For business owners faced with a myriad of problems, the threat of insolvency is most likely the 1,000-pound gorilla of the business world. According to the Small Business Administration, many new businesses fail. In 2003, there were 572,900 new firms and 584,800 closures; both about 10% of the total. Professionals who counsel business owners do everything they can to prevent bankruptcy.
“Everybody loses when that happens and we look at ways to prevent that,” says Kevin Silence, a vice president with Community Bank in Pearl. “We must have an open line of communication. We may see something business owners don’t and we can look at trends.”
He says banks don’t give advice as to restructuring but can point out things and options to businesses when there are red flags. “The worst thing for everybody is for them to file bankruptcy or have a foreclosure,” he said. “We need to stay with a loan before it gets to that point, see what caused the problems and try to help.”
Sue Carole Chisolm, a CPA with GranthamPoole of Jackson, stresses that anyone with problems get assistance quickly.
“The main thing is don’t wait to get help,” she said. “Sometimes business people won’t ask for help because they want to save that expense or they get peer advice that isn’t what they need.”
She said there might be a short-term cash flow problem and the professionals can suggest ways to work through it. Offering a discount for early payment is one suggestion. Another for businesses involved with long-term projects is to bill at the 50% stage instead of waiting until completion. If a loan is needed, she will meet with the business owner and bank loan officers to provide historical information.
“If a company has been in business for 20 years and has a couple of rocky years, we’ll prepare a statement and forecast the financials for the next five years,” she said. “Or we might try to help structure some type of agreement to sell a portion of stock to key employees. That gives a cash flow boost and gives the employees an investment in the company.”
Chisolm says budget assistance may be necessary for businesses of a seasonal nature or those facing certain industry fluctuations to help them access a line of credit.
“It comes up in various forms. Maybe it’s a long-term project or long-haul truckers with rising fuel costs,” she said. “We’ll meet with bankers with them. If things still don’t go well, we’ll complete a reorganization or revaluation if they’re considering selling the business.”
She points out that some businesses will qualify for Small Business Administration assistance or special assistance as minority business owners, especially with government contracts.
“A lot of what we do to help depends on the type of business,” she said. “It runs the gamut from simply going with them to the bank all the way to reorganization with a formal plan.”
Tom Wagner of Wagner Consulting Group of Ridgeland says he does not often advise a business to restructure but he feels the company can come out of it with a plan, and he too advises getting help early.
“We mostly focus on leadership development, and that’s where I deliver value,” he said. “Improving the bottom line is the end result through helping businesses stay focused.”
Those tips include the following:
• The leader needs to spend some time working in the business, not just working on the business. “That sounds so simple, but a lot of owners don’t do it,” he said. “It wasn’t part of their training and education or if it was, they got distracted.”
• Make sure you’re looking ahead for icebergs. Don’t lose focus on execution. “Do whatever it takes to deliver whatever it is the business does — basic stuff,” he said.
• Always be alert and seek better ways to do things. “The world changes,” Wagner said. “Even if you were on top last year, the business model may not be appropriate any longer.”
Jackson attorney Ralph Yelverton also believes in working with businesses to plan ways to avoid problems.
“We work with all sizes of businesses and try to keep them going,” he said. “Sometimes business owners get in over their heads and need to sell part of it. Maybe they expanded into too many areas and must get back to where they began and to their true abilities.”
Additionally, Yelverton tries to get business people just starting out to think through the life of their business. It may be a young physician setting up a practice who needs to consider if other physicians will join and what sort of legal designation will be used for the practice.
“We ask business owners to look ahead at how they will grow and expand,” he said. “Failure to plan is probably the thing that causes the most businesses to fail or have problems. Our main advice is to get help as soon as you realize there’s a problem.”
Dr. Bill Smith, professor of marketing in the University of Southern Mississippi’s College of Business, says the whole name of the game is to have a clear view of a business’ target market.
“Understanding your customer is of utmost importance and a lack of focus on your customer is certainly a reason for business failure,” he said. “It’s all really about planning. Trial and error is a great strategy only if you have plenty of money and time.”
Smith said it might be pretty difficult to dig through research for planning, but it must be done to avoid costly mistakes.
“For instance, people will ask friends about opening a restaurant and they say ‘Oh sure, we’ll come’ and that’s all they do for research,” he said. “You must know what’s important to customers.”
With people viewing the business world today through Wal-Mart and Amazon.com, Smith says there are great opportunities for small businesses that can offer service.
“Everything is available all the time at low prices,” he said. “People don’t just buy on price, but they do if that’s all that’s available.”
He feels the tide is turning back toward service and knowing customers. “No one ever leaves Wal-Mart and says ‘Wow, that was a fun experience,’” the professor says. “It’s time for small businesses to seize the moment, as the Greeks say.”
Contact MBJ contributing Lynn Lofton at email@example.com.