Small Business Secret #6: No Customer Database - No Goodwill

If you are thinking about building a small business or buying an existing business, the number one tool every small business must have is a customer database. Without a good quality customer database, you will have no Goodwill when you decided to sell or exit your business. It is that important that without it, you will lose over half of the value of your business when you goto sell your business.

Let me explain … why the customer database is so important?

The role of the customer database is to tell the history and the story of your customers over a period of time. Many accountants will tell you that your customer database is your accounting package like MYOB and QUICKEN. In fact, I will tell you now that if you only use these applications you are seriously restricting the success of your business as accounting packages do not tell you the full history of the relationship between you and your customers.

The customer database is the most important tool in your whole business. It contains every bit of information about your customers where as the accounting system only contains basic contact information and what they have purchased. The sort of information that you want to store in your customer database does varies depending on the type of business you actually have.

The sort of information I would generally expect in the customer database are things like, their contact information, products they are interested in, information about what they are expecting from you, when you have contacted them and what they discussed, what marketing material you sent to them and whether they bought off that marketing material, what adverts brought them to you, what their average dollar sale is, what their predicted long term value is, any special deals you have done with them and much much more.

What I recommend to every small business owner is to try and locate an industry specific customer database. Pretty much every industry has its own customized system which focuses on the issues related to your business. If your industry does not have one, then it is really important that you invest the money into building one that addresses the issues of customer management for your industry.

Over the last few years my team and I have built a number of industry specific databases for industries like the car cleaning business, the sewing machine sales and repair industry, the carpet cleaning industry, the recruitment industry, the manufacturing industry and so forth. In each and every case, their requirements for their customer management system were very different.

In the case of the Sewing Machine industry, there value in their business was being able to track and manage the actual sewing machine not the customer. It was more important for them to be able to know what repair work was done on the machine and how many different people had owned it. The real money in the sewing machine industry is in repairs and sales of their material etc.

Where as, in the carpet cleaning industry, the most important element to track and manage in their industry is in fact the homes that they clean not the customers. This was particularly important when you are doing housing rental carpet cleaning. In this industry, renter's can be a very deceptive group of people; one of my clients had a situation arise where the renter actually accused her carpet cleaning company of wrecking the carpet and staining the carpet and not them.

Well because my client had tracked the history of the carpet in that house, they were able to prove to the Real Estate agent, what stains were originally in the house from previous work to what was in there now. In fact, because they photograph every house once they start and when they finish, they had a full photo history of this house on file. They were able to show to the real estate agent the full history of work carried out and which stains were permanent and what were new and this meant the previous renter had to foot the full bill for the damage they had done not our client.

If my client had not invested in building this customized carpet cleaning customer database, then she could have been in a real bind. Further to this, when my client decided to sell her business, she got three times what others were getting for their carpet cleaning business, because of the value that was found in her customer database.

The company that bought her out was a National Carpet Cleaning Company and they wanted her business because of the customer history she had. This is a perfect example of how the Customer Database illustrated the true value of the Goodwill in her business to the prospective buyer. I should note, she now drives around in a white Mercedes because of the money she earned from the sale of her business.

Customer databases do not need to be expensive and they can be easily built in Microsoft Office applications like Microsoft Access. The reason many companies are using Microsoft Access is because of the ease of being able to build the systems and get people to help them. What a lot of companies do is to train one person in using Microsoft Access and then get them to build the database as part of their job. Alternatively, there are lots of Microsoft Access Developers out in the market place and they are really cost effective to hire. Always though check with previous clients to see what they thought of their work and how good they really were.

Look the bottom line is this, in the fifteen different clients that we have built databases for and then have sold their businesses, in every case their accountants have stated categorically that the reason they had the allocation of goodwill they achieved was simply due to their high quality, high detail customer database.

