While many businesses have strategic goals, long-term plans, mission statements, and exit strategies perhaps it’s also time that we started making new year’s resolutions for our businesses.  Most business owners make a budget for the next year.  But why not also use this time to critically evaluate the work-flow process and make any necessary changes that help improve efficiency, customer service, and best of all – profitability.

Think of something in your own business that did not go as smoothly as you hoped in 2007.  Decide what you will do differently in 2008 to improve that situation and achieve the desired outcome.  Then jot down a quick list of reminders and things to do to make sure that happens.

If the problem is inherent in your way of doing business, perhaps it’s time to review the overall process.  One quick and easy way to do this is to create or update an existing Gantt chart.  You can make these charts as elaborate or simple as your individual needs require, for instance Microsoft Project is a nice piece of software but I’ve found that you can open an empty Microsoft Excel or other brand of spreadsheet and label and shade the boxes to create the same basic chart once printed.

If you personally are the roadblock to your own company’s success, consider finding a coach or a mentor.  This doesn’t have to be something formal where you hire one (although you certainly can), it can be a trusted friend, a former industry professional that is now retired, and even some colleges offer coaching services to alumni.

Regardless whether you have a short list of things that you keep in your pocket or you decide to rethink your mission statement and supporting goals, these new year’s resolutions are not for you, they’re for your business. 

All the best to you and your business ventures in the coming year!

Thomas Goodwin is an Ohio licensed real estate agent (Realtor) and insurance agent.  He is the Founder and CEO of Northern Pine Properties, Inc., a real estate investment, development, and management company in Cincinnati, Ohio.

Be direct.  Don’t hint around at what you want or what you have to offer.  Make express affirmative statements that show you are standing firm in your position.  Statements that start with “well,…” or “what I was thinking…” and so forth will leave the other party with the impression that you are doubting the strength of your position. 

Instead, use phrases that emphasize your belief in your position; for example: “Here is what I am prepared to offer.” or “This is what I am capable of doing.”  Following those statements give your proposition, then stop and listen.  Make eye contact and examine the other party’s reaction.  Being straightforward also prevents you from giving away more information than the other side needs to know, which leads into our next point.

Don’t tell the other side more than they ask for or more than they need to know.  If they ask something that could weaken your position, just work around the question with something like, “that’s not what’s important here” or “let’s try to stay on task and see if we can reach an agreement.” 

In the above two strategies some may think you risk coming across as being too rigid.  Certainly you can take anything to an extreme, such as combining the above direct authoritative statements with the use of a harsh tone, gestures (such as aggressively pointing or pounding your fist on the table), or by just being rude (interrupting someone is one of the fastest ways to send a negotiation process into a tailspin). 

Being direct while still being professional and calm is actually more respectful as you spend more time listening and only stating the relevant facts to your side.  You essentially take the emotions out of the deal.  The emotions are what usually kill a deal or cause someone to give away too much and “lose the deal.”  Remember that saying from my friend, the car salesman, “a good deal is a state of mind.”  If you lose your cool and end up paying more for something than you originally wanted, this could cause you to feel buyer’s remorse or that you were cheated.

Don’t respond too quickly to the other side’s proposal.  Shooting from the hip or responding off the cuff makes you look anxious and likely to forget something you wanted to add or even confuse you about where the offer currently stands relative to where you want to be.  The easiest way to slow things down is to write them down.  As the other person is talking, jot down some of their points, especially the points that you wish to challenge. 

If the other party is handing you something in writing while you verbally discuss the deal, go through the document and circle things or write notes in the margin.  As a courtesy ask the other party if you can make notes on the document.  If the document was intended to be the final draft of your deal you wouldn’t want your personal notes about the “airhead” sitting across from you to show up in the margins!

Don’t go backwards in the negotiation.  Once a particular part of the deal is done, move on and focus on the remaining details.  Don’t let the other party try to make changes to the portion of the deal that’s already been done.  If the other side tries to change something that’s already been agreed upon, reply back with “we already agreed on x number of units, we now need to determine when they will be delivered and who is responsible for insuring the shipment.”  

