Fraud in Small Businesses

Small business fraud is common yet not understood well. This is not small businesses committing fraud, I am talking about small businesses being the victims of fraud. Its hard for small businesses to recover from fraud, many owners simply don't have the resources (i.e. cash flow) to recover and those who do find it extremely difficult to regain the trust and confidence of customers. Recently I read an article by Dr. Bonita Kramer in the Journal of Small Business and Enterprise development (find the article here) in which she explains the fraud triangle: unsharable pressure, perceived opportunity and rationalization. The triangle is in relation to the pressure employees are subject to and how that pressure leads to some committing fraud. The main point is this, the best way to avoid fraud is to make clear to employees that fraud will be detected. The best way to detect fraud is to be actively involved in the management of your small business and have proper internal controls, don't place employees in a position where temptation to commit fraud is too great!

What are your thoughts on the fraud triangle?

Limited Strategic Potential for Small Businesses?

I read an article in a journal today (find link here) that focused on the challenges of small businesses in making strategic decisions. The author states that small independent businesses are limited, contrary to big business, in how strategic they can be in making decisions. They can basically select a strategy of growth, retention or harvesting (reducing business functions that lose money) while big businesses can do all three.

What was interesting to me is that the author presented two different ways of making decisions. By time (long, medium and short term) and by importance (strategic, operational and tactical) Now I have been part of an organization that tends to use the second way to classify decisions for almost 15 years, however once classified as such they are immediately arranged from long to short range time frame decisions. I don't see why the two ways should be exclusive.

Do small business owners have as much time to think strategically as big business CEOs? I think that's the more pressing question. If time permitted they probably would but with multiple functions and a very short staff to carry all the tasks needed most small business owners don't. A "break" even for a day or two to think about the business, where it is and where it’s going, is essential.

Thoughts?

Financing Small Business projects

A short article on small business financing caught my attention today. A study conducted in Spain, you can find it here, attempted to test the hypothesis that small business with a lower risk profile will self-select financing options that trade collateral for a lower interest rate while business with a higher default risk will self-select for financing options that have a high interest rate but no collateral. The study is very interesting, and although definitely on the academic side, it poses serious questions for young entrepreneurs.

1. If I believe my idea is sound and profitable (almost everyone does) do I raise the necessary collateral to have access to a lower interest in a loan?

2. Instead of using the collateral in the loan should I invest the money in my company?

3. If I have no collateral, is my business ever going to receive funding?

Financing for small business is a touchy subject. The link between collateral and riskiness of the business can be argued both way. The bank might be trying to diminish its risk by asking for a higher collateral. On the other hand the higher collateral might be the result of conditions within the bank itself or macro-economic conditions outside of the control of the small business. My advice to small business owners is to carefully evaluate the need for financing to begin with. Everyone will push financing, from small banks to venture capitalists, but they have their own interests. The bank needs a client, the venture capitalist wants a piece of your company if successful. If you don't have a plan as to what you are going to do with that money, detailed plan, then seriously reconsidered asking for it to begin with. Slow, steady, internally financed growth expansion might be a better option.

Thoughts?

Intangible Assets Valuation

I read an interesting article on Intangible Assets valuations today. The article was published in the Engineering Management Journal, http://www.asem.org/asemweb-emj.html (you have to pay to get access).  The authors explain how they develop a tool to help SMEs in Italy asses the value of their intangible assets. You can read the article for the full story and methodology but what interested me is that they defined intangible assets as:

Human Capital(i.e. the skills of the employees)
Internal Structural Capital( i.e organizational knowledge that belongs to the Company)
Relational Capital (the relationship between companies)

Placing a value on this can be quite difficult but essential for SMEs as it is usually these assets that are the most valuable for small businesses that do not have huge financial assets. I am curious about the small business owners themselves. How many small business have you encountered that have even attempted to place a value on this, should this be taken into consideration when looking at financing options? If so by whom the bank or the small business owner?

