Small Business Opportunity Overseas!

Many entrepreneurs are very reluctant to consider selling internationally. That realm of business is a great unknown, and the United Sates is by comparison a familiar concept for the business novice. However, international trade is a big opportunity waiting to be conquered.

I have a friend whose business I have used as an example many times. He manufactures and sells chemicals and dyes to the textile industry. Several years ago, when the textile industry began to abandon the US, the business was in trouble. Along with diversifying and selling new items to different industries, the survival strategy included following the textile industry to Honduras, Brazil, and several other Central American countries, where the firm now does business with many of the large textile companies that were formerly located in the US.

The key to the success of this effort was getting to know the people in these foreign countries. My friend obtained an apartment in Honduras where he and his family members stay when they do business there. Without this commitment, it would have been difficult to achieve the success they have experienced there. Although that level of commitment would be difficult for some of us, this shows that successful international relationship building is possible if you invest the time and effort. Familiarity with local customs, knowing where to go and when to go there for security reasons, and making yourself known to the local businesses are things that can be gained from spending time there.

The great irony in this example is that when the domestic market for this company's products dried up and moved away, it actually opened up a greater international opportunity for some of the suppliers. This lesson can be applied in many situations; are we smart and nimble enough to capitalize on it?

When Quality Control Goes Awry

As a Quality Assurance Manager, I have seen several instances through the years where quality control in the manufacturing arena has completely broken down. The most notorious of these incidents took place in 2004, and the repercussions are still being felt. This supplier lost most of its market share due to what happened.

In the manufacturing process for clear polyester film, many things can be added to the polyester to improve performance. Tiny particles called "fillers" are typically added so the film won't be too slick, and can be wound in roll form without sliding off of itself. The little particles are tightly controlled so that they are neither too big nor too small; they must stick up out of the surface of the film just enough to give the proper effect.

The process also involves a certain amount of recycling, where defective film is ground up and mixed with new chips that go into new film. The problem occurred here, when recycled film with the wrong filler particle sizes got made into new film. This went on for several weeks, and the story of what happened next could fill a manual on "what not to do in damage control."

As always, it took some time for the new film to trickle out into the market. At first, the customers did not realize any potential problem, but eventually, the larger particles made themselves known when other layers of film that were laminated to them in subsequent processing began to show "tenting," or a raised area like a tent-pole with a void around it. Photographic analysis of the problem was used to show what was happening. The supplier of the defective film did not own up to what caused the issue, either because they did not know yet or because they were hiding it.

About six months later, the reputation of the company continued to take serious hits as they were still selling the bad film. There was no announced resolution to the problem, and the technical reps for the company were dragging their feet on problem analysis. Their mantra seemed to be "avoid, delay, hope it goes away." By this time they had started to produce and distribute new film without the problem, but the months had taken their toll. Although the problem did go away, the company began losing business and as of today, they are almost completely shut out of this market segment which they once dominated.

In hindsight, it is always simpler to point out what they should have done differently. In the quality area of manufacturing, it is always preferable to acknowledge a problem once you become aware of it and before it gets processed down-stream. First, as soon as the technical people investigating had an idea of what caused the problem, they should have halted all further shipments of this production run. (All production is lot-controlled; this would have been easy to do.) Second, the bad product that was already in the field should have been recalled. Although the total footage of bad product that was produced was substantial and would have created a large financial hit, it would have been preferable to the slow drip of problems in the field and erosion of reputation that took place.

Factoring for Small Businesses

Factoring, which is the selling of accounts receivable from a business to a bank or other institution, is a common practice in many businesses. The advantage of factoring is that it allows a business to receive their money more rapidly than would otherwise be the case. The bank pays cash for the accounts immediately, minus a specified percentage. Therein lies the disadvantage. The percentage charged by the lender for this service takes some or all of the profit out of the transaction for the original firm. For this reason, it is not advisable for small firms with limited resources to do this on a long-term basis. Occasional factoring to speed up cash flow could be advantageous for the small firm.

I have recently become aware of a growing trend in the funeral home industry which involves factoring. Many people have insurance policies that cover their burial expenses; the person dies, everything is covered, the services are rendered, and the family is relieved that their loved one's last wishes have been fulfilled. However, from a business standpoint, the funeral home has performed these services using the resources of the business. Insurance companies typically do not pay the burial benefits to the funeral home for one to six months after the person has died. So companies have emerged that will buy these insurance policies from the funeral homes, pay them the money immediately, and collect an average 4% fee for doing so. For funeral homes in smaller or disadvantaged markets, this is a valuable service that has become increasingly popular.

The Impact of Fraud on Business

Fraud, composed primarily of white-collar crimes, consumes an estimated $400 billion dollars in business losses each year. At the level of individual firms, small and large firms have a nearly identical average loss, right at $120,000 each. A loss of this magnitude is extremely difficult for a small firm to withstand and survive.

The key to preventing fraud from occurring in a firm is to develop a climate of ethical behavior. The steps in creating an ethical climate of behavior, as laid out in the Carland's text, begin with:

Instituting a proactive fraud policy

Leaders and managers must lead by example. This includes treating suppliers and customers ethically. Incidents of unethical behavior must be recognized and dealt with, and not allowed to slide by. Loss of peer respect is a powerful deterrent, especially in small firms where more formal internal controls may not be present.

New situations, or exceptions not spelled out in company policy, must be treated and evaluated fairly and this must be done in as transparent a manner as possible

Screening of prospective employees is vital. In the current legal climate, recommendations or warnings from former employers are all but impossible to obtain. Other options such as credit checks and professional, thorough interview techniques are more valuable.

