In today's fast-paced business environment, many business owners find themselves financing individual transactions, rather than planning their business growth. But it's vital to evaluate the payback of each potential new financing transaction. Your credit decisions directly affect your business's profitability.
The goal of your borrowing plan should always be an improvement in your bottom line. Ask yourself:
To demonstrate how answering these questions can lead you to choose smart borrowing strategies, let's take a look at one common financing need, short-term working capital.
Businesses need short-term working capital for many reasons. Perhaps your fiscal year ends just when your liquidity is lowest due to the nature of your business and you need cash flow to meet tax obligations. Or you may want to finance inventory, accounts receivable, operating expenses or seasonal cash lulls. For these needs, you most likely will consider a commercial line of credit.
In a traditional banking relationship, you typically maintain three separate accounts, one each for investing, checking and borrowing activities. To pay down the line of credit, you generally must request a manual transfer from the checking to the loan account.
In this arrangement, you may also be required to keep large amounts of cash in an account earning a minimal amount of interest or no interest at all to provide a compensating balance for your loan. At the same time, your outstanding loans carry interest rates generally one to two percentage points above the prime rate.
All of these requirements can increase your borrowing costs, and therefore, reduce your profitability.
Another strategy
You can avoid this situation, and reduce your interest costs, by looking for a loan program that combines cash management with loan services. If you have a central asset account that links your business's checking, investment and borrowing activities, you may be able to obtain a pre-arranged line of credit at competitive terms without the requirement of a compensating balance.
With such a lending program, incoming funds to the account are automatically used to pay down loan balances first, which minimizes interest expense. If you have no loan balance, incoming funds are directed to an interest-earning money market account. In either case, your funds are applied immediately, so your money doesn't lie idle at any time. You can borrow only when necessary, reducing costly interest expense.
At the same time, you enjoy automated cash management, eliminating the time, worry and potential errors of manual transactions. By having these activities linked under one account, you avoid over-borrowing and under-investing.
A case history
Let's take a look at how borrowing through a central asset account helped one hypothetical business save about $4,000 a year. This business owner had a $200,000 line of credit with its bank and an average outstanding loan balance of $125,000. At an interest rate of 10 percent, the business was spending about $12,500 a year in interest expense.
Switching to a central asset account, the business's $200,000 line of credit was linked to its checking account, which had an average balance of $50,000. The checking account balance was used to reduce the average loan balance from $125,000 to $75,000. At the same interest rate, the business owner paid only about $7,500 in interest expense a year.
Even if a central asset account carries an annual fee, the total savings can still be substantial. If this business owner paid an annual fee of $1,000, or 0.005 percent of the $200,000 line of credit, the total annual cost to the business owner would be $8,500 $4,000 less than the cost of maintaining the bank line of credit. (The illustration assumes a non-interest-bearing account.)
To qualify for lending programs that offer smart credit solutions, your business has to be on a solid footing. In general, lenders will look for the following criteria:
Smart credit strategies can help your business meet its financing needs, while at the same time minimize the cost of doing business and maximize your returns. No matter how quickly you have to make day-to-day business decisions, take the time to talk with your financial consultant about how you can plan to finance the growth of your business.
David W Tralka is first vice president and chairman for business financial services, for Merrill Lynch.It has been easy these past several years. Let's admit it. There's been plenty of business. Sure, there's lots of competition and customers are more demanding than ever. And, no question about it, we had to work harder. Still, the rewards are real.
How will we fare in the year ahead? Will a change in the calendar make a difference? Or will it be just more of the same? Will the good times continue to roll?
Few experts seem to expect any disruptive economic changes in 2001. Even so, there are disquieting factors: the housing market has slowed in certain regions, consumer electronics sales have slipped, some once-flush city treasuries are feeling a pinch, more than a few consumer products stocks are under performing, and several large retailers are consolidating and closing marginal stores. Is all this merely transitional or is it a trend?
Even with all the indicators, the future is an enigma, of course. Whether the economy remains strong or shows signs of weakening, there are steps to take that can help ensure a successful year ahead. Here are 10 practical guidelines:
1. Watch out for unnecessary mistakes. There's an irony of the current economic engine. While there is more business, margins are also getting thinner. That's why IBM took its PCs out of retail venues and is selling them on-line.
When business is good there is always the urge to "take it to the next level." While the need for improvement should never stop, there is always a tendency in business to look around for the next mountain to climb.
