Dante’s Inferno – The Restaurant Issues Causing Problems

When last we left Dante, we were discussing the situation was that left him needing to fight to stay in business. Now, we will look at what caused these problems, and how we can fix them before it’s too late next time. For Dante, his restaurant’s issues were the difference between success and failure, and we wanted to help him fight back. 

Your business is doing well. But what’s next? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Dante's Restaurant Issues

Start with the customers – they drive sales

e-commerce failures

The first place we started was to look at his customer base. We started by talking to them. We talked to the regulars, and we talked to the past reviewers. And we really wanted to know why they came back — and if they weren’t coming, why not? 

We learned a lot. For his regulars, it was a comfortable routine. They didn’t mind if the service wasn’t the best. The loved Dante’s food and enjoyed the experience. For the reviewers, they loved the experience, but the truth was that they felt that there wasn’t anything new. It was “been there, done that”.

To keep customers, you need to do more than satisfy them

It’s a common misconception that satisfying your customers is enough. And, that’s the first mistake that was hurting Dante. People are emotional creatures. We are driven by our emotions. The people who stayed were emotionally attached. Those who wanted a more varied experience were not. Unfortunately, his regular customers were not enough to keep the business afloat.

People are the most valuble asset

The second area we explored was his team. The restaurant business is rife with turnover issues. It’s the nature of the game. Dante was a chef, not an HR manager so his hiring and screening practices were not consistent. Therefore, the servers he hired were inconsistent. This led to varying degrees of service and varying degrees of satisfaction. Dante’s food was excellent. So, the first time you go, you might forgive the service because the food was great. The second time it happens. You aren’t likely to come back.

Pricing needs to include both fixed AND variable costs

The next place we looked was at his operations. One of the most common mistakes that restaurants make is not accounting for overhead in the menu pricing. Dante was a master at knowing what was popular, and he knew the cost of his ingredients to the penny. What he didn’t factor in was the cost to prepare, serve, and the other fixed costs of the business. Why would he, when his restaurant had other issues to think about? After doing all the math, we found that a few of his most popular items were his least profitable. Plus, we also learned that we could cut some costs by optimizing his hours of operation to better match peak demand. 

Spending on what matters most

Finally, we looked at where he was investing. Dante was spending on advertising, but it wasn’t working. Why? We asked some of the people who saw his advertising, why they weren’t interested in coming. The major reason was his Yelp! and Google reviews were old. Since they didn’t see anything recent, they didn’t think it was good and didn’t trust the star ratings. Dante didn’t know how much these reviews were driving demand so he was spending on the wrong tactic. 

A one star review can be very bad for business

Next Time...

We’ve gone through the problems. We’ve explained the situation. Tomorrow, learn how we fixed Dante’s restaurant issues and put his business on the right path once again.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

Dante’s Inferno – A Restaurant Trying to Stay in Business

We are going to do something a little different with our posts for you. Across the next three days, we want to show you a longer story with a lot to learn from. This is the story of “Dante,” a client of ours who ran a restaurant. Nearly 700,000 restaurants exist in the U.S., but the number of privately-owned ones by small business owners dropped off in the past few years. There are a multitude of reasons, but at the top of the list a lack of understanding of some critical business fundamentals and access to financing. Trying to stay in business isn’t easy, but we wanted to help Dante as best as we can.

Feeling like your business isn’t going the right way? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

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Dante's Struggle to Stay in Business

A Great Start

When we met Dante, he owned a struggling small upscale dining establishment in Manhattan. During his first few years, Dante has had great success with his restaurant. He had a good location. He had solid reviews. His cuisine was new, and the design of his restaurant was appropriate for his target. But then…

Then People Stopped Coming

When we came in, that initial picture had changed. During his second year of operation, he noticed that he had more tables open than usual. He thought he would change up the menu, spend some money on advertising, and push for more Yelp! And Google reviews. 

After 6 months of this, he started to become increasingly concerned. People had simply stopped coming as often. He didn’t know why. The lack of customers was putting a financial strain on the business. He was late paying some suppliers so his business credit has taken a hit. There were unfortunate problems beneath the surface of the company that Dante couldn’t identify. A friend recommended that he talk to us to help stay in business.

