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New Business Loans Guide for Small Business Owners and Entrepreneurs

It’s not the easiest thing in the world for a new business to obtain the money it needs to help get started. New business loans can be difficult to get unless you have excellent credit and a good plan in place. If you can get approval, you’ll get the proceeds you need for things like working capital, equipment, supplies, machinery, inventory, advertising, or maybe even real estate construction or commercial building rental.

One thing many lenders will expect you to do is determine your personal equity. How much of it will you be able to bring to the table? Lending institutions tend to require that you are able to bring 20% – 40% of the total loan amount you are requesting.

In the 21st century, there are many more options available for start-ups than the traditional loan from a bank. However, before you apply for any type of funding, you must prove that your company qualifies as a small business. Small businesses are usually measured by factors such as number of employees, number of years (under 2) in operation, number of employees, generated income, types of assets and their value, revenue, and so forth. Most traditional lending institutions require that you put of collateral and a guarantee that you will repay.

Your Credit Score and New Business Loans

If your personal credit score is very high, you might want to look into getting a credit card to use towards your business. The line of credit might not be enough to cover everything you need, but it’s a good start. There is no rule that says you have to get all of your funding from one source. There are a variety of microloans for which you might qualify, such as those offered by the SBA and other non-profit organizations. These types of new business loans can be used for the purchase of inventory / supplies, furniture, working capital, etc.

As for alternative start-up business financing options, such as grants and crowdfunding, you’ll want to put more of a focus on our business model as opposed to your credit score. These types of funding are worth looking into if you have poor credit. However, in order to impress crowd-funders, grant organizations, angel investors, etc… , you’re really going to have to come up with a great message and marketing campaign.

Once you get all of your documentation, files, financial records, financial plan, etc. together, you can start checking for new business loans at US Business Funding. This organization has 95% approval rates and offers flexible terms and payment options.

Think Big Start Small – SPQR – 10 Ways to Small Profits – Quick Returns

Introduction: Think as big as a Roman Emperor and start with small steps towards your own empire. The reason for a big vision is to have clarity of purpose. The reason to take baby steps is to get results quickly. The sooner you can get ‘returns’ the better. Returns may come in the form of feedback as much as from income or saved expense. There is no business that goes according to (business) plan. If you take those initial steps without having the big picture, you’ll soon be lost.

Plan for the Horizon: Be very concerned about what’s on the horizon-that’s where you’re headed, but be preoccupied with what’s on the agendaâEURothat’s what will get you there. Live your future now; if you don’t, it’ll soon be your past. The returns are going to be bigger if your plan is writ large. While planning is vital, allow yourself to grasp the unexpected-don’t avoid opportunities that pop up simply because they weren’t in the plan.

Sell Your Prototype: If that’s all you’ve got ready, sell it, at a big discount maybe. Or, even give it away (protecting your invention, of course). Getting feedback on prototypes early ensures you get the return of buy-in from others later and will ensure that you can make ‘Mark II’ better. That’s the whole idea behind software developers launching Beta versions for free. It’s the next best thing to being your own customer.

Work with Lead Users: You can collaborate with lead users, offering them special deals in return for being available for reference once your definitive product is on the market. When I started in business, I was very pleased to work from Day 1 with a company that was always being asked by others for advice. I offered more in use-value than was paid for, but the ‘return’ was generated over a long period.

Offer Service Before Products: There may be a way that you can sell a service before your product is ready. There are many services that you can perform if you have the expertise to produce products. Your knowledge will enable you to offer your time for sale more quickly than perfecting something that you have to manufacture. The fee that you earn generates the revenue that you can apply to the production process. the return may be smaller, but it’s sooner.

Stick to a Simple Range at First: You may have conceived a grand plan for your product range, but you should not wait until everything is in place before you start selling. Selling a few items will get the revenue flowing and more importantly, you’ll start getting customer feedback before you are fully committed. You can even go out and sell a spec that you fulfil once you have a signed order. This way you’ll avoid unnecessarily scrapping things that have not worked or were unacceptable to clients on a larger scale.

Test Drive Procedures: If you plan to open a restaurant to offer meals throughout the day, start by opening just for one meal only, say in the evening. Then you can use the day time for doing all the many things you need to get done before the full launch, like visiting suppliers. Your kitchen procedures that have let you down in the evening can be perfected in the closed hours the following day, without getting in the way of food preparation when you have customers waiting.

Sell Close to Home: Small clients close to home may not seem exciting and be without huge potential, but they will be easier to sell and sales costs will be lower. Getting paid is likely to be easier. If there’s a delay, you can visit the customer personally. Chasing payment long distance is always more problematic and you’ll need all the cash flow you can get to cover your operating costs. Your margins will be better short term if you can keep the cost of sales down.

Go for Low-hanging Fruit: You must plan on the big or complex sales that are going to give you the best margin eventually, but grabbing easily accessed sales, the ripe fruit, that is right near by will help you on your way, while bigger ones mature. The big return on these quickly-made sales is that the feedback-and-product-modification process can be accelerated. Little incremental improvements will soon add up.

