Congratulations to CR’s Tire & Automotive!

 

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Troy Ross (above, right), celebrating his 1st anniversary as owner of CR’s Tire & Automotive in Wamego with a customer appreciation day, is joined by the business’s founder, the “original” CR. In reflecting on the occasion, Troy expresses gratitude to the customers that have continued to support the shop: “It’s refreshing to see the amount of support the customers in the Wamego area give to small businesses. We thank you!”

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CR’s on Lincoln Ave. in Wamego

Though Troy just celebrated his first year as owner of CR’s Tire & Automotive, he had been on the path to becoming owner of the business for several years before purchasing the shop from CR – a long-time friend of the Ross family. Troy, an avid car enthusiast, had worked in the automotive industry after completing his business degree from Emporia State University.  During that time, he had enjoyed talking with CR about the shop – then called CR’s Tire & Muffler– including the possibility of someday taking it over.  Discussion turned serious when Troy realized that he felt ready to take on the role of business owner and employer with all of its challenges, responsibilities and opportunities. Though a native of Emporia, Troy had family connections to Wamego and had always enjoyed the Wamego and Manhattan areas. So, as he and CR continued to talk, Troy decided that he would move to the area to work for CR as part of CR’s succession plan, i.e., a plan for how to keep the business going and take care of its employees and customers after CR’s retirement.

Troy was confident in the process because, over the years, CR had built a business that was doing well and had earned a highly-respected reputation for the quality of its work and its customer service. Troy recognized that as part of the transition process, “It was up to me to come in and absorb as much as I could by working alongside him for the year- and-a-half before the purchase was made. I felt this was one of the most important things that we did, as I was able to become familiar with the customers and employees while also learning the ropes from CR.”

To someone thinking about purchasing a business, Troy recommends following this process: “If the business is profitable and worth making the purchase, I suggest following the route we took. Get into the business and work with the owner for a decent amount of time before making the purchase. This will help you make sure that this is what you want. It will also help the transition process to be more seamless. You can see what has worked in the past while also putting your tweaks on things for the future.”

Troy says that advisors at the Kansas SBDC were “very instrumental” in helping him understand and pull together the pieces needed to complete the business purchase “Helping small businesses is what they do, so, many things that I may not have thought of were brought to my attention during the process. This helped to make the process seamless.”

Pieces such as a business valuation, conversations to have with employees and vendors, issues to figure out with attorneys and accountants, and working with lenders or investors are examples of parts of a typical transition process; but the most important piece, according to Troy, was the process of developing a well thought out business plan that reflected his vision for the future of the business and also demonstrated his capacity to successfully take over the various facets of management. “Without a good business plan, it makes it difficult to find investors or a bank to finance what you are doing. The SBDC helped me with an outline of the business plan. I’m proud to say we had zero issues with the plan that was submitted and the bank was very impressed with what we put together.”

Troy stays in contact with the SBDC on many of the day to day issues that come up at the workplace such as questions about human resources and customer relations.  While it is important to Troy that the business do well, he appreciates that an important part of this is treating his team and customers well. According to Troy, SBDC advisors, “with their knowledge, are great at steering you in the right direction when answers are needed.”

Troy says that, though a “whirlwind”, his first year as business owner has exceeded his expectations – something that he attributes not only to the careful transition process but also to the great crew that he has at the shop and to their loyal patrons. Troy looks forward to continuing to provide a high level of service to the great customers that come to him at the Wamego shop and, who knows … as the business continues to grow and evolve, he might even consider a second location.

Congratulations to Troy and his team on a successful first year and best wishes for the future of CR’s!

FlagsInWamego

Downtown Wamego

 

Laurie Pieper, Ph.D.

Business Advisor

Washburn University SBDC

America’s SBDC Kansas

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Are You Watching Your COGS? If not, It Could Cost Your Small Business

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Thank you to our colleague Jack Harwell from the Kansas SBDC for another helpful post for small businesses …

Wring the most out of every sales dollar and learn how to measure and leverage cost of goods sold, or COGS, for your Kansas City small business

Source: Are You Watching Your COGS? If not, It Could Cost Your Small Business

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Will Your Business Be Ready When You’re Ready for the Next Chapter in Life?

