Starting a new business can be a challenging and rewarding prospect.  Like many other endeavors in life, it's easier if you have a helping hand guiding your every move, preventing you from making mistakes that might not always be visible to a novice eye.  

For that reason, it's no surprise that you hear so many successful people got where they are today with the help and advice of a mentor.  The mentor relationship is not uncommon, but it is definitely under-utilized.  You've probably heard of mentor relationships in education relationship, like between a professor and a student.  Or maybe in a working relationship like that of a master carpenter and his apprentice.  

Would you be surprised to know that many successful business people have claimed their success is due in part to the guidance of their business mentors?  Bill Gates, the wealthiest man in the world, has said publicly that his mentor is Warren Buffett.  Warren Buffett has often cited famous investor/professor/author Benjamin Graham as his mentor.

So...who's your mentor?

What's that, you don't have one and don't know where to find one? 

You need to get out there and pound the pavement.  Successful business people aren't going to just show up at your door in your time of need.  Find a trade association event in your business and start networking.  You can't find a mentor if you don't get out there and start making contact with the respected people in your field. 

It doesn't matter if your field is medicine or scrap booking, there is probably someone out there who has been doing it longer than you have, or more successfully than you have.  If you're in that small percentage where that is not the case, you can still find someone to mentor you on one segment of your business where you could use help.  Maybe you're great on marketing knowledge but horrible with sales calls.  Go and find a big dog salesperson to give you some pointers.  There's a mentor out there for everyone.

I've met several successful business owners who have several mentors.  In essence, they've created their own personal team of experts they can tap into at any time they need.  Again, you need to get out there and make contact with these people.  It may take awhile to round out your team, but when you do, you'll be a step above the rest.

For those just starting out, you should think about adding the following people to your team of respecting experts, or mentors:

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Fall cleaning extends the life of your business and increases efficiency and profitability.

Learn how to perform fall cleaning for your business. Read the full article here.

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Some of the most asked questions we get are related to hard money loans and the process involved in arranging them.

At Cornerstone, we've worked with many hard money lenders from the smallest, private one-person firms to the largest corporations.

Regardless of size, most are asset based lenders, meaning their loans are based purely on the value of the asset being pledged as security. Typically hard money lenders will lend a maximum of 50-65% of the "as is" value of the asset (its current value in the market place).

For this reason, hard money lenders are less concerned with things like the borrower's credit score, personal financial status, or cash reserve position.  This is mainly due to the fact that if the lender has to take back a property encumbered by a loan of only 50-65% of its fair market value, they would likely recoup their money by selling the property, even if it were sold at a steep discount.

With such a low loan to value ratio hard money lenders have a relatively low risk position and can afford to be more lenient with underwriting guidelines than a conventional commercial lender, requiring much less upfront documentation from the borrower, and therefore responding much more quickly.

In general, very few documents are actually needed to facilitate a hard money loan.  In the case of a stabilized commercial property the lender will look for current and historical income and expense statements, clean title, and a recent appraisal.  For land loans they'll focus much more closely on establishing an appropriate value so they'll spend more time reviewing the appraisal.  In the case of construction loans, they'll be concerned not only with the current value of the property, but also with the value of the property once construction has finished.

Many hard money lenders draw their funds from conventional sources such as other banks, lines of credit, hedge funds, etc. and have a cost associated with the capital they borrow.  To make a profit, they need to relend that money at a sufficient spread above their own cost of capital.  As such, hard money loans are typically more expensive loans to carry both in origination and interest rate.  It's not uncommon for hard money lenders to charge between ten and fifteen percent interest per year and two to ten points in origination.

What they lack in pricing they make up in speed.  Most hard money lenders review loan requests and issue letters of interest or pre-approvals within 48 hours.  In addition, title and appraisal can be ordered and received within seven to ten days.  If all is satisfactory, closing can be schedule soon thereafter, sewing up the entire process in as little as two weeks.

For more information about hard money loans or to submit your project for review, view our hard money loan guidelines orcontact us at your convenience.