Have Staff On Call: Of course you want to hire the people that you think you’ll need for the operation of your business, but if you take staff on to the payroll, you need to be sure that you can pay them on an ongoing and regular basis. Maybe you should be thinking about creative ways that you can get round that level of commitment. You can recruit staff on call. What work can you contract out? Can you pay by the hour-worked or are part-timers possible? Only undertake work that is absolutely essential. The return you’ll get from delaying recruitment is keeping cash in the business at the early high-risk stage.

Don’t Go for Broke: There are some startup businesses, like in hi-tech, where you may have to commit big sums of money up-front before you can sell a thing. But most startups work best if you work with as little money as possible. If you’re hungry, you’ll find ways of getting that vital revenue instead of capital. There are many entrepreneurs who have wasted vital time doing the rounds of investors when they could have been on the road selling goods. In any event, you’ll be better at attracting funding if you have a track record to back you claims.

Small Business Start Up Financing

The number one question I get asked as a small business start-up coach is: Where do I get start-up cash?

I’m always glad when my clients ask me this question. If they are asking this question, it is a sure sign that they are serious about taking financial responsibility for start it.

Not All Money Is the Same

There are two types of start-up financing: debt and equity. Consider what type is right for you.

Debt Financing is the use of borrowed money to finance a business. Any money you borrow is considered debt financing.

Sources of debt financing loans are many and varied: banks, savings and loans, credit unions, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. Loans from family and friends are also considered debt financing, even when there is no interest attached.

Debt financing loans are relatively small and short in term and are awarded based on your guarantee of repayment from your personal assets and equity. Debt financing is often the financial strategy of choice for the start-up stage of businesses.

Equity financing is any form of financing that is based on the equity of your business. In this type of financing, the financial institution provides money in return for a share of your business’s profits. This essentially means that you will be selling a portion of your company in order to receive funds.

Venture capitalist firms, business angels, and other professional equity funding firms are the standard sources for equity financing. Handled correctly, loans from friends and family could be considered a source of non-professional equity funding.

Equity financing involves stock options, and is usually a larger, longer-term investment than debt financing. Because of this, equity financing is more often considered in the growth stage of businesses.

7 Main Sources of Funding for Small Business Start-ups

1. You

Investors are more willing to invest in your start-up when they see that you have put your own money on the line. So the first place to look for money when starting up a business is your own pocket.

Personal Assets

According to the SBA, 57% of entrepreneurs dip into personal or family savings to pay for their company’s launch. If you decide to use your own money, don’t use it all. This will protect you from eating Ramen noodles for the rest of your life, give you great experience in borrowing money, and build your business credit.

A Job

There’s no reason why you can’t get an outside job to fund your start-up. In fact, most people do. This will ensure that there will never be a time when you are without money coming in and will help take most of the stress and risk out of starting up.

Credit Cards

If you are going to use plastic, shop around for the lowest interest rate available.

2. Friends and Family

Money from friends and family is the most common source of non-professional funding for small business start-ups. Here, the biggest advantage is the same as the biggest disadvantage: You know these people. Unspoken needs and attachments to outcome may cause stress that would warrant steering away from this type of funding.

3. Angel Investors

An angel investor is someone who invests in a business venture, providing capital for start-up or expansion. Angels are affluent individuals, often entrepreneurs themselves, who make high-risk investments with new companies for the hope of high rates of return on their money. They are often the first investors in a company, adding value through their contacts and expertise. Unlike venture capitalists, angels typically do not pool money in a professionally-managed fund. Rather, angel investors often organize themselves in angel networks or angel groups to share research and pool investment capital.

4. Business Partners

There are two kinds of partners to consider for your business: silent and working. A silent partner is someone who contributes capital for a portion of the business, yet is generally not involved in the operation of the business. A working partner is someone who contributes not only capital for a portion of the business but also skills and labor in day-to-day operations.

5. Commercial Loans

If you are launching a new business, chances are good that there will be a commercial bank loan somewhere in your future. However, most commercial loans go to small businesses that are already showing a profitable track record. Banks finance 12% of all small business start-ups, according to a recent SBA study. Banks consider financing individuals with a solid credit history, related entrepreneurial experience, and collateral (real estate and equipment). Banks require a formal business plan. They also take into consideration whether you are investing your own money in your start-up before giving you a loan.

6. Seed Funding Firms

Seed funding firms, also called incubators, are designed to encourage entrepreneurship and nurture business ideas or new technologies to help them become attractive to venture capitalists. An incubator typically provides physical space and some or all of these services: meeting areas, office space, equipment, secretarial services, accounting services, research libraries, legal services, and technical services. Incubators involve a mix of advice, service and support to help new businesses develop and grow.

7. Venture Capital Funds

Venture capital is a type of private equity funding typically provided to new growth businesses by professional, institutionally backed outside investors. Venture capitalist firms are actual companies. However, they invest other people’s money and much larger amounts of it (several million dollars) than seed funding firms. This type of equity investment usually is best suited for rapidly growing companies that require a lot of capital or start-up companies with a strong business plan.

