Lenders and Investors look for11 Things – Part II
We discussed small banks and third party lenders last week in Part I. This week in Part II we summarize 1-8 of the 11 things Lenders and Investors look for.
1. The Plan describes a marketable idea.
Lenders and investors want to see proof that customers want your product or service and are willing to buy it for a price that gains you a consistent profit.
2. The Plan must show good profit potential in a short period of time.
Because new business ventures are so risky, they are expected to earn at least a 25% annual return, and preferably more.
3. The Plan targets a clearly defined market with enough size and purchasing power to produce a profit.
Lenders and investors look for businesses whose target markets are clearly defined. They also prefer large markets with high growth potential, but avoid businesses that try to be “everything to everybody.”
4. The Plan explains clearly the “competitive edge” your product or service has in the marketplace.
The more unique your product or service is, the better. Show how you offer the customer something the competitor doesn’t or can’t.
5. The Plan shows the company’s ability to control both the quality of the product or service and its delivery.
Dependence upon outside contractors and sales representatives can be considered a potential weakness when quality of delivery, installation, and service of the product is primary to the company’s success.
6. The Plan shows that managers and employees have the skills and the experience to make the company a success.
Lenders and investors don’t put their money into a business; they put it into its people. Skilled, experienced managers and employees can make a business work even when resources are stretched thin and conditions are tough. Lenders and investors also know that experienced managers and employees will improve their chances of getting their money back.
7. The Business Plan idea is not overly complex.
Trying to do too much too fast—and/or having to educate the consumer about a product’s or service’s benefits–can put a company under before it can even get started. This applies to expansion plans as well as start-ups.
8. The Plan shows a personal investment in the business.
If you don’t believe in your own venture enough to invest at least some of your own money into it, no one else will want to either. “Sweat equity”–unpaid personal time and hard work–can be important, but lenders and investors prefer to see an entrepreneur motivated by a substantial financial stake in the business.
Next week in our Part III conclusion, we will summarize 9-11 and answer the question: “BUT – What if you aren’t able to secure funding?”
Compliments of Lew West Business Consultants
Lenders & Investors Look for 11 Things part 1 of 3
First off, don’t write off the smaller banks too quickly. A number of small banks have funds available and are often more willing to loan them, but you need to have been in business for over two to four years, depending upon the lending institution, and show proven profitability. It isn’t easy, but if you have a sound company with a good plan you may be able to secure those needed funds.
Third Party Lenders are often a good source when banks decline your loan request. When you can show you have a healthy company they are usually able to be more creative than a bank. The criteria still includes showing a history for the business, and that it is capable of making a profit.
Potential lenders or investors are keenly aware of the risk and want a return matching that risk: the greater the risk involved in the venture, the greater the return demanded. There are a number of factors they will take into consideration when reviewing your Business Plan, however if you have a solid plan, your chances are greatly improved. Some of those factors will be discussed next week.
Compliments of Lew West Business Consultants
A System is Like Eating an Elephant
Think of the old cliché, “How do you eat an elephant? One bite at a time.”
This is what a system does for you, and your business. It breaks things down into bite-sized pieces, which in turn gives the option to eat (or use) that bite or not.
When you break down each piece of an action, or event, it can then be identified and defined. Whenever you convert that action, event, or thing into small, single actions, events or things, you are able to assume control of them. The next step is putting each of those single actions, events or things into a smoothly operating order. As a result, you have created a system, or procedure, that can be duplicated – over and over and over.
Once each piece is identified, it can be arranged, rearranged, adjusted or completely eliminated. Anything can be handled once it has been broken down into its individual actions, events or things.
Do this for each function of your business and soon you will see your systems development become your pathway to a mature business and personal freedom.
A System is a Procedure that works every time in a repeatable and efficient manner.
Compliments of Lew West Business Consultants
www.lewwest.com Blog – www.MyNext30.com
1 Step and You Know Your Business is Mature
Different businesses mature at different speeds. Sometimes it is because of how you have it laid out the development. Sometimes it is due to the marketplace. Sometimes it is a combination of conditions, but usually it is a reflection of your leadership.