As mentioned in our Business Start Up article, the SBA suggests that 1 in 3 businesses fail in the first two years for two main reasons:

 

1.  Lack of overall planning
2.  Underestimating how much capital is needed to start and sustain your business until it can turn a profit

 

 

Arguably, those are the two most misunderstood elements of planning any new business,  because they take the most work, thought, and expertise to complete. These are often the areas where new business owners don't have enough experience, don't know how to do the right research, or are just plain to lazy.

The third reason most businesses fail is the lack of controls, or metrics, in the business itself.  We'll explain that later as we tackle each one of these common mistakes separately.

 

 

Planning

Lack of planning is a pretty broad topic, but it speaks to a more general problem with start ups in that most entrepreneurs spend time figuring out their 30 second elevator speech without spending time on the nitty gritty.  Really getting in there and outlining the details of the business, the day to day operations if you will.  The micro level operations.  It's one thing to know the business from the macro: ie what market are we in, or what product do we sell, or what is the future of my product or service?  These are necessary generalities you should concern yourself with, but you need to drill down further to really get an understanding of what makes your industry tick.  If you think of planning your business as a road map, the macro issues are the paper the map is written on, while the micro issues are the actual roads, highways, and traffic signs that will get you where you ultimately want to go.

Macro Planning

When planning your business you want to have a clear end goal.  This is looking at it on a macro level.  It can be as far out as you can imagine or it can be just a few years away.  The point is to make that goal be the culmination of all your work.  That goal will be the thing you could have right now if you could wave your magic wand and everything you wanted was granted.  Maybe that goal is financial freedom, having enough money invested not to work any longer, or making your business so profitable that it could be sold for an amount of money on which you could retire comfortably.  Think big here.  Do you have it in your head?  Can you feel how nice it is to be free?  Exciting isn't it.  This is where most entrepreneurs stop.  They get the goal in their mind and they just start picking up the phone to make it happen, without really having a plan. Take the next steps, looking at your business on a micro level to understand whether the goals you've set are realistic or whether they need to be changed.

Micro Planning

After you've established your end goal, think about the things you would need to obtain, obstacles to climb, or the steps you'd need to take to make that goal happen.  It helps to think about this in broad strokes for now.  For example, if your end goal is to retire at age 50 with $10 million in the bank how would you make that happen?  Well, if you were 30 years old today, you'd have 20 years to accumulate $10 million, or on average you'd need to net $500,000 per year over that time period.  Looking at it in this way helps you break that end goal down into smaller, more manageable steps, that are clear, achievable, and realistic.

You can take that a step further in the micro planning process by relating that dollar amount to how many products or services you'd need to sell.  For instance, if you're a consultant who charges $100 per hour and you determined that you need to average $500,000 per year, you'd need to book a minimum of 5,000 hours of work, not including some extra hours to cover all your costs.  At a 40 hour work week, you'd need 125 weeks in the year to make the money you need to hit your goal. Right away you can tell that's not possible.  There's just not enough time.

Would the market bare a higher consultant fee? Working only 50 weeks out of the year at 40 hours per week would require you to charge $250 per hour to make the $500,000 per year mark.  If the market will not bare that hourly rate this business will never allow you to hit your goals.   At this point you need to re-conceive. Adjust your goal to be more realistic, or adjust your business, within reason and within market limits, to get you closer to the goal.

From a products standpoint, look at it this way.  Suppose you're selling skin care products at $25 per box.  You'd need to sell 20,000 units to make your goal, plus a few more to pay for the costs of production of those products.  Next you'd have to ask yourself whether it is feasible to sell that many units.  Is the market big enough, and can you reach enough of the market to sell that many?  If not, you need to raise the price or lower your goal.

Just doing those simple steps above puts you into a category apart from most entrepreneurs who don't take the time to look at the numbers so closely.  You'll be better off for it though, as you'll have a more holistic view of your business and what kind of work it will take for you to be successful and reach your goals.  That's just the first step in overall business planning.