Planning Your Small Business Success Journey – Six Steps to a Dynamite Action Plan

You are considering starting a small business. Most startups fail. So why should yours be any different. Any strategist will tell you that there are many factors that contribute to the success or failure of any endeavor, but the one factor that will guarantee failure is lack of a realistic detailed action plan.

Step 1: Set Realistic and Specific Goals

The key to knowing what goals are realistic and specific is experience. In an established business, past history provides the clue. In a franchise, the franchisor can help you set realistic and specific goals based upon years of experience in the industry. For an independent startup, much research is needed. Talk to other businesses in the area you are considering opening your business. Talk to other business owners in your industry. You will want to ask about customer traffic, revenues, and costs. Then set your goals in each specific area.

Step 2: Identify Activities, Resources, and Responsibilities

I know it worked for Kevin Costner in Field of Dreams, but in the real world, if you build it, no one comes. You have to inform your customers about what you do and why they should patronize you. In many startups you have to lure your first customers in using couponing and special events. Identify the specific marketing and sales activities that will bring your customers in. Have a detailed list of all resources available in your area such as signage, media, and public relations. Outsource what you can. Hire when necessary. Do it yourself if you must. Have a detailed list of responsibilities for each activity and hold your contractors, your staff, and yourself accountable.

Step 3: Define Your Timetable

Your timetable is often closely related to capitalization. Industries have time-tested standards for profitability. A house painter may be profitable in 6 months, but a restaurant takes 3 years to be profitable. If you are considering investing your life savings and need to be profitable in the first month to make your mortgage, find a less expensive business to open. Chart your course carefully.

Step 4: Create Contingency Plans for Other Possible Outcomes

General George Patton once said, “Every plan is perfect until the first shot is fired.” What is your contingency if you get a different result than the one you planned for? If you run a special expecting 20 sales of a particular item, what is your plan if you sell 10? What if 30 people want the special? Always have a plan to liquidate excess with minimal or no loss, or to get more product quickly if needed. If you have done your marketing correctly, people will show up wanting to do business with you. Don’t disappoint them. If there is a piece of equipment that is critical to your business such as a brewer in a coffee shop, know where you backup is. That doesn’t necessarily mean you have another in the cabinet, but have a relationship with your repair service so you can rent one within the hour.

Step 5: Merge your Plan of Action with your Timetable

Every plan must be linked to a realistic and specific timetable. In step 4, you set a timetable to reach the overall objective you identified in step 1. Now, set specific milestones linked to the activities you identified in step 2. These can be graphed with project management software, or a simple outline will do. Just make sure you have identified which tasks need to be identified first before others can be started. Think these through carefully. Building from the bottom up makes sense, but don’t lay your carpet before your roof is finished.

Step 6: Delegate, Supervise, and Evaluate

Launching a startup is a daunting task. Often first time entrepreneurs take on too much themselves and burn out. Then they look for someone they can turn the reigns over to while they focus on what they enjoy most. This is called management by abdication and usually ends in disaster. To implement the plan, the entrepreneur needs to focus on delegation, supervision, and evaluation. This gets the job done faster without burning out the owner.

Entrepreneurship is hard work and high risk. So why do so many try it? Because there is nothing quite as rewarding as building a business that can run without you and provide you with financial security for a lifetime. It may seem the odds are stacked against the first time entrepreneur, but a good detailed action plan goes a long way to level the playing field.

How to Write a Small Business Plan

The first thing to do when starting a small business is to write a plan for your business, it is very essential and useful if you really want to focus yourself and get a whole picture of what you have to do in order to build your enterprise. A business plan is the road map for the success of your business

What do you have to offer?

What are your products or what are your intended products? What are your products or services? What kind of income will these activities be generating or what is the expected range of income once the products are launched? Give answers to these questions giving a complete picture of the principal activity that you are engaged in or will be engaged in during the timeline of your business plan.

Where are you located?

Do you work from home or do you have a business premises? If you have a business location such as a store or factory, then explain about the size and capacity of this establishment. What is the business climate like in your area? Are there significant competitors and what are your prospects or advantages of competing in this market? Find answers to all these questions as best you can and give yourself and would-be investors a clear picture of where your business is situated geographically and with relation to your overall market.

How to make it happen?

Your sales and marketing research or plan should be outlined in this section. Explain how you intend to establish your product or service and what steps you will take to create or expand your customer base. How will you fund the start-up cost and the expansion of your business? Explain the source of your funds whether you have existing loans, your savings, borrowing from friends or liabilities. How much money do you need to raise in order to get realize your entire plan for the launching or expansion of your business? Explain how you are going to put your business idea into practice.

Having a good business plan is your key to success. A well-thought-out business plan forces you to think about the future and the challenges you will be facing. As long as your forecasts are realistic and you have done plenty of market research you will definitely come out with a good result. Go ahead with your plan and stick to it.

To your success!

How to Grow Your Small Business Through Diversification – Three Key Strategies

Small business growth can be achieved through strategic diversification. Why are many businesses not fully leveraging the advantages of diversification? Primarily because the business owners don’t understand the benefits. Increasing profitability and business growth are the two drivers for diversification.

