Why do small businesses succeed?

Why do small businesses succeed?

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Members of SCORE (Service Corp of Retired Executives), an organization created and supported by the U.S. Small Business Administration, offer in-person and online counseling for both for-profit and nonprofit organizations on Martha’s Vineyard.

In a new, regular column, The Times has invited SCORE members to discuss business issues familiar to Vineyard business owners and managers. SCORE members will also answer questions from readers, posted at mvtimes.com.

Annually, small businesses are born and others shutdown. In 2009, the year of the latest U.S. Dept. of Commerce data, 552,600 were created and 660,900 were closed.

What does it take to succeed? SCORE volunteers on Martha’s Vineyard offer a few answers to that question.

A business plan

Bob Iadicicco, a recently retired SCORE counselor, believes that “a well-constructed business plan will guide you through the process” of creating and growing a successful small business.

The U.S. SBA and the SCORE website (SCORE.org) offer several formats for creating a business plan.

Mr. Iadicicco suggests that in developing a business plan the entrepreneur needs to answer a number of questions including:

What do I want to achieve: being my own boss, earning a good living, having an outlet for my creativity, etc.?

What type of business do I have in mind: manufacturing, professional services, personal services, retailing, etc.?

Who are my customers?

What is my competition?

How much will it cost to get this business started: do I need manufacturing equipment, sophisticated computer technology, purchase or rent a facility, employees, licenses, insurances, etc.?

Do I have enough money to get started: am I going to self-finance, borrow from relatives, will I need to secure a bank loan, will I need investors?

According to the U.S. SBA research, startups rely about equally on the owners’ cash injections into the small business and bank credit. Bank credit translates to loans, use of credit cards, and lines of credit.

Adequate capitalization

SCORE counselor CPA Norman Werthwein says, “one of the most important elements of a start-up business plan is the cash flow projection.”

For new or existing businesses, Mr. Werthwein says, “Determining the timing of cash receipts and disbursements during the establishment, start-up, and growth of the business is crucial in order to determine the capital requirements of the business.

“Whether you are financing the business yourself, with other investors or lenders, all will focus on the cash flow in order to determine the viability of the business and the expected time frame for potential recovery of the capital invested.

“Most start-up businesses will not experience positive cash flow (excess receipts over disbursements) for several years. Therefore, securing access to the required capital during this phase of the business is essential to maintain viability for the venture.

“Many ‘profitable’ businesses fail due to lack of adequate capital to finance operations and growth. Remember ‘happiness is positive cash flow.’ ”

A strong team

SCORE counselor MBA Michael Adell, with a background in corporate sales and marketing says, “It is the people that count!”

Mr. Adell suggests six steps to attract the very best people for their field of expertise.

1. Determine how many folks you will need and for what position.

2. Be sure to include these headcount numbers in your business plan and budget.

3. Establish clear and specific job descriptions.

4. During the hiring process find out who is available that you know and respect or ask friends and associates – search for the best. Evaluate resumes against your specific requirements. Select a few candidates for personal interviews with other employees and yourself. Prepare for the interview by writing questions and listen to the candidate. Pick the best with feedback from others and be sure to check references.

5. The first day is most important. Clearly set work ground rules including attire, hours, pay. Review process, merit increase opportunities, customer demeanor. Establish a training schedule including meeting co-workers.

6. Schedule a six-month review of measurable objectives. Tie these reviews to the merit increase opportunity. A well-trained employee has the best chance to excel.

Good fortune

And, finally, one cannot discount pure, unadulterated luck, a great idea, or perseverance and hard work. Small business owners will admit that a 60-hour week is not abnormal. And being at the right place at the right time has a lot to do with their success.

Have a question you would like to have SCORE counselors address online or in print? Send your query to the MV Times website or susan.silk@scorevolunteer.org. Need free SCORE counseling? Sign up at the SCORE.org website.

Susan Silk is a semi-retired communication consultant. Prior to moving to the Island full-time, she was the founder and president of a communication consulting and training firm in Chicago.