Start Up and Operating Capital

The second most common mistake is underestimating how much start up and operating capital your new business will need.  This item is always near the top of the list from the SBA and SCORE as a key business mistake.  Figuring out your true capital needs requires much more research than just listing your estimated start up costs, like rent or mortgage, utilities, supplies, etc.  You need to have a good understanding of how much your product will cost to produce.  To know that you must know how many of your product you will be creating, and to know that you need to do the first step: business planning.  You can see now how they rely so closely on each other.

Keep in mind, these two items are constantly in flux and they need to be re-evaluated on a regular basis.  They should be revisited often in a start up situation to make sure you're on the right track.

Using the skin care example above, if you called around and got some production quotes of $10 per box, you know you're profit would be approximately $15 per box.  You can then go back and recalculate how you'll hit the goal of $500,000 net per year.  At $15 net, you need to sell just over 33,333 units.  If they cost $10 to make, you need at least $333,330 in cost of goods.  Take that number, and add it to all the fixed costs you've already quoted, like rent, utilities, insurance, licensing, legal, paper, etc.  When looking at operating costs, most business consultants recommend you plan for at least six months of operating costs before your company will turn a profit.  However, if in the course of your business planning you determine it will take longer, you will need to be more conservative and account for that in your cost planning.

When you arrive at a number for star-up costs and operating costs (6 months or more) you will then need to make that money available before actually starting the business.  Again, it's important to make sure you've got enough of a cushion to carry you through those early days when it's all cost and no profit.  If  you don't have enough cash to pull off the venture then you need to make a choice. Can you raise the money from other sources or can you lower your operating costs?  If the answer to both of those questions is no, the odds of failure will be high.  If you can not lower your costs, then you will need to raise money.  If you have planned your business properly you will have all the information necessary to put into a basic business plan which can be used to solicit venture capital/start up funding.

Funding can come from any number of sources, including grants, loans, equity, tapping into your savings, etc.  The first place to look is your family, or close associates.  If you can't raise all that you need from those sources, you need to expand your search into the public arena.  There are many sources of funding for businesses that show potential. A business plan is a must, and good experience on the part of the owner/founder helps too.  A business consultant, SBA representative, or SCORE professional can help you identify those money sources.

 

Business Controls and Metrics

Finally, you need to address the third most common, and definitely the most overlooked reason for business failure;  a lack of controls or metrics to measure the business operations.  What is a metric?  A metric is anything you can measure or quantify.  There are PhD courses taught on this subject, and careers in things like Six Sigma and LEAN methodology that corporations pay hundreds of thousands of dollars a year for their employees to attend, just to learn how to more accurately track business metrics.  The good news is you don't have to get that detailed when you're starting out.  You just need a simple way to track the metrics that matter most to your business.  Overall return (financial metric) and customer satisfaction (quality metric).

Cash Flow and Return

You should track, as closely as possible, your overall return and cash flow because it is the lifeline of your company.  You need to know at any given moment how much is flowing in, how much is flowing out, how much is owed to you, and how much you owe to your creditors.  That can be done quite simply with a spreadsheet and some accounting software. You'll be relating the expenses of the business to the income generated to determine the overall return or profitability. This will be the first important measure in where you are in the process of meeting your overall goal.

Customer Satisfaction

Quality is also important, as it determines whether your customers become repeat buyers.  Every business wants their customers to be happy so they will go out and recommend that business to their friends and colleagues. You should put a process in place to regularly sample customer feedback on your product or service. Maybe a customer survey or a simple poll.  If the feedback is negative you'll gain valuable insight into the changes that need to be made to continue making sales.

Again, doing these two simple steps puts you ahead of the pack.  Most business owners would try to keep on selling, not stopping to ask why their customers never return to the store for a second purchase.  By comparing your actual operations to your goal, and the progress you've made in attaining that goal you will be able to act from a position of understanding, rather than blindly guessing at why your business is operating the way it is.  You;ll be able to move quicker if something does need to change, and you recognize that moment alot sooner than the entrepreneur who doesn't look at metrics.  They may not notice it at all, until its too late and they have to shut the doors.

As your company grows, you can add other metrics that relate to cost savings, or increasing value for your customer.  You can look at internal processes to make them more efficient and turn out more product for the same price, or cheaper.  You can look at your hiring process, your marketing and advertising, or any other business process to make sure they are working correctly and can't be improved.