The advantages of diversification can include:

Economies of scale: for example, in purchasing, in producing, in supplying;
Minimizing sales peaks and valleys: for example, while one product’s seasonality results in slow sales; the other product’s seasonality results in high sales;
Production capacity utilization: for example, if your production facility is under-utilized, then adding new products through a diversified strategy can help you fill production capacity;
Overall efficiency improvement can be expected: through synergy efforts;
Reduction of costs: by sharing resource costs amongst the diversified products, services or markets;
Improved labor utilization: by being able to deploy your human resources in a more efficient work flow cycle;
Increased opportunities and sales;
Competitive advantage: by being able to bundle products or services together that provides unique value and unique differentiation.

There are three key diversification strategies: Concentric Diversification, Horizontal Diversification and Conglomerate Diversification.

Related diversification and/or concentric diversification. Related products or services, where sales, marketing, pricing, distribution, inventory and/or production can be shared. This works with closely related products or services, such as car sales, the extended warranty and the add-ons (e.g. upgraded stereo system, anti-theft devices, roof racks, etc.). Concentric diversification, where new products or services are added to the business to gain new customers.
Horizontal diversification. Adding new products and services to sell to existing customers and markets; the focus is on specific market segments. For example, the book seller who adds coffee services to the store.
Unrelated diversification and/or conglomerate diversification. Products or services that have no relationship to each other however through the addition of new products or services, the business spreads its risk. By diversifying into different products, services or markets, if one product is experiencing slow sales or a soft market than the unrelated product is more likely not to be experiencing the same issue. Conglomerate diversification is somewhat more than unrelated diversification; it is focused on acquiring competitors and growing through that process (with unrelated products and services).

The advantages of diversification in your small business are significant to business growth and success. Diversification can reduce your business risk and it can also maximize your opportunities by growing business operations while leveraging resources, materials, and fixed costs.

Diversification costs are typically funded through capital investment in your business. To invest effectively in diversification strategies you need to identify and focus on your expected outcomes and build business performance measures in place to assess successful strategies.

Some costs associated with diversification are new equipment, inventory, new systems, new staff, new distribution, new marketing programs, and more. Some of the benefits associated with diversification are improved productivity, improved workflow, improved customer services, labor and production cost savings, and more.

Your capital investment needs to leverage diversification, and vice versa. If you invest in new product development ensure that the integrated benefits results in an overall stronger unique value proposition. Develop business performance measures to ensure that your return on investment for diversification meets your expectations and supports your business.

What is in a Name? Keyword and Color Essentials to Branding Your Small Business!

What is in a name? Plenty, if you plan to do business on the internet and want to generate traffic and link energy to your website or blog.

If you are looking to create a new business or re-brand an existing one, you can not underestimate the power of keywords, keyword phrases, color and your web presence, when naming and branding your organization.

Most businesses do not have the resources of a large corporation or a well funded start-up to spend the thousands, if not millions of dollars that it takes to establish a unique and recognizable brand name and image. You can take a shot as Bob Parsons, founder of GoDaddy did when he bet the farm (and his advertising budget) on a Super Bowl commercial that propelled his company from a virtual unknown entity to a domain and internet hosting market leader and household name.

If you are just starting out and looking to take an idea or vision and turn it into a business that you want to successfully market on the internet, consider these five simple, but essential guidelines as you develop a name, brand and an image for your company.

Essential 1 – Keywords Make the Name

Make sure that you identify and use keywords in your company name that best describe your core business and have strong internet search value. This can take some research and effort but you need to know which words are the most powerful when marketing yourself on the web.

You can get very sophisticated in your search and analysis, or you can just go and use the Google Keyword Tool and type in words that best describe your business and see which words people use when looking for what you are going to market. Remember, what you call your product or service and what a customer or searcher calls it, can be two very different things.

A simple example of the power of a single keyword is the difference between the words “plan” and “program”. Let us assume that I have started a website marketing a new diet that I have developed and want to name my new business and website. An easy example of the power of a keyword is that people will search the term “diet plan” 550,000 times per month on average, but will search the keyword phrase “diet program” 165,000 times per month. If given the choice I am calling my business and marketing my site as “Bill’s Diet Plan” over “Bill’s Diet Program”.

Now this is an over simplified example, but you need to understand the power and potential of the keywords you use in every facet of your business, even your business name. Many search engine spiders (it is documented and sometimes just speculated by the experts) give business and website name greater authority when indexing sites and listing them in keyword searches.

Essential 2 – Own Your Domain Name

There is nothing worse for any business owner than to develop a product or service, create a plan; spend the time and money to form a business, and register it with the state only to find out that some one else owns the domain name for your new business. It happens all of the time.

Never settle on a name, register a business or begin to develop a web presence without first controlling the domain that you will build your business around. That is essential. You can buy up a variety of domain names, but always strive to own your business name.

You can easily go to GoDaddy as we mentioned above, or a variety of domain name registration sites and see what what is taken and what is available. This is also why your initial keyword research is so important, in order to identify and register a business and domain name that will help generate traffic for your site.