Dante's Worries

In our initial interview, Dante said:

I started my business to follow my dream. The business started out fine, but lately, we haven’t been doing that well. Sales are falling and bills are getting harder to pay. I’m spending so much time thinking about the business that it’s not as fun as it used to be. I’m beginning to wonder if I made the right choice. 

Dante was worried about how he was going to stay in business. He had all the normal concerns. He was worried that the risks they took were the wrong ones. Dante blamed himself for how the business was going. He was anxious about what people would think if it didn’t work out. He was worried about living paycheck to paycheck in order to keep himself afloat. 

Next Time...

How to Help Dante

With companies in trouble, the first step we take is to analyze their business model. In other words, we looked at how he made or lost money, and what the biggest mistakes were behind the scenes. 

Next time, learn how Dante stayed in business and learn about what you can do to prevent yourself from the same problems he faced.  

Fast-Growing Businesses: 3 Things They Get Right

We’ve been in the small business sector for over 25 years, and it’s safe to say that the environment has evolved and changed dramatically in that time. Yet with all of these changes, there are a few trends we can’t help but notice, namely when it comes to small business successes. We’ve seen three things that fast-growing businesses get right, time and again. They are: 

      1. Talent – People are your #1 asset. As machinery and materials were the drivers of the Industrial Revolution, people are the driver of the Digital Revolution. Those who have a competitive edge with talent win. There is a little caveat I would add. It’s not always the best talent on paper, but the more often the best talent that works as a cohesive team.
      2. Staying Current –Most fast-growing companies begin as agents of change, but then, human nature sneaks in. A reluctance to change in hard-wired into human nature. You need to have a natural curiosity and desire to always want to learn more. This can go back to talent. Hiring younger workers can enfuse an organization with new ideas. 
      3. Showing up – Do what you say you are going to do. Prove your value quickly both internally and externally. 

To help you understand how these successes work, we want to introduce you to Jake. 

    1.  

Your business is doing well. But what’s next? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Jake’s Story – A Fast-Growing Business and a Rocky Future

Jake runs a tech company. He started out a small start-up that grew quickly. This rapid growth put strain on his team. When we met him, he was concerned about keeping up the pace of growth. His team was starting to show some symptoms of burnout, but he didn’t have the time to set aside to think about how to fix it. 

People are your #1 Asset

Clients often ask how can you keep costs to a reasonable level while keeping people happy? Hiring and retaining talent is hugely important, as it was to Jake. The golden rule that employers tend to forget is that people stay for the intangibles more than the money. Money is important, but other things can matter more, such as: 

      • Flexibility 
      • Sense of belonging 
      • Clear and copious recognition 
      • Transparency 

When we talked to the team, we found they felt that Jake was running short on recognition and transparency. When we shared that with Jake. He was open to the feedback. It was clear to us that it wasn’t that he did want to do. He just didn’t have time to breathe with his business growing so fast. 

Mistakes are Opportunities to Learn

Mistakes happened infrequently as Jake’s team got stretched too thin. The team was getting frustrated with each other. They were frustrated for a good reason. Mistakes had a domino effect. One is mistake from someone meant more work for someone else. This was adding to the tension. When we worked with the team, we used this as an example. The mistakes were a symptom of the larger problem. They needed more people. We used this as an opportunity to learn the root cause of the mistake, so we could fix it.

Empowering People to Make Decisions Makes Them Feel Like They are Part of Something Bigger

This is often a scary proposition to business owners. It’s your baby. How can you trust it to someone else? Luckily, Jake did have this problem. He had clear rules for delegation, and his small business’s team felt that they had the ability to make decisions. This is the key to keeping your business growing fast. Delegation is about setting boundaries and accountability. Allow someone to make a decision means they need to know they are responsible for the outcome. It doesn’t need to be draconian or punitive, but it does need to be enforced.

Jake’s Solution

It was pretty clear that Jake was doing a lot of things right. His business wouldn’t have been growing so fast if he wasn’t. However, it was also clear that he needs to hire if he wanted to maintain his trajectory. We recommended and created a hiring plan for him, which we helped him execute. We created job descriptions. Posted them on several hiring sites. Screened applicants. Finally, we recommended those to bring in for a formal interview. Jake hired two people, who were desperately needed, and his business continues to thrive. 