 

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Every business owner, at some point, exits his or her business. For many small business owners, the bulk of their net worth is tied up in their business or businesses. In such cases, the ability to maximize and capture that value is, therefore, critical to their long-term financial health and ability to do the things that they want after leaving the business. The importance of this should not be underestimated. In addition, many small business owners have an emotional investment in their business and care about its mission and about their employees and customers. In these instances, business owners often feel like they can’t step away until they know that the people they care about are being left in good hands. Succession planning addresses all of these issues.

The most immediate obstacle to creating a succession plan is often simply not understanding the importance of getting started. A lot of people think that they can wait until they are ready to retire or want to sell the business to start the process. The reality is that for some businesses, it might take a number of years to develop and execute a succession plan; and without a plan in place, life’s unexpected events can sometimes present insurmountable hurdles for the business’s continuation and also for its ownership’s personal finances.

A common confusion is that people sometimes associate succession planning with going out of business; but succession planning is about cultivating a plan for having the business transition successfully to new ownership so that it does not go out of business if something happens to the current owner or if the current owner decides that it is time to move on to a new venture or new stage of life.

The process of succession planning should be started earlier on than many people recognize because getting started typically isn’t the only hurdle to overcome. Business partners, family members and key employees may need to be involved in making important decisions; and coming to agreement on expectations is not always as easy as might be hoped. One or more of these individuals might need to be cultivated into someone who can purchase or take over the business; or an external buyer may need to be sought and worked with over a period of a year or more. Processes and policies may need to be developed and intellectual property protected in order to build the value of the business. Financial management may need to be improved and strategic plans may need to be adjusted.

At the Kansas SBDC, we have CEPAs (Certified Exit Planning Advisors) and CVAs (Certified Valuation Analysts) who can help business owners with succession planning. The first step is to review long-term personal goals and goals for the businesses and then to appreciate how the eventual transition of the businesses fits into that picture. Our advisors can assess the current value of the business, its current readiness to transition, and determine measures that can be put in place to maximize the value of the business and improve the chances of a transition that meets an owner’s goals. Other key members of the business’s support team may also need to be involved in succession planning, e.g., an attorney, insurance agent, banker, CPA and/or personal financial planner.

If you are a small business owner, meeting with one of our Business Advisors to discuss goals is the first step in working with the Kansas SBDC on succession planning. Our SBDC Business Advisors will also connect you with our Value Builder team. The team can help you improve the value of your business as you work toward getting your company ready for its future ownership. A key goal will be to help you position your business so that when you are ready move on to your next chapter your business is as well.

For more information or to take a free assessment, contact ksbdc@washburn.edu.

Related Articles:

Who Needs an Exit Strategy? The Good, The Bad and The Ugly of Business Transitioning • What’s Your Exit Strategy?

Laurie Pieper, Ph.D.

Business Advisor

Washburn University SBDC

America’s SBDC Kansas

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Weather Events Preparedness & Business Continuity

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Recent Kansas weather, and upcoming forecasts for our region, are reminders that it is important for small business owners to be prepared for weather events and other potential disasters in order to keep their people safe, mitigate risks to their assets and maintain business continuity. Maintaining business continuity is often important not just for the business but also for its employees and the broader community that it serves.

If you are a business owner and have a business continuity plan, you should review it periodically and also in advance of predicted severe weather events.  If you do not already have a business continuity plan,  you can read more here.  Your local SBDC advisor can help you start developing a plan for your business or put you in contact with one of our Certified Business Continuity Professionals.

While no one wants to have to be prepared, according to FEMA , 40-60% of small businesses fail to re-open after a disaster and 90% of small businesses fail within a year of re-opening if they were unable to re-open within 5 days. Being prepared for weather and other events, and following a plan that has been kept up-to-date, can make all the difference to a small business’s ability to survive.

Additional resources to help with preparedness and business continuity:

• the FEMA publication Every Business Should Have a Plan

• additional planning tools for businesses available through FEMA

• Ready.Gov  tips for preparing for various types of weather events

At the Kansas SBDC, our advisors help small businesses with a wide range of planning needs so that they can not only start but also can endure and grow because the success and survival of small businesses is integral to the well-being of our local communities.

Laurie Pieper, Ph.D.

Business Advisor

Washburn University SBDC

America’s SBDC Kansas

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Margins Matter: Learn This Formula for Success for Your KC Small Business

 

banking-cash-deposit-1602726Margin can be a tricky concept to wrap your head around, but it’s an important measure of how profitable your business is (and easy to calculate).