Relational Capital in particular is interesting. Its the "Who do you know?" concept. A business might be small but if the owners are well connected, say with city hall or the city procurement officer, this is a huge asset with potential value. I understand that the ethical considerations are there but to believe that a small business owner will not exploit such a relationship is naive at best.

Thoughts?

Market Research Lessons from the Czech Republic

I read a good article today in the International Journal of Management Cases, you can find the complete article here http://ijmc.org/IJMC/Vol_16.4.html . If you want to read about the methodology and actual research study more in depth please visit the site. The authors basically surveyed Czech Republic small businesses to determine what did they consider to be barriers to exporting and what are the actual barriers to exporting based on data. They found that many small business believe that the following are their main barriers:

1. Lack of language skills
2. Lack of experience with foreign markets
3. High costs of promotion
4. Lack of public support
5. Lack of information about foreign markets

The findings suggest that the main barrier to exporting is actually:

1. Lack of information or experience in foreign markets.

Those companies that either searched for information about foreign markets or had key employees with experience in foreign markets actually had decent volumes of export sales (as a ratio of total sales). Although the first list is intuitive and i think almost every business owner that has not exported will list the same reasons, I wonder if small business owners in the US have the exact same concerns?

Thoughts.

Small business valuation

I read an intetesting piece on small business valuations today. It was mainly focused on Succession planning and how valuations are essential at the time of selling or transition the business to new owners. This is a very essential service for SMEs yet its in short supply. Maybe a possible business opportunity?

Financial tools for SME

What financial tools do you use in your small business? I have mostly stuck with either Quicken or QuickBooks.  I must say that after going thru numerous versions of both software packages the differences are starting to blur.Yes, Quickbooks is better for invoicing and P/L reports but Quicken is not far behind in the reporting arena and frankly even Excel can create fairly decent invoices. My point is that Small Busineses might have to start thinking about these tools, and their characteristics,  as commoditized.  Having them will not give your company a competitive advantage, its just the price to pay to stay competitive.

New Year's resolutions

The year is almost over. Hopefully it was a succesful year for your business but maybe it was not. During this time of the year just like we usually take stock of our lives its a good idea to take a look at how your business is performing. Many consultants recommend doing this often, however I tend to recommend to do this at least twice a year, but no more. We have to give time for our ideas to be Implememted, take hold and yield results If any. Take some time to ask yourself some of the following questions:

1. What have you failed at this year? Its easy to think of the successes,  its a bit harder to acknowledge mistakes. Think about those things that didnt go quite as planned.

2. Did your customer base increase or decrease? This is a fact that will tell you whether you are providing the right products to the right customers. Think about your offerings and what is working or not.

3. How do your employees think the business is doing? This is not a one man operarion, seek the input of others. If you think everything is going great but when you ask your employees its all doom and gloom then there is something wrong and they might be on to something that you missed entirely.

4. Am I focusing on the customer or my profits? There is one right answer to this one, you should know which one it is.

What do you think? How are you reshaping your business for 2014?

Look forward to your comments.

Challenges in Small Businesses

Recently I have noticed that some fellow small business owners are finding some new regulations challenging. Whether it be grappling with the new health care law or trying to figure out how to charge taxes on online sales, new regulations are continually forcing owners to adapt. This is not necessarily bad as it forces some sort of "survival of the fittest", or  "creative destruction" via Schumpeter, however doing so by imposing more regulations is hardly ideal. As a small business owner below are some tips that you can use to stay informed:

1. Be "involved" with your area chamber of commerce. Now this is different from joining, which usually involves a fee. Joining the Chamber of Commerce is not for every owner, but selecting a few chamber of commerce functions a year and paying the non member rate to attend will allow you to get some insights into what the business community in your area is facing. Listening in these functions is key!

2. Stop by City/County Council meetings at least once a quarter. These governmental bodies are notoriously slow, you dot have to be there for every meeting, it usually takes them months to get anything done. Go once a quarter and see what issues they are discussing.

