A More Typical Startup Story…

It’s easy to become infatuated with Startup Culture. Attention grabbing headlines, founders dating Victoria’s Secret models, fast cars, and giant houses.

If it all sounds a bit cliche, well…it is. It’s a story as old as the idea of free enterprise itself except that today entrepreneurs can do it without building a skyscraper, laying down a transcontinental railway, or putting a million cars on the road.

Heck, Slack went from $0 to $1,000,000,000 in 8 months – with a messaging app! Anyone remember AIM?

The reality of a small business journey for 99.999% of the entrepreneur population is very, very different. It’s a lot more like our story, 10 years in the making and still going – still growing.

Read the complete article here, from our friends at Chargify.

Small Business Credit Building – Part 2

In Part 1, we reviewed the table stakes for getting past that first underwriting stage in the SMB loan qualification process. You’ll need to go through those steps at a bare minimum just to comply with automated qualification requirements.

This edition is all about establishing a business credit history in preparation for a loan.

It’s a lot like building personal credit history – there are credit reporting bureaus, payment history, credit utilization, and account age factors to consider.

A few key differences:

  • Unlike personal credit scores, which range from 300-850, business credit scores usually range from 0-100 (Equifax is different). 80+ is considered “very strong”.
  • Experian, the largest business reporting bureau, will open a report for your business based on public records data. As soon as you complete your corporate formation and get any vendors reporting, they will open a file on you.
  • Certain ratings agencies, like Creditsafe, will provide credit limit recommendations – that is, advising on how much credit your business should have outstanding at any time.

Let’s jump right in…

Establish A Business Credit Profile

There are actually several credit reporting bureaus that you will need to actively manage, and it’s all part of building up the right business credit profile.

It’s not unlike personal credit building, except that business credit is much more precise in its tracking. For example, personal credit reporting is based on 30 day increments.

So if you pay your personal credit card bill 29 days after it’s due, you’re on time. If you pay 10 days before it’s due, you don’t win anything.

With business credit, reporting is done to the day. Paying early actually has a marked advantage, and paying late by even a day will hurt you.

Experian Smart Business credit file

Experian is the biggest and easiest to get started with. Their reporting guidelines for vendors are the most open, so you can build up a history quickly.

Setting up your Experian Smart Business Report is free. They are used by a wide variety of lenders to make decisions.

The majority of commercial banks, leasing companies, business credit cards, and many trade vendors report activity and trade lines to Experian. 

If you can’t find a file for your business yet, one will be available within 30 days of the first payment reported.

There’s a very detailed FAQ on the Experian Smart Business Report here.

Creditsafe business credit file 

Creditsafe is the largest global business credit agency, but new to the U.S. scene.

Regardless, over 10,000 creditors and lenders already rely on them for evaluating business loan qualification. There’s a very strong chance your lender will look at this report as well.

Unlike other bureaus, Creditsafe also provides credit limit recommendations to lenders. That is they recommend the total amount of outstanding credit that your business should have at anytime. 

Dun & Bradstreet DUNS number and open file

D&B tends to be considered the go-to source for Net-Terms credit reporting data. Which is great if you have access to trade lines with vendors.

D&B won’t issue a DUNS# or D&B rating until you interact with them directly. You’ll need to first request a DUNS#, the free path takes 15-30 days for them to setup.

You can also sign up for their credit builder product to expedite everything, and get access to your PAYDEX score as an added bonus.

You’ll have another score to monitor here. Unlike the other credit bureaus, D&B uses a PAYDEX score to provide instant creditworthiness feedback to lenders.

A PAYDEX score of 75 is considered, by many, the minimum to be qualified for the best business financing opportunities.

If you just pay all of your business trade and credit lines on-time, that is within the terms established for each line, you will get a score of 80.

PAYDEX rewards you for paying early, averaging payments 30 days earlier than required is the only way to reach a perfect 100. It’s also worth noting that each credit line is weighted, so frequent big payments will carry more weight than infrequent small payments. 