Look at your business as if it was a child.
Initially you must do everything for your Baby Business. Gradually, as it starts growing, it begins doing more and more things on its own. Being a concerned parent you establish boundaries and guidelines to ensure it plays fair and communicates with well with the others in the marketplace. These procedural guidelines, also known as systems, become an automatic response to behaviors in the “home” (workplace) as well as in the play area of the marketplace. These fundamental guideline/systems define preferred action and reaction for Baby Business, and apply to all of the staff from the top down.
As Baby Business continues to grow, more and more systems must be put into place and kept updated. Example: When Marketing sends a potential customer in the door, what procedures (systems) are activated for sales, customer service, processing the payment, delivery, follow-up etc. If these systems are clearly written, consistent on-going procedures, any new caretakers (employees) can be quickly brought up to speed, as well as able to more quickly adapt to the guideline philosophy of Business. Everyone at each level of management should be comfortably knowledgeable of all aspects of the care and conduct of Business as it applies to their area of expertise.
To develop and maintain strong core philosophy, it is imperative to integrate the systems, policies, chain of command and social skills (customer service, marketing, sales, interoffice relations, etc.) from the very beginning. If these procedures become a part of daily life with “Little Business”, it will make it much easier to survive the Terrible Twos, as well as the Pre-Teen through Teenage years. Once these values are embedded within the core, “Little Business” will mature into a self-sufficient “Big Business”. And “Yes”, Business growth goes through all of these stages just as an offspring does.
There is one decided advantage to raising a Business vs a Child. If you didn’t get all of the proper systems in place along the way and you lose control, you can close the doors and walk away; free to start over with all of your freshly acquired knowledge. (It is only failure if you didn’t learn from it.)
The purpose for all of the systems, policies and procedures is to allow “Business” to continue taking more and more responsibility and initiative. Business needs to be encouraged to grow into maturity. This will allow you to slowly start backing out of being the primary care-giver. You should gradually transition into only being an advisor during the occasional rough spots, and eventually not even that.
By this time Business will have put quality, well trained managers and employees into all of the positions. All systems will have been well tested by time and use. These foundation systems will only need scheduled “tweaking/adjustment” to stay current with the business’s changing services, products and the ever evolving marketplace.
So when is your Business mature?
The day you can walk out the door for as long as you like and know Business will “continue as usual” – supporting itself and you – by itself.
Compliments of Lew West Business Consultants
www.lewwest.com Blog – http://www.mynext30.com/
10 Things That Build Business Value!!
Thinking of selling? Expanding? Secure Funding? Retire? Other?
10 Things That Build Business Value!!
1. Establish your brand in the marketplace.
2. Develop your operations manual. Put systems into place that will let your business maintain or grow in your absence.
3. Be vigil in keeping your books current; showing accurate, clearly identified and consistent records. (Remember, besides it ultimately making you more successful, a potential buyer or auditor might be looking at them any day.)
4. Expand your individual client lists, your networking sources, and especially protect your reputation. Your reputation and your company’s reputation are identified as being the same.
5. Take care of your intellectual property: trademarks, patents, etc.
6. If you have any outstanding tax issues, take care of them ASAP.
7. Give a good first impression – the business should always look clean, businesslike, and attractive when anyone walks in. Specific maintenance duties should be included in every job description, e.g. keeping trash emptied, personal items out of sight, etc.
8. At least quarterly, review that your legal paperwork is being maintained.
9. Update your business plan weekly or monthly as well as your expected future projections. Maintain your business plan as if a buyer might walk in the door any day with an outrageously large offer – IF you can hand it over your current business plan and books for review Right Then.
10. Obtain a realistic picture of the value* of your company, noting that specific actions you take with the above can increase its value. Despite all of the things you hear, there are no set formulas in determining your company’s value.
*Determining the value of a business will depend upon several things including, but not limited to, company assets; net profits the business is showing now and in the past; feasibility of further growth or expansion of the business; location. If the goal is to sell – the recent sold price other area businesses in that industry will need to be taken into account, but only as one variable.
