Small Businesses Ride the Open Source Tailwind to High Profitability

Open source software (OSS) vendors are reporting spectacular growth in a year when many businesses are offering excuses about the economic downturn. So, how does it matter to you as a SMB? A well known quote from investment guru Warren Buffett is "One of the lessons your management has learned - and, unfortunately, sometimes re-learned - is the importance of being in businesses where tailwinds prevail rather than headwinds." As a small business, you want to take advantage of the tailwind, whenever you can, so that you sail faster towards your goals.

xTuple ERP Doubles Customer And Partner Base

Norfolk, VA based xTuple is a vendor of Business Suites, also known as Enterprise Resource Planning (ERP) software. xTuple announced a very successful 2009 despite tough market conditions. They doubled their customer base by gaining over 100 new commercial customers and doubled their partner base as well. The free OSS PostBooks edition has been downloaded over 320,000 times and they have seen a dramatic acceleration of their global user community to over 20,000 active members. This is the prospect pool from which their paid support customers will emerge.

GroundWork Increases Customer-base by 105 Percent

GroundWork Monitor Community Edition is free OSS for monitoring the data center, suitable for small medium businesses. Groundwork reports outstanding growth in 2009, increasing its customer base by 105 percent.

Sugar CRM Adds Over 2000 Customers And 50 New Partners

Sugar CRM recently announced that it enters 2010 with record momentum across revenue, community partnerships and international growth. They reported adding over 2,000 commercial customers and securing over 50 new partnerships. They also expanded their international reach during 2009, conducting transactions in over 75 countries. In addition, Openbravo, vendor of open source Business Suites (ERP) as well as Point of Sale (POS) software, announced successful growth of its global partner community, which includes over 100 partners across more than 40 countries. Also, in early 2010 they reported reaching 1.5 million downloads. JasperSoft, a vendor of open source business intelligence solutions, expect to reach 60% growth despite the down economy.

Take Advantage Of This Open Source Tailwind

It is fairly obvious that the wind is blowing in the direction of using more OSS for cost saving, have flexibility in modifying the software to the special needs of your business and in automating your operations for better customer service. Isn't it time you leveraged this open source tailwind to reach your revenue and profitability goals too?

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10 Good reasons why small businesses (SMEs) Fail

2.), the nature of the business, will participate in a product or service does not allow expanding. Are the people who offer products or services that make it their business to grow.You agree to me that there are so many small firms, that have contributed to much of the economic growth. Although some of the small size of their life still States have created employment opportunities for many families. If the people who want to set up their own companies, addressed the reasons why small businesses fail, then they are not the same as the reasons for the failure to include target. This is due to the fact that they are able to identify these causes and fix them before it is too late. Now, you might be able to self as yourself as to why some companies are still, in spite of the small size of their life, some of them for profit, or that are able to grow.


4 reasons why Small Business will remain a small

1.) for these business owners do not want to expand their businesses. Some of the only operators do not want to challenge big business bothered. They do not employ people to help their businesses, but instead, they prefer to be assisted by their family members.


3. the lack of capital for expansion.) Are small businesses, which are viable and have more and more opportunities, but they do not have sufficient capital. These companies will be a challenge for the protection of the resources of the financial institutions. The importance of this negative equity gap for SMEs, the yhtymiä growth.

4.) a very low demand. If the business is a very low level of demand for the product or service, then in the Government at the end of the period of the financial year,/commerce business does not understand the profits and, if is very low, therefore it is very compact, widen access to. Due to the insufficient profits only tell whether the very low demand is an obstacle to the growth of SMEs.

However, must be the starting point and, as such, every business starts small and will progressively increase the medium unit and in the end it comes to big business unit, which is a private limited company or public limited company. Please note that the business of the partnership can also grow to become big business.

The reasons why small businesses fail

1.) wrongly Commencing Business: an application for the wrong reasons by people who have not been successful. Just because the other person will make the high profits the business line does not mean that you can also make a profit than the same quantity, if you start him for the same company.

