Thursday, September 25, 2014

Hiring A Salesperson

image This article was written by Barry McKinley, SCORE Orange County Business Mentor

Hiring a new employee is always a gamble. Effective interviewing will decease tremendously the chance of a bad hire. Too many business owners or managers hire the first or second person they interview. I wonder if they also got married after meeting their spouse for a half hour. I would be willing to bet NO. So why do they hire so quickly? The best answers are; they probably don’t enjoy interviewing, know how to do it, and hate to waste the time. Remember, with any new hire you are giving them the keys to your business. They can upset customers and fellow employees, they can steal from you, they can waste time (again stealing), and they can hurt your business for years after you terminate them. The average new hire costs you 2-3 times their annual earning when you factor in hiring costs, training, ramp-up time and weak hires.

I am a firm believer that you should look at a number of qualified applicants for a job opening. You may want to run ads in a few different locations. By doing this you will get different degrees of qualified applicants. Once you have done this you hopefully have a stack of resumes. Now you need sort into three piles, (1) Qualified, (2) Maybe, (3) I hope my competitor hires them.

You may want to take stack one and prequalify by phoning them and question them on their resume claims and get a better feel if this is the type of employee that would fit in your company. This also becomes an effective way to weed out those applicants lying or exaggerating on their resume.

Now you have whittled your stack down more, have the remaining potential hires email to you, ‘Why they feel they have what it takes’, ‘What are their outstanding skills.’, ‘Why should you schedule a face to face interview with them.’ If they are not able or willing to do this on a very timely basis, drop them and move on. Remember you are hiring a salesperson and this request will be made daily to them by your customers. You want to find out how creative this applicant can be.

Once again your pile is shrinking, now is the time to schedule your first face to face interview with them. Also request that they come prepared to make a sales presentation on either your company or what they have been selling in the past. Do not except excuses for being unprepared, your customers won’t, why should you? Keep in mind they are salespeople and may be very creative with alibis.

The successful candidates should be brought back in for their second interview. This time you may want to also consider bringing in other management or team players. This is critical as you now have other eyes looking at the candidate and from a different point of view.

The final step is going to be doing a COMPLETE reference check and background check. The cost to do this is nothing compared to what a bad hire may cost.

Before making this person a full time employee if possible have them work with one of your top salespeople for a few days on a trial basis. Problems may be detected that weren’t found previously.

Now that you are satisfied, you have selected the top candidate and they have “no skeletons in the closet”, you can make them a job offer. Be sure that it is in writing and you review each point with them and finally have the candidate sign an acceptance.

Keep in mind that the average “new sales hire” takes 8-10 months to start paying their own way. This time can be shortened by constant training, role playing, product and account review and management support. As always “Time is money”!

Learn to interview like a top pro! Attend our SCORE Workshop, “Hiring Made Easy”.

CSUF Student-led Business Consulting Success Story

image This article was written by William Dyer, Vice President and Founder, HCP National.

(Editor’s Note: SCORE Orange County is not affiliated with HCP National, but has actively mentored participants in the CSUF Student-led Business Consulting Program for many years. If you are considering engaging consultative services, we recommend that you check into this program. We’re confident that you will be pleased with the results.)

Several years ago we engaged with the CSUF Student-led Business Consulting Program led by Professor John Bradley Jackson for advisement on our marketing. We wanted new ideas for our insurance brokerage, which specializes in health care, with an emphasis in Medical Malpractice.

The CSUF Student-led Business Consulting group that we hired came up with a very impressive marketing plan; there were several great ideas that we implemented. One of them involved our client retention program, which allowed us to graphically show how much our clients have saved from working with our company over the years. This has been a valuable tool to remind some of our clients the value of a long term relationship with our firm.

This year, we challenged the students to improve our online marketing to target physicians. Doctors are incredibly busy and very hard to reach. We have insurance programs for Medical Malpractice that can save doctors thousands of dollars and we need to get that word out. The students we are working with now have contributed some good ideas; we are expecting to implement our online marketing plan shortly.

We find that young minds come up with ideas that older minds would think of as impossible. Also, we want to help students that want practical, hands-on experience. A college education is very valuable, but getting hands-on experience and applying what you have learned is gold.

