Consider the questions, What challenges does your business face in this economy? What challenges do you think small businesses in general face? Some people say it is the tough economy and financial challenges. This may be so, but I think the problem is deeper.
I am a high tech, services oriented firm. This means that I don’t buy lots of equipment or keep raw material for manufacturing, rather we work with ideas, and produce intangible products like reports, and databases, and software. As such I do not have a strong feel for what other manufacturing or high fixed asset firms face, but let me tell you what I have faced. I’ll start with a little story. A couple of years ago, I was facing cash flow challenges, and my SBDC mentor suggested I go meet with managers at several local banks to tell them about my business and see if they would help me. So I first went to meet with a vice president at an Oregon based bank. I told him of my company, my corporate record, my plans. My financials showed high debt and no assets. I asked if he could set up a cash flow account so I could borrow funds as I needed them. He said financially he could not do this since I had no assets to use as collateral. He recommended I work on my financials to get them in order and we could talk again.
So I worked on my financials, but still with debt and no assets, I went and met with the president of another local bank. I told him the same story. I was an up and coming company with solid receivables. I was paying off debt and was seeking a cash flow line of credit. He looked at my financials and said my debt was too high and I had no collateral to loan money against. Contracts continued to come in and I continued to add employees. At one point, last spring, I was able to pay off my line of credit, but still had an outstanding balance on a credit card. Over the summer I hired a couple of interns and was a bit careless in watching my billable hours and cash flows. When the autumn came around I was again maxed out on my credit, and had to go to my wife and tell her our paycheck would be late (for the first time since I set up shop in Oregon). At this point I had $22K in credit card debt and $51K of unsecured debt.
My wife (who has a business degree and a very smart head on her shoulders) sat down with me and worked out a plan for paying the company’s bills, making payroll for our employees, and for getting back on the plus side. I executed the plan to the letter, sitting down with our employees and explaining the need to work billable hours to help get us out of this situation. Only with some good invoices could we make it. We tightened up, cut our spending, worked hard for our clients, and as the months went by the overdraft was paid off, the cash flow line of credit was paid off, and the credit card debt was paid off. Today I have no long term debt and $20K in the checking account.
So, what is the lesson from this story? The lesson for me is that I did not need another loan. What I needed was guidance from those smarter and more experienced than me. I needed to get my house in order, learning to manage my business more efficiently, relying less on money to pull me out of difficulty and more on sound business practices. And how did I learn this? By my SBDC mentor, by experienced bank officers, by my common-sense wife.
My takeaway from all of this is that the greatest benefit to small businesses is knowledge. This comes in many forms. I have been sending my employees to classes. My administrative assistant has taken classes in accounting, in QuickBooks, and in best practices for being an administrative assistant. One of my engineers has taken classes in managing people, and is scheduled to take a class in project management. And I have completed a two year class in small business management at our local Small Business Development Center. I strongly recommend that any small business get educated on how to run a small business and that it send employees to classes to help them learn to do their jobs better.
Question – What steps could state or federal government agencies take to help make small businesses successful?
My answer – While the tendency for many agencies is to set up programs to lend money, I believe the focus should be on training businesses to be successful. It is easy to find courses on how to start a business or on how to win government contracts. What is sometimes difficult to find is classes on how to run a business in a down economy or on how to manage a government contract. Here is what I see happening. A person in a leadership position says, “The economy is down. Small businesses are hurting. Do they need training? No, the community colleges and the SBDCs can handle that. They must need something else. So we will work on lending them money.” What the person in the leadership position is not seeing is that the courses are not the right courses, or that the courses are not well attended, or that the businesses are not sending people to courses. What we need is a campaign to educate small businesses in being successful in the new economy. This consists of the following:
- First, teach the teachers – offer classes for the educators in SBDCs to learn ways to help small businesses in a down economy. Have them learn practical steps businesses can take to take advantage of the Web in getting new clients or finding new opportunities. Teach them how to set up plans to get finances under control.
- Second, provide a media campaign – make the small businesses aware of the opportunities through this program. Sign them up for not just one class, but for multiple classes, whether it is breaking into new markets, retooling for new products, or educating employees to learn good work habits. Too often classes are offered, but are poorly attended because people are unaware of them. Think entrepreneurially, moving beyond mere newspaper ads to making direct contact with businesses by telephone, but tables at events, by presentations to Chambers and Rotary meetings, or by forums on special topics.
- Finally, incentivize the directors and deans at community colleges – offer funding for schools if they send their teachers to the classes, and offer subsidies to defray the costs of courses not well attended at first. Help to update web sites and set up social networks so the businesses will not only join the program, but stay with the program year after year.
These are only a few ideas of what can be done. What is needed is to see that a dollar spent on a loan make come back as two dollars in sales or as a failed business. But a dollar spent on education will result in smarter business owners and employees, and lead to more profitable and successful businesses. And who knows, maybe the owner could one day become their state’s small business person of the year!