Wyospace.com

Are you a good record keeper?

By Margie Rowell, WSBDC Region 6 Director

I’m not a professional bookkeeper and I don't like to spend my time keeping records!

Keeping good records is essential for any business owner. New businesses must decide whether to do their own recordkeeping or hire someone for the processes. Often there is not enough cash flow in the business to hire someone, leaving the business owner to do the recordkeeping. Keep in mind even if you hire someone, you, the business owner, are responsible for correctness.

You may choose any recordkeeping system for your business as long as it clearly shows your income and expenses. Except in a few cases, the IRS does not require any special kind of records. It is essential for you to know if you are making or loosing money; good recordkeeping will help you stay on top of cash flow and allow you the opportunity to know if you need to adjust your expenditures. Without good records it is impossible to create financial statements should you need to apply for a commercial bank loan. Records must support the income, expenses and credits you report on your business tax returns. If the IRS examines any of your tax returns, you may be asked to explain the items reported.

You may choose to maintain a manual record-keeping system using ledger paper (available in office supply stores). While these systems do not automatically produce financial statements, they will satisfy the IRS by showing recorded transactions, dates and methods of payment. Keep each month separate. At the end of the year add monthly sheets together to total your annual expenses.
Using an accounting software package allows you to create financial statements from the information you input. A simple-to-use software program eliminates the need for a handwritten set of books. It works particularly well for any business providing a service. Software programs often look like a checkbook register, but are, in reality, the backbone of the records for the business. Each transaction—an item of expense or income—is input as either going out of, or into your checking account. Each item is categorized as to type of expense or income, using either a number or name, such as "210" or “office supplies". You may also enter "cash" and "credit card" payments the same way. The best time-saving feature is the ability to print a set of records in a few minutes, any time of year. Additionally, those easy to make, hard to find, math errors will no longer be a worry.
Whether you go computer or do it by hand, you will still need to keep what accountants call "source" documents—receipts, bank statements, purchase invoices—to back up the numbers used in your record-keeping system.
Contact your Wyoming Small Business Development Center for additional insight into recordkeeping processes.

Your business is in crisis if sales are not covering expenses.

By Anya Petersen-Frey, SBDC Region IV Director

If you’re dipping into savings at a rate rapidly depleting your reserves, your business is facing potential problems.  It’s time to step back and evaluate; careful of ‘throwing good money after bad’. Investing more money to retrieve losses is a gamble. If you choose to put money into the business, first understand how the business is doing and what the future of the business might be. Consider the following:

• Is your business expanding so the future looks brighter? If your business is new, evaluate the time needed for a chance to succeed. If your business is mature and not growing, it’s a different case.

• Can changes be made to improve sales?  Remember, if your business is not doing well and you don’t change your technique, you’ll keep getting the same results.

• Can you cut costs?

If expenses have been cut to the bone, the business continues to lose money each month, and you don’t see a way to change the situation, you have a tough decision to make. Sometimes closing the business is the best choice. The experience gained will be invaluable in evaluating and operating another business.

Many business owners think financial crisis happens suddenly. Most of the time financial concerns burdening a business are a management issue and accumulate over a period of time. Below is a checklist to help you organize your financial management. Accounting needs vary, so this list is not comprehensive; it provides a guide to help a manager understand the most common tasks to maintain accurate accounting records.

Daily:
   • Total cash on hand.
   • Record income. Enter sales and cash receipts daily using software or a handwritten ledger.
   • Note payments made by cash or check.
   • Record inventory; add new items.

Weekly:
   • Review accounts receivable. Decide what action to take with slow pays; follow through.
   • Examine accounts payable; take advantage of discounts.
   • Prepare payroll – this may be bi-weekly.
   • Revise inventory to deduct items sold.

Monthly:
   • Balance the checkbook. It’s worth the time to reconcile your checking account to your bank statements.
   • Compute monthly totals for sales, expenses and payroll, including payroll liabilities.
   • Handle tax deposits; file federal or state taxes due.
   • Determine the status of accounts receivable. List unpaid accounts and the length of time outstanding – 30, 60 or 90 days. Use this list to decide which accounts need more aggressive collection tactics.
   • Check inventory levels; note items not selling so they can be replaced with new products.
   • If using petty cash, reconcile; replenish as needed.

Quarterly:
   • File estimated tax returns.
   • Send in sales tax – monthly in some communities.
   • Create an income statement and balance sheet – did you meet financial goals? If not, how can you improve in the upcoming quarter?