Read the full article, written by our colleague Jack Harwell from the JCCC SBDC here: Margins Matter: Learn This Formula for Success for Your KC Small Business

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How to Get Ready to Apply for a Business Loan

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If you are thinking that you need a loan to open a business – or to help your existing business achieve new goals – there are some steps that you can take ahead of time to ready yourself to apply for financing.

Protect your credit score(s). Check your personal credit rating and reports. If you have an existing business, you may also have a business credit score to monitor. If you see any errors in either report, get them corrected.  Know what factors can negatively impact your credit score and try to avoid any actions that might pull it downward. If there are reasons why your credit score is lower than is truly reflective of your ability to manage your finances, prepare a letter of explanation.

Understand your needs and options. Different types of credit are appropriate for different types of needs. Sometimes putting together the financing for a project involves using several loans with different terms and, in some cases, even multiple sources. Banks are not the only potential source for business loans. For instance, in some areas, there are regional loan programs to support small businesses.

Research lenders and schedule pre-loan meetings.  If you already have a banker with whom you have a good working relationship, that is a good place to start, though, having a bank that you already work with is not a guarantee that it will be interested in your particular financing project. It is not uncommon for people to need to visit with several lenders before finding the right fit, i.e., a lender willing to work with you, who understands your needs, and is willing to work with the best options for your financing.

Put together your balance sheets.  If you are a pre-venture business or an existing business that has not yet developed much equity, this means your personal balance sheet (assets, liabilities and equity). If you are an existing business, you will need the business’ current balance sheet, plus an ending balance sheet for each of the past several years. Examine changes in your balance sheet over time and be prepared to discuss whether your financial position has been improving and how this loan will fit into that picture.

Collect your profit and loss statements. For existing businesses, you will need your actual P & L statements from the past 3 years.  You will also want to forecast your sales and expenses to see whether, with the new injection of capital and new debt service, you will still be able to cover expenses and hit the profit goal that you have set.

Develop realistic cash flow projections. These should show the impact of the proposed debt structure on cash flow for at least a 3-year period as well as the impact of the investment into the business. Assess whether you will be able to repay the loan and cover other expenses every month. Make sure that the cash flow projections are tied to how the business will operate.

Identify your break-even point. What will the business need to do in revenues in order to cover its fixed and variable expenses? A lender might also ask you to be able to discuss the break-even point on a particular product or service.

Put together, or update, your business plan. In this context, the purpose of the business plan is to demonstrate that you have thought through where you are going with the business, your specific objectives, how you are going to operate it to achieve those goals, how the financing fits into that picture, how well you understand the relevant finances of the business, the market in which it is going to be competing, the challenges that are going to need to be overcome and that you have the management capacity to be successful.

At the Washburn SBDC, our advisors are knowledgeable about lending options and have tools to assist small businesses – and prospective small business owners – prepare to work with lenders.

Related articles:

What a Balance Sheet Reveals about a Small Business

What Makes Up a Small Business Credit Report

Working With Banks: 8 Tips for Small Businesses

Dealing With Pain Points: Tips for Innovators and Entrepreneurs

 

Laurie Pieper, Ph.D.

Business Advisor

Washburn University SBDC

America’s SBDC Kansas

 

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An Introduction to LLCs

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One of the topics that clients at the Kansas SBDC frequently come to us for help with is whether they should form an LLC and, if so, how to go about it. While, in some cases, we recommend that clients also confer with an attorney and/or accountant, we can help with some basic information.

Terms

 LLC stands for limited liability company (not limited liability corporation). It is a popular business structure because it can combine the advantages of a sole proprietorship or partnership for purposes of taxation with the advantages of a corporation for issues of personal liability protection. A limited liability company must use the words Limited Liability Company or one of these abbreviations as part of its name:  LLC,  L.L.C., LC,  or L.C.  In business transactions, correspondence, marketing, and so forth, it is important that the legal business entity name, including the chosen way to represent that it is a limited liability company, be used.

Owners of an LLC are called members. An LLC with just one owner is a single-member LLC. One with multiple owners is a multiple-member LLC. Members can have an active role in the management of an LLC or be passive investors in the company.

Articles of Organization give public notification of the formation of the business, ownership, location and the legal contact. They are registered with the Secretary of State for the State of Kansas here. The fee is $160 –  $165. They need to be renewed annually and the registration needs to be renewed here. For for-profit businesses, the renewal cost is $50.