Summary

The key takeaway from Jake is acting before the strains from growth become highly visible. It’s easier to cure a disease if caught early. The same is true in fast-growing businesses. The longer you wait the more repair work is need, and the harder it is to expand. But Jake was able to find his problems and come out stronger overall. 

How Small Businesses Can Struggle in This Economy

struggling business economy

Small business struggle in a strong economy for two simple reasons: talent and time. Not time in the sense of hours in the day, but burnout. Low employment numbers mean small businesses have to think about recruiting talent differently than in the past. And added to that, burnout is real and can make you far less productive than you want to be. Regardless of economic conditions, the rate of which small businesses close is remarkably consistent, and you can read on to see the signs to be aware of.

Your business is doing well. But what’s next? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Let’s Start at the Beginning

To appreciate what’s going on today, we have to start at the beginning of this 10-year business cycle. In 2009, we were just beginning to emerge from the most disastrous economic crisis to hit the country since the Great Depression. As a result, small businesses were struggling, and there was a significant drop-off in small business creation. Some major stumbling blocks included access to capital, decreased profits, and a reduced ability to hire. In fact, it was the first time in a long time when small businesses were employing less than ½ of the total U.S. workforce.

That’s a nice history lesson, but it misses some important facts. Fewer businesses were started during the period between 2009-12. Given that the rate of businesses closing is typically constant, fast-forward 3-7 years after the recession and we’re left with a gap. So, there was a lag in the tightening of the labor market. Now, the gap has closed and the competition over workers has increased.

Health Care and the Affordable Care Act

So much has been written about the ACA or ObamaCare. But, the truth is we will never know its true impact because it never was fully implemented. From its inception, significant roadblocks and intentional sabotage makes any clear read impossible. What is true is that the cost of employer-sponsored health care has dramatically increased, peaking in 2017. Because of all the smokescreens and gaslighting from all the vested interests, we still don’t have a clear picture as to why. We only know that the cost of offering benefits has increased the cost of hiring new employees. Hopefully, HRA changes will help alleviate

Hopefully, HRA changes will help alleviate some pressure, but providing health care to our workers is still a major issue. On the campaign trail, several proposals are on the table. Whether or not they have a chance of seeing the light of day will depend heavily on the 2020 election.

Burnout

Burnout is a very real and very constant reality that most small businesses struggle with at some point. But, is exiting the right solution? Perhaps for some, it is. But, we would challenge that perspective for all. Selling your business is an option. However, to do that, the business needs to be structured so it can function without the owner. If the owner is the business, then our options are limited. It requires us to stop thinking like we’re a mom-and-pop shop. Instead, we need to think as if we were a small corporation with systems, process, and structure. These entities can exist long after the owner decides to exit.

Possible Solutions to Help

Let’s look at three possible solutions that may help small businesses struggle in a strong economy.

Talent

If we can break out of our conventional thinking, there are several ways small businesses can be creative when offering packages to new hires. Yes, people are motived by money. But, they are motivated more by feeling valued.

Healthcare

When it comes to health care, there is no simple solution. Since conditions vary widely from state to state, the right solution for your business will require some research. The options to consider SHOP, group policies from a private provider, or adopt the HRA approach.

Burnout

We are less likely to burn out if we have a clear exit strategy. We know what we want the business to be. In addition, we structure it so it can eventually run without us as owners. It’s easier to value a business like this. It’s easier to sell it. Most importantly, it easier to leave when you’re ready.

struggling paycheck to paycheck

How to Handle the Small Business Economy

Small businesses are subject to the whims of the economy. The relationship, however, isn’t always clear. The economy being on the rise doesn’t necessarily mean that small businesses feel the benefit. However, knowing what to do to prepare for an economic boom can keep your business afloat and above the competition.

3 out of 4 Small Businesses Were Successes Last Year

Small Business Success

According to SmallBizTrends, 3 out 4 of small business reported that they were successful last year. Were you one of them? If so, you have some planning to do. If not, you may have some fixing to do. 

Your business is doing well. But what’s next? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

The Success of Small Businesses is Key to Continued Economic Growth

The success of small businesses is extremely important to the overall economy of the U.S. because of their sheer volume. The Small Business Administration (SBA) puts the number of small businesses at 30.2 million for 2018. In other words, that’s 1 small business for every 5 Americans.

