The BSPJ Business Lifecycle Center
The BSPJ Business Lifecycle Center was created to help businesses optimize operations and maximize profit at all stages of their development. This unique approach to service delivery helps guarantee that you’re connected to the resources and guidance you need to achieve your business goals.
The center is based on the principle that while businesses of all types and sizes have similar needs at the same stage of development, their needs at one stage can be very different from their needs at another. The stages are: Seed, Startup, Growth and Established.
Throughout the Business Lifecycle Center we seek to provide you with an overview of issues and considerations that businesses typically face. But first, let’s look at what our experience has shown to be the two basic drivers of business success, management and capital, and how you can optimize each.
Management
Management is primarily about leadership and "running the show." Successful management requires:
- Building networks of people who can assist you with your business: Mentors, peers, family and friends.
- Investing in organizational infrastructure, even if that means you don’t maximize financial results in the early years. In the long run you’ll reap profits year-in and year-out as you develop a smooth functioning organization.
- Listening to your customers and responding to their needs. When you gain customers’ trust, they will be loyal to you and refer you to others. Great service and quality products guarantee success. Aim high for quality.
- Knowing your strengths and weaknesses, so you can hire people who complement your skills, strengthen any weaknesses and enhance your firm’s capabilities.
- Turning problems into opportunities by learning how to put a positive spin on negative developments and make things work out in your favor.
- Improving productivity through technology, outsourcing and innovation. The world is constantly changing and you need to keep up with it.
- Creating a balanced lifestyle. Business is tough. Make sure you put your family first and have outside interests that bring you happiness, so you'll have a better chance of success.
Capital
Your new business (start-up or acquired) will have certain assets, such as cash, inventory, accounts receivable, fixed assets and goodwill. These assets are generally “capitalized” or funded in two ways: via owners (through owner contributions or proceeds from capital stock) or from outside financing.
The ability of your company to survive during hard times or to expand depends on your capital structure. Capital structure can range from:
Full capitalization: Where owners finance the entity with their own funds and start out with no debt. It is much easier to handle the stresses of a business with little or no debt.
to:
Thin capitalization: Where the company essentially operates on borrowed money, because its debt far outweighs the owners’ original financial contribution. Unless the business starts making profits immediately, growth and the ability to borrow more funds can be inhibited.
Debt vs. Equity. Usually there is a balance of the amount of debt incurred in relation to the equity of the company. Knowing industry standards and where your company stands in relation to them can help you decide where to seek additional capital.
Capital needs and cash flow projections. As your business changes, your capital needs will change. Managing your cash flow and projecting it into the future is critical to anticipating the need for future funding. Options for raising money and/or managing cash flow include:
- Lending institutions (banks and other financial institutions) provide the following types of financing:
- Term loan – a loan for a specific amount, with a specific repayment “term” or schedule, typically between one and 10 years and a fixed or floating interest rate.
- Line of credit (or credit line) – an arrangement in which a bank agrees to lend up to a specified amount whenever needed. Interest is paid only on the amount borrowed. Three types of lines of credit are seasonal, revolving and non-revolving. A line of credit may be unsecured or secured (such as based on and secured by accounts receivable or inventory), Banks may charge commitment fees and additional charges for unused line or funds.
- Equipment financing – a loan secured by the equipment purchased. The loan has a specified interest rate for a certain period.
- Leasing – equipment is rented with an option to buy at a specified price at the end of the lease. This financing method works well when a company is starting out and wants to preserve capital.
- Other – many other creative financing avenues are available with lenders depending on a company’s situation
- Vendor credit – most vendors will extend payment terms for the purchase of their product. Favorable payment terms may be established with a sound payment history.
- Accounts Receivable factoring – where outstanding invoices or receivables are sold at a discount to a finance or factoring company that assumes risk on the receivables and provides quick cash to your business.
- Venture capitalists, invest in promising ventures generally with the pooled money of others in a professionally managed fund. They usually buy a company’s stock with the intent of selling at a significant profit in a few years. They are more likely to invest in companies that have reached the growth stage.
- Angel investors, individuals who invest their own funds, generally providing seed capital to young business with a promising future, hoping for an above average return and for the satisfaction of helping entrepreneurs.
- Mezzanine financing, a hybrid of debt and equity financing, generally unsecured and subordinate, used by thinly capitalized companies to finance expansion. Simply put, mezzanine financing is debt capital that gives the lender rights to convert to an ownership interest in the company if the debt is not repaid timely.
- Small business administration loans – where the SBA guarantees small business loans made by lenders. There are restrictions on the use of these loans, but in some situations they are the perfect fit.
- Going public – issuing stock and selling it in the market to the general public, referred to as an initial public offering.
- Franchising – a method of growing a proven business model in to a brand name. Other individuals will help grow and brand the name of your business idea. They will pay a fee and provide capital in a particular area or location for which expansion makes sense.
WARNING - Your cash needs will always be greater than originally anticipated, so you must have good cash flow models to understand when cash is needed. When a business is profitable there is a resulting tax liability. To grow the business you need cash to reinvest into inventory and equipment and also to pay taxes.