Reminding the other party of the remaining concerns helps keep the negotiations moving forward rather than continually going over the same parts that were already discussed.  These kinds of statements should be reserved for when the other party is trying to go back and change things.  You shouldn’t continually say what is left for negotiation as you make progress.  No one likes a narrator during negotiations.  Rather, this type of response is exclusively used when the other party is backtracking.

Stick to your walk away price and terms.  Car salespeople are excellent at getting people to come up higher than where they want to be.  If someone says $19,000 is the most they want to pay for a car you can almost bet the salesman is trying for $19,500.  Usually they will do something with the financing like saying, well it’s only an extra $26 per month on the payments and then describe all the nice features on the car again. 

The bottom line is that your walk away price should be just that.  John F. Kennedy once said, “We cannot negotiate with those who say ‘What’s mine is mine and what’s yours is negotiable.’”  If the other party won’t come to terms with you and you’re at the walk away price, it’s time to walk away.

Now it’s time to hear from you.  Regardless whether your negotiation experience was buying a car or a multi million-dollar acquisition, we would like to hear your thoughts on what you do during the actual negotiation.  Feel free to leave comments and feedback to this article as you see fit.

Thomas Goodwin is an Ohio licensed real estate agent (Realtor) and insurance agent.  He is the Founder and CEO of Northern Pine Properties, Inc., a real estate investment, development, and management company in Cincinnati, Ohio.

Prior to going into a negotiation meeting each side knows that they have a starting point and a walk away price.  We don’t usually say, “ok, I’m going in to this car dealership and I am going to buy that new SUV for $19,000.”  Neither side knows the final sale price or terms going into the negotiation.  We have that $19,000 as our starting price in our mind, but we know that to actually purchase the new SUV we will probably have to come up a little higher.  We start out low because we know the other party will never come back with less than where we start. 

Likewise if you’re selling the SUV you might think to yourself, “I would really like to get $28,000 for this vehicle, but if I had to I could let it go for $24,000.” 

Having a starting point and a walk away price helps us keep the negotiation in a framework that we can use to create a deal that is satisfactory to us.  This leads us into some principles of negotiation.

Let’s talk more about what to do prior to going to the actual negotiation.

Do your homework.  Identify the strengths in your position.  In our above example we said we had a beginning price in mind.  You should know why your starting price is what it is.  Have some reasons why you think the other side should concede on price or other terms.  Are there acceptable substitutes for their product in the market?  Is there a way to reach your ultimate goal without the other party’s product or service?  If you are the seller think just the opposite: what is it that brought them to purchase your product or service versus your competitor?

Rank your needs from those that you absolutely cannot concede all the way down to those that you are the most willing and able to concede.  This isn’t to say the least important things are those that you should start off with, nor should you just give them away.  But if you have to start bending a little from your position to get the other side to concede, it’s best if you have an idea of what you can do without and what kills the deal for you.

Take your position out for a practice run before the actual negotiation.  You could have a business partner, spouse, or friend play devil’s advocate with you.  Have your friend perform the role of the other party and see how he or she responds to your offer.  You will be more likely to see any flaws in your argument before the person helping you role-play will.  Use their reactions to gauge where you need to make changes in your argument. 

Think of other things you can bring to the table that the other party might not anticipate.  In our car example, as the buyer you could offer to take business cards, key chains, magnets, etc. to your friends and family.  Businesses that work on referrals are more accepting of incorporating future business into their current negotiations.  If you are involved in a group or organization and provide the other party with the ability to reach a larger audience by virtue of your sale, don’t hesitate to mention that when you present your offer.  Use your social influence on groups that you belong to as a way to negotiate a better deal for yourself.

I would love to hear from fellow entrepreneurs and especially people with sales experience about how they prepared for negotiations beforehand.  You can leave comments on this post or simply use the Contact form on this website to do so. 

My next post will be regarding the actual negotiation meeting, so if you have comments or experiences you wish to share about the actual negotiation taking place, please save those and post them in the next blog entry!

