lean times.

So let’s think strategically about the prospecting function.  Start by identifying your key customer groups.  Do you typically work within certain industries? Why not target other businesses within that industry as likely prospects? Your experience within those industries will provide the trust factor that your prospects will appreciate.  You will  know the usual priorities, concerns and preferred benefits.

Are you a member of a business association? Do you have visibility within the group? Are any of the members your clients? Have you made good referrals for any members? Think about  which member businesses could benefit from using your  products or services.  Leverage your proximity to these targets to learn more about their businesses.  Once again, the trust factor will be on your side, especially if a member or two are clients of yours or you are visible in the association.

This approach can also work with job titles.  For instance, who usually hires you–the VP of marketing, the CEO, the CFO, or the director of development? Target that title as you prospect.  Prior experience will have taught you what will resonate with these individuals, thus adding to your  credibility.

Once you’ve developed a list of targets, devise an approach.  Might any of your colleagues have contacts within these organizations? Do company names appear in the online member listing of the chamber of commerce or neighborhood business association? Is there a trade show coming up that the prospect –or company representative–  may possibly attend (trade show sponsors are ususally listed on the show’s website)?

When you meet someone at the targeted company (oh, happy day!), let the contact/prospect know that you’ve done your homework and see possible alignment between their business and your product.  Emphasize outcomes and benefits.  Aim to schedule a time for further discussion with either the ultimate prospect or someone who can substantively influence the decision.

If you are met with an objection, handle it with aplomb.  If the answer is, “we already have someone” inquire about current or recent projects.  Offer a comment or two that displays your expertise in the subject. You may discover that the objection was just a smoke screen.

If the answer is ” I have to think about it”,  let the person know that you  respect their desire to make an informed decision.  Ask what information might assist the decision, who else in the organization you might speak with and when you can follow up?

The objective is to get a dialogue going and not get shut down.  If you choose your prospects wisely and plan a good approach,  you are guaranteed to bring in at least a mid-level client nearly every quarter.  Now get busy!

More next week,

Kim

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Starting A Business? Consider Your Exit Strategy Part II

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SUCCESSION

The sentimental favorite!  So many entrepreneurs dream, perhaps secretly, of passing their business on to the next generation.  If you can make this stardust covered dream come true, it’s a lovely option.  Unfortunately, more often than not succession does not pan out.  I’ve read that 70% of family businesses do not survive the transition from the founder to the second generation.

Family rivalries and other dysfunction often intrude to tank the business.  Sometimes the owner refuses to cede control (like Queen Elizabeth II, whose ego prevents her from stepping aside so that Prince Charles can do the job for which he’s trained his entire life). Other times, the youngsters get a little power mad and want to take over before they know what they don’t know.

As with a business sale,  get the financial records in order, maintain business property and equipment, call in your accountant, attorney and appraiser and share information. Family members deserve to know what they’re getting into.

It will be very important to distinguish between the company managers (perhaps one child or two) and the company owners (all the children) and make sure that no one feels devalued.  Remember that you’ll want Christmas dinner to be a happy occasion!

I strongly recommend that you consult a family business specialist if you’d like to pass the business along to family members.  Being able to groom your hand picked successor is a wonderful thing.  Recruit a specialist to help you choose the candidate who is best qualified to assume the reins.

INITIAL PUBLIC OFFERING

If your business has grown substantially and is poised for still more significant growth, provided that a major  infusion of cash can be raised, then offering publicly traded stock in the company may be the best strategy.   I’ve included IPO in this  section, although the entrepreneur may remain within the company after it  has gone public (or not).

Preparing your company for an IPO is an intense piece of business.  A couple of years ago, an acquaintance of mine took his biotech company public and damn near found Jesus in the process!

You’ll need an investment bank to underwrite the offering;  a magnificent business plan that portrays your company and its growth potential in an excellent light (but does not oversell);  and a first rate IPO attorney.   The Securities and Exchange Commission governs the proceedings.