Buying A Home Based Business Part 8: Financing Your Purchase – Debt Financing

imageThis article was written by Mike Capsuto, SCORE Orange County Business Mentor

A bank is a place that will lend you money if you can prove that you don't need it. - Bob Hope

Information in this article is provided for general educational use only. No responsibility is assumed for any problems associated with the use of its content. One should seek the advice of their financial and legal counsel in every step of purchasing a business.

Most small businesses are funded through financial institutions. They provide loans or lines of credit that come with a repayment schedule. The starting point is a well prepared business plan. Business plans let lenders determine whether a business is likely to succeed based on information provided. They will review the prospective company’s cash flow, collateral, asset liquidity, financial statements and projections.

In addition to the business plan, creditors may evaluate the applicant by using what is known as the 5c's of credit. This method of evaluating a borrower incorporates both qualitative and quantitative measures to ascertain the chance of default. The 5c's are:

1. Character refers to a borrower's reputation.

2. Capacity measures the ability to repay a loan by comparing income against recurring debts.

3. Capital any assets the borrower puts toward a potential investment. A large contribution means the buyer is assuming more of the risk and will lessen the chance of default to the investors and creditors..

4. Collateral such as property or large assets pledged for the payment of a loan in case of default.

5. Conditions the terms of the loan, such as the interest rate and amount of principal and the state of the economy that will influence the lender's desire to finance the borrower.

Financial Institutions

Financial institutions are hesitant to provide loans to small businesses because of a history of high default rates. The SBA reduces the risk by guaranteeing the loan.

The 7(a) Loan Program is SBA’s primary program for helping start-up and existing small businesses. Proceeds may be used to establish a new business or to assist in the operation, acquisition or expansion of an existing business. When a business applies for an SBA loan, it is actually applying for a commercial loan which are then made by its partners (lenders, community development organizations, and micro-lending institutions), structured according to SBA requirements. The requirements of eligibility are based on prospects of the business, not the owners.


• Don’t have to give up part of the business to obtain funding

• Available to companies that can’t get funding from other sources.


• Loan maturities are based on the ability to repay, the purpose of the loan proceeds, and the useful life of the assets financed.

• Both business and personal financial resources are reviewed as part of the eligibility criteria. If these resources are found to be excessive, the business will be required to use those resources in lieu of part or all of the requested loan proceeds.

• They provide limited networking or mentoring opportunities.

• May require personal collateral such as home.

SBA loan guaranty requirements and practices can change as the Government alters its fiscal policy and priorities to meet current economic conditions. Check their website for general information on loan programs.


There is a persistent belief that some entity of the federal and state government is out there handing out free money for people who want to start small businesses. Nothing could be further from the truth. Moreover, as it relates to financing, the government does not care what race, ethnicity, or gender you are. Grants to start a “for profit” business are virtually non-existent. Grants, when available, are usually awarded to non-profit businesses or companies involved in specific businesses that the government wants to encourage. These would include such things as renewable energy, education for at-risk youth, etc. There are also special program for groups such as veterans, disabled persons, and so forth.

For qualified persons, federal, state and local governments offer a wide range of financing programs to help small businesses start and grow their operations. Government grants are funded by tax dollars and, therefore, require very stringent compliance and reporting requirements to ensure the money is spent in accordance to the grant provisions.


• They can provide large monetary awards with just one proposal.

• Most grants do not have to be paid back.

• Those who receive government grants may find it easier to raise money from other government and private sources.

• Grants can be prestigious and give a business instant credibility and public exposure.


• Preparing government grant proposals require research and planning and are not easy to write.

• Government grants come with requirements to spend the funds according to a complex set of regulations and laws.

• Government grants are highly competitive - many organizations are going after the same funds.

Seller Financing

Seller financing is the process by which a person who is selling a business extends credit to the person buying it, using the business as collateral. The buyer makes a down payment and installment payments until the loan is fully repaid. For sellers such an arrangement can aid the sale of their business if the buyer has difficulty obtaining a loan. For the buyer, seeing that an owner is willing to finance the sale of a business can indicate that they are confident of the business's ongoing profitability.