So, What About 2019?

When 3 out of 4 small businesses are growing, that’s great news, right? Yes and No. All economies are cyclical.  So, it is important to understand the projected trends as well. As we mentioned in our blog “The Hidden Risk in the Spike of Small Business Optimism”, the forecast for 2019 remains strong.

In fact, “(74%) also say they expect their business to grow in the next six
to 12 months. This is a 12% increase from the 2018 survey.” (SmallBizTrends).

Small Business Success is forecasted to continue for 2019 and beyond

The respondents from the 2019 small businesses were optimistic overall about
their future, and the future of the economy as a whole.

Confident in Their Small Business Growth

77% say they are confident their business is going to grow in
2019, a 2% increase from 2018. But close to half of those, or 34.2%, say they
are very confident.

Confident in the economy

The confidence also extends to the overall economy. More than
two thirds (68%) say they are confident about the economic conditions of the
U.S. in 2019. The same percentage of owners feel this way for the next two to
three years about the U.S. economy.

What are the most common growth strategies for small business success?

Half said “Improving customer satisfaction and loyalty”, which is consistent with our post “Want to Grow Faster than Your Competition? Focus on Your Current Customers”.  So, it seems successful businesses are doing just that.

1/2 were expanding their customer base

Slightly less than half said finding new customer segments. In “4 Simple Steps to Write a Successful Marketing Plan”, we discuss some tips on how best to achieve this goal. Expanding your customer base can be challenging if you don’t do it right.

1/3 were providing new products

Similarly, about a third said “creating new products and services”, which is also covered in “4 Simple Steps to Write a Successful Marketing Plan”. But, equally important is to communicate the benefits of these new services.

1/4 were expanding locations

A quarter of businesses are looking to expand to new locations. In our post, “4 Tips for Expanding Your Business into New Markets”, we cover how to do this in detail.

Small business growth requires capital

Regardless of what they plan to implement, in most cases, they will need funding. In “Small Business Lending is Booming”, and “How Not to Sound Stupid When Talking to Banks” we share strategies that can help if you are looking for financing. 

In the survey, roughly 4 in 10 are tapping into personal savings to fund
growth. Personally, I think that’s a mistake. If they could qualify, they would
be better off leveraging those savings as collateral.  However, that’s a personal decision each
business must make.

What if you were the Quarter of Businesses that Weren’t Successful?

Not everyone wins every year. If you struggled, it’s time to
take stock. We suggest that you start back with the basics.

Time to Get Back to Basics for Small Business Success

Business Model

In “5 Steps to Take When Analyzing Your Business”, we talk about how to take a hard look at your business model to see what’s working and what’s not

Business & Marketing Plans

Once you’ve identified the issues, then it’s time for a new business and marketing plan. Both “4 Simple Steps to Write a Successful Business Plan”, and “4 Simple Steps to Write a Successful Marketing Plan” can help you get started

When writing those, we suggest reading “5 Proven Methods for Accelerating Small Business Growth”, and “5 Ways to Grow Your Business Without Spending a Penny”.

If you’re still struggling, both are free “Want to Learn About Business for Free” and paid services, like ProStrategix, that can help.

In summary, the outlook for small business success looks good. If you are successful, you should be planning for more growth. See “If You Don’t Plan for Growth Now, You’ll Hate Yourself Later”. If you are not, you at least have the wind at your back.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

Why Some Small Businesses Fail While Others Succeed

Why-Small-Businesses-Fail

Why do some small businesses fail while others succeed? We would like to build on the point raised in Mr. Nugid’s article “Avoid These 4 Big Reasons Small Businesses Fail” in Inc. magazine. Plus, we add others we’ve learned based on real-world experience helping small businesses.

Feeling like your business isn’t going the right way? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Small Businesses Fail due to lack of sufficient capital

We’ve seen small businesses fail for this reason, over and over. It generally falls into two camps: first, a business who has been in business for less than 2 years, and second, a business, who waits too long before applying.

Small business who fail because they have less than 2 years experience

We had a young woman entrepreneur who was struggling with her business. She was profitable, but it was coming at the expense of her salary. So, this wasn’t a long-term solution.