2. in the case of Bad business management: poor) management companies will be successful in its activities it is difficult business. Finance, marketing, buying and selling, planning, hiring and managing employees is the most new entrepreneurs fail to effectively make their small businesses fail.

3. lack of commitment on the part of the company's only): the person who is committed to ensure that it is successful. Taking into account the operating result in the business will fail. Many small businesses have failed because the owners do not leave their performance monitoring and trading them in time. Some business owners to leave their businesses will be managed by incompetent people on their behalf who do not have the language skills and the company's management to keep the book.

4. in the absence of economy: small businesses) are not sufficient due to the economy. Some of the owners ' underestimate the amount of capital required and as a result, the end of this, some in the capital underestimates, thus ending their dance.

There are those who are not able to provide the funds, which has led to the loss and disasters, if they occur, therefore by making them the business to shut down.

5.) over-expansion business: this has led to the failure of many small businesses. This happens when the borrowing too much money has been made as the business requires so as to expand the business. Markets that are not viable for transfer is also a SME growth.

Ideal for enlargement is one of the, which is the high demand for products and services, which leads to the higher sales in this business, the customers ' experience with cash flow.

6.) location: the place where it is located is very important in determining its success. SMEs have failed because they are located in areas which are not ideal. They should be located in areas that are available, people have placeholder text, and the demand for their products and services.

7.) for use on the Business of money: this is the number of small-business owners most of the challenge. They withdraw foreign exchange Office intends to work to meet the needs of the companies and to his own. If they continue to repatriate money to their businesses without returning it, due to the economy being the companies eventually runs out of their businesses.

8. the lack of delegation: small businesses) have failed some of the tasks are not their employees, assign owners. They think that if they move them, then the employee does not work the amount of such duties as they personally run by owners of the companies belonging to the sick or without, then some of the actions have paralyzed till resumed.

9.): small businesses, which Are diversifying is the only one to provide the product or service has been the tendency to fail easily as compared to those that are a wide range of products/services.

10. the Procrastination and poor time management): small business owners the tasks which appears to be uncomfortable to run deferrals made to small businesses to fail. An example of these tasks to the debtors to pay their debts will contain the following (the inheritance).

Time management yet many people who own the SME challenge. If the important tasks, such as delivery of the products to the customers buying the stocks, etc. are not dealt with in the appropriate time then the business will lose customers.

The above is not why small businesses fail, the reasons for a number of reasons.

Igniting the spirit of enterprise, does not mean that you should be a big business. Visit the Nikenya web site you can find out how you can become an entrepreneur spirit page.

Exploring Small and Medium Businesses in India

The Indian economy is one of the fastest growing economies in the world and this is evident from the increase in b2b business space India shares with the world. Apart from the big business houses, the real contributors towards the economic growth are the small and middle sized enterprises belonging to different industries. To learn about different business sectors of India, there is no better place than a b2b business directory, where these businesses open their doors for the world. Considering the popularity and growth rate of businesses, here is a list of the top 10 business sectors of India. The foods and beverage industry of India has gained popularity in the past 3-4 years, mainly due to the changing lifestyle and eating habits of the people. Most of the segments have recorded an increase in revenue from 2005 to 2009, the alcohol segment being on the top. A growth rate of 7.5 percent is expected between 2009 and 2013 to make it a 330 billion dollar industry by 2013. The information technology business sector of India is expected to increase by 14.1 percent from 2009 to 2010. The expert analysis predicts the industry to become 67 billion dollar industry in 2010 and to increase by 11 percent by the year 2013. IT services, software as well as hardware segments are making great contributions towards the growth rate of IT industry as a b2b business. Due to a huge different in the healthcare costs in India and the western countries, the health industry of the country is experiencing a growth in terms of business. The analysis shows that the current 35 billion dollar industry is going to touch the figure of 75 billion dollars in 2012 and 150 billion dollar by the year 2017.