Essential 3 – The Power of the Tag Line

Never underestimate the power of a tag line to re-enforce the core of your business as well as add keyword energy that can help set you apart in a search. You tag line is your slogan, theme and mantra wrapped up into a few select words. You want it to be simple, concise and keyword rich.

I am not talking about a mission statement. I am talking about 7-10 words that describe your business. An effective tag line is search critical, as it should contain the keywords that you want to be known and found for.

Take my diet plan example. A tag line might be “A Diet Plan That is Transforming Bodies and Changing Lives”. Now from this tag line I have a statement that uses my keyword phrase “diet plan” and gives a very clear picture of what my diet can do. I would definitely test and research my other two keyword phrases “transforming bodies and “changing lives”, to see if there are more popular keyword phrases that maintain my tag line theme, but have greater search value.

Essential 4 – Color Your World – But Not To Much

This section is literally the blind trying to lead the seeing, as I am not good with colors and completely color blind when it comes to certain colors. My wife and children have a field day with me some mornings when I appear in the kitchen wearing one black sock and one blue sock with my suit.

Color can be a great tool or a huge pain. When considering colors for your brand, logo and website, consider who your target customer is, the region of the world you are marketing into and finally keep in mind the phrase “less is more”.

First, check out other websites and products that target a similar age group or demographic. Big companies spends thousands of dollars on market research and testing to see which colors, themes, layouts and images work best for specific target markets. Why re-invent the wheel, use what works for others and add your style and theme to it.

Next, know where in the world you are marketing into. Certain colors can have very positive or very negative responses in different regions of the world. Some regions respond to bright colors, while others do not. If you are selling outside of the U.S., do some research and check out websites based in those regions to get a sense of what is popular and what is not.

Finally, “less is more”. The more colors you use in your logo, website and company theme the more complicated and costly you will make it for yourself. It costs more money every time you add a color to print a marketing piece or company letterhead, so keep this in mind.

Remember that not all monitors show colors the same and what people see on a website, is not what may get printed out. Consider how everything will look as black and white when developing your website, brand and logo. If you create something that you encourage people to print out, make sure the text will show up.

Essential 5 – Your Logo Can Speak Volumes

An effective logo can help you establish your brand and a bad logo can send the wrong message and turn off a prospect faster than a light switch.

Logos, like color, do not need to be overly complicated to be effective. You can easily outsource logo design. there are hundreds of graphic artists on the web that will do good work for $100. Make sure you are specific for what you want, how many colors and the theme of your logo.

When you get a logo designed make sure that you get high resolution images that you can work with and the specific RGB, Pantone or CMYK color codes used so you can match them up and see how it will look on your website.

When you are designing or considering a logo design consider three things:

Relevance to your brand and business image
Simple is better
No more than 2 colors

If you are a financial planner starting your own business, who has a passion for Harley Davidson and weekend biking, that does not mean you should develop a logo using the Harley font, a similar symbol or an image of a motorcycle in your logo. You may think it is funny, but I have seen stuff like this. You need to consider your target, not yourself when developing a logo and brand. I am not sure how big the financial planning market is for Harley enthusiasts, but you would be limiting your market and creating a brand image that is not in sync with your business.

The bottom line is that your vision will only go as far as your planning will take you and that a name represents more than it ever has in this competitive marketplace. Take the time and plan, it will make a huge difference.

How Small and Medium-Sized Businesses Can Plan For ERP Implementation

Introduction: Proper Planning to Reduce Risks of ERP Failure

In the first article, we discussed how a well-structured system assessment scorecard can help Small and Medium-sized Enterprises (SMEs) mitigate enterprise resource planning (ERP)[1] implementation failure risks at the system acquisition stage.

In this article, we outline certain steps SMEs can take to mitigate ERP implementation failure risks in the subsequent phase of implementation: the planning phase.

Briefly defined, the planning phase is the stage during which the organization prepares to “ERP-ize” its business. An ERP project requires much more than the mere installation of an IT software system. It requires organizational restructuring.

Generally, SMEs have to restructure their operations to satisfy the business flow parameters defined by the ERP software. These days, most ERP software packages are pre-customized to sectors according to certain industry best-practices.

The extent of organizational restructuring that is required depends on the structure of existing business processes, and on the technical and functional requirements imposed by the ERP software.

As with any complex restructuring project, ERP implementation is accompanied by certain risks of project failure. For example, failure can result from a runaway implementation that causes the project to become uneconomical. It can also result from organizational rejection of the restructured environment where such rejection impedes the achievement of the projected efficiencies.

In the following sections, we elaborate on these particular risks of implementation failure and how effective implementation planning can mitigate these risks.

Failure Risk 1: Run-Away Implementation

If an SME is planning to implement ERP, its primary reason for doing so is probably to achieve cost efficiencies. According to 2009 research by the Aberdeen Group, the need to reduce operating and administrative costs continues to be the main driver of ERP acquisition in the SME segment [2].

Since financial reasons drive the decision to implement ERP, it is critical that the implementation be completed within budget. A failure to deliver an economical implementation will mean project failure.

Since this section deals with ERP-related finance, it is important to briefly discuss some of the underlying principles.

