Should You Have a Business Partner?

Here at the Small Business Development Center (SBDC), we work with all types of  businesses — from sole proprietorships, to partnerships, to corporations with several owners. We’ve seen partnerships work exceptionally well and we’ve seen disasters.
A Successful Partnership
We’ve counseled many small businesses with more than one owner. In a great many of these cases the owners are also a married couple. As one couple said, “We want to continue to stay married to each other and therefore make the business partnership work!” Their marriage is the “glue” that keeps the business partnership working. But what if the partners aren’t married? Several years ago we worked with a non- married couple that started a business that was unique for this area. Soon their personal relationship ended. They separated their living arrangement, but both wanted to continue to work in the business. They did and were successful at it because they both believed in their business idea and wanted it to be a success. Later, one partner married and moved to Seattle. She couldn’t work in the business anymore and wanted her partner to buy out her half. She said “I want to be fairly compensated, but I also want the business to succeed.” Her partner agreed. We worked with them to come up with a buy-out plan that accomplished both goals. The business grew and did succeed.

A Disaster
While we hear more tales of disastrous partnerships than we’d like to, one short example may be illustrative. Two couples, in their late-thirties, fulfilled their dream of moving to the Olympic Peninsula and buying a business. The women were childhood friends. The men were friends as well. The four of them planned to run this business. Within 6 months after buying the business the personal and business relationship between the two couples was destroyed. They found out too late that being friends doesn’t mean you have the same goals for a business or the same values that guide operating it. We offered to mediate, but one couple refused, demanding to be bought out at double what they put into the business a mere six months ago. One couple did buy out the other and the lifelong friendship between the two women was gone.

How to Avoid Disasters in Partnerships
Before you take on a business partner, ask yourself some important questions:
• Why do you want a business partner?
• What financial contribution can your potential partner make to the business? Does your potential partner have access to credit and what is his/her financial situation?
• Do your skills complement each other?
• Do you both have the same vision for the business?

If you do decide to enter into a partnership, it is best to have a written partnership agreement. Although we advise seeing an attorney to assist you with it, here are some issues to discuss with your partner. Your answers will form the basis of your agreement. The first section deals with issues involving “getting into the partnership”:

“Getting Into the Partnership”
~What are the mission, vision, and goals of the business? Of each partner?
~What are each partner’s expectations of the business?
~Will the partners be equal?
~ What is the initial capital contribution of each partner? Are the contributions true investments or loans?
~What commitment of time, equipment, and other resources will you each make?
~What is the value of “other equity” such as “sweat equity”?
~What level of income will you each expect or need from the business?

Once you’ve worked out the issues to get into the partnership, turn to the actual running of the business and how you will do that in partnership:

“In the Partnership”
~ What are the roles and responsibilities of each partner? Who will do specific tasks? How will day-to-day decisions be made?
~Will partners make additional financial contributions?
~How will each partner share in profits and losses?
~What salaries, if any, are to be paid to partners?
~ Will you prohibit outside business activities that would be in competition with the partnership business?
~ How will disputes be resolved? Is there a “managing partner” who will make final decisions?
~Will new partners be added? If so, what procedure will be followed?
~Who can make commitments or expenditures on behalf of the company?

Since partnerships do end, now is the time to discuss how this will happen:


“Getting Out of the Partnership”
~ How will a break-up of the partnership be handled? What if one partner wants to keep the business? What if both partners want the business but no longer want to work together?
~ How will you determine the value of the business in case of death, incompetence, or withdrawal of a partner, or dissolution of the partnership for any other reason?
~Is a partner allowed to sell his or her portion of the business?
~ What happens in the event of the death of a partner? Is it specified in a legal will for each partner?
~ What happens if a partner gets divorced? What legal and financial impacts will that have on the business?

Getting Help in Forming a Partnership

Bringing a partner into your business is a key decision that will either help or hinder the business. We recommend reviewing the issues presented in this article and perhaps making an appointment with the SBDC to guide you and your potential partner in this task. We also recommend getting advice from your accountant and having your attorney assist you with the final agreement, typically referred to as a Buy-Sell Agreement.

Should You Have a Business Partner?