Finally, fair wages are essential to finding and keeping good, decent employees. If the employees are able to make a decent living, they are much less likely to resort to fraudulent behavior.

 

Pros and Cons of Selling Exclusively Online

It has become a cliché by now, but the internet has truly revolutionized the business of selling products or services. Establishing an online store is now the easiest way to begin a retail business, and there are many advantages to selling a product or service this way. The pros clearly outweigh the cons, as we shall see.

The obvious advantage an online store has over a brick and mortar establishment is the fact that overhead and other costs can be all but eliminated with an online store. Your office is where you choose to put it, independent of foot traffic or demographics; it could even be in your home. There are still costs associated with any website, but these are minimal compared to the rent or lease payments one would face with a physical storefront. Inventory costs can be minimized as well; with up-front electronic payments from customers, it is possible to sell the item or service before it is purchased or produced. This works as long as the production process is fast. Drop shipping is another option. Some online store proprietors never actually touch the products, acting more as brokers than as traditional merchants.

The internet has permeated all aspects of our daily life. More people do more things online than ever before, and this will continue to be the case. There is a momentum now that cannot be stopped, and people will be increasingly likely to look for the things they need online. This creates a distinct advantage for those doing business on the internet. Along with this comes the opportunity to track customers and market to them after the purchase.

The cons of this mode of business include the need to keep the website current, up-to-date, and constantly evolving. Change occurs rapidly in the online business world, and if the website design and functionality becomes dated, customers will be lost. Another problem is the lack of ability for the customer to see, feel and handle the merchandise before buying. The following comment from a popular technology blog is typical of what many people now do to get around this problem: "I do however go to (brick and mortar merchants) to "touch and feel" merchandise that i will go and buy somewhere else to see if it's worth it."

Another disadvantage of shopping online, from a customer's point of view, is difficulty with returns. Taking a faulty item back to a physical store is a more straightforward process than what people go through when returning an item purchased online, and the refund process can be cumbersome as well. It can be days or weeks before a refund is credited to your credit card, and this is after you pay for return shipping and wait for the item to be received by the retailer.

Although there are still several things that can complicate the online shopping experience, e-commerce has become a great way to begin a business and sell products or services. The upside clearly outweighs the downside.

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Buying a Business

What to sell? Who to employ? How to advertise for employees? How to market the business? How to finance the business? All of these are important questions that must be answered by anyone who starts a new business. Some entrepreneurs may decide that the challenges of starting a new business from scratch are too much to handle. Buying an established business can be a better choice, since many of those start-up questions have already been answered. Statistics show that new owners are more likely to succeed with an established business than by starting one from scratch.

The ability to capitalize on hidden assets that the current owners may not be aware of is a major reason one might decide to purchase a business. Sometimes owners are so close to their current mode of operation that they cannot see opportunities to broaden their base and leverage assets that they already possess. An outsider or someone peripherally associated with the business might have the insight needed to see new and undeveloped potential.

The biggest pitfall a purchaser of an established business can be susceptible to is that of purchasing without going through the venture planning stage. It may be easy to say "I don't need to write a plan, this business already exists and has that." But those plans, if they exist, were written by the old owners and may not be applicable to the current situation.

There are two ways of buying an established business: buying the assets of the company or buying it as a going concern. The decision to buy an established business can be made for an independent business or for a franchise. In the case of a franchise, there may be more restrictions on whether the business must be purchased as a going concern, meaning the business will exist as the same entity once it is acquired. Some franchises require that they be sold as going concerns. In some cases there may be assets that are transferable in no other way, making a going concern purchase the only option.

Prospect of "Good Will"

Goodwill can be described as excess value that an independent purchaser might pay for a business over and above its worth as a collection of assets. Several things contribute to
goodwill, including the skills, personalities and abilities of the owners and workers, and the location of the business. All of these factors combine to give the business distinctive competencies and a competitive edge in the market.

Goodwill may or may not be transferable. This will depend heavily on what the goodwill is comprised of. There are law firms and consultants that specialize in these determinations and who can place a monetary on whatever goodwill is present. Goodwill can be divided into enterprise goodwill, which encompasses location, branding, and employee skills, and personal goodwill, which is generally defined as the personal relationships, capabilities and knowledge of the owner. Personal goodwill can be transferred in some cases.

An example of this would be a store owner who sells the business to someone else. The physical location, name, fixtures, employees and signage all remain the same. But the old owner is no longer present, and the relationships he had with the customers are gone as well. Since these relationships were directly responsible for many of the sales that were made, the success of the business after the sale becomes questionable.

http://www.valuepointconsulting.com/article_goodwill04_07.asp

 

Franchising- Franchise Services and Failure Rates

When contemplating a possible franchise arrangement, it is important for the entrepreneur to consider what will be provided by the franchisor. The services provided by a franchisor to a franchisee can vary greatly, but at the very least include the use of a name. It may also include an entire marketing or business system consisting of advertising, products, inventory systems, accounting systems, and procedure manuals and guidelines. The value of these things to a franchisee is tremendous, since the franchisee would not need to develop them independently. Independent development of these items could be an expensive and frustrating task for the entrepreneur.

Failure rates are lower for franchises than for independent businesses for several reasons. First among these is the fact that most reputable franchise providers put each potential franchisee through an extensive screening process. This process includes a requirement for a certain level of capital availability. There are also business knowledge and training requirements which further reduce the likelihood of failure. This is not to say that a franchise agreement is a guarantee of success. Some franchises fail anyway due to unreasonable expectations in a given market area. It is ultimately up to the franchisee to look into all the circumstances of the prospective agreement, particularly if they are new to business, and get educated second or third opinions before making the leap into a purchase.