The growth of telecommunication business sector in India can be easily termed as a revolution. The country enjoys the second rank as the telecom network provider. The rise of 3G services and mobile telephony has also contributed significantly towards the growth rate in the sector. The mobile subscribers in the country are expected to grow by 11 percent from 2010 to 2014. Textile industry of India is a globally reputed b2b business sector. The total textile exports from India contribute towards 27 percent of the total foreign exchange. Cotton, silk, jute, woolen, hand-crafted and readymade textiles are the main segments one can find in a global Indian b2b business directory.  The Indian auto component industry has been growing with a consistent growth rate of about 20 percent since 2000 and the rate is expected to remain consistent till 2015. Engine parts, drive transmission ad steering parts, suspension and braking parts and electrical parts are main contributors towards the growth of this global b2b business sector. Accounting towards 11 percent of India's total GDP, the construction industry is an exporter of various raw materials to the world. For example, China is the biggest consumer of steel exported by India. Besides, the cement industry is a significant contributor  in this category. Indian handicrafts enjoy a great demand in the foreign markets like those of USA, UK and Australia. Wooden handicrafts, jewelry, hand printed textiles and crocheted goods are some of the main segments that bring foreign exchange of the worth of 3 billion dollar to the country. Both renewable and non-renewable energy sources have contributed towards the growth rate of energy sector of India. Natural gas, LPG and solar energy are the segments that have been consistently growing. Investment banking, credit cards, mortgage and insurance products are the segments that contribute towards the growth of banking and insurance sector of India. For example, the number of debit cards increased by 40 percent from 2006 and 2009.

Proactive IT Services Save Small and Medium Businesses Thousands of Dollars Yearly

Every dollar a small business spends needs to have an immediate and quantifiable return. This is especially true for critical services such as I.T. support. If you are one of the millions of small businesses that depend upon your technology to keep your business running, proactive Managed Services will save you money, improve your efficiencies and reduce your downtime.

The Solution

With the advent of new monitoring tools and the ability to remotely deliver help desk services to small businesses all over the world, Managed I.T. Service Providers have developed proactive maintenance plans for their clients that maximize their uptime and reduce I.T. costs over time. By implementing newly available automated processes, systems can be patched and updated overnight without the need for onsite visits, or disrupting an organization's work day. In addition, remote help desk tools and technology allow Managed I.T. Service Providers the ability to react immediately and assist users when they experience day-to-day problems, without forcing them to wait for an on-site service call. Forward-thinking Managed I.T. Service Providers are also implementing proactive remote Network Monitoring tools and services, which evaluate the performance of systems 24 hours a day, 7 days a week, and alert these Service Providers of potential issues before they become work-stopping problems for their clients.

The Details

Implementing and receiving the benefit of these solutions is painless for the Small Business Owner, as Managed I.T. Service Providers can begin delivering these cost-saving and efficiency-improving services soon after deploying specialized software agents on all managed equipment. These agents report device health, service pack and operating system, anti-virus and anti-spyware update information back to the Managed I.T. Service Provider's monitoring systems, allowing real-time analysis and proactive management to occur.

Specialized software applications installed at the Managed I.T. Service Provider's location also track all problems reported by their monitoring systems and end-users, and are used to document all steps initiated for resolution. These applications provide a ready knowledge-base of information which grows over time, allowing swift resolution for issues that have been previously documented.

The Benefits

Benefits from Managed I.T. Services enjoyed by Small Business Owners are many, and include increased operational efficiency, the ability to reduce and control their operating costs and gain access to Enterprise-level support. In addition, these Small Business Owners are now able to focus on running their businesses, and not their networks, and receive the peace of mind that comes with the knowledge their networks are being monitored 24 hours a day, 7 days a week.