Here at the Small Business Development Center (SBDC), we work with all types of  businesses — from sole proprietorships, to partnerships, to corporations with several owners. We’ve seen partnerships work exceptionally well and we’ve seen disasters.
A Successful Partnership
We’ve counseled many small businesses with more than one owner. In a great many of these cases the owners are also a married couple. As one couple said, “We want to continue to stay married to each other and therefore make the business partnership work!” Their marriage is the “glue” that keeps the business partnership working. But what if the partners aren’t married? Several years ago we worked with a non- married couple that started a business that was unique for this area. Soon their personal relationship ended. They separated their living arrangement, but both wanted to continue to work in the business. They did and were successful at it because they both believed in their business idea and wanted it to be a success. Later, one partner married and moved to Seattle. She couldn’t work in the business anymore and wanted her partner to buy out her half. She said “I want to be fairly compensated, but I also want the business to succeed.” Her partner agreed. We worked with them to come up with a buy-out plan that accomplished both goals. The business grew and did succeed.

A Disaster
While we hear more tales of disastrous partnerships than we’d like to, one short example may be illustrative. Two couples, in their late-thirties, fulfilled their dream of moving to the Olympic Peninsula and buying a business. The women were childhood friends. The men were friends as well. The four of them planned to run this business. Within 6 months after buying the business the personal and business relationship between the two couples was destroyed. They found out too late that being friends doesn’t mean you have the same goals for a business or the same values that guide operating it. We offered to mediate, but one couple refused, demanding to be bought out at double what they put into the business a mere six months ago. One couple did buy out the other and the lifelong friendship between the two women was gone.

How to Avoid Disasters in Partnerships
Before you take on a business partner, ask yourself some important questions:
• Why do you want a business partner?
• What financial contribution can your potential partner make to the business? Does your potential partner have access to credit and what is his/her financial situation?
• Do your skills complement each other?
• Do you both have the same vision for the business?

If you do decide to enter into a partnership, it is best to have a written partnership agreement. Although we advise seeing an attorney to assist you with it, here are some issues to discuss with your partner. Your answers will form the basis of your agreement. The first section deals with issues involving “getting into the partnership”:

“Getting Into the Partnership”
~What are the mission, vision, and goals of the business? Of each partner?
~What are each partner’s expectations of the business?
~Will the partners be equal?
~ What is the initial capital contribution of each partner? Are the contributions true investments or loans?
~What commitment of time, equipment, and other resources will you each make?
~What is the value of “other equity” such as “sweat equity”?
~What level of income will you each expect or need from the business?

Once you’ve worked out the issues to get into the partnership, turn to the actual running of the business and how you will do that in partnership:

“In the Partnership”
~ What are the roles and responsibilities of each partner? Who will do specific tasks? How will day-to-day decisions be made?
~Will partners make additional financial contributions?
~How will each partner share in profits and losses?
~What salaries, if any, are to be paid to partners?
~ Will you prohibit outside business activities that would be in competition with the partnership business?
~ How will disputes be resolved? Is there a “managing partner” who will make final decisions?
~Will new partners be added? If so, what procedure will be followed?
~Who can make commitments or expenditures on behalf of the company?

Since partnerships do end, now is the time to discuss how this will happen:


“Getting Out of the Partnership”
~ How will a break-up of the partnership be handled? What if one partner wants to keep the business? What if both partners want the business but no longer want to work together?
~ How will you determine the value of the business in case of death, incompetence, or withdrawal of a partner, or dissolution of the partnership for any other reason?
~Is a partner allowed to sell his or her portion of the business?
~ What happens in the event of the death of a partner? Is it specified in a legal will for each partner?
~ What happens if a partner gets divorced? What legal and financial impacts will that have on the business?

Getting Help in Forming a Partnership

Bringing a partner into your business is a key decision that will either help or hinder the business. We recommend reviewing the issues presented in this article and perhaps making an appointment with the SBDC to guide you and your potential partner in this task. We also recommend getting advice from your accountant and having your attorney assist you with the final agreement, typically referred to as a Buy-Sell Agreement.

Should You Have a Business Partner?