Equifax Small Business credit file 

Most U.S. banks and business credit cards underwritten by banks report to Equifax. Equifax is typically slower to open a file on your business than other bureaus.

Like the other bureaus, your Equifax Small Business Credit Risk Score is determined heavily by timely payments. Equifax is not very open about all of the factors that go into the score though, so it is a bit of a black box.

The score itself is on a scale of 101-816, with higher equal to less credit risk.

The Equifax report also provides lenders with a Business Failure Risk Score. On a scale of 1000-1880, with higher scores equal to lower risk. This score is paired with a “class”, 1-5 with 5 being most risky, and a percentile.


Money in the bank

Your business banking history is tracked, scored, and relevant to your creditworthiness. It’s commonly called a “bank rating” and you’re graded on a graduated scale.

The bank rating scale is based on the average balance in your account for the last three months, and it takes into consideration any adverse history such as bounced checks.

Lenders want to see that you have enough cash on hand to service debt, that you’re using it responsibly, and that you’re keeping a cushion.

A “low 5” rating is usually what lenders want to see when you’re applying for a loan. To be in that range, you need at least $10,000 in the bank on average for three months and no adverse activity on the account.

This tends to be a non-negotiable condition for lenders.


A line of credit from a vendor

Well, you actually should aim for at least 5. That seems to be the magic number to establish your business and ease lenders’ concerns.

A line of credit from a vendor is basically the ability to pay a vendor on Net terms, usually 15, 30, 60, or 90 days. That means, you get something from the vendor and the net balance is due X many days after you receive the vendors service or product.

It’s actually pretty easy to set these up for common business purposes. Frankly, you might have some already and not even know it. Many business supply companies, like Grainger, will extend small trade lines of up to $1000 to any real business with an EIN and a DUNS#.

The key factor to remember here is that these are only impactful if use the trade line consistently, monthly, and pay it down in full each month…on-time.

Business credit cards

Revolving credit accounts are a powerful tool to build your business credit rating, just like they are with personal credit. 

Once you have your credit files open and vendor trade lines reporting, you can begin applying for business credit cards.

The business credit cards you want are just those that report to your business credit profile, and are in no way linked to your personal credit file. 

Not all business credit cards will report to just your business credit profile, so be selective. Some may require a personal guarantee, which is OK to provide in the beginning. 

A business loan from a bank

You might be asking yourself, “do I need a loan to get a loan?”. The answer is no, you don’t.

BUT, if you want to expedite building your business credit history AND increase the odds of securing a more substantial loan amount with better terms, then this is important.

It’s not a catch-22, you can get a low-value business loan pretty easily when it’s secured. That means you place a deposit with the bank in an interest bearing account like a Certificate of Deposit, in turn the bank will give you a loan for the exact value of the deposit.

You pay it off, then you close the CD and recover your payments. The net cost to you is just the difference in interest rates between what you earn on the CD and what you pay on the loan. Secured loans tend to carry low interest rates as well.

To take full advantage the loan has to be in your business name and using your business EIN, with payments coming from your business bank account. Early payments help expedite your credit building as well.

If you think this feels like cheating, it’s not. Secured business loans are common, here’s an offer page at Bank of America.

There are lots of legitimate reasons for a secured loan, and building your business credit is one of them.

Wrapping It All Up

Taking the above steps will get you on track to secure a more substantial business loan within as little as 1 year. In the next article, we’ll discuss a Small Business Administration specific requirement, the SBA business plan.

Avoid The Top Small Business Financing Mistake

We’ve written a bit before on the best options for small business financing sources. This time we’re going to focus on clearing that first hurdle for a small business loan.

At some point your business financing needs will outgrow the most common sources, namely cash. Whether that’s coming from personal savings, friends, or family – that well will run dry.

Let’s Review A Bit, Equity vs. Debt

Equity financing is a great option for a growth focused company, especially those with valuable intellectual property or favorable market dynamics. You can get the capital you need and avoid the overhead that comes with servicing debt.