Small And Medium Businesses Embrace Servers Running Linux

Although we are aware of Linux adoption by large enterprises, most people do not know that there are sizeable numbers of installations in small and medium businesses (SMBs) as well. This base is set to grow as server vendors lob tailor made Linux servers and applications at SMBs.Country manager, pSeries & Open power, IBM says, "Unlike large enterprises, SMBs do not have to face the challenge of migrating legacy applications. The popularity with SMBs has helped Linux grow at 30 percent globally".
The general consensus is that Linux did better in 2004 than anyone had predicted. Director Enterprise Marketing & alliances, Customers solution Group, HP India says, " As per IDC India, Linux in the server market grew by 48 percent in OND, 2004 over JAS, 2004, while the windows and Unix markets showed a modest 3 percent and 3.4 percent growth respectively during the same period." For any OS to succeed, applications need to be made available. SMBs can be major draw for Linux servers as it offers them lower TCO and tighter control on their IT spends. Since many SMBs already have home grown applications, a proprietary OS will be the single largest area of spending. It is here that Linux offers a big advantage. The availability of version 2.6 of the Linux kernel in Red hat Enterprise Linux 4 and Novell's SuSE 9 will give a big boost to vertical scalability. As SMBs become a part of the global supply chain, they want enterprise applications on Linux to keep their investment low. This trend will be a key enabler for the Linux server market worldwide.

Why Linux Based servers?

Cost is a factor and Linux offers better security as the source code of proprietary software is always kept a secret. With a community supporting it, any security hole in Linux is quickly found and patched. Linux not only lets an organization save on software costs, it also offers long term long term saving on hardware. Instead of being forced to upgrade software with Linux, an SMB can take control of its IT strategy. Chief technology officer of IDBI bank says, "You decide when you wish to upgrade, not the vendor, hence you get tighter control on your spending." This can be particularly important for users, such as SMBs that cannot afford to keep up with the pace of change in commercial software.

Business application and Linux

There is credit to Oracle for driving the Linux server market. During the early part of 2004, Oracle came up with a value offering. It offered pre- configured Oracle E-Business Suite special edition on Lintel Boxes for a 10 user License for $36,000USD. The traction of this offering was seen towards the end of 2004 when we closed a dozen deals that were in various stages of implementation, says General Manager, Oracle India. This is a testimony that SMBs are opting for Linux servers. SAP is following Oracle in making application available on Red Hat Enterprise Linux.

Customized and certified

All server vendors including HP, IBM and SGI are throwing their weight behind Linux and each has a SMB specific business strategy with significant initiatives to lure them.

HP has announced that some of its high end computing tools from the HP-UX environment are ported onto Linux and made available to SMBs. This includes a clustering solution called HP service guard for high availability of applications and management tools such as Systems insight Manager(SIM) and open view that offer third party integration. Additionally HP is creating a reference architecture stack, including hardware, OS, database and Middleware. HP certifies a stack so that customers can feel more confident on deploying their core business application on Linux. Linux servers are popular in high performance computing(HPC) environments such as research labs. IBM has recently launched a new family of eserver Openpower systems based on its Power5 processor specially designed for Linux. The Power5 comes with a micropartitioning technology called Virtualisation Engine(VE) wherein each processor can be sliced into ten virtual partitions with each partition acting as a new server. IBM's eserver Openpower 710 is a single CPU processor with 3 HDDs and 512 MB memory with RAID level 1 and 5. This eserver offers SMBs an affordable alternative to higher priced entry level Unix or Linux system. Openpower offers a 64bit platform at a price point of a 32 bit offering. We believe that it is the right product for the mass market. Sun Microsystems has the Sun fire V20 and V40 severs based on the 64 bit AMD Opteron processor, which has been successful with SMBs. It also offers the Solaris 10 Opetron combination. Sun is aiming to position Solaris 10 as its trump card to take the fight to commercial Linux with support - email, phone and onsite - available at a small price. Advanced scientific research, elite foods, Sage Design systems, Centre for DNA fingerprinting and diagnostics, are Sun customers running there core application on Linux. Linux servers are used by SMBs for CAD analysis, CFD (Computational Fluid Dynamics) and FEA(Finite Element Analysis). Linux systems are rugged as they come with SGI Propack over and above the standard Linux Kernel. This gives customers the ability to scale there computing environments with independent I/O, memory and power supply.

Banking on Support

Linux is getting traction and getting into commercial business applications in verticals such as manufacturing, small banking and hospitality. Availability of tally o Linux will result in a new chapter being inked in the Linux server market. Red hat has 950 ISV partners who develop applications that run on its Linux distributions. Linux offers secure and scalable solutions to meet SMB requirements. IBM has 35 to 40 pure Linux partners that offers consultancy and assist it in integrating and implementing services for its customers who are using Linux.

