For any small business owner, there may come a certain moment of realization: it's time to move on and move forward. Whether that means transferring control of your business to the next generation of your family, getting out of the market outright by selling your business to someone more interested in running it, or attempting to profit from the turnaround of an old business into a new, more valuable one without the pressure of continued management, the principles are effectively the same. There are some key steps involved in selling your business - steps that will prepare you for the process, ensure a smooth transition, and prevent you from being saddled with financial challenges.
Here are four key questions you can ask when it comes time to think about succession or sale of your small business.
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It's no secret that North American students are increasingly challenged by the pressures of debt used to finance their post-secondary educational pursuits. The Canadian Federation of Students pegs the average student debt at$27,000, which is close to the nearly $26,300 many students said they expected to owe after graduation in a recent BMO survey.
A study by Penn State University co-authored by Brent W. Ambrose, Larry Cordell and Shuwei Ma has explored the relationship between student debt and the small business economy (albeit in the United States.) According to the Penn State report, between 2000 and 2010, one standard deviation increase in student debt reduced small business creation by 14 percent, on average.
The researchers found that the correlation only exists for the smallest of small businesses. Those businesses are the most likely to rely on the founder's personal credit.
Demographically speaking, the Canadian small business sector is dominated by businesspeople between the ages of 50 and 64. However, in urban environments with younger populations as well as those areas being settled by younger professionals priced out of increasingly competitive housing markets, a new generation of small businesses is being founded - one with its own set of terms and requirements for cost-efficient operation and access to capital.
"To summarize our findings, comparing the results of the growth in student debt and the growth in total debt on net business formations, we see that student debt differs from overall consumer credit. While student debt is used to fund increases in human capital (education), the utilization of student debt reduces an individual’s ability to access other forms of credit. As a result, the results suggest a debt trade-off where larger amounts of student debt lower the ability of individuals to start new small businesses."
The full report features a wealth of interesting statistics and demographic research into the correlation between student debt and business capital, as well as investigating the economic relationships between borrowers and their debt, businesses and their productivity. It appears that student debt levels and small business performance are significantly linked: improving access to capital will lower the barriers to the creation of new businesses and jobs, ideally generating a loop of positive feedback toward better-educated management and more financially stable small business proliferation in the young professional community.
For many small businesses, it's an unwelcome fact: it can be hard to find a source of funding and working capital. This is especially true for newer businesses looking for the financial foothold needed to get going, but also for established businesses that need to adjust to changes in their market niche or operational plans. Small business owners are often told that bad credit (whether personal or business credit) contributes to major lenders' decision to withhold financial support. This disparity has spurred the growth of alternative lenders such as Merchant Advance Capital.
Bad credit, though an indicator that can be used to point to inferences about a borrower's likelihood of default, does not necessarily reflect badly on your business. It implies a risk, but one that does not eliminate the likelihood of finding a loan or other financial product to suit your business. Prospective borrowers with self-professed bad credit need to be evaluated by other metrics that take the specifics of their business position into account: this task falls to our underwriting team on a daily basis.
Many loans or forms of financial support targeted at small business owners with bad credit may also impose strict fees upon the borrower. We have realized that this structure is a significant limitation, one that prevents the building up of better revenue and credit over time. Access to capital allows businesses and their owners to support the growth or change they may need to stand more securely and independently in their marketplace in the long run.
If a major lending provider has declined your application on the basis of bad credit, you still have a variety of options. Customizing the evaluative approach as well as the design of a funding plan that does not put excess pressure on your stream of revenue will be important steps in building your small business' access to capital.
Conflicts and disputes are best avoided in any interpersonal context, but in the small business space they do occasionally crop up. Settling bills, coming to the right terms with suppliers, dealing with damages, or even addressing customer complaints: these issues, if unresolved, may end up becoming legal matters that need to be dealt with an official capacity.
A new Ipsos poll on behalf of DAS Canada shows that 30% of Canadian small businesses have had to deal with legal disputes in the past three years. These disputes were shown to have a measurable impact on the success of the businesses in question. 72% of business owners polled said that a legal dispute would cause a moderate or large strain on their business.
Legal proceedings are not only a distraction from the logistical and managerial responsibilities that go into running a small business: they can also constitute a significant expenditure of money and time. Perhaps most troubling among the poll's conclusions is that one in ten (12%) business owners say they personally know another business owner who has lost their business due to lawyer’s fees and related costs required to settle a legal dispute.