Globally, venture capital activity for the Americas exceeded $72 billion in 2016, according to KPMG. The average deal was in excess of $8 million…one more time, the average deal was in excess of $8 million.

Obviously there’s a lot of money floating around on the equity side of things, but the average deal size is also a really good indicator of the types of businesses that win these deals. That is, growth companies.

For the most part, your small business is not going to be competitive when it comes to equity financing.

On the other hand, debt financiers absolutely love working with cash flow (aka “lifestyle”) businesses.

Your local credit union, or a specialized business lender, is going to care much less about your ability to generate a 100x return when you sell the company and much more about the reliability of your cash flow.

All of that makes debt financing a very common source of small business capital for entrepreneurs. In 2016 alone, the Small Business Administration funded more than $17 billion in small business loans.

The average deal was worth a bit over $370,000, a figure likely to gel with the needs of most SMB owners looking for capital.

Interestingly, over $6 billion of those 2016 SBA loans went to new businesses, which is especially impressive. The average deal there was just under $330,000. Again, a much more likely scenario for the typical small business entrepreneur. 

The true beauty of debt financing is that it’s a mature and liquid market. Honestly, how many VC’s do you know? What about angel investors? 

Now think about how many banks are in your neighborhood.

The First Test Is The Most Important

With that maturity comes a lot of volume, the SBA alone did nearly 6x more deals than all VC activity in the Americas. As you’ll learn, there’s a very defined process for securing a business loan.

Nearly all business lenders will follow a similar process, and the first step of that is commonly referred to as “Lender Compliance”.

This tends to be automated by the lender’s pre-qualification system. It’s basically an algorithm programmed to score your business’ risk using a pre-determined set of parameters.

If it sounds a lot like a test, it is. It’s just not one that you would study for, but rather one that you have to complete before applying for a loan.

The vast majority of rejections happen at this very early stage, during the compliance process. 

There are twenty common lender compliance items to prepare for, we’ll focus on eight in this post that are all about legitimizing your business identity – the others will be covered in an upcoming post.

Most lenders will check some of them, but there’s no way to know in advance which items they’ll look at, so you need to cover all of them before you start.

Legitimize Your Business

1. A real, registered business entity with the state

That means you don’t operate as a Sole Proprietorship, but are registered with the Secretary of State as some sort of Corporation, LLC, or the like.

This is a super easy thing to do. You can get it done online in under an hour for most cases, and the cost is generally a few hundred dollars.

There are plenty of providers out there happy to help you, including LegalZoom, USLegal, IncFile, and Incorporate.com just to name a few.

If you don’t have this done, you will be automatically rejected.


2. An EIN, or Employer Identification Number

This is basically the tax ID for your business. When a business is registered as some sort of corporation, you assign tax obligations to the business rather then a personal social security number.

You can complete this directly with the IRS, there’s no charge.

If you don’t have this done, you will be automatically rejected.


3. A bank account

You can’t use a personal one, and you’ll need to take care of 1. and 2. in order to set this up. The lender wants to see that you’re treating this as a real business, keeping the finances separate, and that the bank has cleared you for an account.

The longer your bank account is open, the better. Balance and transactions aside, account age is an important factor. The day you open the account is the day lenders will consider your business started.

For the most part this step is free, although you might need a minimum balance to avoid fees.


4. Business licenses

Everything that is required by the Federal government, state, county, and city will be required for your loan approval. The lender will ask you to detail what you have, along with the address your business is registered to.

Common Federal compliance requirements are liquor and firearms licenses, if you deal with either of those.

For state and local compliance you may have occupational licenses (e.g. financial services), agricultural licenses, pollution permits, weights and measures certifications, and the list goes on.

The SBA website is a great resource for additional information by state. Some of these will cost money, or require approval from an oversight body.

Lenders will confirm with each records-keeping body that all of the licenses and permits are active, and in good standing. If you’re missing any, you will be automatically rejected.