• Both the buyer and the seller can saves in fees that are connected with bank, home equity or refinancing loans.

• The buyer can negotiate interest rate, repayment schedule, and other conditions of the loan.

• The buyer can request special conditions for the purchase, such as inclusion of equipment.

• The buyer does not have to qualify with a loan underwriter.


• The buyer could pay the loan in full but still not receive legal rights due to other encumbrances not divulged by, or unknown to the seller.

• The buyer could make payments faithfully, but the seller might not make payments on any debts that may be in place, thus subjecting the business to foreclosure.

• The buyer might not have the protection of an appraisal to ensure that the business is not over priced.

• The seller could choose which collateral to best secure their interest until the loan is paid.

In order to protect both the buyer's and seller's interests, a legally binding purchase agreement should be drawn up with the assistance of an attorney and then signed by both parties.

Friends & Family

Family and friends may provide a loan depending on your reputation with them. This method of financing typically comes without much legal expense,


• Convenient.

• Fewest contractual requirements.

• Available quickly.


• Limited one-time source of funding generally less than $50,000.

• Maintaining your relationships with friends and family especially if you lose their money.

• Unless properly structured in writing, there may be controversy as to how the money was obtained. Was it as a gift, a loan or an investment?


Micro-loans are available through certain nonprofit, community-based organizations that are experienced in lending and providing management assistance to small business. Micro loans are generally available to people who have been rejected for loans due to lack of collateral, steady employment and a verifiable credit history.


• There are fewer requirements for applying for a micro-loan, making it easier to secure one.

• Micro-loan lenders help mentor businesses.

• Micro-loans are easier to pay off.

The Disadvantages of Micro-Loans:

• Micro loans have high interest rates but lower than credit cards.

• Many applicants for the limited funds.

• The amount loan is limited to usually less than $50,000 and may not be sufficient to purchase a larger business.

• At least two years of demonstrated experience in the specific industry of your business.

• Positive cash flow sufficient to pay the loan.

• Good credit history or an acceptable explanation of negative marks.

• Collateral or a co-signer to cover the amount of the loan.

• A realistic business plan with projections acceptable to the lender.

• A reasonable expectation that the micro-loan will not be used for living expenses.

For more information go to the SBA website,, which has a list of micro-loan intermediaries

Unsecured Business Loans

Unsecured business loans also called Signature loans. The lender only takes the borrower’s word for it. Generally no collateral is required. The borrower signs a promissory note stating the terms and conditions, that the loan will be paid back usually no longer than 2 years.


• Application approval time is within 48 Hours.

• Funding is 3 to 5 days.

• Credit requirements are lax.

• No collateral is required.


• Personal guaranty required.

• The lender will also want a co-maker or guarantor to sign the note pledging to pay the loan in the event default.

• The lender takes higher risk compared to secured loans so the interest rate tends to be higher.

• Loans that end up in default go through an aggressive collections process that can double the outstanding balance and harm a borrower’s credit history.

However, people who do not have any collateral to pledge or cannot obtain a loan from other sources may find an unsecured loan appealing.

Why the Market Analysis Section of Your Business Plan is the Most Important Element of Your Plan

image This article was written by John Rau, SCORE Orange County Business Mentor

Most business plan templates suggest the following topics to be addressed in your business plan: executive summary, company overview, description of the products and/or services that you intend to provide, a detailed market and industry analysis (including a competitive assessment), a marketing plan, your plan for business operation, your organization and staffing plan including qualifications of key personnel, your financial projections, and planned exit strategy. I contend that the key element of your business plan is your market analysis. If there is no solid market case for your business idea, then you don’t have a business idea worth pursuing and, as a result, don’t need to prepare a business plan! This is where you should start. Don’t worry about the other sections of your business plan until you have completed this analysis.