Yearly:
   • Figure total sales, expenses and payroll.
   • Prepare an income statement and cash flow. The income statement will show sales, expenses and profit for the year. The cash flow statement shows the cash position of your business.
   • Create a balance sheet for the year. This will show the value of your business and owner equity.
   • Send 1099 and W-2 forms to contractors and/or employees who worked for you during the year.
   • Gather paperwork needed for tax preparation.
   • If utilizing an accountant, turn over copies of tax documentation; discuss the financial condition and tax strategy of your business.
   • Set up books for the upcoming year.

The items on this list are not new. Many small business owners simply fail to put these basic accounting principles in place or don’t understand how to do so. Nearly 99% of small business failure is due to poor management.

If you need help, contact an accountant, another business professional or an organization, such as the Small Business Development Center.

How the Wyoming Partnership Challenge Loan Program can assist agricultural businesses

By Mike Martin, WBC Loan Program Mgr.

The Wyoming Partnership Challenge Loan Program is not designed only to help main street businesses.  There are a variety of agricultural businesses who have worked with their local lender to take advantage of the program. 

The loan program is designed to help growing Wyoming businesses by offering a lower, fixed interest rate on a portion of their bank loan purchased by the Wyoming Business Council (WBC).  Typically, the Council can purchase up to 35% of project cost to a maximum of $250,000 for growing businesses.

How can this help you?  Let’s see how it is helping 3 growing agricultural businesses across Wyoming: 

• Gluten Free Oats in Powell, a growing internet retailer of oats for people who have celiac disease, has been approved to have the WBC purchase $174,000 of their loan from First National Bank & Trust at a fixed rate of 5% for the first 5 years of the loan.  Receiving a lower interest rate will help the business lower operating costs and increase profitability.

• Brown Co. in Wheatland, an implement dealer, has been approved to have the WBC purchase $250,000 of their loan from First State Bank at a fixed rate of 5% for the first 5 years of the loan.  The lower interest rate will allow the business to grow their new location more rapidly.

• Rocky Mountain Agronomy in Riverton, a liquid fertilizer distributor, had $94,000 of their loan purchased from Wyoming National Bank in Riverton at a fixed rate of 5% for the first 5 years.  Receiving the lower rate has allowed the business to expand their product mix into the dry and liquid fertilizer business and accessory products.

To see how the Wyoming Partnership Challenge Loan Program can help you with your growing business, contact your local lender or contact Mike Martin at (307) 777-2845 or mike.martin@wybusiness.org.

Prevent your dreams from becoming a nightmare!

By Leonard Holler, WSBDC Region 3 Director

For many, owning a business is part of the American Dream, right behind owning a home. Buying a business is a complicated and emotional process. Here are some common mistakes to avoid when purchasing a business.

Do not pay too much for the business. You should take care to know the real value of the business before you sign on the dotted line. The results of paying too much may mean higher loan payments, lower profits, tighter cash flow and potential failure.

Do not pay for undeveloped potential. You should only pay for the current operating condition of the business. You, not the seller, should reap the benefits (profits) of time, effort and money it takes to develop the potential of an existing business. If the seller did not choose to invest their resources in developing the business, you should not compensate them.

Do not rely on bad information. Make sure the information you get from a business seller is verifiable. Have professionals check the financial information, documents, leases and contracts.  Use a team of experts to guide you in legal, accounting and tax matters related to the purchase of the business. Analyze the competition, the industry and potential market for yourself.  Carefully investigate the terms of the potential business purchase and get a valuation of the business. 

Do not decide to buy a business without evaluating your own abilities. Can you run this type of business? Can you perform necessary duties that can not be hired? What are your strengths and weaknesses in areas of managing the business? If you contract others to do things like payroll or bookkeeping, have you considered the cost of those services in your budgets? Running a business includes managing people, selling your goods or services, ordering products, doing paperwork and making numerous decisions on a daily basis. You need to understand your capabilities.

Do not buy a business based on your emotions. If you get caught up in the emotions of fulfilling your dream of owning a business, without taking time to do your homework and investigating the business potential, you may make a costly mistake.

Do not change too much too fast. Once you own the business, do not be tempted to make large sweeping changes over a short period of time. You may risk losing customers and employees who do not agree with the changes you make. Unless something needs immediate attention take some time to understand the business and your existing customers’ needs prior to making any changes. Consider soliciting suggestions from your customers and employees before changing anything.

If you’re thinking about buying an existing business prepare to know and avoid the pitfalls; help your dream become a reality.

Too busy running your company to worry about finances?

By Bruce Morse, WSBDC Region 2 Director

Your situation is not uncommon for many small business owners. They wear many hats and there are only so many hours in the day. However, you are absolutely correct in that you need to pay attention to the financial side of the business as one of the important things you do, or eventually you may not have a business to worry about.

