Community Economic Development Fund

Articles and podcasts to help plan and operate your enterprise.

Could you use the Golden Triplet?

A recent article in these columns discussed the response a small business has to take to compete effectively against the Amazon steamroller. It isn’t price certainly and it isn’t selection. The answer is customer experience and trust.

In the meantime I ran across another article with a different take. The title was particularly compelling. Its author called his theory the Golden Triplet of small business.

Now it’s one thing to read about theory but another matter to put it in to practice. I’ve been witness to a retailer doing exactly that, and who happens to be a CEDF client. I’m not going to name him to allow his business to stay confidential, although he’s very forthcoming and helpful to his industry colleagues and even competitors outside his market which includes locations in two of Connecticut’s wealthier communities.

You might think this makes his business easy but it actually means there’s more competition because he customers all have enough money to shop where they want and to demand the instant gratification of next-day online fulfillment, whether through Amazon or any other source that fills the order.

Here’s how he goes up against the giant.

First, my client epitomizes the idea of excellent face-to-face service emphasized by the article’s author. His staff are at your side and available when needed on the sales floor and they are knowledgeable about the products and genuinely happy to be of assistance. Naturally, they can’t always fulfill every request because there are limits to what a local store can carry. But they know the logical substitutes and they are willing to bring inventory from the other location on request. 

The second element of the Triplet is an online presence.  But it is just enough of an online effort to be in the race without exhausting precious resources trying to out-Amazon Amazon. What’s important to my client is to provide an adequate informational substitute for being in-store when the local customer can’t conveniently make it there-- Maybe because of a snowstorm, or just because they are shopping off hours from home in pajamas. So he uses a product feed from an industry service to populate his website with a catalog of what he carries. But instead of trying to build a nationwide customer base and get beat every time by you know who, he offers local delivery in a manner that particularly appeals to his time-impoverished customers.

The third part of the Triplet is targeted volume but premium price. This means pricing your goods to recognize the value of the in-person, personal shopping assistance but never gouging your customer. The crucial point is too always generate enough gross profit to support the bricks and mortar that makes face-to-face service possible.

And as a sweetener, it helps that he has pretty decent selection too.

-- Frederick Welk
CEDF Business Advisor

How to win when you’ve lost?

Show up, believe in yourself and be fearless. That’s the key.

By Dawn Reshen-Doty

A few weeks ago I attended my first Greater New England Minority Supplier Development Council conference on my first anniversary as a certified Minority Business Enterprise (MBE). When asked if I would also participate in “The Bears Den”, GNEMSDC’s version of TV’s Shark Tank, I immediately said yes. I then changed my pitch deck, tailoring it to the specs of the event and shared it with GNEMSDC ‘s tech staff.

Over the years I’ve pitched, promoted and presented the services that Benay Enterprise provides probably more than a thousand times. I even once did my elevator pitch while actually in an elevator! However, the Shark Tank-style event was a first, and despite being nervous about participating in such an event, I thought, “what have I got to lose?”

It was my first time pitching Benay’s services to a ballroom full of people -- what Benay does, our unique proposition value, and why people continue to use our services, year after year, decade after decade.
Was I prepared? Yes.
Was I nervous? Yes.
Most importantly: did I believe I could win and was I prepared to win? Yes and Yes!

All four contestants were grilled after each of our five- minute presentations by a panel of three judges who had many, many insightful and sometimes surprisingly incisive questions. I thought I successfully answered their questions with confidence and clarity. The people at my table all congratulated me as I returned to my seat. I gave myself at least a 50-50 chance of winning after all the presenters were done.

As the moderator took the mic, I breathlessly awaited the announcement of the winner – but it wasn’t me. My spirits momentarily sagged but my tablemates quickly congratulated me on a great effort and my mojo bounced right back.

I had no further opportunity for disappointment, and as the day progressed and I went from meeting to meeting, event to event, people continually approached me to say they’d heard my presentation and congratulated me on a great job. More importantly other attendees wanted to know more about Benay. And many said that they’d thought I’d given a winner’s presentation, which truly made my day.

As I mentally replayed my business pitch presentation, I realized that just having taken advantage of the chance to present my business to a ballroom of people and expand my speaking skills, was the winning event for me.