The cost side of an ERP budget is based on a total cost of ERP ownership (TCO) calculation. TCO is the sum of the present values of system, maintenance and service costs. System and maintenance costs are fixed and largely determinable in advance.

In contrast, service costs are usually highly variable and difficult to project with accuracy. Further, service costs are proportionately significant. In 2007, service costs accounted for 45% of TCO for SMEs. Put another way, for every $100 an SME spent on ERP software, it spent an additional $81 on service [3]. As you will have probably guessed, service costs mainly reflect implementation costs.

Poor scheduling, improper resource allocation, project delays and scope creep (i.e. unplanned increases to the project’s scope) are the usual culprits for runaway implementation costs. The first three are generally well understood. Scope creep deserves a bit more attention.

During implementation, there is a holy-grail temptation to “ERP-ize” certain business processes that were not included in the original project plan. The rationale supporting a scope increase is that incremental efficiencies will be gained by “ERP-izing” the additional tasks. Implementation seems like the perfect time to widen the scope: the project is underway, consultants are on site and the teams are dedicated.

These temptations must be resisted. Implementation is seldom the right time to widen the scope (except for dealing with unforeseen items that must be addressed).

The reason the temptation must be resisted is because the argument favouring unplanned scope changes only accounts for the benefits side of the financial equation. Incremental costs must also be considered. These costs include direct service costs as well as the opportunity costs of delay. With respect to the latter, every unplanned day that the SME is unable to operate under the new system is a day of lost efficiencies.

It is fair to assume that an ERP project scope is designed to maximize the net ERP benefits (net benefits = cost efficiencies – costs). This means that all components of the project that yield a positive net benefit are accepted. It also means that all components that yield a negative net benefit (where the incremental costs exceed the incremental efficiencies) are rejected. Unplanned scope increases are typically components that would yield negative net benefits, i.e. they would be unprofitable. Since they diminish the return on ERP investment, these components should be rejected.

The following graph (omitted) depicts the relationship between a project’s gross costs, gross efficiencies and net benefits (net benefits = gross efficiencies – gross costs). As seen by the Net Benefits line, the ideal project plan is at Point A. At this point, all profitable components are accepted and all unprofitable components are rejected. Any project plan that lies to the left of Point A would mean that the plan could be profitably expanded. Any project plan to the right of Point A would mean that unprofitable components are being accepted. Scope increases are generally components that lie to the right of Point A.

The above profitability analysis explains why incremental scope changes are both unnecessary and unbeneficial to the project. As time passes, these incremental changes will either be ignored or implemented as part of a profitable optimization plan.

In summary, a well-structured plan can mitigate the financial risks associated with overly broad scope definition and scope creep. Such a plan will help keep the ERP project within budget and on time.

However, even if financial risks are mitigated, other types of failure risk still threaten the project’s success. One such risk is that certain key people will reject the new ERP system and/or the restructured business processes.

Failure Risk 2: Improperly Managed Change

Restructuring is a necessary evil. It causes the SME to undergo significant and disruptive changes. For example, the SME’s organizational and reporting structures will likely change as departments are shifted. Its operations will likely change as business processes are re-engineered. Daily tasks will likely change as manual tasks are automated. All of these changes mean that employees, management and executives will have to unlearn old habits and learn new ways of doing business.

Some people will embrace the challenges and opportunities presented by the change. These people will help move the project forward. However, there will be those who fear the uncertainties associated with change. These people may resist the project and may risk undermining its success.

Change resistors are powerful forces. Even relatively innocuous-seeming resistance can thwart success. Consider, for example, the case of a sales person at a manufacturer who decides not to input an order into the new ERP system. Instead, the employee calls the order into production – the way he had always performed the task under the old system. Although the order is now in the process queue, it was not registered in the ERP planning system.

This one omission can have severe and far-reaching consequences. Automated production planning, shop floor scheduling and material movements planning become inaccurate and unreliable. These inaccuracies will prevent sales people from providing accurate lead time quotations. As a result, sales relationships will become strained and customers will be lost. The unplanned production backlog will also cause an increase in inventory-related costs. Further, real-time performance reporting will become less accurate since the reports fail to include certain transactions. Unreliable reports will negatively impact management’s ability to make important and timely decisions.

In summary, a failure to buy-in to the new system and processes can cause the organization to fail to reap the efficiency and informational benefits of ERP. The result: an uneconomical ERP investment.

The above is but one example of a change resistor. Generally, an organization faces different groups that resist change for different reasons. Common examples of resisting forces include:

· A union that objects because its members’ job functions would change as a result of process re-engineering and automation.

· Employees who object because they have performed the same manual assembly tasks for 20 years and are afraid of or don’t want to learn new processes.

· Managers who object to donating their “A-players” to the implementation team. The loss of key performers would almost certainly have a negative impact on departmental performance.

· Executives who object to short-term business interruptions caused by the restructuring project, notwithstanding the long-term benefits. This moral hazard is caused by an incentive system that rewards the executives for short-term performance. Interruptions may cause the SME to miss compensation targets.