One way some people cover this base is by sitting down with their bookkeeper or accountant periodically, reviewing the numbers, and kicking around ideas for improvement. Granted, this will cost you a little money if they are not your employees, but it might make you even more money in the long run.

Another option is a new service that is being offered by the Small Business Development Center called a Financial Health Check-up. This free program consists of a computer analysis of your historical financial data that will compare a local business to others in that industry as well as look at trends within the business itself. The result is an easy-to-read narrative report that can be viewed by the owner or with the assistance of an SBDC counselor. To learn more about this new service, contact me at 800-383-0371, 307-754-2139 or via e-mail at bmorse1@uwyo.edu.

What is your exit strategy?

By Mike Martin, Loan Portfolio Manager, Wyoming Business Council

Whether you are just starting a business or have been in business for many years, it is important to think of an exit strategy.  Will I be able to sell my business or will I have to close it down when I am ready to move on to other interests?

It seems that the only people who discuss an exit strategy in their business plan are serial entrepreneurs who want to grow a business and then sell it so they can start another one.  The owner of a family business needs to consider their exit as well.  Will the kids take over the business or can I sell it to one of my employees? 

Thinking of an exit strategy causes you to think of the future.  Planning ahead helps chart the course and writing and regularly updating a business plan is the most useful way to look to the future of your business. 

If the future of the business with you at the helm is only three more years, then you better be thinking of what will happen to the business at the end of that time.  What can you do now to ensure that there will be value to a potential purchaser of the business?  Should you upgrade equipment, grow your customer base, improve financial reporting systems, or groom family or key employees to take over the business.  Maximizing the value of your business will not only make the sales price higher when you are ready to move on, it makes you business more valuable now.

Even though you are as busy as you can imagine running the business, it is important to think of your exit.  After all, your financial future depends on it.

How Much Is Your Business Worth? A Short Course In Relativity

By Tom Johnson
Wyoming Business Council Southeast Regional Director

Many entrepreneurs ask, “How much is my business worth?”

The answer to this question is not straightforward.  If you’ve ever witnessed the last 30 seconds of an Ebay auction, you know that in reality, the value of any item is the price some idiot with a fast click finger is willing to pay for it.

Value is generally a trade off between risk and return, just like any investment.  How risky is the business I am buying?  What is my required rate of return?

A rather simple and crude example of this will suffice.  Let’s say you are an angel investor and you are looking at two companies for investment.  The first is a start up biotech firm with no operating history, a few employees, and a technology that is unproven.  They expect to generate a lot of cash flows five years from now (and you believe them?).  The other is law firm with ten years of profitable operating history, a long list of clients, and a succession plan in place.  Their cash flows are half of the expected cash flows of the biotech firm.  However, you are getting them now.

Now, which company is worth more?  The hot biotech firm?  Or the stodgy law firm?

It could be either, actually.  That is because value is relative to risk and return.  The biotech firm is more risky and you have to wait five years for your cash flows to begin to generate a return.  Therefore, the required rate of return would need to be higher.  And the cash flows would need to be discounted to their present value.  The law firm generates cash flows now and there is less risk.  Hence, the required rate of return will be lower. 

This is why you, as an entrepreneur need to be critically aware of what returns your investor is seeking.  It affects the value of your company.  A swing of several percentage points can change value dramatically.

Venture capital firms are well known for using return requirements between 30-70%.  Your Aunt Jenny may be fine with bank rate of return of 10%.  Either way, you will want to know.  You should spend some time finding out.

In business valuation, you can’t afford to be the idiot with the fast click finger.

Can you spare a dime? Only if you innovate, brother

By Tom Johnson

I will let you in on secret if you promise not to tell anyone.

Come closer….closer.  I might have to have to whisper this.  People are listening to us, after all.

Keep this between you and me, but there really is money available for your business.

Don’t let it get out.  Meet me in the alley after work and I’ll give you your decoder ring while you await instructions.

On the other hand, if you prefer, you can simply go to the University of Wyoming’s SBIR Web site devoted to the Small Business Innovative Research (SBIR) program.

SBIR awards, as they are known, are federal funding for businesses to conduct research and development for innovative products.  Each year 11 federal agencies take between 1-2 percent of their extramural (research) budgets and devote them to small business awards.  As you can imagine, this 1-2 percent represents over $1 billion.

Depending on where you are in the process (the program works in the award phases), this federal funding can be quite a significant injection of equity into your business, over $1 million in some cases.

The best thing of all?  You don’t need to give up equity in your company and you can use them to pay for the operations of your business.  Thus, SBIR awards can be ideal if your company is a start up in the early stages of its technology or product development, when the cost of capital is highest.