We are always looking for the next challenge. What's happening now can be boring. The "new" and "different" turn out to be excuses to rekindle excitement.
How many "bricks" businesses have ventured off into far more attractive "clicks" country only to discover they had made a mistake. Such mistakes can close the doors. To its credit, Wal-Mart pulled back from launching a major e-commerce operation until it had reconsidered its strategy.
2. Take a close look at your company. Are we sharp? Or, do we just think we are? When we sit around the conference table and talk about ourselves, we come away convinced that we are the best. It happens every day. One e-commerce retailer, toysmart.com was actually hiring dozens of new staffers the very day Disney pulled the money plug. It is easy to get caught up in our own euphoria. Or to state it another way, it is dangerous when we begin believing our own BS.
What needs improvement? Where are we weak? What steps do we need to take to become more efficient? What are our customers looking for that we're not providing? What traps should we be avoiding? These are the questions for 2001.
Greener grass is often an illusion.
3. Keep mining for new customers. Good times can mask future problems. When there's plenty of business, most companies take a vacation from identifying and cultivating future customers. "We have more customers than we can take care of now, why should we be trying to get more?" This is an all-too-common question.
With mergers, consolidations, and continued downsizing, customers disappear. Many a company has been caught off-guard when 25% percent of sales went away overnight. Unless a company is thinking two to five years ahead when it comes to developing new business, it is far too short-sighted. Why? Because it is taking longer and longer for prospects to make buying decisions. Unless you prospect when you don't need new business, it won't be there when you do.
Now is the time to set up a new business plan that includes prospect identification and long-term cultivation. Make sure you are providing a stream of new customers two, three, and five years from now.
4. Focus on what customers are thinking. While there are plenty of dangerous words in business today, these should be close to the top of anyone's list: "We know our customers." While every company wants to think it understands its customers, the assumption can be dangerous. For example, a Vermont-based bank was getting ready to introduce a suite of products for small businesses. A marketing consultant suggested a focus group of business owners and managers might be helpful in shaping the product offering. To everyone's surprise, the customers were primarily interested in periodic meetings with bank officers to discuss business issues.
Making the effort to understand what customers really want can enhance value.
5. Look for the missing customer. Walk into any store selling women's clothing and the emphasis is on bodies that are young and lithe. In jeanswear, in particular, the manufacturers appeal to the young. But sometime around age 35, most women stop wearing jeans. Why? Ask them and they'll give you a simple answer: "They don't fit." Jeanswear designer Donald Johannesson of Montreal listened. His French Dressing line is based on fit and comfort, the two qualities that women over 35 say are missing from jeans.
While the young market may be appealing because of the numbers, the 35-plus women are underserved when it comes to jeans. French Dressing found it.
Look for the niches others ignore and those that are misunderstood by others. It's these markets that can offer opportunity. Just running with the crowd can mean running into trouble.
6. Cut to the core to grow. A company's core products or services can seem boring. Just more of the same. It's then that they begin to look for greener pastures. This was what Talbot's, the manufacturer of traditional women's clothing, did several years ago when it veered away from the Talbot's "look." Loyal customers were confused and sales plummeted. It only took one year for Talbot's to return to its core line and sales success.
Because the core business is, in effect, the "brand," the strategy should be to look for new niches rather than just attempting to introduce new products or services. There are often good reasons for introducing a new product, such as Nissan's highly successful Xterra SUV that is aimed at a young (pre-Pathfinder) market. Even so, satisfied Xterra customers may very well be driving Pathfinders a few years down the road.
7. Build the brand. Everyone is on the same page when they think of Dell Computers: number one in customer satisfaction and buying direct. The first makes the second possible, of course. No confusion; no misunderstanding. The message is crystal clear. It's this branding that has fueled Dell's nearly 20 years of success because the company had identified what the customer wanted. In the case of a personal computer, it was getting the best price (Dell cut out the middleman) and support (something customers weren't getting from retailers). It's this branding that will undoubtedly help sustain its momentum as it transitions itself in the years ahead.
Palm Pilot established itself as the clear leader in the PDA field. The company spent time and money communicating the message that it was the PDA. Early sales were driven by the techies and then came the crowds. Today, the word "Palm" stands with "Kleenex" as a generic term. Other PDAs look like "knock-offs" compared to Palm. It's nothing less than brilliant branding.
If customers can't identify quickly and accurately why they should do business with you, there's trouble ahead.