I’d won by taking the risk of losing.

In our business culture we often focus on the winner, the victor, the champion of a particular event. We often say that just showing up is half the battle, but I think giving it your best effort, testing yourself , taking on the challenge and then learning from it is  a winner’s position. From now on I welcome any opportunity that gives me the chance to lose while winning, and to anyone who wants to give me that opportunity again, I say bring it on!

Dawn Reshen-Doty, CEO of Benay Enterprises, received the Bookkeeper Partner of the Year Sage Circle of Excellence Award for 2019. She serves on CEDF’s Foundation Board of Directors and is a former CEDF client.

Think like your lender to understand how to land financing

by Tom Lenahan
CEDF Chief Underwriter

As critical as it is in a lender’s decision making process for a term loan, what is often misunderstood by the owners of small and sometimes larger privately-held businesses is the need to have sufficient working capital to operate and an appropriately-balanced debt structure for the business.

The balance sheet must, then, have two kinds of balance. Obviously it must be assembled correctly to accounting standards, therefore allowing the numbers to add up. But there is also the prudent kind of balance. This means, among other things, that long-term debt is supported by ownership of long-lasting assets and there's not too much debt. Then, it presents a good picture along with an income statement that tells a good story, especially when you put them side-by-side, looking at a few years together. And most importantly the business with its owner must have the income resources to assure repayment.

It is very common that small business owners have insufficient funds to buy the equipment, fixtures, inventory, or to pay the operational costs to run the company. Desperate owners reach for nontraditional sources for funding like personal credit cards, private loans or a growing group of "easy internet lenders." These latter types, especially, may appear to be great funding sources in a tight situation, but these lenders are not right at all for supporting long-term assets or growth requiring permanent working capital. Once you dive in the easy internet pool it’s hard to swim out and retire high-priced debt unless you have high profit margins. So, count that out because if you had such good margins you probably wouldn’t have needed these lenders in the first place. Too many times I have seen borrowers accumulate loans from these quick-fix sources piled upon multiple credit cards to support financing needs that are really of a long-term nature. So the use of these sources is both risky and a mismatch against the financing needs of their businesses.

So, when you sit with a lender like CEDF or your bank to discuss funding for, say, a new piece of equipment or an expansion into the space next door, you should try to understand how your balance sheet and your income statement looks to the lender.  What are they looking for and what story does your paperwork tell them when it’s all put together? Does it suggest you have good balance in your use of debt and strong sources of repayment? Is it one that might result in a supportive decision or does it immediately evoke questions that will result in a rejection of your request?

While not all businesses fit into an idealized debt structure, just ask yourself a few questions:

  • Does my business have a debt structure (long term loans) that support long term assets, with short term assets (accounts receivable and inventory) supported by short term loans?
  • Are the book values on my balance sheet of those short term assets (accounts receivable and inventory) and long term assets (equipment, machinery, vehicles, furniture, fixtures and real estate) larger than the loans that they support? If they are not and you don’t have sufficient liquidity (cash and investments), your balance sheet is not "in balance" regardless of what the equity section tells the banker.
  • How does my banker view my debt service coverage ratio (DSCR)?

Here's the quick definition of DSCR:

Business Annual Net Operating Income (less taxes, interest payments, depreciation and amortization) divided by the Current Year Debt Obligations (including principal and interest on existing and requested loans, loan fees and leases, if applicable).

Standards can vary with circumstances but a 1.25 ratio is an often used threshold for approving a loan. DSCR is a simple measure, but it can be complicated by other debt sources in the typically undercapitalized worlds of small business owners. Remember that lenders look to owners to guarantee repayment of the loans, so owners' own personal debt levels matter greatly.

Here's a terrific article that elaborates on many aspects of this important concept.

This article was originally published in CEDF's stakeholder newsletter, The Advance.

Small Business As Usual 19-8 -- improving cash flow

       Michael Mongillo

Cash flow problems have to be the number one problem small business owners face.  Michael Mongillo of Eleven Arrows Consulting points out the solutions are surprisingly straight forward and lie in good information and honest, candid and effective communication.



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