The top three sources of conflict leading to legal disputes, as polled by Ipsos, were:
- Collecting money owed by customers
- Contract disputes with customers
- Contract disputes with suppliers
Though we are not in a position to offer legal advice of any kind, your small business can take certain steps to avoid these detrimental disputes by setting out terms of contracts and purchase/sale orders clearly and well in advance. If you can, have signatures on contracts authorized by a notary public. Well-executed contracts are worth your time and careful attention. If a dispute arises, take time to reflect and get good legal advice before you commit to a course of action from which you can't turn back.
The Avengers. The A-Team. The Italian Job. The X-Men. Heck, even the Breakfast Club. In popular culture, teams of characters band together to achieve incredible goals and play off of each others' strengths. Sometimes they come into conflict, but in the end their diverse abilities and personalities make them stronger for having joined up with one another. In the world of small business management, team composition can have an exceptionally strong effect on the working environment and the overall success of the business.
It's no coincidence that the partners in many a successful and powerful team effort boil down to five core archetypes. Smaller teams, partnerships or sole proprietors might even wear a few of these personalities at once. Who are these critical five, and how can they make your small business better?
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As a business owner looking for a small business loans solution, you may have heard a similar refrain from many traditional lenders: your application is simply too risky for them. You can't prove sufficient stability for these institutions to take you seriously as an applicant. And so forth. Merchant Advance Capital was founded to address this exact frustration among Canadians looking for small business loans.
Consider, however, one of the unique advantages of being a small business: your ability to turn your focus on quality of product and service into a pillar of customer loyalty within your community. You're the kind of business that knows your customers by name, gives them a friendly greeting, shows them that they're people first. Your ability to create trust and relationships with your clientele makes you stand out from the big-box crowd.
This, in turn, enhances the stability of your cash flow: you can begin to predict certain customer behaviour at a reasonable scale over time by knowing that certain customers will return and spend in specific ways. Those customers who become advocates and generate word-of-mouth interest for your small business are even greater value-adds. It's a positive feedback loop: improved loyalty generates improved business, which drives employee satisfaction and motivation, looping back around to creating a better customer experience and converting new customers into supporters.
Alternative lenders are catching on to the idea that customer loyalty can become a valuable metric when it comes to small business loans. San Francisco's ZipCap, for example, is trialling a system whereby businesses ask repeat customers to "pledge" a prospective amount of future spending as collateral for a line of credit. In this system, businesses let their customers become active, informed participants who are aware of their own importance in the continued growth of the business (psychologically, a process similar to that which underpins crowdfunding enterprises like Kickstarter and Indiegogo.)
Thinking about customer loyalty in more quantitative terms may surprise you. The impact on your cash flow from a steady, predictable (and expansion-ready) base of customers is invaluable. It helps prevent or mitigate the cycles of boom and slowdown that are common to many small businesses. Loyalty is not just a vanity metric: it's a measure of the traction a small business has within its community. When it comes down to eligibility for financial products such as small business loans, larger-scale lenders may not see the absolute value of this traction. However, alternative lenders such as Merchant are becoming more and more attuned to the importance of "loyalty capital."
Though we live in an age in which our connective tissue is digital, and it's possible to Tweetup, chat, Q-and-A, Google Hangout and otherwise interact 140 characters at a stretch without truly interacting, there is something very meaningful to be said about the process of gathering people together under a common interest. Small businesses in particular have learned to rely on digital and social means for communicating the developments big and small (a rebranding, a relocation, a flash sale, a new product arrival.) However, hosting business events can still be an exceptional way to make a change or promotion stand out.
The last thing you want to do is put together a cocktail party - a loose assemblage of entertaining good vibes with exciting energy but little purpose. Here are our favourite tips for planning and executing business events that are both appealing, impactful on your customers and meaningful from a business development standpoint.
Find Your Target Audience and Reach Them
Who is your event's target audience? How can you reach them, and what can you say or do to entice them to participate? Think about the channels they use - would it be more appropriate to send an email blast, a postcard, a social media missive, a video, or a combination thereof?
Control, Shape, Create: Assemble the Right Crowd
Business events are somewhat like experiments, in that there many variables. Scientists in labs do much of their work trying to control excess variables, making the results clearer when they emerge. Knowing your audience gives you control over an extremely important variable: who to invite. If your policy is to simply fling open the doors, open-house style, it will be harder to predict the reactions that your event generates. However, if you do a bit of research beforehand, you can make a point of inviting members of the community who you know will have an interest in what you do - and a desire to share it. Think of local news organizations, bloggers, fellow small businesspeople, or potential business partners: put these at the top of your list when thinking about who should be attending your proposed business events.