8. Keep track of the trends. There have always been a few who have been ahead of the curve, who have, more accurately, created it. In the last 50 years, Sam Walton and Bill Gates were certainly two of a small handful of true visionaries with the ability to spot trends. Most of us are closer to the opposite end of the spectrum: we look at the world through a rearview mirror. We see trends after they have occurred.
Our value to our company and our customers rests in helping them be prepared for the future. Yet, at a time of information inundation, what should be so easy, has become increasingly more difficult. Ironically, all three organizations that deliver information best are newspapers: USA Today captures trends in the making, while The Wall Street Journal amplifies them, and The New York Times delivers customized, in-depth analysis. And it all comes to your desktop electronically.
There is no acceptable excuse for allowing yourself to get behind the trend curve today.
9. Be known for what you know. If doing business in the second half of the last century was about who you know, today it's about what you know. Tacoma-based Raleigh, Schwarz & Powell, Inc., a large insurance consulting and brokerage firm with clients throughout the Western states recognized the need to differentiate themselves from other insurance brokers. The answer was not to be found in some superficial public relations paint brush. Their long-standing strength was as a knowledge-rich organization. They wanted to be known for what they know, not just for what they sell. With a long history of setting the highest internal standards of risk management excellence, they opened their windows so others could see and appreciate this totally customer-driven process.
Other firms are following the same path. Take Radio Shack, for example. Most of us have long gone to Radio Shack when we couldn't find an electronics part elsewhere. They had what we needed. CEO Leonard Roberts is capitalizing on this concept. It isn't the component or the part that's important. The company's tag line indicates the change of emphasis: "You have questions. We have answers." In effect, Radio Shack is saying, "Know us for what we know." Roberts says that the company's aim is to connect people with technology.
Whether it's Raleigh, Schwarz & Powell or Radio Shack, the vision is clear: if you want to capture customers, focus on what you know, not what you sell.
10. Foster excitement. The covers of books are brighter and more intriguing than ever. There's a host of publications that aim at creating excitement, including Revolution and Fast Company, in the business field. In advertising, no company does "the excitement thing" better than Sun Microsystems. The company's ad series make you think you are looking at a full-page depiction of the latest motion picture for 12-year-olds.
In the same way, freeagent.com's advertising focuses on employees who want to escape the corporate cubicles. One ad shows a hole in the floor of a cubicle with a shovel beside it. The suggestion is clear: you can escape the prison.
Clearly, the model is still Macintosh. The iMac colors continue as does the design. The iBook's handle makes computing easier and more fun. All you do is open the clamshell. The new Macintosh Cube computers seem to add the missing dimension of class to computing.
Whatever happens in the year ahead, there will be more, not fewer, challenges. And there will also be more, not fewer, business opportunities. Overcoming the obstacles and taking advantage of the opportunities will demand greater insight, understanding, and decision-making acumen.
The objective of these guidelines is to create a way to take charge of the positive and negative situations that will inevitably occur in 2001.
John R. Graham is president of Graham Communications, a marketing services and sales consulting firm. He is the author of The New Magnet Marketing (Chandler House Press), the revised and updated version of his original book, Magnet Marketing, and 203 Ways To Be Supremely Successful In The New World Of Selling (Macmillan Spectrum). He writes for a variety of publications and speaks on business, marketing and sales topics for company and association meetings. Contact him at 40 Oval Road, Quincy, MA 02170 (617) 328-0069; fax (617) 471-1504; or e-mail j_graham@grahamcomm.com ). The company's web site is www.grahamcomm.com.Providing a retirement plan is becoming an important differentiating factor for business owners seeking to attract and retain high quality employees. Right now, more than 1 million businesses with 100 or fewer employees offer a retirement plan, according to the U.S. Department of Labor. And once those businesses offered a plan, they found that 81 percent of their employees chose to participate.
With more than 1 million companies and a high percentage of their employees participating, many business owners still ask "Why should I provide a plan?" or say " I would like to offer a retirement plan but it's all just too confusing."
Why have a plan?
Establishing a retirement plan could be one of the smartest business decisions you'll ever make. The right plan could be the key to giving both you and your employees a secure retirement.
In addition to helping you and your employees prepare for a more secure future, a retirement plan can also help you:
Attract and retain great people. People can be your single most important asset. A comprehensive benefits package that includes a retirement plan gives you an edge your competitors may not have.
Improve morale. Establishing a retirement plan shows your employees that you care about their future and their families. A retirement plan gives your employees even more reason to remain committed to your business and its success.