If you’ve done everything right and have fortune on your side,  your stock might even sell and bring in the growth capital that your company needs. You might even get rich:  the value of the stock sale may far exceed your original investment in the business.   However, you may not be able to jet over to Dubai and buy an island just yet.

Major investors may dictate that nearly all cash raised through the IPO must be reinvested in the business.  Moreover, a portion of the owner’s share may be held in escrow for a period of years.  If that’s not enough, the owner’s role in the business may be greatly diminished.   That may suit you just fine—or not.  Are you ready to give up control to a bunch of outsiders who may not share your vision or priorities?

So there you have it,  a business plan guide that I hope will give you the inspiration to get started on a business  venture for yourself.  I’ve left out a couple of elements,  such as Operations and Executive Summary,  but I feel that you have the tools to build a plan that will  launch a successful business.  Good luck!

I’ll be back next week with a new topic.  I hope you’ve enjoyed the series!

Kim

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Starting A Business? Consider Your Exit Strategy Part I

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We’ve covered nearly all elements of a business plan and we are approaching our final destination—the exit strategy. You may wonder why someone who has just begun to map out a business building strategy, filled with excitement and determined to create a business that represents all that he/she has worked hard to learn, would want to contemplate ending it all?  The answer is,  every journey has a destination.  How else can you know which path to take unless you know where you want to end up?

SELLING THE BUSINESS

If you have tangible assets and a desirable customer base,  you might want to sell the business eventually and give yourself either a retirement nest egg or start-up capital to create yet another business.  Keep your options open and start the preparations early. Whatever you decide, these actions will be beneficial for the business.

Maintain detailed and credible financial records: demonstrate profitability; show good cash flow; keep your debt to equity ratio low.  Expect to show a prospective buyer 5 years of data.  If the business owns property and/or equipment, ensure that all is well kept and in good working order.

To sell your business at a price that accurately reflects its value,  it is recommended that you consult first with your accountant and attorney, next with a business valuation expert or an appraiser and then with a business broker. Your accountant or attorney may even know the right buyer for your business.  There are four sales strategies to pursue:

I. SELL TO EMPLOYEES.   One, or several, of your employees may be interested in buying the business.  Don’t be shy about raising that possibility.  What better way to boost confidence and morale than letting valuable employees know that you trust them enough to place your treasured achievement into their capable and caring hands?  Selling to employees can be a great exit strategy.  The employees are able to invest in a business that they know and trust.  They know the challenges and opportunities that the business may encounter.  They know the customers and the customers may also know them.  They know the history of the place.  They know how things run.   If you’re thinking of moving on, why not offer those who you can see would be good candidates either a buy-out or an employee stock option plan (ESOP)?

II. SELL TO A COMPETITOR. Target one of your larger competitors as a potential buy-out prospect.  What better way to decrease competition and gain market share quickly than to absorb the entity that’s been eating your lunch? Position your business as attractive, financially healthy and possessed of a customer base that will align with the competitors’. Some entrepreneurs start a business aiming to be bought out. They believe they can grow their business fast enough to compel an industry leader to buy them out and end the battle.

III. SALE THROUGH A BROKER.  If you are unable to persuade someone whom you know to buy your business,  contact a business broker.  It’s like hiring a real estate agent to sell your house. There are brokers who represent sellers and those who represent buyers.  Be sure to get an independent appraisal on your own,  so you can be confident that the broker prices the business appropriately and that you understand the likely market value of what you are selling.

IV. LIQUIDATION.  In this instance, you are unable to find a buyer for the business, so you hold a “going out of business sale” in advance of closing your doors.   Whatever business assets exist are sold;  creditors are paid off;  the business owner keeps the net profit.

When selling your business it will be imperative to obtain an accurate appraisal. There are three methods to use and you may want to do them all:

I. ASSET VALUATION. The value of the inventory and equipment, business property, the client list and even the company’s reputation (best practices and good customer relationships are worth money in more ways than one!).