Do Government Assistance Programs In Fact Assist Small Businesses?

Government budgets are relayed to various assistance programs whose purpose is to encourage economic activity in small businesses. It is often asked whether these programs do in fact fulfill their purpose or maybe these budgets are wasted?

A groundbreaking research jointly conducted by Ben-Gurion University and the Ministry of Industry, Trade & Labor elucidates this issue. Researchers Dr. Rami Schayek and Prof. Dov Dvir have developed an innovative model which measures the effect of government assistance programs on small businesses, identifies the most important components incorporated in the assistance program and determines which managerial, operational and behavioral activities should be focused in order to improve on business performance. The research included one hundred and thirty five small businesses which participated in the Ministry of Industry, Trade & Labor's Standard Coaching project. This project is one of several business coaching projects run by the ITL ministry and it is designed for small and medium businesses of five to one hundred employees. A business of five to ten employees is appointed up to one hundred coaching hours. A business of eleven to one hundred employees is appointed up to one hundred and fifty hours. The coaching project finances 75% of the cost of coaching. 25% are financed by the business.

Results indicate that there is a return on the tax payer's money!

Findings indicate that government assistance program involvement positively affects small business performance. The basic research model, which examined only the direct effect the assistance program has on small business performance, shows that the greater the number of quantitative components (hours of consultation; proximity of consultation encounters; range of issues incorporated into the consultation), and the higher the standard of qualitative components (level of the consultant's professional understanding of the respective subjects of consultation; level of organization and planning of the consultation process; level of trust, commitment and mutual understanding between consultant and small business owner), the higher will be the level of performance in the small business. When adding to the model an examination of indirect effects, assistance programs are shown to affect small business performance primarily through the consultant's influence on the small business owner which is expressed in the latter's motivation to take action, like as attention to the service provided after the sale, understanding the fluctuation in customer preferences and the small business's operative environment, and the need to measure and analyze customer satisfaction and respond to the customer's complaints regarding either the service or the product provided by the small business.

The consultant also affects the business owner with respect to the latter's ability to manipulate business opportunities through utilization of competitors' weaknesses and an understanding of the ways in which the small business as a whole may benefit the customer. Consultation raises the small business owner's level of awareness as to the need to innovate, take risks and increase the level of activity, both in implementing changes in the service or products he provides and as regards conduct in the face of competition. In fact, the consultation process motivates the small business owner to take actions which would raise the level of market orientation and entrepreneurship in the small business, and as a result initiate an increase in its level of performance.

How is it possible to win an even greater return?

The findings of Dr. Schayek's doctorate thesis supervised by Prof. Dov Dvir, facilitate recommendation on a number of issues which could intensify the effect of public assistance programs on performance in small businesses. Thus it is important that the consultant emphasize before the client that submitting reliable and comprehensive information to the consultant, as well as willingness on the part of the business owner to implement changes in accordance with decisions reached as a result of cooperation with the consultant, is paramount for the success of the assistance process and the improvement on performance in the small business. Based on the research model, the client constitutes an integral part of the assistance program. The more involved and active he becomes in the process of coaching, the greater will be the assistance program's positive effect on the small business' performance.

In addition, the research indicates that effort must be made on the part of the consultant in improving the client's capacity of raising finance. The client's capital raising capabilities which, according to the model constitute a parameter in the improvement of the level of performance, will improve if the client is given an explanation as to existing finance opportunities and is prepared as to the manner in which one should approach and present the small business' requirements before possible financing sources (such as banks or credit companies).

From small businesses has never been easier

I believe that it's easier to succeed with small businesses than ever before. There are more opportunities for entrepreneurs to start small businesses today than at any previous time.

Here are some good reasons for why I believe this is true.

A) With the increase in population comes an increase in opportunities for small businesses.