Gain significant tax advantages. Your company gains an immediate tax deduction for the amount you contribute each year. You and your employees save on taxes because you don't pay federal income tax on amounts contributed. In addition, you and your plan participants have the opportunity for tax-deferred investment gains.
Keep the flexibility you need. Some retirement plans give you the option to reduce or even skip contributions in years when it just isn't in the budget.
Choosing a plan
Businesses can offer a number of different plans, and choosing the right plan can be confusing. Fortunately, there are many tools available today to help you determine which plan is right for your organization.
Your first step in choosing a plan is to decide why you want a retirement plan and what you hope to accomplish by offering one. The retirement plan you choose should relate closely to your company's goals, whether that means low cost, ease and convenience, or the opportunity for you and your employees to invest the most you can toward your retirement.
In general, you'll want to consider the following factors:
The size of your company. Some plans are available for any company with one or more employees, while others are restricted to companies of a certain size. Your company's incorporation status can also be a deciding factor.
Who will make contributions. Depending on the plan you choose, you can make contributions on behalf of your employees, your employees alone can make contributions, or some combination of both employer and employee contributions is allowed. Some plans allow a business to vary or skip annual contributions, which is a significant advantage if you have unpredictable cash flow. Other plans, like a SIMPLE (Savings Incentive Match Plan for Employees-IRA), set a mandatory level of employer contributions.
How much you want to contribute. If your goal is to gain the maximum tax advantages for your business, you can choose a program like a money purchase plan that carries a high contribution limit.
Who will be responsible for investing. One advantage of a 401(k) plan is that the responsibility for investing plan assets rests with employees. Your only responsibility is to provide investment choices that comply with prevailing federal regulations.
Cost and convenience. A plan like a SIMPLE-IRA or a SEP (Simplified Employee Pension)-ERA carries little administrative expense and is relatively simple to maintain, while other plans are more complex and require more maintenance. You don't have to choose a plan on this basis alone, though, as plan providers often can handle ongoing plan administration if you desire.
Vesting and other features. Some plans allow you to decide when employees are vested in the retirement plan while others allow immediate vesting. You may also want to choose a plan that allows loans and in-service withdrawals, features that some plans offer.
Decision-making help
Once you have considered the retirement plan features above, it is time to determine what type of plan best meets your objectives. Not surprisingly, you can find a lot of information about retirement plans on the Internet. Merrill Lynch, for example, is cosponsoring an interactive, educational web site, SelectARetirementPlan.org, in partnership with several organizations -- the U.S. Department of Labor, the U.S. Chamber of Commerce and the U.S. Small Business Administration.
This public interest site combines information about retirement planning and employer-sponsored retirement plans with an interactive tool that provides step-by-step guidance for selecting the right plan for your business. The SelectARetirementPlan.org site also offers useful links to other on-line resources.
Although you can gather a lot of useful information about retirement plans on-line, you'll want to discuss your findings with your accountant, tax advisor or financial advisor. He or she can help you evaluate the plan you're interested in and weigh its advantages and benefits for your individual company.
Using accurate tools and the guidance of your financial advisor, you'll be able to pinpoint the plan that will help you attract and retain valuable employees and help everyone reach their financial and retirement goals.
Patrick J Walsh is senior vice president and director, benefits and investment solutions, for Merrill Lynch.I just returned from Cincinnati after attending my first ever Sanitone conference. My brother and business partner, Scott Shah, and fellow drycleaner, Ray Rangwala, accompanied me.
I must say, it is so good to see so many successful drycleaning business owners under one roof. Not only do you get to attend some excellent seminars, but you also have the opportunity to network on a one-to-one basis with these successful operators.
The rule with many of these conferences is this: "If you come home with one good idea, then the conference will pay for itself."
Anyway, the reason I'm writing this article is because of a conversation the three of us had during breakfast in Cincinnati on the morning we were scheduled to return to Los Angeles.
During our meal, Ray Rangwala and I were talking about serving in our local and state associations. Now Ray has been active in drycleaning at the state level for the last year or so. He is very dedicated towards his business, as well as dedicated to the Greater Los Angeles Dry Cleaners Association (GLADCA), the California Cleaners Association (CCA), Rotary and many other service organizations.
Recently he began attending our CCA board meetings as the designated GLADCA representative. I thought he must have known that we all go to these meetings as volunteers and that we spend our own money for travel, hotel accommodations and other related expenses. But to my surprise, Ray thought that CCA reimburses us as he gets it back from GLADCA as a representative.
