What Small Business CEO’s Do Wrong

Business plan

Business of all sizes need clearly defined business and financial plans. The business plan needs to identify why the company is in business, a customer profile, what differentiates the business from competitors and what the metrics for success are for the next two years. For a start-up this can be a 5-6 page document. As a business gets much larger as in my former software business this became an annual “event” with all employees involved and a 25-30 page notebook.  

The financial plan can be as simple as a monthly cash flow projection over the next 18 – 24 months. Seek help with this plan since you’ll need to factor in the offsets to cash collections for accounts receivable and credit card transactions. A revenue projection model needs to be reasonable and achievable. The CEO needs to make sure he/she eventually understands both a simple Income Statement and to some extent a Balance Sheet. As a company get larger, the financial plan flows up from both the costs and revenue centers of the business where mid-level managers take responsibility for their areas.  

I spend a fair bit of my time mentoring small business CEO’s and entrepreneurs as a Score Mentor and Board Member. Most of these businesses are very small, usually under $2M in annual sales.  

The single biggest shortcoming these business owners face is the almost complete lack of both a business and financial plan. Most of these owners do a fair job on the sales and operations side of their business. This allows them to initially maintain a “survival” mode, they found a way in most cases to become cash flow positive. However, their ability to maintain survival mode and then grow begins to deteriorate as they experience the normal changes that take place in the market. In more established businesses the CEO has already experienced and survived these expected changes. A benefit of a small business is flexibility, it’s easy to modify product and service offerings, redeploy people and get decisions made.  

When I meet with new start-up entrepreneurs, they typically want to discuss things like; how do I set up an LLC, how do I maintain “cash accounting” books, what records do I keep, and so forth. These are quite easy to answer of course. What’s a little harder for the business owner to do is to; clearly identify a mission statement, provide an exact profile of their proposed customers, define exactly what their business differentiator is, provide an analysis on why their competitors have been successful, and so forth. 

Small business owners and entrepreneurs can easily get help with these issues and many more by locating their nearest Score organization and meet with a certified mentor.


What Should You Be Doing In The Stock Market Now?

The major stock market indexes, S&P, Dow and NASDAQ continues to rebound from the 10% correction of late 2015 and first two months of 2016 back to about where they were on January 1st. If you were like me I upped my cash position to about 15% in late 2015, as I saw the market correct. This is the largest cash position I’ve held for years.

Lately I’ve been buying back into some of my favorite stocks, or those on my list. I tend to be a longer term investor in any stock unless the story changes or there is an entire sector decline that drags them down. If a stock gets into trouble I sell 3-5 days after the first big drop, there is usually a bounce back before heading lower.

Now is the time to just sit tight, hopefully you didn’t sell in a panic earlier this year, you would have missed the 10% rebound.

Here are some of my thoughts:

  1. Don’t pay Federal Taxes if you can help it. Since I won’t start taking my Social Security until I’m 70 (2 years), I basically live off of my savings and therefore pay $0 Federal Taxes each year, this also allows me to convert an certain amount every year from my traditional IRA to my ROTH IRA. This is easy to calculate, just add your standard deduction and exemptions on your 1040. Tax rates are higher than savings rates, makes sense, no taxes.
  2. Always have your shopping list ready to go. I keep a list on my desk of the next 5 – 10 positions I want to add, some are current holding, others are new names that I’ll buy if I can get a good entry point. For example, I got out of Apple in December at about $115, I had a huge gain that I needed for tax reasons. I’ll wait until Apple sits around $105 – $110 for a while before I get back in.
  3. My strategy is to generate more interest in my IRA’s annually than is needed for my MRD beginning when I hit 70 years old. I’ll never touch the principle.
  4. Forget trying to pick a top or bottom in a stock, it’s only a fool’s exercise. Only buy on an upward chart (daily chart) and then only buy on a market down day.
  5. I’m careful to always keep tax ramifications in mind when deciding to buy or sell in a taxable vs, tax deferred account. My ROTH IRA account only has high yield equities in it.
  6. Other than a single ETF I do not have any bonds in my portfolio, I however have plenty of high yield preferred stocks, REIT’s and BSD’s in my IRA. If corporate or government bonds ever yield 5-7% again, I’ll start “laddering” my bond purchase and forget about them.
  7. I almost never buy mutual funds, I prefer ETF’s. CEF’s (Closed End Funds) bought at a discount to NAV without energy exposure and with high yields look pretty attractive right now, look for 7-8% yield.

Below is my current Sector Allocation, you’ll notice that I like strong Consumer stocks followed by the combination healthcare and Biotech’s. I’m completely out of all Financials until the Fed Rate starts to increase again.