Here at the Small Business Development Center (SBDC), we work with all types of  businesses — from sole proprietorships, to partnerships, to corporations with several owners. We’ve seen partnerships work exceptionally well and we’ve seen disasters.
A Successful Partnership
We’ve counseled many small businesses with more than one owner. In a great many of these cases the owners are also a married couple. As one couple said, “We want to continue to stay married to each other and therefore make the business partnership work!” Their marriage is the “glue” that keeps the business partnership working. But what if the partners aren’t married? Several years ago we worked with a non- married couple that started a business that was unique for this area. Soon their personal relationship ended. They separated their living arrangement, but both wanted to continue to work in the business. They did and were successful at it because they both believed in their business idea and wanted it to be a success. Later, one partner married and moved to Seattle. She couldn’t work in the business anymore and wanted her partner to buy out her half. She said “I want to be fairly compensated, but I also want the business to succeed.” Her partner agreed. We worked with them to come up with a buy-out plan that accomplished both goals. The business grew and did succeed.

A Disaster
While we hear more tales of disastrous partnerships than we’d like to, one short example may be illustrative. Two couples, in their late-thirties, fulfilled their dream of moving to the Olympic Peninsula and buying a business. The women were childhood friends. The men were friends as well. The four of them planned to run this business. Within 6 months after buying the business the personal and business relationship between the two couples was destroyed. They found out too late that being friends doesn’t mean you have the same goals for a business or the same values that guide operating it. We offered to mediate, but one couple refused, demanding to be bought out at double what they put into the business a mere six months ago. One couple did buy out the other and the lifelong friendship between the two women was gone.

How to Avoid Disasters in Partnerships
Before you take on a business partner, ask yourself some important questions:
• Why do you want a business partner?
• What financial contribution can your potential partner make to the business? Does your potential partner have access to credit and what is his/her financial situation?
• Do your skills complement each other?
• Do you both have the same vision for the business?

If you do decide to enter into a partnership, it is best to have a written partnership agreement. Although we advise seeing an attorney to assist you with it, here are some issues to discuss with your partner. Your answers will form the basis of your agreement. The first section deals with issues involving “getting into the partnership”:

“Getting Into the Partnership”
~What are the mission, vision, and goals of the business? Of each partner?
~What are each partner’s expectations of the business?
~Will the partners be equal?
~ What is the initial capital contribution of each partner? Are the contributions true investments or loans?
~What commitment of time, equipment, and other resources will you each make?
~What is the value of “other equity” such as “sweat equity”?
~What level of income will you each expect or need from the business?

Once you’ve worked out the issues to get into the partnership, turn to the actual running of the business and how you will do that in partnership:

“In the Partnership”
~ What are the roles and responsibilities of each partner? Who will do specific tasks? How will day-to-day decisions be made?
~Will partners make additional financial contributions?
~How will each partner share in profits and losses?
~What salaries, if any, are to be paid to partners?
~ Will you prohibit outside business activities that would be in competition with the partnership business?
~ How will disputes be resolved? Is there a “managing partner” who will make final decisions?
~Will new partners be added? If so, what procedure will be followed?
~Who can make commitments or expenditures on behalf of the company?

Since partnerships do end, now is the time to discuss how this will happen:


“Getting Out of the Partnership”
~ How will a break-up of the partnership be handled? What if one partner wants to keep the business? What if both partners want the business but no longer want to work together?
~ How will you determine the value of the business in case of death, incompetence, or withdrawal of a partner, or dissolution of the partnership for any other reason?
~Is a partner allowed to sell his or her portion of the business?
~ What happens in the event of the death of a partner? Is it specified in a legal will for each partner?
~ What happens if a partner gets divorced? What legal and financial impacts will that have on the business?

Getting Help in Forming a Partnership

Bringing a partner into your business is a key decision that will either help or hinder the business. We recommend reviewing the issues presented in this article and perhaps making an appointment with the SBDC to guide you and your potential partner in this task. We also recommend getting advice from your accountant and having your attorney assist you with the final agreement, typically referred to as a Buy-Sell Agreement.

Taking Your Business to the Next Level

“How can I evaluate new business opportunities?” “How can I determine whether to sell one of my three businesses?” “How can I better plan for future contingencies?” “Will I be able to sell my business in ten years and afford to retire?” These questions and others like them are ones that small business owners should be  asking themselves. As often happens, we become complacent when all is going well. We can breathe--and even take a vacation! However, businesses often take on a life of their own and may be headed down a path that is different from what the owner envisions. The owner just hasn’t told the business of his or her vision. Taking your business to the next level is that type of planning. It asks: “Where is my business going? Where do I want it to go? How can I get there?”