I have seen many business plans where the market analysis section has a discussion that states that “the market for the widgets that this start-up company plans to address is on the order of $100 billion per year” without any indication as to what portion of the widget market this business is trying to address! In other words, where is your niche and how big is it? You can be assured that, if indeed the market for widgets that you plan to produce is this large, there are already many companies already fighting over this market. In their best selling book entitled Blue Ocean Strategy published by the Harvard Business School Press in 2005, W. Chan Kim and Renee Mauborgne define the business universe as consisting of two distinct kinds of space referred to as red and blue oceans. According to them, “red oceans” represent all the industries in existence today. As they point out in their book, “in red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are well understood. Here, companies try to outperform their rivals in order to grab a greater share of the existing demand. As the space gets more and more crowded, prospects for profits and growth are reduced. Products turn into commodities, and increasing competition turns the water bloody”.

On the other hand, according to Kim and Mauborgne, “Blue oceans denote all the industries not in existence today—the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid.” When you’re in the blue ocean, you are in potentially uncharted territory. Your market “niche” may not necessarily be totally understood and/or well defined. You’re not sure who the potential competitors may be and how these entities might react to the introduction of your new business idea. It is, however, a great opportunity for “first to market entry”.

When preparing the market and industry analysis section of your business plan, you need to determine where you are with your business idea—specifically which ocean you are trying to navigate as this will shape your marketing strategy as well as your overall marketing plan to be discussed elsewhere in your business plan. If you believe you’re in the blue ocean when in reality you’re in the red ocean, then you’re in for a real surprise! That’s why market research is so critical in your business planning and development process. You need to know the “color of the water” you are trying to navigate and what you need to do in order to be successful as there is a different set of challenges in each ocean.

So how do you determine where you are? Here are some basic steps you should follow to assist you in making this determination:

Step 1: Define what you believe to be the market area that you are addressing in your business pursuit. Types of information you will need to present include the following:

  • Facts about your industry such as how it’s organized and sales trends, products and services involved, growth history, etc.
  • Total size of the market you are addressing within this industry sector—in particular, specifically define the market niche you are addressing
    • If it’s a niche currently ignored by competitors or ill-served by competitors, then you may be in the Blue Ocean.
  • Description of your target market or focus area along with an assessment of the growth history and current demand.
  • Description of any barriers to entry in your target market and, if there are any, how do these apply to you and what steps do you need to take to overcome these.
  • Description of your potential customers such as consumers, businesses or both
    • For consumer customers, provide demographics such as age, gender, location, income level, social class/occupation, education, etc.
    • For business customers, demographics would include industry or segment of an industry, location, size of firm, demand for products and/or services you plan to provide, etc.

Step 2: Define the competition in your market area. You should never assume that you have no competition for your product or service just because you were unable to identify any direct competitors as there will always be companies that have the capability to move into your market area if they see a significant market for themselves. Here you need to present the following types of information:

  • Describe the competitive environment in your industry and market area in terms of the names of such companies, a description of what they provide that makes them competitive, annual sales and pricing information, estimates of their market share, etc.
    • If your target market area is dominated by a few companies that control a major share of the market, then you’re in the Red Ocean and should not consider competing directly with them.
  • An assessment of the nature of the competition in terms of do these companies compete with you across the board, just for certain products, certain customers or in certain locations.
  • A comparative assessment of your business idea (product and/or service) as it relates to your competitors—specifically what is different and/or better about what you are offering, that is, your potential discriminators.
    • You need to provide the reasons as to why customers who may already be buying/using your competitors’ products or services might switch to yours.

Step 3: Based on what you learned in Steps 1 and 2, conduct an assessment of where you fit in the “big picture”. According to Stephen Lawrence and Frank Moyes at the Deming Center for Entrepreneurship at the University of Colorado at Boulder (see Writing a Successful Business Plan, 2004), your Market and Industry Analysis section of your business plan should conclude with a summary of what the opportunity is and why it is attractive. Remember that this is a key section of your business plan because here is where you must make the case that there is an attractive opportunity for your venture. They suggest that you address the following key points in your summary:

  • What is the size of the opportunity? How rapidly is it growing? What trends support the opportunity?
  • What is the compelling need? What problem(s) are you solving?
  • What evidence do you have that proves there is a market?
  • Who is the target market?
  • What is unique about your product or service? What are the benefits?
  • What is your competitive advantage?

Remember, it’s not enough to say “there is a big market for your product or service”. You need to back it up with facts!