Remember this - No Customer Database - No Goodwill

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About the Author: Would you like to learn more on developing your own Small Business or how to implement the Thirteen Secret Steps all millionaires know in the path to becoming an obscenely wealth and a successful person. Then find out how with a copy of our Think and Grow Rich book by Napoleon Hill and our audio package. Check out our Meditation Music to help you master this important program and to get some relaxation.

Small Business Secret #5: Choose Your Customers Carefully They Are What Can Make Or Break You

When you start out in small business pretty much every small business owner has the perception that everybody is their customer. In fact taking on this strategy can be the death knell of your business before you really get started. The key secret to small business is to carefully choose who you want to be a customer. Do not get trapped into believing that you have to have everyone as your customer.

There are many reasons why you want to choose your customers, rather than they choosing you. One of the key reasons is money. Having too many companies that do not pay you within an acceptable period of time can in fact put such a financial burden on your business that they can bankrupt your business. Let me explain …

I had a number of government clients a few years ago which had a policy of choosing when and if they were going to pay. These government clients used purchase orders to buy training from our company, but just because they could, they decided that they did not want to pay because the whole purchase order had not been completed. So even though one person out of 15 had not completed their training and had been sent overseas, they chose that they were not going to pay the $14,000 bill.

Fourteen thousand dollars to any small business is a massive amount, add onto the fact that we had to outlay money for these courses including wages, catering and manuals. The consequence of this organization deciding not to pay put a huge financial burden on my business. I should note that this client was not dissatisfied with our training, which was far from the truth, the person in charge simply decided that they were not going to pay. Some government bureaucrats and large corporation managers do this just to show that they have power.

Anyway, after 9 months we did finally get paid, however, that training actually cost us more than $14,000 by the time we accrued things like penalty payments on products we purchased and interest plus legal fees in recovering the money. In the end I learnt a very important lesson that you need to be very careful as to whom your customers are because they can do a huge amount of damage to your cash flow and can put you into huge debt just to survive.

Let me give you another example of a family member who recently experienced the same situation …

Certain members of my family decided they wanted to try their hand at the trucking industry. They purchased a truck and got into a contract with a large freight distribution company. Essentially, they ran into trouble within the first few months of starting their business, simply because they chose to have just one client and the contract they entered into with this client allowed the freight company to withhold payments for upto 3 months before they got paid. This has cause this family a lot of problems because without cash, you can not run your trucks cause you need to fill up on Diesel. Not being paid for over 90 days means you can not buy fuel and as such you can not make money.

The one thing I have learnt from small business is that I like customers who pay cash upfront before the service or product is taken out of your store. I also prefer customers who have a reasonable expectation on service.

You would think a car cleaning business would be a relatively simple business to run with very few complaints. I kid you not; this is a nightmare industry where some people have some unreal expectations so when we are on a recruitment drive for new customers we choose customers who have four facets -

1. Want Regular Cleans
2. Have kept their cars relatively well cared for
3. The cars are no older than 6 years old
4. They pay cash upfront

In fact, when it comes to our car cleaning business, or all of our businesses we actually interview our customers before we enroll them as our clients.

Here is the reason why we have chosen those customers above for our car cleaning business. Any business where you get repeat business is always a boon, because the long term customer value is always more than somebody who just wants it cleaned once. One thing we have learned about our customers is that those who want to get a regular clean have more realistic expectations than those who only get their cars done once or every now and again.

Customers who keep their cars relatively well cared for means the amount of work to maintain it is much less than those who do not and it means less work on our behalf and better profit. The third facet, we like cars that are no older than 6 years old. Cars that are older than this usually have a poorer paint quality, simply because the paint has faded and most people when they get a car detail think their car is going to look brand new and if your paint work is terrible well there realistically is not much we can do cause car detailers do not respray cars or do that sort of paint work. We can only work with what we have. The fourth facet is they pay cash upfront.

In small business, cashflow is everything. Without cash you cannot pay your bills. If you have a good solid cashflow then you will be making a profit. A small business without cash will be placed into receivership very quickly.