Like most entrepreneurs, she was playing multiple roles. When she was selling, she’d gain clients. But, to service those clients, she’d have to stop selling. Therefore, she was seeing a seesaw effect in her cash flow. The obvious solution was to split the role to ensure constant and predictable cash flow.  

You would think this would be a slam dunk, right? Profitable, proof of concept, good personal credit, etc. Wrong. As we’ve discussed, in our post “What’s Holding Women Back”, and several others, we discuss the bias in the banking industry.

New businesses without personal guarantees or collateral will struggle, and women and minority-owned business will struggle more. I wish there were a ready-made solution for this, but there’s not. Maybe this will change as we discuss in our “Small Business is Booming Post”. But for now, you are typically left with two choices, enter the alternative lending market, or provide some personal guarantee.

Small business who fail because they wait too long

We had a client who had an amazing green concept. He secured an initial round of equity funding, but he didn’t use it wisely.

He was an idea guy and had a terrible time focusing. He hated numbers and analysis, which eventually was his downfall.  He never took the time to understand his cost structure. 

So, his profitability varied wildly from customer to customer. In some cases, it was so bad he was basically paying the customer so that he could perform the service. Unfortunately, we didn’t get to him until he made the biggest mistake possible. He entered the merchant cash advance market.

In our post, “Why You Should NEVER Use Merchant Cash Advances”, we go into great detail about these sharks. But, the moral of this story was that he waited until he was desperate to look for capital. Thus, this is why he failed.

Lack of Addressable Market

Mr. Nurgid highlights this as one of the key reasons small businesses fail. Maybe, that’s because he deals with credit card processing. In contrast, we have not seen this be as big of a factor as the lack of differentiation.

Small Businesses Fail Because of Lack of Differentiation

Now, this we have seen as a major cause of why small businesses fail. We would break this into two groups: first, lack of a clear positioning, and second, poor marketing execution.

Lack of a Clear Positioning

In our post, “4 Simple Steps to Write a Successful Marketing Plan”, we cover positioning in more detail.  We also offer tools that can help you build one.

A good positioning defines what’s unique about your brand within a competitive context. It’s a simple formula: For [customer], who are [demograhic, geographic, etc. subgroup], [Business] is the ONLY [category] that provides [benefit]. That’s because of [support point 1] and [support point 2]

For instance, we had a Dermatologist client who was struggling to gain patients. She operated in the crowded cosmetic market, where you can get a Groupon a day for a Botox special.

With physician overhead, they couldn’t compete and win on price. They needed to stand out, or they were headed out of business. So, we started with their positioning.

After much research and discussion, we came up with the following:

For women and men over 40, who want to look younger and more refreshed, Derm A is the only practice in NYC neighborhood, that provides the best quality cosmetic results possible. That’s because we employ only board-certified physicians and surgeons. and these physicians have a long track-record of amazing transformations.

See the difference. People don’t want Botox for $7/unit if they aren’t going to look great. This changed the game for them. It was no longer about price, but about results.

Poor Execution

This is a major problem that causes many small businesses to fail. Small businesses didn’t start their businesses because they had degrees in marketing. So, this shouldn’t come as a big surprise.

Getting your message heard by the right audience is challenging to do on a small business budget. In our post, “5 Ways to Grow Your Small Business Without Spending a Penny”, we discuss some options to consider.

Poor execution generally comes from poor planning. For instance, we had a client who was spending all his money in search and social media advertising. This was a problem for him for two reasons.

First, he was offering services in a very crowded space. In other words, the number of people competing for the same keywords was very high. Second, he was getting a terrible ROI.

While search, Facebook, etc. can be effective, they are usually not efficient spends for small businesses. At $1-$2/click. and standard conversion rates, you are paying $50-$100 per conversion.

After going through the “4 Simple Steps to Write a Successful Marketing Plan” with him, which was much more targeted and less expensive.

Poor Hiring

On this point, we agree.  We just lived through it. Poor hiring can cost you dearly, and waiting to fire them can add to that cost. 

This is always a mistake.