The First Step—Your Current Reality

To begin this type of planning, you need to know where you are—what is your current reality? This involves some data gathering and analysis. While this will be different for each business, there are four main areas you’ll typically need to look at to assess your current situation: finances; marketing; employees; and facilities. Let’s briefly look at some of the issues in each of these areas.

• Finances: Do you prepare monthly financial statements? If not, then this is the place to start. If you do, do you analyze them? What do you see when you look at trends in revenues and major expense categories? Are they changing? Is the change positive or negative? By calculating a few standard financial ratios, you can better understand what’s going on. You will also gain an idea of how your business compares with others in your industry.

• Marketing: How much do you know about your customers? Who are they? Where do they live? What other demographic data do you know about them? What influences their buying decisions? Has your customer base changed over the years? Is one type of customer more profitable than other ones? Who are your competitors? What are their strengths and weaknesses? What is your competitive advantage—why should customers come to your business and not the competition? What about your prices—are they too high or too low?

• Employees: Do your employees know what you expect of them? How do you communicate this? Can they take over for one another when necessary? Do they know what values your business is run on? What is your employee turnover rate? And why do employees leave?

• Facilities: Is your space adequate? Can you expand? How would your customers and employees evaluate your location and facilities?

The Next Step—Creating a Vision and a Plan

Where do you want to go and what do you want your business to accomplish? Now that you know where you are—what the current reality is—you can begin creating a vision of what you’d like to see as a future reality. Your vision can be broad in scope, including personal goals and goals for your community. Now ask yourself what part you want your business to play in fulfilling that vision. Your answer to that question becomes your mission statement. Armed with a firm understanding of your current Taking Your Business to

the Next Level  reality and what you’d like to create as your future reality, you can prepare an action plan that will help you to realize your vision.

How the SBDC Can Help

At the SBDC, we work with small business owners to help them gain an understanding of their current situation, create a vision, and develop a plan to get there. For example, a few years ago we worked with an entrepreneur who owned three businesses. He had a good understanding of his current situation and he had some components of a vision: he wanted more personal flexibility to enjoy life as he got older, and he wanted to be able to take advantage of opportunities to sell one or more of his businesses. We worked with him to fine-tune that vision, and we helped him to develop not only an action plan, but also a series of analytical tools for decision-making.

Businesses are never standing still, they are either moving forward or backward. By using the approach outlined above, you can move your business forward to the next level of success. Let us know if we can help you with this.

Kathleen Purdy is the Center Director of the Olympic Peninsula Small Business Development Center (SBDC),  This article was first published in Olympic Business Journal

Taking Your Business to the Next Level

“How can I evaluate new business opportunities?” “How can I determine whether to sell one of my three businesses?” “How can I better plan for future contingencies?” “Will I be able to sell my business in ten years and afford to retire?” These questions and others like them are ones that small business owners should be  asking themselves. As often happens, we become complacent when all is going well. We can breathe--and even take a vacation! However, businesses often take on a life of their own and may be headed down a path that is different from what the owner envisions. The owner just hasn’t told the business of his or her vision. Taking your business to the next level is that type of planning. It asks: “Where is my business going? Where do I want it to go? How can I get there?”

The First Step—Your Current Reality

To begin this type of planning, you need to know where you are—what is your current reality? This involves some data gathering and analysis. While this will be different for each business, there are four main areas you’ll typically need to look at to assess your current situation: finances; marketing; employees; and facilities. Let’s briefly look at some of the issues in each of these areas.

• Finances: Do you prepare monthly financial statements? If not, then this is the place to start. If you do, do you analyze them? What do you see when you look at trends in revenues and major expense categories? Are they changing? Is the change positive or negative? By calculating a few standard financial ratios, you can better understand what’s going on. You will also gain an idea of how your business compares with others in your industry.

• Marketing: How much do you know about your customers? Who are they? Where do they live? What other demographic data do you know about them? What influences their buying decisions? Has your customer base changed over the years? Is one type of customer more profitable than other ones? Who are your competitors? What are their strengths and weaknesses? What is your competitive advantage—why should customers come to your business and not the competition? What about your prices—are they too high or too low?