An Operating Agreement is a legal document that spells out important information for the ownership of the business. It is an internal document that does not get filed with the State of Kansas but should be retained by the business whether it is a single-member or multiple-member LLC. (See #4 below for more information below.)

More information about options for business legal structures can be found at the Kansas Secretary of State’s office.

6 Reasons to form an LLC

(1) To reduce personal liability on the part of a business’s owner or owners: By separating an owner’s personal assets from the business’ assets, a limited liability company limits an owner’s personal liability to the amount invested in the company should the business be sued. It does not completely eliminate the potential for personal liability in case of a law suit, it does not eliminate liability for debts for which any personal guarantees are given, and it does not protect the business from law suits.  Another way to help protect assets is to carry adequate and appropriate insurances. (Read more about insurances here.)

So, questions to ask include: What personal assets do you have to protect? How much do you foresee your personal assets growing and, in turn, needing protection? What types of liability risks are associated with your business/industry? How severe are they? How likely are they to occur? How well are you personally covered by insurances for any liabilities potentially associated with your business? How comfortable are you with these risks?

(2) To establish some protection for the name of the business: By registering an LLC with the Secretary of State’s Office for the State of Kansas, no other business entity in the same industry has the right to use that name in Kansas. The restriction does not apply to businesses in an unrelated industries or to businesses outside of the State of Kansas. (You may also file a trademark with the State of Kansas. Read about state trademark registration here.)

So, a question to ask is: Would my business or brand be damaged if someone else were to open up another business with the same name, in the same industry, somewhere else in the state of Kansas?

(3) To validate the business as “a real business” in public perception: Some people think that a business is not reliable, serious, or legal, if it is not an LLC or a corporation. They think that it is just a hobby business, a fly-by-night business, not quite trustworthy or not quite legal. For some businesses, being able to put LLC at the end of the business name is an important part of branding.

So, questions to ask  include: Are most other businesses in my industry structured as LLCs? Do my vendors, customers, or lenders expect businesses in my industry to be an LLC?  Would being an LLC make my business look more professional ?- or is it acceptable to be a sole proprietor/partnership? – or is the expectation even higher, that businesses in my industry be corporations, e.g., for reasons specific insurances or bonding?

(4) To reduce some of the risks associated with having multiple owners of a business: In forming an LLC, it is important to have an operating agreement. An operating agreement is a legal document that spells out things such as how much each member has invested in the business in cash or other capital contributions, the purpose of the company, its management structure and the responsibilities of each member, how profits and losses are to be divided, how disputes will be resolved, what happens if someone wants to leave the company or if an owner passes away, the duration of the existence of the company and the terms and procedures for its dissolution. Having important information of these types written down and agreed upon literally helps multiple owners be on the same page.

So, questions to ask  include: Do the owners of my business have a contract or other written documents that ensure that we are on the same page about important issues about which we, our spouses, or future owners of the business might need to agree? What is at stake if we do not have these things spelled out in writing?

(5) To avoid the double-taxation issues faced by shareholders of corporations: Typically, LLCs are structured so that the income tax liabilities of the business “flow through” onto the owners’ personal income taxes. Corporations, on the other hand, are taxed on profits and so are their owners – called “double taxation”. (Another option for avoiding double-taxation is to have the corporation set up as an S-Corp. Note, LLCs, can also be set up as S-Corps.)

So questions to ask include: On how much income in total do I need to pay income taxes? How much business income would I pay taxes on under the different structures? Do I, my spouse, other owners of the business have other sources of income on which we need to pay income tax? What are the tax rates for the different types of income?

(6) To enhance the value of the business in the context of succession planning: Related to the previous points, businesses that have operated as sole proprietorships or partnerships, sometimes elect to form LLC’s when they are in the process of getting ready to sell a business or transition it to new ownership as a way of enhancing the apparent and real value of the business.

So questions to ask include: Do I eventually plan to sell the business (or my portion of it)? Do I plan to transition it to employees or a family member? Given all of the various considerations, would having the business structured as an LLC make it more attractive to a future owner or owners?

If you are considering forming an LLC, evaluate what you want to accomplish and your options for achieving these goals. You may also need to discuss these things with your attorney and or accountant, as well as with other owners of the business, particularly when it comes to drafting your operating agreement or deciding on the best tax structure. Choosing the right legal structure can be to both the advantage of you, your family and your business.

Laurie Pieper, Ph.D.

Business Advisor

Washburn University SBDC

America’s SBDC Kansas

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