Generally, a sparse population requires a small business owner to provide a wide variety of goods or services to survive. With a denser population, the small businesses can still survive by providing a very narrow range of products or services. For example, in a smaller population a small business which provides gardening services would probably need to offer many things. Services could include general garden maintenance, planning, tree felling, lawn cutting, vermin control, pond planning and maintenance, hard landscaping etc.

With a bigger population a small business could thrive perfectly well by providing just one of these services, as there are more people who will need it.

B) The costs involved in starting and running small businesses has never been so low in proportion to income.

Technology has replaced many of the things which people used to do, and technology does the job a lot more cheaply.

Today it's possible to reach literally millions of potential customers around the world very cheaply.

For example, only a few decades ago the cost of mailing to thousands of households was prohibitively high. Unless you had a very good product or service which sold well, a small business just wouldn't risk it.

Another example, business premises security used to involve security guards walking around checking that all was well. Now a good security system can be bought for less than 1 week's pay for that security guard, and it will work 24 hrs per day for years, for no pay.

C) Because modern life is so complex today, small businesses and individuals are open to new ideas, products and services like never before.

This creates a huge market for training courses, information provision services, educational aids, specialised products and services, novelties, etc.With this great diversity come great opportunities to combine different products and technologies, thus making whole new areas of business possible.For example, you can combine a low-light camera with wireless communications and a bird box. This means a nest may be watched remotely on a television or personal computer screen.Another example would be to combine voice-chip technology with passive infrared technology to make it sound as though you have a huge dog indoors whenever anyone approaches your house.In our recent history, these opportunities just didn't exist.

D) It may not feel like it, but many people today have a lot more leisure time and a higher disposable income than in any previous age.

This spare income (and with the current attitudes to loans, a little more besides) tends to get spent on sports, games, hobbies, crafts, amusements, entertainments, holidays and weekend breaks etc.

This creates many opportunities for the entrepreneur to start up small businesses to satisfy all this extra demand.

E) To thrive in a modern society you need to have a lot of different skills.

Nowadays people cope with a variety of complex tasks. They buy and use a wide range of consumer equipment, fill out many forms, and communicate with all kinds of people from all walks of life (often from different countries and cultures). They also do difficult transactions like house purchasing, and so on.All this is a long way from the average people who were around just a few hundred years ago. Many were farm labourers who could barely read or write and never travelled more than a few miles from home.So now, the pool of potential business people is far greater than ever before. If a person can live well in a modern society, they already have the abilities they need to start up a small business enterprise and succeed.The good news also is that if you lack a certain skill which your small business needs, then you can probably employ someone with that skill far more easily than ever before.

F) More people have access to money than ever before.

Until the late 1960s, most people were paid weekly and spent money as they earned it.

It was normal among manual workers to run right out of money around the time of their next pay packet, which often contained notes and coins!

Today most people have many bank accounts (with overdrafts) and access to credit cards, which alone have spending limits equal to a half or full year's income.

Savings and share holdings are greater than ever before. A large proportion of the population can raise money on their house and if they don't mind paying a high interest percentage, they can borrow with no security at all.

A great variety of people and institutions are now willing to lend money for good small businesses proposals.

With access to credit, you can buy the product, ship it to the customer and get paid before you have to pay for the goods which you sold. This just wasn't possible until very recently.

G) Advice, courses and books about starting small businesses are within easy reach of everyone.

Researching your chosen business area has never been easier with the Internet so readily available.Not so long ago, you would have needed to buy many books and read them all to get the specific information you required. Now you can ask a search engine very specific questions and get very specific answers, almost immediately.This frees up small businesses and enables them to be far more productive and enterprising.

H) If you start a small business today you have an immense amount of technology available to you.

Computers, printers, copiers, audio and video recording and playback equipment, telephony and the internet are all easily available to any entrepreneur wanting to get started in a new small business enterprise.

Not long ago, the average multi-national company lacked the computing, communicating and printing power available to the ordinary person today.You can probably think of at least 6 different ways to get a simple message to someone on the other side of the world. 5 of those messages would typically arrive less than 1 minute after you sent them.Just 100 years ago, (and remember mankind has been around for about 3 million years) this same message would have involved horses and steam ships and would have taken months.This massive improvement in technology (especially in communications and information) has really opened up the field to the individual who wants to go ahead with a new small business venture.