• Employees: Do your employees know what you expect of them? How do you communicate this? Can they take over for one another when necessary? Do they know what values your business is run on? What is your employee turnover rate? And why do employees leave?

• Facilities: Is your space adequate? Can you expand? How would your customers and employees evaluate your location and facilities?

The Next Step—Creating a Vision and a Plan

Where do you want to go and what do you want your business to accomplish? Now that you know where you are—what the current reality is—you can begin creating a vision of what you’d like to see as a future reality. Your vision can be broad in scope, including personal goals and goals for your community. Now ask yourself what part you want your business to play in fulfilling that vision. Your answer to that question becomes your mission statement. Armed with a firm understanding of your current Taking Your Business to

the Next Level  reality and what you’d like to create as your future reality, you can prepare an action plan that will help you to realize your vision.

How the SBDC Can Help

At the SBDC, we work with small business owners to help them gain an understanding of their current situation, create a vision, and develop a plan to get there. For example, a few years ago we worked with an entrepreneur who owned three businesses. He had a good understanding of his current situation and he had some components of a vision: he wanted more personal flexibility to enjoy life as he got older, and he wanted to be able to take advantage of opportunities to sell one or more of his businesses. We worked with him to fine-tune that vision, and we helped him to develop not only an action plan, but also a series of analytical tools for decision-making.

Businesses are never standing still, they are either moving forward or backward. By using the approach outlined above, you can move your business forward to the next level of success. Let us know if we can help you with this.

Kathleen Purdy is the Center Director of the Olympic Peninsula Small Business Development Center (SBDC),  This article was first published in Olympic Business Journal

Taking Your Business to the Next Level

“How can I evaluate new business opportunities?” “How can I determine whether to sell one of my three businesses?” “How can I better plan for future contingencies?” “Will I be able to sell my business in ten years and afford to retire?” These questions and others like them are ones that small business owners should be  asking themselves. As often happens, we become complacent when all is going well. We can breathe--and even take a vacation! However, businesses often take on a life of their own and may be headed down a path that is different from what the owner envisions. The owner just hasn’t told the business of his or her vision. Taking your business to the next level is that type of planning. It asks: “Where is my business going? Where do I want it to go? How can I get there?”

The First Step—Your Current Reality

To begin this type of planning, you need to know where you are—what is your current reality? This involves some data gathering and analysis. While this will be different for each business, there are four main areas you’ll typically need to look at to assess your current situation: finances; marketing; employees; and facilities. Let’s briefly look at some of the issues in each of these areas.

• Finances: Do you prepare monthly financial statements? If not, then this is the place to start. If you do, do you analyze them? What do you see when you look at trends in revenues and major expense categories? Are they changing? Is the change positive or negative? By calculating a few standard financial ratios, you can better understand what’s going on. You will also gain an idea of how your business compares with others in your industry.

• Marketing: How much do you know about your customers? Who are they? Where do they live? What other demographic data do you know about them? What influences their buying decisions? Has your customer base changed over the years? Is one type of customer more profitable than other ones? Who are your competitors? What are their strengths and weaknesses? What is your competitive advantage—why should customers come to your business and not the competition? What about your prices—are they too high or too low?

• Employees: Do your employees know what you expect of them? How do you communicate this? Can they take over for one another when necessary? Do they know what values your business is run on? What is your employee turnover rate? And why do employees leave?

• Facilities: Is your space adequate? Can you expand? How would your customers and employees evaluate your location and facilities?

The Next Step—Creating a Vision and a Plan

Where do you want to go and what do you want your business to accomplish? Now that you know where you are—what the current reality is—you can begin creating a vision of what you’d like to see as a future reality. Your vision can be broad in scope, including personal goals and goals for your community. Now ask yourself what part you want your business to play in fulfilling that vision. Your answer to that question becomes your mission statement. Armed with a firm understanding of your current Taking Your Business to

the Next Level  reality and what you’d like to create as your future reality, you can prepare an action plan that will help you to realize your vision.

How the SBDC Can Help

At the SBDC, we work with small business owners to help them gain an understanding of their current situation, create a vision, and develop a plan to get there. For example, a few years ago we worked with an entrepreneur who owned three businesses. He had a good understanding of his current situation and he had some components of a vision: he wanted more personal flexibility to enjoy life as he got older, and he wanted to be able to take advantage of opportunities to sell one or more of his businesses. We worked with him to fine-tune that vision, and we helped him to develop not only an action plan, but also a series of analytical tools for decision-making.