Send a Message
An event will get people excited: it can be dramatic. It can be aesthetically pleasing. It can stir conversation. Channel that excitement and take advantage of your attendees' increased receptivity to the important messages your business wants to send. In the process of setting goals for an event, one of the most important to consider is the message your attendees should take home at the end of the event and distribute to their own networks, broadening the impact and importance of having held the event in the first place.
Monitor Expenses
Pinterest, Facebook and the like have made showcasing lavish, enthralling business events online a relatively easy process. Doing up a fancy shindig, as it were, will impress your customers and followers - however, it will also have to be considered in the accounting process. Estimate the costs of things such as location, amenities, promotion (both physical and online) and built-in flexibility for your plans. Don't be tempted to overextend yourself - show sound understanding of your capabilities and their limits!
Gather Data
In a previous post about business events, we talked about them as a rich vein from which to mine demographic and experiential information and feedback from your customer base. This still holds true! Consider the value of this data as a significant added incentive for return on investment in a business event plan.
Welcome to another edition of the (expanded director's cut of the) Merchant Advisor Newsletter! We welcome all our clients, friends and fellows in the small business universe to June with us. This month, our thoughts turn to new ideas for a new generation of small businesses.
As summer begins in earnest, some of the common sights in many towns and cities across Canada include the gowns, mortarboards and smiling faces of recent college and university graduates. Many of these grads are poised to become the next generation of Canadian entrepreneurs and independent small businesspeople. They bring with them a suite of experiences and skills unique to their peer group: awareness of crowd and cloud, understanding of the digital marketplace and the power of social authenticity, and the wherewithal to build unique things out of limited resources.
They may also face a set of financial challenges that demand the development of new business strategies, optimized for a world in which student debt, increasing costs of living, and intense competition are becoming more important realities. Forward-thinking options should exist to help impel this new class of business-minded young professionals toward success.
For this group, it will be critical to foster the establishment of reputable credit and capital in order to see their ideas grow to fruition. As businesses become more technologically agile and efficient, saving money and working with the evolving trends in consumer behaviour such as e-commerce and digital payments, their funding solutions should be designed with the same agility and efficiency in mind.
Your small business wants to cut down on delays and paperwork, optimize its inventory scheduling, minimize fees and surcharges, and most importantly keep the focus on your customers. As new businesses emerge and begin to build connections in their communities, the large-scale banking landscape in Canada has admittedly been slow to adapt and to provide opportunities for these businesses to find the financial resources they need. Alternative lenders such as Merchant Advance Capital strive to connect with businesses and form productive relationships that will allow them to grow and succeed.
It's an interesting thing to consider that practically everyone carries around a multifaceted digital ecosystem in their pocket these days. Saying that "there's an app for that" has almost become a mobile-world cliché, with user-experience-optimized platforms launching daily to connect consumers with brands, products and services. Some of these apps are useful for gaining feedback, boosting business or creating new service models for small businesses: others can leave users wondering why they exist in the first place.
App development is becoming an increasingly simple, cost-effective and democratized process - much like the transition from the early days of web design (when even basic site-building could cost thousands of dollars) to the modern "what-you-see-is-what-you-get" simplicity that allows anyone with very little design or coding experience to build a simple platform for their business online.
Digital researchers Clutch.co recently released a detailed survey on small business interest in app development. Interesting conclusions and important questions can be drawn from their data: namely, do small businesses have an interest in creating apps? For what reasons? Will the investment - both in terms of development cost and upkeep - pay off? And in what sectors is app development most desirable?
The full, detailed study and its conclusions can be found here. Here are our top takeaway points:
- Size Matters. The number of employees a business has (and by extension, the scale of its budget and goals) has a strong influence on the desire to build or upgrade mobile apps.
- Mobile = Loyal. Engaging your audience "in the moment" is a great way to keep customers engaged and to communicate to them when it matters most - notifying them directly when you launch a promotion or sale, and keeping the interest of loyal patrons over time by giving them direct access to what they need.
- Build for Customer Experience. As the study indicates, "...users evolve, becoming more demanding, savvy, and time poor, which means businesses need to adapt as well." If a mobile app allows customers to solve an immediate need more quickly, thoroughly or in a more streamlined manner, improving the experience of dealing with your business, it is doing its job!