 Thomas Goodwin is an Ohio licensed real estate agent (Realtor) and insurance agent.  He is the Founder and CEO of Northern Pine Properties, Inc., a real estate investment, development, and management company in Cincinnati, Ohio.

The Lifestyle Business: Small Business Owners

Most small business owners are operating what we will loosely call lifestyle businesses.  These are the “mom and pop shops” and the “Main Street” type businesses that you read about when a new Wal-mart store is coming into town and (allegedly) threatening the livelihood of everyone who has an open sign hanging up in the downtown block of small-town America. 

These businesses are not typically the type that venture capitalists and investors want to pour money into.  Therefore, most of these small businesses rely on banks for business loans.  With the need for a loan, comes the need for a little different spin on the business plan, since you’re looking for debt instead of raising (selling) equity.

The Need for a Plan

On the surface you might say, “why would a small business owner waste time writing a business plan?”  It’s not like they are going after venture capital or aspiring to take the bistro or boutique public.  I would argue these people need business plans more than ever.  There’s more to a business plan than just attracting financing. 

In fact, many banks would be delighted to see a business plan for a small, lifestyle business.  They might make you the loan without a business plan if you have plenty of related work experience and good credit, but a business plan shows the lender you’re serious and you’ve thought through what you’re going to do.

Here are some excellent reasons to write a business plan, even if you just have a small lifestyle business:

Continuity Planning

Have a plan in place to keep the business running in the event you lose a key employee, which in fact could be yourself.  What happens if you get sick or injured in a car accident?  Having a plan in place to maintaining the business during these times will ease the amount of stress in your life and could ultimately determine whether your business will survive.  The bank will still want their loan payments regardless whether you’re sick or not.

Marketing Plan

The marketing plan should include strategies to help identify and reach your target market and how to develop a strong, loyal customer base.  This could be a number of things: from designing an effective advertising campaign, a frequent customer/loyalty program, a method of seeking feedback after the sale, a unique approach to requesting referrals, and so forth. 

I understand that small business owners can feel squeezed when a major corporation like Wal-mart comes to town to open up shop.  But having an effective marketing plan in place can help maintain and grow the business regardless who your competitors are.

There will always be competitors, or at least the threat of competition.  Having a plan in place will help maintain and grow market share.

The SWOT Analysis: Strengths, Weaknesses, Opportunities, Threats

Similar to the marketing plan, the SWOT (pronounced swat) analysis is important to determine where the leaks are in your business.  Strengths:  What do you do best?  Why do customers come to you instead of a competitor?  Weaknesses:  What do you need to improve upon?  Opportunities:  Where do you see potential growth in your business?  Are there additional segments of the market that you have not yet catered to and how do you reach them?  Threats:  How quickly and easily can someone else come in and duplicate your product or service?  What could you do to deter competitors from being interested in entering into business/competition with you?

Succession Planning and Exit Strategies

Eventually you will want out.  Or at least you will eventually die.  One way or another, the business will cease to be or will need to be passed on to someone else.  When the time comes to get out of the business will you sell off all the assets?  Will you sell the business to a competitor or someone interested in taking over the business?  Do you want to hand it down to a son or daughter?

So your bowling alley, restaurant, or gas station isn’t sexy in the eyes of the venture capitalist.  It’s still important to have a plan in place.  While it may not be a requirement to get the business started, it certainly does not hurt to have one in place and in writing. 

Thomas Goodwin is an Ohio licensed real estate agent (Realtor) and insurance agent.  He is the Founder and CEO of Northern Pine Properties, Inc., a real estate investment, development, and management company in Cincinnati, Ohio.

There are several to choose from:

• Sole Proprietor
• Partnership
• Joint Venture (for combining two or more existing businesses in a given project)
• C-Corporation
• Limited Liability Corporation
• S-Corporation

Since most people are familiar with the more basic sole proprietorship and partnership models, we will skip those and examine the pros and cons of the various types of corporations. We are also snubbing joint ventures since those are mostly done in a specific project setting between multiple companies.