According to the U.S. Department of Labor and reported by HR Exchange Network, the average cost of a bad hire is at least 30 percent of their first-year salary. In other words, a bad mid-level hire who makes $75,000 per year will cost you $25,000 and who knows how much wasted time. Let them go.

Inc

For instance, we had a client who kept a toxic employee for too long. This person caused several strong performers to resign. So, not only did they waste his salary, they had to recruit and train several new people.

Small Business Fail by Scaling at the Wrong Time

This is an incredibly tricky situation. If you build scale too soon, you can burden yourself with unnecessary costs. But, if you scale too late, you can burden yourself with unnecessary costs due to overtime and inefficiencies. So, when is the right time to scale your business? We share our thoughts and examples in our post “3 Signs that You Are Ready to Grow Your Small Business”.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

Why You Should NEVER Use Merchant Cash Advances

NEVER-use-Merchant-Cash-Advances

A merchant cash advance is a form of financing that should be avoided like the plague. Over the years, we’ve seen a number of struggling businesses fall victim to these predatory lenders. Don’t be one of them.

Feeling like your business isn’t going the right way? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Merchant Cash Advances are NOT loans

When they reach out to you and position their products, they sound like loans. They look like loans. But, these are NOT loans.

In the aftermath of the financial crisis, banks were cutting back on lending just when small businesses needed cash the most. Companies such as Yellowstone stepped in. They got around lending regulations by calling what they did “merchant cash advances,” not loans

Bloomberg

Even judges will admit there is very little distinction between the two, but unfortunately, there are very big differences in the consequences.

They know all the selling tricks in the books

They hire anyone who can sell, and scruples of those agents are highly questionable.

The best brokers earned tens of thousands of dollars a month, former employees say; others slept at the office, fought, sold loose cigarettes, and stole from each other.

Bloomberg

The most notorious tactic is the bait & switch. It typically starts with an unsolicited fax or e-mail offering a large loan at a low rate. Once you respond, they generally say that in order to qualify for the bigger loan, you have to accept a smaller amount and make a few payments as a trial. Then, the hammer falls.  For example, Bloomberg reports on one poor couple.

The advance turned out to be for $36,762, repaid in $800 daily debits from their bank account starting the day after they got the money. This would continue for about three months until they’d repaid $59,960. But when he followed up the next month to inquire about the status of the bigger loan, he got no response.

Bloomberg

Merchant Cash Advances can have APR (annual percentage rates) of up to 400%

Say what? Yes, that’s true. It’s usury at its worst. Because they are merchant cash advances, the percentage rate in the forms they send you are NOT the APRs. For example, one of our clients reached out to us after getting themselves into trouble with Yellowstone Capital.  According to Bloomberg, they are one of the worst.

In that agreement, Yellowstone stated a “specified percentage” of 25%. It sure looks like an interest rate, right? Wrong. It’s definitely not. In the agreement, they state the amount given and then, the amount owed. Thus, they’re betting on you not knowing how to do the math, and mistakenly assuming the specified percentage is the interest rate.

For instance, this client was paying $19,000 in interest in 6 mos. on a $40,000 advance. In no universe, does that equal 25% APR. In other words, if you do the math, the APR was around 120%. Another client came to us, after getting into trouble with a loan with an APR of 67%.

In the Bloomberg example for instance, the APR for that loan was 350%. In comparison, our clients got off easy although it nearly bankrupted them.

Merchant Cash Advance lenders can ruin you

The most damaging way they can affect you is through an obscure law called confessions of judgments.  To obtain funds from these merchant cash advance lenders, you usually sign a clause agreeing to a confession of judgments. What is it? It’s a way to collect a debt without the fuss of a trial. How do they work? Bloomberg has a great graphic.

NEVER use Merchant Cash Advances
Merchant Cash Advance Confession Judgment Process

Within a few days, your bank accounts can be drained. Liens will be put on any of your accounts receivables. Liens can also be put on your personal assets if you signed any personal guarantees for the advance. While not enforceable in all states, it is a well-used tactic in New York State, where these laws are enforceable. Because of this, most of these lenders are based in New York. And, if you read the contract in detail, you will undoubtedly find that the contract states that it will be governed by the laws of New York State. 

As the chart shows, the use of this tactic has skyrocketed since 2014

Never Use a Merchant Cash Advance

Why isn’t anything being done to stop merchant cash advances?