I) Small businesses starting up today have far more choices available to them.

In previous times, it was quite common for there to be only a few companies that they could go to, to buy business supplies. Whatever business you care to name, you would not find many suppliers of the materials needed to conduct that business.

Unless your business is in a very specialist area, you will now find you can source your supplies from a great many firms. This in turn drives your costs down, as you can shop around for the best deals.For example, there used to be very few ways to get your goods delivered to your customers. Nowadays you could chose from literally hundreds of different carriers.New companies can chose anywhere in the world to set up their small businesses, or indeed where to place any part of their business.I know of a successful paintball company, which operates in the UK in summer. But when the business falls off due to the cold winter, they find new customers by simply moving the company to Brazil, and then return the following spring.They also take advantage of the cheaper labour in Brazil to manufacture the paint balling equipment, and when back in the UK use the greater expertise in the UK to program their systems.Not so long ago this flexibility of operating a small business would have been totally impractical.

Conclusion.

There are far more opportunities to start small businesses than ever before and entrepreneurs who do start new small businesses at home are more likely to succeed.There are more potential customers, it costs less to start up and you have more choice over the kind of business to go into. Other benefits are a more skilled and educated workforce, and easy access to financial support. If you do want your own enterprise, you can also use the power of the Internet to carry out good and fast research, and to support your business in many ways. I believe there has never been a better time to start up new small businesses.

Working capital: Financing Options for small businesses

Introduction

Large companies have always had a number of options that they could depend on to raise capital for their businesses. The have always had access to a number of alternatives such as selling stock, issuing bonds, bank loans and accounts receivable financing among others. Looking at the other side of the coin, smaller companies, those that have between $20,000 and $500,000 of yearly revenues, have always had a challenge trying to find capital to operate their businesses.

The lack of access to capital has prevented many small businesses from growing and capitalizing on the many opportunities that are available to them. It is not uncommon for small companies to reject large deals or opportunities because they do not have the necessary capital to obtain the resources to service the account. However, even when small businesses do take on large contracts, they find that they are never paid immediately upon delivery of services. Most contract terms demand that the supplier provide 30 to 60 days for the customer to pay their invoice - in effect, forcing them to extend them with supplier credit. The lack of adequate capital resources, along with the necessity to offer commercial credit to clients, creates a "perfect storm" that prevents small businesses from growing and that is very difficult to avoid.

A number of these issues could be sidestepped if the company had immediate access to working capital. Working capital could enable the business to add employees and resources to serve new clients and larger contracts. It also enhances a company's ability to extend 30 to 60 day payment terms to their customers.

This paper outlines the most common sources for working capital and provides an evaluation of each source. Each source has also been assigned a score, which summarizes the availability and flexibility of the source.

Scoring System

Each working capital source that has been evaluated has been given a score from 1 to 10. The following features where considered when assigning a score:

Accessibility to small businesses Requirement complexity (e.g. do they require significant financial reporting?) Flexibility Payment terms

A higher score indicates that the source of capital has a positive outlook on a number of these criteria and is available to small businesses. A lower score indicates that a particular source of capital may not be best suited for most small businesses.

Financial Options

Venture Capital - Score: 1

Many books and publications tout the benefits of obtaining venture capital to finance a new or ongoing operation. Venture capital is an option for small companies that have a seasoned management team and very aggressive growth plans, however, venture capitalists will rarely invest in small businesses that have no intention of going public. The venture capitalist objective is to invest in a company for a short period of time - say 5 years - and then cash out of the business while making a significant return on their investment.

Angel Investors - Score: 2

An Angel investor is a wealthy individual or group of individuals that typically invest in pre-venture capital companies. That is, companies that don't meet the current requirements of a venture capitalist but that could meet their requirements with a capital and management influx. However, you should not rule out angel investors completely since there are angel investment groups who focus on the growth of certain communities and will invest in small businesses. The best way to find an angel investment group near to you is to search them on the Internet using a search engine such as Google (www.google.com).