C-Corporations

The C-Corporation will be your basic company that maintains its own financial statements and can choose to reinvest earnings or distribute them as it sees fit. The income or losses will be reported on the company’s own income tax filing and any dividends will be taxed to the individual shareholder.

Since many start-ups are smaller in nature it makes sense that an entrepreneur would not want to pay income tax as a C-corp and then again as an individual. This brings us to our next two forms of incorporation:

Limited Liability Corporations

The Limited Liability Corporation, or LLC, passes earnings on to the shareholders’ income tax return (so it is not taxed at both the individual level and the corporation level). However, if you are the SOLE owner of an LLC you will be taxed as if it’s a sole proprietorship. You may still have some of the limited liability protection that an LLC provides; for instance your personal assets may be shielded in the event the business venture goes bust.

However, most lenders and creditors are wise to the fact that a one-person LLC is really just a sole proprietorship that’s incorporated for liability purposes. Therefore, the creditors will want you to personally guarantee the repayment of any loan, usually by making you personally responsible for the debt if the business goes bust. This makes sense when you’re the only person owning/running the organization as you ultimately affect the degree of success that your business achieves.

S-Corporations

Another form of business that you may consider, especially if you’re flying solo and were thinking about filing the LLC method, is to form an S-corporation. The “S-Corp” is purely a tax maneuver with the IRS. You file the C-corp articles of incorporation the state of your choosing. You then submit the Form 2553 with the IRS and select S-Corporation. This form of business venture allows the income to pass through to your personal income tax so once again, like the LLC, it is not taxed twice (once as a corporation and once as an individual taxpayer). It’s important to note that you need to file this form within 75 days of filing your articles of incorporation, otherwise you have to wait until the next year (by March 15th if your new company operates on a calendar year) to change your tax status. You would operate as a C-corp in the meantime.

The S-corp is more limited in use than the LLC or C-Corp. An S-corp may not have more than a handful of owners… I read in one place 75 owners and in another place 35 owners. I need to seek clarification on this part. Regardless which number it is, or even if it’s neither of those numbers, that is still a limited number of shareholders allowed. Also, you cannot have more than 25% of your company’s gross receipts as passive earnings, i.e. rental property/real estate that you are not actively managing the business. If you’re a landlord but spend more of your time doing other things, it’s probably better to file as an LLC. An LLCs stock can also be held by other entities such as other companies (or even parent companies) whereas an S-corp can only be held by individuals who are U.S. citizens or permanent residents.

Wow, it really sounds like I am touting the LLC over the S-corp. Well, that’s not necessarily true. It depends on your individual situation: how many owners you have, how many of the owners are actively involved in the business, how the ownership and profits are to be split up, and so forth. A drawback to the LLC in this respect is that members (owners of LLCs are referred to as members) would have to show a gain made by the LLC regardless whether or not that gain was distributed to them by the LLC or the LLC reinvested those earnings into the company (gains not distributed are referred to as “phantom income” because it was never received). If the company reinvested earnings over multiple periods, this could have a compounding tax effect (added taxes without realized gains) by the various members. One way around the phantom income problem in an LLC is what’s known as “gross-up” clauses to be added to the LLC’s operating agreement. These clauses simply state that the LLC will reimburse the shareholders for tax incurred on income that they did not receive.

As you can tell, the water is getting kind of muddy, but I hope when you analyze your own situation you can pick out the pros and cons of the various forms of incorporation and choose one that fits you best!

While more than half of the approximately 600 business owners surveyed said it would have been easier to start their companies had more money been available, start-up financing was not the only challenge they identified.

Forty-nine percent of respondents said advice from other business owners also would have made their start-up days easier, while 39% said a better understanding of financial management would have helped.

Additional statistics:

• 73% of start-ups were primarily funded by the owner’s personal savings
• 37% of start-ups were funded in part by loans and lines of credit
• Only 31% of small business owners surveyed started with business plans

Story on Inc.com: Most Entrepreneurs Start with Limited Funds, No Business Plan