Businesses are never standing still, they are either moving forward or backward. By using the approach outlined above, you can move your business forward to the next level of success. Let us know if we can help you with this.

Kathleen Purdy is the Center Director of the Olympic Peninsula Small Business Development Center (SBDC),  This article was first published in Olympic Business Journal

Five Keys to Building a Strong Business

One thing all business owners have in common  is their desire to build a strong business. A strong business is one that can withstand the ups an downs of an economic cycle; it can replenish itself through profits; it’s agile, flexible, and communicates well; and it can support the owner’s lifestyle. A strong business is based on a true business opportunity and a sound business model. While a business opportunity is shaped by the market environment; a business model is the shaped by the owner.

There are at least five keys to building a strong business: the owner’s ability to lead and manage; a focus on customer needs and wants; systematized processes and procedures; hiring and investing in the right people; and managing cash.

Lead and Manage

Whether the business consists of one person or many, a clear vision and mission is imperative. These drive goals and objectives that are timely, measurable, and accountable. Amid many distractions, it keeps the owner focused. If the owner can effectively engage employees to embrace the vision and achieve company goals, the probability of success is high. In fact, the most important things an owner can do is stay focused on what the company does well and help employees do their best work. These concepts are driven home in books like “Good to Great” by Jim Collins and “The E-Myth” by Michael Gerber.

Maintain a Customer-Driven Focus

A customer-driven business is one that is synchronized with what customers really want and need. Most important is what customers value. These can be many things: a fair price, convenience, fast turnaround, quality, etc. The reward for meeting their needs is predictable sales and growth. However, “customers” include more than the buying public. They include shareholders, suppliers, bankers, employees, and others who rely on an owner’s ability to keep his or her promises. A strong business balances the needs of all these “customers.”

Use Systematic Processes and Procedures

Customers don’t really care how it’s done, they just want their needs met. However, to meet the needs of everyone—especially shareholders—production and delivery of goods and services must be efficient. The process of creating value to customers is based on a total management system originally used by Toyota and described in “The Machine that Changed the World” by J. Womack, D. Jones, and D. Roos.

Use of a total management system eliminates waste, improves productivity, assures quality, and meets or exceeds the customer’s expectations. Better use of resources results in higher profitability and higher profits feed growth. An excellent example of applying total management systems to small business is described in “Better Thinking, Better Results: Using the Power of Lean as a Total Business Solution” by Bob Emiliani.

Hire Right

An owner soon realizes that building a strong business is tough to do alone. At a minimum, an external team including a banker, insurance agent, certified public accountant, and attorney is required. At some point, though, employees will be needed to manage day-to-day functions as the business grows. An owner needs to assemble and lead people to apply principles and practices systematically and coherently. The key to assembling the right people is hiring right. This means selecting people for their talents and building on their

strengths. The next steps include investing in their talents, listening to their thoughts, assisting them in their jobs, and rewarding them for work well done. In the book, “First, Break All the Rules”, authors Marcus Buckingham and Curt Coffman share the results of in-depth interviews revealing how the world’s greatest managers use these techniques.

Manage Cash

Every strong business depends on a predictable, consistent cash flow. A profit plan measures true profitability and is the best measure of efficiency. However, a cash budget that predicts and monitors cash flowing into and out of a business is a good measure of sustainability. If an owner can predict and budget cash flow, then he or she can make better decisions on how and when to use cash. When businesses extend credit to buyers, incoming cash lags behind sales. When sales are made, assets (like inventory or labor) are required to complete the transaction and these assets require cash. Therefore, a lot of cash is going out and not a lot of cash is coming in throughout seasonal or cyclical fluctuations. Since the business owner can’t pay bills with negative cash, he or she has to either borrow cash or inject it. Managing cash with a budget helps the owner predict cash shortages so funds can be arranged (often with a bank loan) to fill the gaps. When collections create excess cash, the short term loans can be paid back. Even profitable businesses can go

bankrupt if they haven’t balanced the cash flow cycle.

While many factors contribute to building a strong business, these five deserve special attention. Strong businesses support their local communities and are the foundation upon which the economy grows.