Look the bottom line is that small business is really hard and to make it easier you need to choose customers that have the following facets:

1. Pay Cash Upfront or By the Due Date
2. Have Realistic Expectations of your products and services
3. Want to Buy From You Regularly

If you have customers that have these facets then you have a good chance of surviving small business. The mix of customers you have is something that you have to manage and review on a regular basis to ensure that you do not build a customer base with to many customers without all of these facets.

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About the Author: Would you like to learn more on developing your own Small Business or how to implement the Thirteen Secret Steps all millionaires know in the path to becoming an obscenely wealth and a successful person. Then find out how with a copy of our Think and Grow Rich book by Napoleon Hill and our audio package. Check out our Meditation Music to help you master this important program and to get some relaxation.

Small Business Secret #4 – The 10 Chapter Elements Every Business Plan Must Have to Be Successful

One of the ten most important documents you must have in creating a successful small business, and in fact any business is the Business Plan. The Business Plan is the overall summary document that describes how your business will work, how people will invest into your business and how the business will operate.

A successful Business Plan will contain 10 key Chapter elements and they are –

1. Company Description
2. Business Concept
3. Management Team
4. Market Analysis
5. Marketing Strategy
6. Operations
7. Investment Analysis
8. Growth Plan/Exit Strategy
9. Financial Projections
10. Business Mastermind Group Advisers

One element that should also be in your business plan that is not in the list of 10 key Elements is the Executive Summary. All documents that have some substance should have an executive summary that outlines a summary of the contents of the document. As this should be in every document you create, I felt that it was not a Key Chapter element and as such that is why it is not in my list of 10 Key Chapter Elements.

Chapter 1 – Company Description

The company description is the first chapter of 10 for your business plan. The role of the Company Description is to define the organization, who it will be owned by, the capitalization of the business, the location of the business and generally what the business will do.

Chapter 1 to a certain degree is a summary of other chapters within the business plan like the capitalization information but it also carries unique information like, where the business will operate from.

Chapter 2 – Business Concept

The Business Concept chapter is the vision side of your business plan. This is where you get to put your dream down on paper. You will define in this chapter information like the concept design of your business, an explanation of what your business will look like, what sort of image it is going to have, what your customers will see when they walk up the street and or into your front door. It will also define exactly what your business is going to do and how you are going to do it.

In the business concept chapter you may like to put some samples in this chapter as to what you will be selling or offering. For example if you were opening a restaurant then you might put a sample menu into this chapter as a sub chapter or if you were cleaning dogs then you might put in your sales brochure.

Chapter 3 – Management Team

The Management Team sets out who is going to manage your business, who the key players are and what their experience is. This chapter alone can make the difference in securing considerable money, if you are using the business plan to get others to invest in your venture. If you can demonstrate in this chapter that the people you are going to enlist to help manage the business have solid experience in your target industry then investors or banks or private equity groups are more likely to back you financially.

You should also include in this section any lawyer approved management agreements and confidentiality agreements.

Chapter 4 – Market Analysis

The Market Analysis is specifically focused on talking about the industry in which you will be operating. This chapter should included lots of facts and figures from reliable and verifiable sources. The sources of this information could include information from Government agencies that provide statistics, information from the local chamber of commerce or better business bureau or your industry association.

All the fact and figures you provide in your business plan must be verifiable. If you are hoping to garner money from private equity groups or financial institutions, they have teams of people whose job it is to go over Business Plans and to confirm that the facts and figures are in fact true and not made up. If they find that you have used dodgy figures or that you have made them up, then organizations will very quickly identify that and reject your application for financing.

One other way you may gather market information is by doing your own surveys of your intended market. Make sure though that if you are going to use these results that you keep the raw data and make it available to your investors. If you do not do this, they will question the validity of your findings. If they can take your raw results and verify what you have said then your survey results will be given a higher weighting during an investment review.