3. Talk to your business partners and customers. If you have suppliers talk to them about their issues and how business is going. Talk to your customers about their issues. Most importantly listen. Their issues will ultimately affect your business. I am not talking about long conversations (although if you want to have those go ahead) but 2 or 3 minutes here and there with a big enough sample might help you make generalizations about your business environment.

The point here is that in order to adapt you must identify the problem and in order to do so you must listen! These are just different venues to arrive at the same conclusion. Listening will give you an edge on what the problems are now, what problems might arise and how to tackle them. 

I look forward to your comments.

GSA Schedules and GWACs

So you are looking for business. Your company is growing but you are looking for potential markets. What about the Federal Government? With sequestration the time might not seem the best to pursue this work but that is not the case, with the increasing number set aside contracts it is a potential huge market for any small business.

GSA Schedules creates "vehicles" for Federal agencies to procure products and services. In simple term, these are contracts which Small Businesses could potentially bid on in order to provide their services/products to federal agencies. GSA Schedules, and their IT counterparts the GWACs, make it easy for those agencies to procure those services/products. If these vehicles make it easier for those agencies to order from the contract holders then it behooves small business to be one of those contract holders.

Additionally the GSA has generously created programs for small businesses to have an ADVANTAGE over other when bidding for these contracts, from 8(a) to Service Disabled Veteran Owned Small businesses.

So what do you need to know. You can visit the GSA website,www.gsa.gov , and get knowledgeable on what the schedules are and how they operate, you can visit the Internet for many providers of this service or you can visit our website at www.ilesportatore.com and purchase one of our short and simple guides on the subject. Whatever you do, make sure you take advantage of this opportunity.

Look forward to your comments,
Juan

How do you do it? Finding Buyers II

Last post we quickly went over how to locate a place and a specific potential buyer for your products/distributor. This example was rather quick, however repeating it will yield numerous locations and numerous potential buyers/distributors. What do you do now?

     The first step is to limit your choices. Yes, its possible that you could sell your products to a buyer/distributor in New York or China but it might be easier to negotiate with a distributor that's close to you. In this business face to face interactions, and establishing trust, is essential as methods of payment can vary widely. I have found that narrowing your selections to between 3 and 5 is a good start. At least one of these should be local or driving distance from your location.

     Second you must research the terms that some of these buyers/distributors are offering. Are they asking for exclusivity? Will they buy from you to keep inventory or just-in-time? In the blueberries example that I used on the previous blog some questions to ask is if the distributor buying my entire crop? If so at what price per pound? What happens if the market price fluctuates? What are my responsibilities in getting the crop to the distributor? Is this a multi-year or yearly contract? The list can go on and on but you get the picture, drill into the details. Many buyers/distributors are shrewd negotiators but these are questions that any sales manager should easily answer. Be smart about creating a deal that is beneficial to both parties.

     Finally, this is a continuous process. Just because you close a deal with a buyer or distributor does not mean that your job is done. Immediately start looking for other buyers or distributors. This is key for two reasons; first terms always change and so does the market. If you wait until you have lost a buyer to find another one your bargaining position is not quite as strong. Second, this allows you to focus on your scaling. How many buyers/distributors I can supply? How may do I want to supply? Knowing where your business is and how do you want to scale it is key to having a successful business. As always I look forward to your comments.

How do you do it? Finding Buyers

This is a question that everyone trying to export their products comes up against. How do I find buyers for my product? I am currently involved in a small project whose sole purpose is to find buyers. The product is blueberries, the place is Florida and the buyers could be anywhere.

            A quick background on this search is required. Most the blueberry farmers in my area, north Florida, are not too keen to find buyers for their entire crops. Many utilize the u-pick method, basically a real simple cash transaction.  Others decide to take their crops to market, Farmer’s markets that is, and directly sell to customers.  Both of these methods are profitable with many farmers making a decent living (I recently had an interview with a farmer who claimed $175,000 yearly net profits on using a combination of both of these methods) However if you don’t want random people walking through your farm, or prefer to do something else on your weekends (most Farmer’s Market convene on Saturdays) then how can you find a buyer?