Fortunately, many of the various human capital forces that can sabotage an ERP-driven restructuring can be mitigated at the planning stage.

Good Planning Lessens Failure Risks

A good implementation plan accomplishes two goals:

1. It presents a clearly marked and easy-to-follow roadmap to implement the process changes and ERP system; and

2. It prepares the organization and all potentially affected stakeholders to adapt to the changed environment.

A plan that achieves these twin goals will significantly help the implementation project’s prospects for success.

Although each plan should be customized to meet the SME’s particular needs, there are certain fundamental principles that can frame the design of every project plan. These principles relate to project championship, project plan design and team formation.

Project Championship

Top management is ultimately responsible for allocating time, resources and money to the project. Its collective attitude towards the project filters down and impacts organizational commitment to the project. Consequently, top management support can make the project while its absence of support can break the project.

Given the importance of executive commitment, the project requires a top-level manager to convert the non-believing managers. This person must be both fully committed to the project and capable of influencing others’ commitment. In his capacity as project champion, this person will be responsible for ensuring that the project remains a top priority and is allocated the resources that are required. In other words, the project champion acts as an advocate who drives change, encourages perseverance and manages resistance. Ultimately, it is this person who legitimizes the project and the accompanying organizational change.

Project Plan

The project plan is a formal document that is instrumental in preventing runaway implementations and change resistance.

If done properly, the project plan helps prevent runaway implementations by memorializing the project deliverables on a timeline and allocating a specific budget to each deliverable. Each deliverable should be broken down into manageable and measurable tasks. A well conceived roadmap prevents scope creep, cost overruns and project delays.

The details of the project plan should be (to the extent necessary) transparent throughout the entire organization. Communicating the project plan will diffuse a portion of the organizational anxiety by eliminating ambiguity about the project and the future state of the organization.

In terms of its components, the main project plan should, at a minimum, include the following:

Project Charter:

This is an articulation of the project’s mission and vision. It clearly and unambiguously states the business rationale for the project.

Scope Statement

This defines the parameters of the project. The scope is broken down into measurable success factors and strategic business accomplishments that drive the intended results.

Target Dates and Costs

This sets out individual milestones. Identifiable, manageable and measurable goals are established. Target completion dates are set. Each individual milestone is valued. This step articulates the breakdown of the project into discrete sub-projects.

Project Structure and Staff Requirements

This sets out the project’s reporting structure, and how that reporting structure fits into the larger organizational structure.

The main project plan should be supported by whatever subsidiary plans are necessary. Common examples of subsidiary plans include: IT infrastructure and procurement plan, risk plan, cost and schedule plan, scope management plan, resource management plan, and communications plan. For present purposes, these last three subsidiary plans deserve a bit more attention.

Scope Management Plan

This is a contingency plan that defines the process for identifying, classifying and integrating scope changes into the project.

Resource Management Plan

This sets out individual assignments, project roles, responsibilities and reporting relationships. It also sets out the criteria for back-filling positions and modifying project teams. Further, this plan details human capital development and training plans. Finally, where necessary, it sets out the reward system used to incentivise project performance.

Communications Plan

A communications strategy is critical to manage change resistance. This plan codifies the procedures and responsibilities relating to the periodic dissemination of project-related information to the project teams and throughout the organization. Examples of common channels include email newsletters, press releases and team meetings.

A good project plan is only effective if the project teams are capable of executing the recommendations. For this reason, team formation and training are critical parts of the planning phase.

Team Formation

Successful execution requires an enabling structure. Like many well-structured organizations, an ERP project structure should contain a steering committee that has executive-level strategic responsibilities; a core team that has managerial-level delegation authority; and functional teams that are responsible for implementing the changes.

To facilitate communication and decision-making, each hierarchy level should have a member who is represented on the level below. For example, the ERP project manager should sit on both the steering committee and the core team, and certain key users should sit on both the core team and a given functional team.

The Steering Committee

The project steering committee should be comprised of the chief executive officer, the CIO, executive level business managers, and the ERP project manager. The committee has strategic-level responsibility for reviewing and approving the project plan, making changes to the plan and evaluating project progress.

The Core Team

The core team is responsible for managing the implementation project. It should be comprised of the ERP project manager, functional leads, the outside consultants and certain key end-users.

Functional leads should be top-performers who are reassigned to the implementation project on a full-time basis. They should be experts in their respective departments, should understand other departments’ business processes and should be knowledgeable about industry best practices. In many cases, functional leads will have to be backfilled in their day-to-day jobs.

During the planning phase, the core team is trained on the fundamentals of ERP theory and on the particulars of the ERP software. The purpose of the training is to ensure that the core team is capable of managing the development of the new business processes.

Functional Teams

These teams are responsible for implementing the business process changes in their respective functional departments. Each functional team is comprised of a core team key end-user, select end-users that cover all of the functional unit’s business processes, and a functional consultant with an understanding of the ERP software.

Organizing committed and capable teams is critical to the project’s success. The project teams will be responsible for managing the implementation and helping the organization adapt to the new business environment.

Conclusion

ERP implementation is a complex project that involves significant operational restructuring. The restructuring is accompanied by certain risks of project failure, including runaway implementation and resistance to change.