I am sure that many people have this impression and I wanted to clarify this misunderstanding.
As my good buddy (and our field representative) Jeff Schwarz wrote in the Peninsula Dry Cleaners Association Pipeline Newsletter this month, most associations work on the 80/20 rule.
The 80/20 rule is that 20 percent of the membership does 80 percent of the association's work.
Jeff made a "reality check" to the 80/20 rule when he realized that, in truth 5 percent of the association membership does 95 percent of the association's work.
Despite all this work, I still come across so many ignorant industry members who ask me, "What have you done for our industry?"
Let me say to all of these people: Talk is cheap!
Try sacrificing your own time and money and see what you can do that we have not achieved. Instead of hiding in your "so called" busy life, why don't you pick up the slack?
Most of us go to all of these board meetings. Can you even commit to one meeting per year? If not, support us by becoming members of your trade associations. Let me be very clear here: Your local association, your state association and your national association. Yes, all three!
Otherwise, shut up and sit on the sidelines and wait until home drycleaning, the air quality boards, and these new dot.com drycleaners have their way with our industry and force you out of business!
When that happens, give me or any other dedicated association member a call and maybe we'll give you a job.
And those, my friends, are the "Clean" facts.
Sonny Shah is the owner of Fifth Avenue Cleaners in Long Beach, California and currently serves as Vice-President of the California Cleaners Association.It has been about ten years now since the alarm bells first went off warning that the industry faced a liability problem due to drycleaning solvents contaminating soil and water. This came as a surprise to drycleaners who had always "followed the rules," and still today there are many who find it hard to believe that they could be held liable for clean-ups even though they did nothing wrong.
Yet, as we have learned, even the smallest amount of perc constitutes contamination in the eyes of some regulators and liability specialists, a.k.a., attorneys. And many in the industry, starting at the top with the national association, have been hit hard by lawsuits and clean-up costs. Those who have experienced the problem first-hand and others who recognize the problem as a threat to their future have been working hard over the past ten years to find a solution. Much time, talent and money has gone into the effort and, although no complete and perfect answer has been found, the effort has been worthwhile. Lobbying Washington, DC, hasn't yielded a legislative solution yet, but it has heightened awareness among public officials that drycleaners have a problem and they want a solution. At the same time, cleaners in many states have been lobbying in their legislatures for state-level solutions and clean-up fund programs have been approved in about a dozen states. The process has been one of trial and error, and sometimes the errors hurt, but the reality is that failing to find a solution will hurt even more.
Several dozen leaders of efforts at the state level gathered last month to review their programs and share information. Since 1994, 12 states have approved programs to help drycleaners deal with clean-up liability, but this was the first time that cleaners from those states gathered around a table to discuss their experiences. It was an important discussion, not because it reached any grand conclusions, but because it demonstrated that a relatively small group of dedicated, committed cleaners can make things happen.
Now imagine what would could happen if it were a large group of dedicated, committed cleaners
Lately, the fabricare forum, the industry's internet e-mail group has been buzzing with an explosion of electronic messages, but, ironically, a very small percentage of these exchanges are concerned with home "drycleaning" kits, casual wear trends or environmental regulations. Instead, readers have been flooded with personal declarations of who should be the next U.S. president, and why.
This is certainly a healthy way for Americans to practice democracy, but many intelligent discussions have somehow turned into heated debates. Some members have politely requested that those who wish to engage in political conversations should seek a political forum. After all, the fabricare forum is supposed to cover issues directly related to the industry.
Yet, it is also arguable that whoever becomes the next president will have a direct influence on the future for all business owners, and drycleaners are certainly no exception. In fact, many of the opinionated e-mails express which candidate would be better for the industry. Yet, responses to those opinions have also pointed out that drycleaners should not just vote for the industry, because there are plenty of other concerns, including healthcare, education and social security, to name a few.
Whether or not political discussions really belong on the forum has already been made irrelevant by the fact that the e-mails keep coming. But, it might be better for all parties involved if people accept that there will always be contrary opinions and that people for both candidates have strong, valid reasons to vote for either choice. Those who feel vehemently about certain issues would be well reminded that the person with an opposite viewpoint has often given just as much time and consideration to the subject and feels justified in believing what they do, as well.
In politics, there is not one solitary right choice. There are several right choices. The only way a person can make an improper choice is to never vote at all.
Date created: Oct 28 2000 Copyright © 2000, National Clothesline Maintained by: Hal Horning Hal Horning