Chapter 5 – Marketing Strategy

The Marketing Strategy sets out what marketing and advertising you are going to do, to get the required business to meet your financial projections. This section will include how you are going to build that all important customer database, what mediums you will use to market your business. What marketing mix you will use to keep your customers coming back time and time again. In this chapter you will also address issues such as your Community and Charity Involvement plus who will be responsible for your public relations management.

Chapter 6 – Operations Chapter

The Operations Chapter looks at how your business will operate on a day-to-day basis. Issues to be included are how many staff you will employ, what positions they will hold, what training will they get, who your suppliers will be, an alternative list of suppliers if something should happen, the daily operations that will need to occur, what administrative systems you will put in place and finally the management controls you will put in place to ensure everything runs smoothly.

Chapter 7 – Investment Analysis

This is an important area for those people or institutions who will be investing into your business, cause essentially they want to know what they are going to get for their money. The Investment Analysis chapter will outline the full investment strategy, the investment types, the amount of the investment, the percentage ownership value for the investor, the investment roles and the Return on Investment.

The other area that I recommend that be included is the Equity analysis showing how Cash Distributions will be undertaken. From experience this area alone causes a lot of concern for investors and is often a sticking point when profits are being divvied out.

Chapter 8 – Growth Plan/Exit Strategy

This section is as important a chapter as the Investment Analysis Chapter. Knowing how you are going to expand your business and exit the business is your number one strategy and issue you need to address before starting the business. More so, you also must have it clearly articulated how your investors can exit the investment in your organization and also how you will expand investment options for other investors. For example, if you want to expand and to bring on more investment capital how will that affect the equity of the existing investors?

Each of these issues are ones that can often cause clear concerns and divisions with the investors in your organization and it is always best to have these issues addressed prior to the establishment of your business rather than once it has been started.

Chapter 9 – Financial Projections

Everybody likes this chapter as it defines what sort of money everyone is going to make. This section should include all project sources and how the cash will be used, it should define where all capital acquisitions will becoming from, sales projections, expenditure projections, labour projections, cash flow projections (the most important issue of all) and detailed summary statement of income for 1 year, 2 years and 5 years.

One of the other areas I also like to see at this point is a sample Chart of Accounts for the business. Often what is given in the Business Plan at this point is simply the same simple Chart of Accounts that every business uses rather than the one that is most appropriate for your industry. Getting a clearly defined Chart of Account at the start will tell investors whether you really understand how to invest and if you understand the industry you are going to be operating in.

Chapter 10 - Business Mastermind Group Advisers

Your Business Mastermind Group of Advisers is your 10 people who you will use, that are independent of your business to help your build your enterprise. These 10 people are usually made up of accountants, lawyers, industry specialists, marketing specialist and so forth. It is important to list this group in this chapter as equity investors or banks and financial institutions will look on these advisers and if they see people on your Mastermind Group that are expert specialists in the area of business you are entering then they will know that you have done your homework and if you are in trouble you will have people you can rely on to help you.

I like many people when I built my first small business, I did it without writing a business plan and that made life incredibly difficult for the first few years because I didn't have focus. As I have built more and more companies, and created their associated business plans, I have found that it is easier to build a successful enterprise once you have that information.

Without a business plan you will never truly achieve your goals, because you will not have clearly articulated what they are for that business. Making money is not an acceptable goal in business, you need to know where you want your business to go and what you want to achieve from that business.

To finish off, I would like to take a moment to summarize the ten elements every business plan must have –

1. Company Description
2. Business Concept
3. Management Team
4. Market Analysis
5. Marketing Strategy
6. Operations
7. Investment Analysis
8. Growth Plan/Exit Strategy
9. Financial Projections
10. Business Mastermind Group Advisers

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About the Author: Would you like to learn more on developing your own Small Business or how to implement the Thirteen Secret Steps all millionaires know in the path to becoming an obscenely wealth and successful person. Then find out how with a copy of our Think and Grow Rich book by Napoleon Hill and our audio package. Check out our Meditation Music to help you master this important program.