Well like all market research, it’s a process. I first started by looking at the USDA Market News (http://www.ams.usda.gov/AMSv1.0/marketnews) this at least gave me an idea of what cities in my area are offering decent prices for the crop. Since it’s currently off-season I looked through a lot of the archived news. I quickly centered in one city, Plant City, FL and one particular marketer, Wish Farms (http://www.wishfarms.com/how-we-grow/growers/). Now like in every research, finding one answer usually leads to more questions….

Sharpening your Consulting Skills: set up a meeting with entrepreneurs

I had an interesting meeting today. I know that business meetings can be tedious sometimes, but that was not the case with this one. I met with an emerging entrepreneur in Florida that is trying to put his business together. Although this might be familiar territory for other business consultants for me this was fairly new, most of my business involves negotiating with already established and very savvy business owners (that’s the export consulting part of it) who very quickly want to get to the bottom line. This meeting was refreshing and a good test of my skills. Below are several reasons why I think every business consultant should every now and then meet with emerging entrepreneurs:

1. It will test your skills. These young emerging business owners have very different perspectives and questions about how businesses operate. Spending a couple of hours answering their questions will help keep you sharp and will show you the flaws in your skill set.

2. It will give you new ideas. The conversation will make you think about current business trends just a little different, it will help you understand what challenges business owners are facing and what opportunities are out there.

3. It is a key step in expanding your network. Some will make it, others will not. However it is much easier to meet with an emerging business leader than with the head of an established company. They still do not have all the administrative duties that are associated with established business. However the new entrepreneur that you just met might become a successful business owner in a couple of years, you want those leaders to remember, and most importantly refer, you.

As always let me know what you think and please share your own experiences in this area,
Regards,
Juan

Guides to Nowhere? The ITA’s good guides with no plan.

I just finished reading the International Trade Administration’s Trade Finance Guide (you can find it at http://export.gov/static/TradeFinanceGuide_All_Latest_eg_main_043219.pdf ). There is plenty of useful advice on it on things such as Export Credit Insurance, Factoring and a brief summary on Letters of Credit.  The guide is useful and its language is plain and easy to understand.  I tend to read most of the products that come from the ITA, such as A Basic Guide to Exporting, but after reading this one a concern seems to continue to come up. The ITA seems to be publishing good products but without any clear cohesive strategy, the SME owner basically has a guide that explains the basics of exporting and then another guide that gives information about financing. There is no “cradle to grave” guide that tells you HOW to export! 

The most fundamental and basic step, finding clients for your products overseas, seems to be overseen at best or assumed at worst.  A guide that explains the business process could be more beneficial. Clearly defining steps such as assessing your products/services, finding clients overseas, negotiating with clients overseas (to include method of payment and negotiations), financing, shipment of products/delivery of services and receipt of payments would be good a start. Obviously the business process is far more complicated but a coherent guide that takes the SME owner from the “cradle” of exporting (i.e. product or service self assessment) to the “grave” (i.e. goods shipped/service provided and payment received) is far more beneficial than good guides published at what seems to be random times. I know that services such as Gold Key Matching exist to find overseas buyers but not all SMEs prefer to pay the associated premiums of such services.

As always I look forward to your thoughts.