This article was written by Janet A. Harte, an SBDC Certified Business Advisor with the Vancouver Small Business Development Center which is part of the 24 statewide offices of the Washington Small Business Development Center (WSBDC).

The WSBDC offers in-depth, confidential, and no-cost management advice to businesses within Washington State.

Five Keys to Building a Strong Business

One thing all business owners have in common  is their desire to build a strong business. A strong business is one that can withstand the ups an downs of an economic cycle; it can replenish itself through profits; it’s agile, flexible, and communicates well; and it can support the owner’s lifestyle. A strong business is based on a true business opportunity and a sound business model. While a business opportunity is shaped by the market environment; a business model is the shaped by the owner.

There are at least five keys to building a strong business: the owner’s ability to lead and manage; a focus on customer needs and wants; systematized processes and procedures; hiring and investing in the right people; and managing cash.

Lead and Manage

Whether the business consists of one person or many, a clear vision and mission is imperative. These drive goals and objectives that are timely, measurable, and accountable. Amid many distractions, it keeps the owner focused. If the owner can effectively engage employees to embrace the vision and achieve company goals, the probability of success is high. In fact, the most important things an owner can do is stay focused on what the company does well and help employees do their best work. These concepts are driven home in books like “Good to Great” by Jim Collins and “The E-Myth” by Michael Gerber.

Maintain a Customer-Driven Focus

A customer-driven business is one that is synchronized with what customers really want and need. Most important is what customers value. These can be many things: a fair price, convenience, fast turnaround, quality, etc. The reward for meeting their needs is predictable sales and growth. However, “customers” include more than the buying public. They include shareholders, suppliers, bankers, employees, and others who rely on an owner’s ability to keep his or her promises. A strong business balances the needs of all these “customers.”

Use Systematic Processes and Procedures

Customers don’t really care how it’s done, they just want their needs met. However, to meet the needs of everyone—especially shareholders—production and delivery of goods and services must be efficient. The process of creating value to customers is based on a total management system originally used by Toyota and described in “The Machine that Changed the World” by J. Womack, D. Jones, and D. Roos.

Use of a total management system eliminates waste, improves productivity, assures quality, and meets or exceeds the customer’s expectations. Better use of resources results in higher profitability and higher profits feed growth. An excellent example of applying total management systems to small business is described in “Better Thinking, Better Results: Using the Power of Lean as a Total Business Solution” by Bob Emiliani.

Hire Right

An owner soon realizes that building a strong business is tough to do alone. At a minimum, an external team including a banker, insurance agent, certified public accountant, and attorney is required. At some point, though, employees will be needed to manage day-to-day functions as the business grows. An owner needs to assemble and lead people to apply principles and practices systematically and coherently. The key to assembling the right people is hiring right. This means selecting people for their talents and building on their

strengths. The next steps include investing in their talents, listening to their thoughts, assisting them in their jobs, and rewarding them for work well done. In the book, “First, Break All the Rules”, authors Marcus Buckingham and Curt Coffman share the results of in-depth interviews revealing how the world’s greatest managers use these techniques.

Manage Cash

Every strong business depends on a predictable, consistent cash flow. A profit plan measures true profitability and is the best measure of efficiency. However, a cash budget that predicts and monitors cash flowing into and out of a business is a good measure of sustainability. If an owner can predict and budget cash flow, then he or she can make better decisions on how and when to use cash. When businesses extend credit to buyers, incoming cash lags behind sales. When sales are made, assets (like inventory or labor) are required to complete the transaction and these assets require cash. Therefore, a lot of cash is going out and not a lot of cash is coming in throughout seasonal or cyclical fluctuations. Since the business owner can’t pay bills with negative cash, he or she has to either borrow cash or inject it. Managing cash with a budget helps the owner predict cash shortages so funds can be arranged (often with a bank loan) to fill the gaps. When collections create excess cash, the short term loans can be paid back. Even profitable businesses can go

bankrupt if they haven’t balanced the cash flow cycle.

While many factors contribute to building a strong business, these five deserve special attention. Strong businesses support their local communities and are the foundation upon which the economy grows.

This article was written by Janet A. Harte, an SBDC Certified Business Advisor with the Vancouver Small Business Development Center which is part of the 24 statewide offices of the Washington Small Business Development Center (WSBDC).