Banking Institutions - Score: 4.5

Most small businesses owners will first approach their bank to try and obtain a loan or line of working capital. However, unless the business has been in operation for a number of years, has substantial assets and all the appropriate financial records, their chances of obtaining any financing are minimal. Banks, however, can provide lines of credit if the business owner personally guarantees them. This means that the business owner will be personally liable for the repayment of these loans. These lines of credit can provide the business with the needed working capital; however they can be very risky, especially if the business does not produce the expected results and the owner is unable to repay the bank. Business owners should use this method of financing very cautiously.

Credit Cards - Score: 5

Much like bank lines of credit, many business owners use their credit cards to fund their businesses. Credit cards offer the ability to make purchases or obtain cash advances and pay them at a later time. It should be noted that credit cards can be a very expensive source of funding. Although most credit cards have reasonably low interest rates for purchases, their cash advance rates can be as high as 17% to 19% due to greater delinquency rates. Furthermore, most credit cards will charge you 2% to 4% of the face value of a cash advance as a "fee". Much like bank lines of credit, the business owner personally guarantees payment of a credit card. Thus, this method of financing can be very risky if the business does not produce the expected results and the business owner cannot repay the credit card company. Business owners should use this method of financing very cautiously.

Home Equity Lines of Credit- Score: 5.5

Business owners who are also homeowners have the option of tapping into their home equity to finance their ongoing business operations. Home equity loans and lines of credit have many advantages, such as low interest rates and the possibility of having some portion of it deducted from taxes . This method of financing gained a lot of momentum between the years 2000 and 2004 when interest rates where at their lowest point in decades and real estate was appreciating in value. A major disadvantage if this financing method is that it directly places the business owner's home at risk. In fact, the business owner is placing a bet - with their home as the potential wager - that the business will succeed and will be able to repay the loan. Much like lines of credit, business owners should use this method of financing very cautiously.

Small Business Administration - Score: 7.5

The US Small Business Administration (www.sba.gov) provides a number of very viable options to finance business operations. Although the whole scope of SBA services is beyond the scope of this paper, the SBA provides a "Microloan" program. The program objective is to stimulate micro-enterprises and provides loans of up to $30,000 to small businesses. These loans are usually provided through a financial institution or a bank. They have higher interest rates than traditional loans, but their requirements are more flexible, making them more accessible to small business owners.

Founders, Friends and Family - Score: 7

Friends and family are one of the most conventional ways of financing small businesses. Many entrepreneurs have been able to leverage existing relationships and obtain funding, either as a loan or as a capital investment, for their businesses. Although this source of funding can be easier to obtain that others, it does have some inherent problems. First, the business owner runs the risk of placing the relationship in jeopardy if things do not go as expected and the business defaults. Furthermore, these transactions are usually done with little formality and without written agreements, further complicating matters. If you elect to use this funding option, you should consult an attorney and draw some formal documents that describe the intent and responsibilities of each party.

Accounts Receivable factoring- Score: 8

Accounts receivable factoring, also known as invoice factoring, has been a source of working capital for large companies for many decades. It is now becoming mainstream and available to mid-size and small businesses. Factoring enables a company to sell their slow paying accounts receivable to a financial company, who in turn pays for the invoices within a day or two. After the sale, the financial company waits to be paid for the invoices. A key feature of factoring is that the factor will take the credit strength of the business' customers, as it's main consideration. Until recently, accounts receivable financing was out of the reach of the small business owner. However, enhancements in technology have now turned this method of financing into a viable alternative for small businesses. This means that a small company with little or no credit can leverage a strong roster of clients, sell their invoices and get funding very quickly. Factoring should be considered as an option for businesses that sell products or services to other businesses, rather than to consumers.

Conclusion

Obtaining working capital for their businesses is one of the most important decisions that a business owner can make. Like all important decisions, it should be carefully thought out and deliberately executed. The old adage that "the best time to look for capital is when you don't need it" is still true. You should spend some time researching the all available options for your business ahead of time, so that you can be ready to "tap" your war chest when the right opportunity arrives.