II. INDUSTRY VALUATION.   Based on the sale prices of similar businesses in your industry and geographic locale.

III. CASH FLOW VALUATION.  Based on the expected future cash flow of the company, as demonstrated by past performance.

Remember that the best time to sell your business is when both you and it are healthy! I’ll be back next week with a couple of more exit strategy options.

Thanks for reading,

KIm

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Starting A Business? Consider Your Legal Entity Part II

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The type of business that you are in will guide your choice of legal entity.  If you are a solo Freelance consultant, then operating as a Sole Proprietor is most likely appropriate. However,  if your business exposes you to liability, then it is highly recommended that you spend a few dollars and protect your assets by establishing a separate legal entity. Many business entities evolve as they grow, transforming from Sole Proprietorship to Limited Liability Company to Corporation.

LIMITED LIABILITY COMPANY

The  LLC is a relatively new option.  It creates a separate legal entity and may be used by a solo entrepreneur or a multi-owner business.  It is required that an EIN be obtained for the business and a certificate of organization be filed with the Secretary of State, along with a fee of about $500 paid annually.

There is no limit on the number of owner–partners in an LLC.  A certain degree of protection from liability is granted, as in an S Corporation.  It is highly recommended (but not required) that in a multi-owner LLC an operating agreement be written that names a managing partner and other specific partner roles and responsibilities.

Single owner LLC tax filing is similar to the Sole Proprietorship.  On April 15  you file schedules C and SE and form 8829 if claiming a portion of your home as an office. Quarterly estimated taxes are due on the 15th of January,  June and September reported on form 1040–ES.

Additionally,  an LLC with 2+ members must file form 1065, the informational Annual Return of Income.  Owner–partners file form 1040 with schedules E and SE,  plus estimated quarterly taxes on form 1040–ES.

Be advised that an LLC is dissolved in a bankruptcy or upon the death of a partner.  Include contingency plans in the partner’s agreement so you don’t find yourself in business with the spouse or children of the deceased, for example.

GENERAL PARTNERSHIP

A partnership is a non-corporate legal business entity that is formed by 2+ people (or entities) who desire to do business as co-owners.  GPs can be formed by individuals, corporations, estates or trusts.  This classification also includes joint ventures and syndicates.

A GP is not a separate legal entity,  so there is no requirement to register the partnership with the state.  Partners will be on the hook for any business liabilities, including unauthorized actions by partners who acted on behalf of partnership business interests.

Absolutely, write a partnership agreement.  Include the purpose,  goals,  partner contributions and responsibilities.  Management duties, decision making power, permissible and restricted business activities outside of the partnership and financial matters such as access to financial records and expense authorization should also be specified.

Moreover,  spell out how profits and losses will be distributed, the penalties for failing to fulfill responsibilities and contributions and the procedures to follow should a partner die.

Partners are taxed on the income/losses of the partnership on schedule  C, filed with their personal 1040, along with form 1040–SE self employment tax.  The partnership as an entity must file form 1065 Annual Return of Income on April 15.  Quarterly estimated taxes are due on the 15th of January,  June and September.

LIMITED PARTNERSHIP

This format is similar to the GP, with the exception that a partner(s) agrees to contribute resources to the business entity without becoming involved in its day to day affairs.  These are “silent partners”, often investors.

LPs have a share of ownership but neither operate nor manage the business or act officially on its behalf.  They have a liability to the business and its creditors that is proportional to what they have invested.  LPs and GPs receive a share of business profits/losses based on percent of ownership.  Again, it is recommended that an agreement for LPs be written.

As with  GP, form 1040 with schedule C and form 1040–SE will be filed on April 15 and quarterly taxes reported  on 1040–ES and filed on the 15th of January,  June and September.

More next week and thanks for reading!

Kim