As you can see, the three most common mistakes can be easily avoided with some proper planning and deep thought on your own personal goals, and that of the business.  With basic organizational skills, and an eye for the numbers you should be able to get a handle on the business costs, profits, and return, and be able track them through key business metrics.

If you need help understanding any topics mentioned in this article,  or you would like to see a few templates for the processes mentioned herein, give us a call or send us a note and we'd be happy to answer any questions you might have.

As always, Cornerstone takes pride in helping entrepreneurs start on their way to achieving their business goals and dreams, and if there is a way we can help you too, we welcome that opportunity.

Good luck.

 

WA State Department of Revenue released in its 2008 year end report the following business statistics: Gross Business Income was reported at over $627 billion, an increase of 2.7% or $16.8 billion compared to 2007.  Overall in 2008 there was small growth during the year 2008. Food products were up 14% or $1.3 billion, wholesaling (electronics, agents, and brokers) up 8% or $800 million, and business, personal, and other services, up 8.6% or $9.2 billion. New and used Auto dealers reported a loss of 19.6% income (approx. $3 billion), lumber and wood down 12.9% (approx . 1.2 billion) , and construction down 1%, approximately $400 million.

Sustainable "Green" building has been a hot topic in European countries for several years.

In the states however, green building is just now coming into vogue in cities like Chicago, Seattle, Portland, Los Angeles, and New York, which have put initiatives in place to lure developers into the sustainable building market.

One of the first studies to address the cost vs. benefit issue was The Costs and Financial Benefits of Green Building. The study was created by forty California agencies which pooled their resources to relate the added cost of using renewable and sustainable green building materials to the benefit of a cleaner, healthier life as a result of living and working in buildings that offer green features.

According to the study, the average person living and working in green buildings gains five (5) minutes of productivity each work day. The study assumes average hourly pay, building economic life, and a discount rate, then calculates the added value per square foot over the life of the building. For LEED Silver rated projects, the added value is almost $40 /sf and for Gold and Platinum rated projects the added value is nearly $56 / sf. A 20,000 sf green office building should then fetch over $1,120,000 more than its traditionally built competitor. With numbers like that it's not hard to understand why companies like CBRE are recommending their clients give green development a closer look.

Many studies have been completed since the California cost and benefit study, and the U.S. Green Building Council (creator of the LEED certification) tracks them in its research library. Recent studies include national trends for green building, new LEED certifications, and several green building white papers by industry leaders and other academia.

These days, investment clubs are not just for local investors. The audience of some "local" clubs can reach into the hundreds with members representing investors, developers, builders, lenders, brokers, agents, teachers, businessmen, and even government officials.

The larger investment clubs have nationally recognized speakers at monthly events making members aware of recent trends in the real estate market, giving free tax and law advice, and of course access to industry insiders with a wealth of knowledge about the local market. Other clubs have partnered with members from the National Association of Realtors, The Commercial Real Estate Institute, Urban Land Institute, and the National Association of Mortgage Brokers to offer continuing education credits for respective field designations.

Some clubs offer discounts to small and large box retailers like Home Depot, Lowes, Staples, Office Max, Costco and other local businesses associated with local chambers.

Most club meetings start out with an hour or so of networking, which helps to introduce everyone to each other, while also giving them time to explain the service their company offers. Some clubs encourage members to speak about new and ongoing deals for a few moments and then encourage audience commentary.

Almost every club offers some type of monthly member speaker and seminar du jour that promises to be enlightening and entertaining all at the same time. As web technology continues to improve more and more clubs are buying up real estate on the net to offer members access to videotaped sessions, exclusive podcasts, blogs, forums, and chat rooms.

If you're trying to find a creative solution to a real estate problem or if you've got a deal that you need some help on, simply search the internet for local REI clubs and stop by for a few moments. Most clubs today operate as non-profits, so chances are the fee at the door will not only be minimal, it will be a write-off.

Either way, if it helps solve your problem it will be money well spent.