Small Business Secret #2 - Build Your Business Knowing How You Will Exit the Business

Creating a small business from nothing is easy to do anyone can do it, by simply filling out a few forms at a government office and then you have your small business. Making it successful is the hard part but also knowing how to get out of your business is as important to your business as owning it. Way to many people startup small businesses but then have no idea how they are going to exit it and in the end the way they build their business in many many cases results in them not getting the windfall they had hoped for.

Let me be really honest with you, if you build your business correctly and make it successful, you can make millions, but you can cost yourself money in not knowing how you will dispose of it and building it in away in which selling is not easy.

Now, I hear it now, but are not all businesses built the same way?

Well in fact no and if you structure your business in the wrong way, it can affect your ability to offload your business.

So what are the ways business owners can exit their business?

Let me list them straight off -

1. Sell to another small business owner
2. Sell off Franchises and Areas to Master Franchisors
3. Sell your business to an Equity Group
4. Sell Shares in your company to other people
5. Publicly List Your Company Shares

The first secret to building a Successful Small Business is to know how your business will look when you are finished. Now based on what your vision of your business is will depend on which of the 5 options you will take.

For example, my team and I are developing a new business that we have decided in three years will be publicly listed. The way in which we are designing this business is very different to how we are growing and building our other businesses. For example, our car cleaning business has been designed specifically to be franchised which has meant we have essentially built each area as its own small business that is profitable for a single operator and will bring them in a good weekly wage and small profit on their investment.

In designing our publicly listed company we have to treat it in a different way so that it is designed to meet the needs of serious investors like institutional buyers. Now by know way am I saying I am an expert in this area but some companies are more suited for public listing than others.

For example if you are building your company for a listing on any of the worlds stock exchanges, investors are looking at three core areas -

1. Good Solid Business Growth (double digit growth)
2. Solid growing profits (double digit profit growth)
3. High Potential for Share Value Growth

If your business does not have those elements then you could be punished in a big way on the stock market with a low share price and in many cases you can loose more money than you make. A few years ago I bought into a small diamond mining company because of this one reason. The share price of the company had been savaged by the bigger players and in those players driving the share price to on 1 cents a share, simply because its potential for high share value growth and profit return per share was simply not there. What happened in the end was that the Publicly Listed Company was bought out by an equity group and was changed to a privately owned company. I actually bought the shares for less than 1 cent a share and the cool part for me was that I made a couple of 100% profit on those shares, but those people who invested when the company was publicly listed lost a large amount of their investment. This really drove home to me that you need to be careful about what you do when you want to get out of the business. In this case, publicly listing the private company cost the owners and shareholders more, than if they had of stayed private.

In the end the company which had an initial listing of 10 million dollars sold for a couple of million dollars. The original shareholders lost an investment of over 8 million dollars. The owners would have been better off keeping the company private and selling it to another mining company or a publicly list company. The reason I know this to be true is because the private equity group did that just 18 months later and I know they doubled their money.

On the other end of the scale, do not just sell your business to anyone. When you build a small business, one of the things that will happen is that you will build a very close relationship with your clients and many of them will become friends. Make sure that when you decide to exit the business, that you talk to your existing customers prior to exiting because getting the wrong person into your business can hurt them as well, both financially and personally.

There is no right or wrong answer to what you should do when it comes to exiting out of your business, but always have a clear strategy on how you are going to exit and build your business towards that exit strategy. If you are partnering with someone else to build your business, make sure that when you create your partnership agreement that you both have a clear understanding of how and when you are going to exit the business.

I have seen so many small businesses destroyed by partnerships that are fine for the first couple of years but then the partners fall out and because one partner wants to exit now, it puts such a clear strain on the business that the business collapses.

One of the clear things I have learned about business is that you must have a vision of what you want for your business and work back from that vision and develop your timeline for success.