For those with existing products, or those who are planning a retail business, the program is not a good fit.  Therefore, if you were planning to open a pizza delivery business, you will need to hold the pepperoni.  And if you are hoping to launch in a few months, the timeline for these grants can be depressing.

However, if you have what you believe is a truly innovative product and you are just starting out, it might just be just what you need.

Borrowing money is all about predictability!

By Ben Avery

For most people going to see the banker is akin to a dentist appointment, encountering a bear in the woods or a forced meeting with an IRS agent. Thoughts of hurt, fear and intimidation run rampant through one’s mind in anticipation of the dreaded meeting with the banker. Now, having been a banker, I can assure you that meeting with me does not have to be intimidating or fearful, unless you are not prepared. If you are not prepared I may feel that you are wasting my time. I very likely may become terse and demanding.

Now my life as a banker was not 9:00 to 3:00, or 8:00 to 5:00. Most days begin shortly after 7 and end about 6. Fridays, I am trying to wrap up paper work before the weekend and Mondays I am trying to complete whatever did not get done on Fridays. Interruptions in person or by phone during these times generally made me irritable.

First recommendation – plan your schedule to be available for a meeting on Tuesday, Wednesday or Thursday (during banking hours).

Second recommendation – call your banker on one of these days (Tues, Wed or Thurs) and ask for an appointment on a date and time that fits in the banker’s schedule.

Anytime that a customer came in without an appointment I felt that he did not have much regard for my time. The customer that calls to set up an appointment giving me the power to schedule I feel respects my time and professionalism and I am more likely to treat them with the same respect.

Third recommendation – be prepared!

The banker needs to know what your needs are (what is your loan request going to be?) What is the business or project, use of funds, amount of your equity and collateral available to secure the loan? A large waste of my time was when a customer would sit down across the desk and begin rattling on about his idea with no written plan for me to work with.

Fourth recommendation – If you have a business plan that identifies the business, use of funds, financials, etc. drop a copy by the bank for the banker to review a few days prior to the scheduled appointment. If you don’t have the items in a business plan try to put them in some written form and get it to me in advance.

Fifth recommendation – understand that the banker will expect you to provide 20% to 30% equity in the project (we do not do 100% financing, don’t expect it).

Sixth recommendation – understand that the bank will expect you to be personally liable for repayment of the loan (bring in personal financial statements and last three years tax returns). When a customer provides these to me at the first meeting I give the customer with a great deal of respect for their professionalism.

Borrowing money is all about predictability. Don’t surprise your banker. Be prepared.

Ben Avery is the Wyoming Business Council Porfolio & Loan Program Manager. For more information, contact him at 307.777.2863 or ben.avery@wybusiness.org. 

Find financial solutions at Venture West

By Rachel Girt, Wyoming Business Council

Wyoming entrepreneurs interested in financial resources should explore the upcoming Venture West dinner and workshop, both of which will be held on March 8. The organization offers excellent networking opportunities in addition to discussing financial solutions. Recently, Venture West announced hiring Kathy Emmons as the interim executive director.

The March 8 dinner will cover how DeltaNu used a variety of funding sources to evolve from a startup in Laramie to a successful high tech company, which was bought by Silicon Valley based Intevac, Inc. DeltaNu founder and Intevac's Raman Spectroscopy General Manager Dr. Keith Carron will discuss how the company used different financial resources at the entrepreneurship dinner from 5:30 - 8:30 p.m. at the Laramie Country Club, located at 489 Hwy 230 in Laramie. The cost is $25 for members of Venture West and students and $40 for non-members. The program will also feature four premier startup entrepreneurs pitching their companies to entrepreneurs, professional service providers and investors.

Intevac, Inc. bought DeltaNu, which manufactures Raman spectrometers for education, research and industry. DeltaNu will be operated as a wholly owned subsidiary of Intevac and remain in Laramie. DeltaNu founders started their company with a little bit of their own money and a lot of talent, all of which they used to obtain federal monetary awards through the Small Business Innovation Research Program and to develop Raman spectrometers. The company also received help through the Wyoming SBIR/STTR Initiative (WSSI), which is funded by the University of Wyoming and the Wyoming Business Council.

Entrepreneurs can also learn how to use bootstrapping to finance their startups during an afternoon workshop on March 8. Bootstrapping is how companies obtain resources when external investors and debt financing are not available. The workshop "How to Start a Company with Nothing" will be held from 2 - 5 p.m. at the Wyoming Technology Business Center, located at 1938 Harney Street in Laramie. The cost of the workshop is free for members of Venture West and $25 for non-members. The Wyoming Business Council will sponsor students.

To register for both events, visit

www.VentureWest.org

or call 307.766.6283.