There is action in Congress, but the government process is slow. Plus, it faces an uncertain future in the Trump administration.

Velazquez, chairwoman of the committee [House Small Business Committee], and Roger Marshall, a Republican from Kansas, have introduced a bill that would ban confessions of judgment in business loans. Ohio Democrat Sherrod Brown and Florida Republican Marco Rubio have made a similar proposal in the Senate.

Washington Post

What’s the moral of this sad story?

Get help before your financial situation makes you desperate. Merchant cash advance lenders prey on the hopes of small business owners who are having financial difficulty. We have written several posts that can help us find the right financing for you: How to Take the Pain Out of Getting a Loan”, “Securing a Loan: Top Tips for Small Business”, “Small Business Lending is Booming”, “Best Small Business Loans & How to Qualify for Them”, and “How to Avoid Looking Stupid When Talking to Banks”.

As Shane Heskin put it beautifully in the Washington Post article, small business owners aren’t bankers and lawyers.

“My clients are very good at what they do. They know how to fix a boat. They know how to install a sink,” said Shane Heskin, a lawyer at White & Williams LLP in Philadelphia who represents small-business borrowers. “But that doesn’t mean they know how to read a contract in 8-point font. It doesn’t mean they know the legal ramifications of signing a confession of judgment.”

There are plenty of sources for help.  We cover them in our post “How to Learn about Business for Free,” and we can help you with much more than just that.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

Living Paycheck to Paycheck when Running a Successful Small Business?

struggling paycheck to paycheck

There are a lot of questions that you have to ask yourself when you’re running and operating a small business. For example: why am I still living paycheck to paycheck? We here at ProStrategix know how massive a concern that can be for our clients, and we want to help. 

A recent segment on Small Business Radio covered some great material about how to manage your personal finances better.  But, it is missing a few topics. For instance, why isn’t your paycheck bigger? 

Feeling like your business isn’t going the right way? ProStrategix can help. Read some of our other articles below, or feel free to connect with us and get a FREE thirty-minute consulting session. 

Why isn’t your paycheck bigger?

When living paycheck to paycheck, especially if the business is successful, it’s certainly worth asking why isn’t it bigger?  While having bad spending habits should be avoided, for instance, it’s not the only solution. A successful small business owner, most certainly, would not have to live paycheck to paycheck if it were bigger.

First, check your business model

For many of our clients at ProStrategix, the issue usually comes a sub-optimized business model. This happens because of two things: not having the time and/or the experience.

It’s not surprising. After all, the majority of successful small business owners went into business because they love what they do.  It’s that love that keeps a successful small business going, even when living paycheck to paycheck. 

Unfortunately, it’s the mechanics of the business which is the cause for a successful small business to have to live paycheck to paycheck, more often than not.

Next, try to optimize it

Clearly, this isn’t the most exciting part of the business. But, even if you hate it, here are couple of relatively simple hacks to help optimize your business model. Why bother? Because, after some fine tuning, the successful small business owner can usually stop living paycheck to paycheck.

Key steps to increasing your paycheck

Are you spending the most effort serving the right customers?

Who are your best customers?  How might you find more like them?  If it costs you the same to serve everyone, how might you change that?

Are you creating enough value?

Why do your customer’s value you?  What makes you special to them?  How might you enhance that so they might be willing to spend more, or come back more frequently? 

What are all the necessary steps to service your customers?

Can you list them all?  Are there any steps missing?  What does it cost you to complete those steps? Are there any costs you could easily cut?

Know how you are converting sales to cash

Admittedly, this is probably the least interesting of the hacks, but one of the most important. This is where many of our clients turn for help.  If you like spreadsheets, or you want to challenge yourselves, this simple analysis might help.

  1. Is Revenue/Customer (item) > Cost/Customer (item)?  For successful small businesses, this is usually true.
  2. Can you use numbers 1-2 to increase the Revenue/Customer without increasing Cost/Customer?
  3. Can you reduce the number of steps in number 3 to reduce the Cost/Customer?

If this isn’t where your passion lies, we get it.  Luckily, it is ours.  If you are a successful small business, who is living from paycheck to paycheck, Contact us, and we help you stop it.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.