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About the Author: Would you like to learn more on developing your own Small or how to implement the Thirteen Secret Steps all millionaires know in the path to becoming an obscenely wealth and successful person. Then find out how with a copy of our Think and Grow Rich book by Napoleon Hill and our audio package. Check out our Meditation Music to help you master this important program.

Small Business Secret #1 - Build Your Business with The End In Mind

Small Business is the toughest industry to break into. If you were a betting man, you would never in a million years want to go into a small business when the odds for success in small business are so bad, that 70% of all small business fail in the first year. Let me be blunt, if you want to succeed in small business, only listen to those people who have built a small business in an industry they no nothing about and succeeded. These are the people who seriously know how to build a small business.

I just happen to be one of those people - I am not a business coach - I offer no consulting on small business, just let me share with you my secret to building 4 small businesses from a three thousand dollar credit card.

The first secret when building a small business is this, have the end in mind. When I first started in small business, I was like most business people, I was a technician (bit more than that, but this is how the E-myth would describe me) in the IT industry with the belief I could build a better computer training company than those around me. One thing I can tell you about this industry, stay out of it. It is tough and there is no money in it, well that’s not quite true, but there are far easier businesses to make serious money. In fact I married my wife and I decided I wanted to experiment on whether all business was as hard as the training industry or was it just computer training.

My wife and I, after much coaxing agreed to setup a car cleaning and detailing business, we new nothing about the business and were simply doing it as an experiment. Two years on, we have a successful thriving business and we are about to Franchise and expand the business to over 10 cities in Australia.

The key to building a successful small business is to have the end in mind and to know when you are going to exit the business. Most people when they start a small business simply believe they are going to have a business to make money, come home and do it better than their boss. If you are going to go into business for this reason, quit now, because your life is doomed.

There is more to business than simply doing the technical work and this is what most new small business operators do not realize. When you are first thinking about starting a small business, imagine how it will look when you are finished. For example, what image will you have, what logo's will you have, what marketing material will you be using, where will you be operating from, how many stores will you have, how many people will be working for you, what sort of profit will you be making and more so, how will you know that the business is complete.

For example, let us say you wanted to start up a dog washing business. You saw in a market that there was a massive need for dog washing. How are you going to satisfy the market? How are you going to build your business? How are you going to clean the dogs? Are you going to build the business like other? When will you know that the business is finished?

These are all the questions you must ask yourself. In fact, if you don't ask yourself then you will find that your business may grow but without any focus. It will go so far and then become a huge noose around your neck. By knowing what the end will be, you then have a clear goal of what you want to achieve and you can then build the business based on that vision.

Let me give you a really good example of this methodology. If you get a chance watch the movie, Concierge with Micheal J Fox. Micheal plays a concierge that has a vision of building a hotel. He first builds a model of the hotel and then sells the idea to a developer. As he says in the movie he knows every aspect of the hotel he has built.

You as a small business owner must do exactly the same thing. Before you rush out and start your small business, you must know exactly what you are building know every aspect of it and how to build it. You must know every job, every role, every procedure and how it will work within your business.

By creating your business in this way, you will learn very quickly what will work and what will not.

Most people who want to start a small business will say that they don't have enough money. If you have a clearly articulated vision and you can prove that your vision works, then there will always be someone out there prepared to back you. It may take a while to find someone to support you, but there are people out there who will. Just remember it took Walt Disney, 500 plus knock backs for Disneyland before he found that one group of people that would back him.

If you truly want your vision to work, then you must be prepared to be relentless in your pursuit of success. Remember the first secret in small business success, is to build and develop your business with the end in mind.

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About the Author: Would you like to learn more on developing your own Small Business or how to implement the Thirteen Secret Steps all millionaires know in the path to becoming an obscenely wealth and successful person. Then find out how with a copy of our Think and Grow Rich book by Napoleon Hill and our audio package. Check out our Meditation Music to help you master this important program.