Florida: Exporting and SMEs

Recently I came across a report from International Trade Administration (www.trade.gov/mas/ian )regarding Florida Exports, Jobs and Foreign Investment from June 2012. The report had some interesting facts that I thought i will share. Florida is were i operate my business so i also have some selfish reasons to share this with you:

1. 37,687 companies exported from Florida in 20009 of those 36,109 were Small and Medium Sized enterprises (SME)

2. 67% of Florida's total exports are from SMEs

3. The largest trading partners are Switzerland ($7.3 billion in export sales), Brazil ($5.3 billion), Venezuela ($4.5 billion), Canada ($4.1 billion) and Colombia ($2.8 billion)

These figures seem impressive, however, when I see these figures i think of the challenges and opportunities of exporting. Consider these other figures from the Census Bureau (www.census.gov):

1. Florida has 491,249 private non farm establishments

2. Total number of firms in Florida is 2,009,589 for 2009

Do you see it? According to these figures only 7% of businesses in Florida engaged in exporting! I know some of you might point out that private non farm establishments are not the same as companies but even accounting for different types of establishments there is still a vast number of Florida companies that do not export. The opportunity to expand our exports is enormous! Do you see the second opportunity? Most of our exports are going to South America, a few to Europe. What about Africa, Central America, Asia? There are numerous places were Florida businesses can expand and export. I see these challenges as opportunities and as we all well know running a business is about seizing opportunities.

Is your next business breakthrough in Sub Saharan Africa?

I read a press release from the International Trade Administration this morning. Its an old one, dated June 14th, 2012 but the information is still relevant. In thepress release the World Bank's "Doing Business in a more transparent World" document is cited as evidence that 36 out of the 46 economies in Sub-Saharan Africa have improved business regulations this year and 6 of the world's 10 fastest economies are in this area as well. Hopefully this translates to better export opportunities for our businesses. The point here is simple. This COULD be the next big market for your business.

I know many of you are thinking do not put too much thought into this area. Asia occupies most of the commercial "bandwidth" out there and Latin America follows as our business are far more adept at conducting business in those countries than in sub-Saharan Africa. For this same very reason this is why it could be a potential market, the competition might be less fierce and the opportunities might be more abundant. Obviously this is just food for thought, a proper market research needs to be conducted before ANY business decides to take this leap but the facts are there, this area is growing, its growing fast and many are not paying attention.

You can read the press release at the following link:

http://blog.trade.gov/2012/06/14/growth-and-opportunities-in-sub-saharan-africa/

I look forward to your comments.

Those busy bastards...

Those "busy bastards"...

I was recently reading Colin Powell's new book "It Worked for Me: In Life and Leadership" and the General had an interesting concept that I have never heard of before, he called it the "busy bastards". Now I don't remember how General Powell came about with that term, I do remember that he heard it from one of his colleagues in the Army during his long and distinguished career. Nevertheless it is an interesting concept. The General was referring to those individuals who sometimes have exceptional skills but confuse being "busy" with being productive. Having spent a short time in the Army myself, I stopped and thought about this for a while, in such a short time a met plenty of "busy bastards" too! Don't get me wrong, many of the guys I served with are exceptional leaders, Soldiers and human beings but many of them truly believed that the way to show the "boss" that we were being productive was by being busy.  I started thinking about this concept as it applies to business ownership and entrepreneurship and I thought "Many of the small business owners I know are busy bastards too!"

Let's think about this for a minute. Usually small business owners are pressed for time. We have to figure out how to market our products, plan and supervise our operations,  manage our resources effectively, maintain our financial accounts, pay our employees, etc, etc.  More often than not we don't have a Human Resources department or a Finance department that can do this for us, we have to do it on our own. However a business owner doing all of these tasks doesn't necessarily mean that he must be "busy". We need to strive to move beyond being busy. Is the way I am operating the most effective way? Is my marketing really working? Am I doing payroll the most efficient way? Being a "busy bastard" prevents us from THINKING about our business and how to improve. If a business owner stops thinking and innovating they are bound to fail.

In the export/import business it is REALLY easy to fall on the "busy bastard" rut. Try completing a SED or using AES for a minute without being frustrated.  Do not let the tasks become "busy work". Take the time to think about your business and how to improve, constantly. We must always be productive but never "busy". That is a good lesson that I have learned from this book, which by the way I recommend, it is an amazing read.

Look forward to your comments.