Fortunately, an SME can mitigate many of the ERP failure risks by properly planning for the project. At a minimum, proper planning requires a project champion to secure executive buy-in, the preparation and communication of a project plan that breaks the project down into manageable sub-projects, and the assembly of strong teams capable of executing the project.

[1] Briefly, an ERP system is intended to electronically integrate an organization’s functional areas, administrative areas, processes and systems.

[2] Jutras, C. (2009). ERP in the Midmarket 2009: Managing the Complexities of a Distributed Environment. Boston: Aberdeen Group.

[3] Jutras, C. (2007). The Total Cost of ERP Ownership in Mid-Sized Companies. Boston: Aberdeen Group.

Market Research Strategies For Small Businesses

Have you ever done any market research? If not, you may be missing some valuable marketing ideas and information that you could capture by doing some research. Market research is a vital part of the process that most small businesses or start-ups neglect to do. However, it could be the single most important thing a new business does prior to formulating their business plan, location or marketing strategy.

Marketing research is the process of gathering data and opinions from consumers, employees, or a specific subgroup within the public, to improve decision making and reducing the risk associated with those decisions. Individuals/businesses can use information gained from marketing research to assess awareness, attitudes, perceptions, or opinions on products, services, advertising, brands, and/or companies. The two types of research are qualitative (words) and quantitative (numbers).

Qualitative research is an in-depth analysis of relatively few respondents, which provides a holistic insight and understanding of the issue at hand. For example, if a company is interested in testing company logos, qualitative methods would provide rich data.

– Focus Groups are an “informal” gathering of 6-10 people from your “target group” to have an in-depth conversation of opinions on your product, brand, advertising, and other areas of your product and/or service.

– Face-to-face interviews typically involve a one-on-one conversation with your consumers or decision-makers. These methods can be more expensive than a traditional survey, but will provide a more comprehensive evaluation.

Quantitative research seeks to summarize data and typically applies some form of statistical analysis. Using this method, for example, a company could measure their customer’s level of satisfaction and then, in turn, make internal changes to increase that satisfaction.

– Researchers should use surveys or questionnaires when trying to measure an audience’s opinions more accurately.

*Telephone surveys are often the most expensive, but are the most effective at getting respondents to complete the survey.

*Mail surveys can be relatively inexpensive, but the response rate on a mail survey is typically 3-10% and takes more time to conduct. These cannot be used when results are needed quickly.

*Online surveys are relatively new, but growing fast in popularity. With online surveys, you can ask survey questions, but also get feedback on things such as logos (using picture files) or commercials (using streaming video).

*Intercept interviews are a tool a company uses when they do not have a list of their customer base, such as a restaurant or a sports team, but would still like to measure their customer’s satisfaction.

For the small business owner it might be helpful to hire a marketing company or market research firm to help with these types of in-depth research however it’s not to say that you couldn’t ask your current clients or contacts as well on your own. Just remember you do not have to do all of this yourself, it’s always good to consult with experts in areas that you are not familiar or experienced with so it’s the best use of your time and it gets done right.

Now what do you do with all that great qualitative and quantitative information when you receive it? It is imperative that you work it into your marketing materials, Web site, correspondence, sales presentations, advertising and many other areas of your marketing plan. When you find out what your target market wants or likes, it is important NOT to ignore those results.

Small Business Venture Capital Strategies

When launching a new small business, often the entrepreneur will consider venture capital as a source of funding. Here are 3 tips to ensure that venture capital funding can be secured when sending out your business plan:

Send your business plan to the right people

Venture capitalists tend to specialize in certain kinds of businesses. Some will specialize by industry, only investing in new energy companies, for instance, while others look for a certain size of company to invest in. It is worth doing the research to determine who the venture capital backers are for your industry, before you start sending out your business plan. Venture capitalists who are not specific to your industry can provide recommendations to make your plan more appealing to other venture capitalists. However, it would naturally be a mistake to send your plan to potential investors who will not even consider it.

Make sure your business has the potential to be profitable enough

Most venture capitalists look for a return of about 5-10 times their initial investment. For example, an investment in a company of $2 million should yield a return of $14-20 million after about five years. To satisfy these requirements, it is generally necessary to have a business which has the potential for a high rate of return on the amount invested. If the rate of return can reasonably be expected to be lower, such as for a clothing retailer, then it is probably better to look for an alternate source of funding, such as an investment or commercial bank.

Remember to include an exit strategy for your investor

Venture capitalists generally do not want to be involved with a new venture for an indefinite period of time. Most will plan to leave the new venture after about five years, so you should offer a clear explanation of how this may be achieved. There can be a variety of reasons for this; some venture capital managers require that the holdings periodically be sold off to acquire other offerings. Nonetheless, by demonstrating that you understand the limited time frame for many venture capitalists, you automatically make your plan more appealing than those which do not.

In summary, by sending your business plan to the right people, by recognizing what rate of return is necessary for venture capitalist involvement, and by including an exit strategy, you can improve your odds of securing venture capital funding for a new and growing business.