The WSBDC offers in-depth, confidential, and no-cost management advice to businesses within Washington State.

Five Keys to Building a Strong Business

One thing all business owners have in common  is their desire to build a strong business. A strong business is one that can withstand the ups an downs of an economic cycle; it can replenish itself through profits; it’s agile, flexible, and communicates well; and it can support the owner’s lifestyle. A strong business is based on a true business opportunity and a sound business model. While a business opportunity is shaped by the market environment; a business model is the shaped by the owner.

There are at least five keys to building a strong business: the owner’s ability to lead and manage; a focus on customer needs and wants; systematized processes and procedures; hiring and investing in the right people; and managing cash.

Lead and Manage

Whether the business consists of one person or many, a clear vision and mission is imperative. These drive goals and objectives that are timely, measurable, and accountable. Amid many distractions, it keeps the owner focused. If the owner can effectively engage employees to embrace the vision and achieve company goals, the probability of success is high. In fact, the most important things an owner can do is stay focused on what the company does well and help employees do their best work. These concepts are driven home in books like “Good to Great” by Jim Collins and “The E-Myth” by Michael Gerber.

Maintain a Customer-Driven Focus

A customer-driven business is one that is synchronized with what customers really want and need. Most important is what customers value. These can be many things: a fair price, convenience, fast turnaround, quality, etc. The reward for meeting their needs is predictable sales and growth. However, “customers” include more than the buying public. They include shareholders, suppliers, bankers, employees, and others who rely on an owner’s ability to keep his or her promises. A strong business balances the needs of all these “customers.”

Use Systematic Processes and Procedures

Customers don’t really care how it’s done, they just want their needs met. However, to meet the needs of everyone—especially shareholders—production and delivery of goods and services must be efficient. The process of creating value to customers is based on a total management system originally used by Toyota and described in “The Machine that Changed the World” by J. Womack, D. Jones, and D. Roos.

Use of a total management system eliminates waste, improves productivity, assures quality, and meets or exceeds the customer’s expectations. Better use of resources results in higher profitability and higher profits feed growth. An excellent example of applying total management systems to small business is described in “Better Thinking, Better Results: Using the Power of Lean as a Total Business Solution” by Bob Emiliani.

Hire Right

An owner soon realizes that building a strong business is tough to do alone. At a minimum, an external team including a banker, insurance agent, certified public accountant, and attorney is required. At some point, though, employees will be needed to manage day-to-day functions as the business grows. An owner needs to assemble and lead people to apply principles and practices systematically and coherently. The key to assembling the right people is hiring right. This means selecting people for their talents and building on their

strengths. The next steps include investing in their talents, listening to their thoughts, assisting them in their jobs, and rewarding them for work well done. In the book, “First, Break All the Rules”, authors Marcus Buckingham and Curt Coffman share the results of in-depth interviews revealing how the world’s greatest managers use these techniques.

Manage Cash

Every strong business depends on a predictable, consistent cash flow. A profit plan measures true profitability and is the best measure of efficiency. However, a cash budget that predicts and monitors cash flowing into and out of a business is a good measure of sustainability. If an owner can predict and budget cash flow, then he or she can make better decisions on how and when to use cash. When businesses extend credit to buyers, incoming cash lags behind sales. When sales are made, assets (like inventory or labor) are required to complete the transaction and these assets require cash. Therefore, a lot of cash is going out and not a lot of cash is coming in throughout seasonal or cyclical fluctuations. Since the business owner can’t pay bills with negative cash, he or she has to either borrow cash or inject it. Managing cash with a budget helps the owner predict cash shortages so funds can be arranged (often with a bank loan) to fill the gaps. When collections create excess cash, the short term loans can be paid back. Even profitable businesses can go

bankrupt if they haven’t balanced the cash flow cycle.

While many factors contribute to building a strong business, these five deserve special attention. Strong businesses support their local communities and are the foundation upon which the economy grows.

This article was written by Janet A. Harte, an SBDC Certified Business Advisor with the Vancouver Small Business Development Center which is part of the 24 statewide offices of the Washington Small Business Development Center (WSBDC).

The WSBDC offers in-depth, confidential, and no-cost management advice to businesses within Washington State.