Compliments of Lew West Business Consultants
http://www.lewwest.com/ Blog – http://www.mynext30.com/
5 Product or Service Pricing Tips
1. When you have a product basically the same as all of your competitors, it is how you treat your clients that will make you stand out from the crowd. If you do what you do well for them, and go that extra mile in customer service, your clients with actually pay you for the experience of doing business with you. When you make it easy to work with you, they feel they can trust you and are relived that they are able to obtain the product they wanted without hassle. Your price can reflect your reliability and client service, but keep it reasonable.
2. Be aware of the difference between what a client “perceives” as the product value and its “actual” value. Once you determine the break-even cost (actual value) of your product, you have established a base price. Now you need to focus on establishing the “perceived” value of the product to the client. The client usually knows the market price range of the product, so your job is to show the client your enhanced attributes of the product. You want your client to begin to “feel” that you are offering a product of greater value than what is on the general market. If you have developed a strong list of benefits and advantages to serve their need, they will “perceive” your product as worth more, and will be willing to pay more for your enhanced version. These unique attributes could possibly be an improvement you’ve added, or something your competitors have failed to point out, or even showing them how to more efficiently use your product to better fill their need.
Finding Success in Your Why
An Article By Todd Falcone
Have you ever taken the time to ask yourself these questions?
Why am I doing this business? No, really – why am I investing the time to do this every day? What’s the purpose? What reasons cause me to do this, versus not doing this?
Is your reason simply a surface answer, like money, or stuff, or “to get out of debt”? Very few people ever take the time to ask themselves this simple yet profoundly deep question. True success exists in the answer to this question. In fact, one of the very reasons so few make it big (I’m talking about the “dream money,” the luxuriously-and-ridiculously-large-lifestyle money) is that very few are willing to ask, contemplate and answer this simple yet profoundly deep question.
What Do You Do If You Have a Great Concept But Need Funding?
What Do You Do If You Have a Great Concept But Need Funding?
You have a new “Concept” or “Idea”. Congratulations! Now what do you do?
If the acquisition of capital is your primary goal for your business, then let’s take a step back and see what you need to do.
Many entrepreneurs become so excited with their New Concept they mentally start banking their money – but oops, they don’t have any money. No problem. They’ll shop their great new concept to the highest bidder, get enough to pay-off their debts, hire the necessary personnel to run the new piece of business and still have a healthy operating budget. Sounds doable, right?
And Why Not? It seems you read about these kinds of successes all the time, don’t you!?
While you should “never say never”, the reality of the odds playing out, as described above, are right up there with winning the national lottery. The good news is there are ways to better those odds.
Did You Know – A Business Plan Can Make You Money Whether You Put It Into Action Or Not?
Did You Know – A Business Plan Can Make You Money Whether You Put It Into Action Or Not?
I am often amused when someone claims they don’t need a BP (Business Plan) because they “fly by the seat of their pants”, or “a BP is a waste of time”; then smugly point out they have never had a BP and they are so busy they can’t keep up. To me, that’s a sign they are in the middle of a wild fire instead of a controlled burn. One day they are going to burn out.
5 Basic Steps Defined for Long-Term Profitability
5 Basic Steps Defined for Long-Term Profitability
In case you hadn’t noticed, many articles, experts, textbooks, etc. tell you that you are “confused” if you don’t subscribe to their particular definition of business terms. I too have my set of definitions, and because this is my Blog you will find them listed below.
Please understand that my definitions, along with everybody else’s, are only words. To each of us, in our attempt to convey those illusive, intangible concepts of business success, believe our words best describe them.
The important thing, however, is that You are able to grasp the basic key concepts necessary to drive your business to its greatest potential.
My favorite quote is, “If you don’t know where you are going, then you are probably already there.” Becoming as clear as possible as to “Where You are Going” is often the difference between success and failure.
I’m for success – by any definition.
#1. Strategy or Action augmentation: Read the rest of this entry »