5. A real business physical address

The lender will check with the USPS on the type of address your business is registered to. It must come back as a “commercial” delivery point.

80% of business lenders will outright reject an application that is tied to a residential address.

Home based businesses are statistically more likely to fail, and they’re much less likely to have the right cash flow for debt servicing.

That also means no PO boxes, and no mailbox store addresses. Earth Class Mail street addresses will work for these purposes.


6. A unique phone number

A phone number that is not registered to your home address, personal SSN, or personal bank account will be required here. 

There are plenty of inexpensive solutions for this, you can cheaply lease a toll-free or local number from services like Grasshopper. Register it under your business name, use your EIN, and setup billing to your business bank account.

It’s not guaranteed that this will be a factor, but it’s any easy item to check off the list. 


7. Directory listing with 411

Yes, it’s still a thing. Lenders move slowly when it comes to changing their requirements for qualification, even though the world long ago moved on from calling into directories.

It’s a lot easier than it used to be though, VOIP numbers and cell phones will work for directory listing. So in this case, take care of 6. and then get your number listed for your business – make sure the listing matches your entity name or DBA.

There’s a free service for this, but you can also go directly through Whitepages or some carriers like Verizon.


8. A real website and business email domain

That’s right, businesses without websites and those that can’t be found easily via search engines are more likely to fail. Lenders will look at whether you have a website, and if your business email address is custom or branded.

Unfortunately, [email protected] is not going to fly. You need something business appropriate, like <first name>@<your website> to pass this check.

There are plenty of inexpensive solutions here. You can easily buy a domain for $10 per year, GoDaddy is a good place to start and there’s Google Domains as well, among thousands of other options. Setting up an email on your new domain just takes a few minutes.

On To The Next One

Consider 1-8 table stakes for getting consideration from a business lender. There’s really no way around them, you need to throw in some chips just to play.

Fortunately, it’s not all that expensive to fill in any gaps you may have. 

In the next post we’ll dive into the remaining items, all focused on establishing and building your business credit. Stay tuned!

Spotlight: Meet Russ Perry and DesignPickle.com

Our customers rock. We love to share their stories, and are thrilled to introduce you to the next customer in our customer spotlight series. Russ Perry is the Founder of Design Pickle, the world’s most helpful graphic design company – offering flat-rate, unlimited graphic design help to businesses large & small.

Thanks so much for sharing your story, Russ. Can you tell us a bit about yourself and your company? What does Design Pickle do, and what sets you apart?

Of course! The long & short of it is this: Design Pickle is a flat-rate, unlimited graphic design service. We’ve got one monthly rate for unlimited requests and unlimited revisions.

No more wondering who’s working on your request each time, or worrying about revisions and scope of work driving up the cost of marketing materials!

Design Pickle solves a lot of problems for just about everyone, from the small business who doesn’t have an in-house designer to the entrepreneur who shouldn’t be spending time trying to put Facebook ads together for hours on end.

Our mission is to be the most helpful design company in the world, and that starts with alleviating the daily stress for our clients. 

How did you get started and why?

After about a decade in the creative agency arena, I found myself needing a change. I switched to individual consulting, but realized I didn’t want to be stuck designing business cards instead of getting to use my skills on a bigger level.

So I created a beta system of what would become Design Pickle – helping clients request their day-to-day production graphic designs. It kind of blew up after that!

Do you have an incredible customer success story you can share?

Is it a total cheeseball response if I say I have a million of those? Yes? Ok then.

ONE that really stands out to me, and I just shared this with my team, is from a client who co-founded a great online start-up helping people be the best version of themselves.

Before finding us, she would agonize over blog post images and Facebook ads, trying to do everything herself and losing sight of what she was really working so hard to achieve. Her big-picture wasn’t in the picture because of the minutia.

It wasn’t until we were at an event here in AZ when her husband (and biz partner) came up to me and thanked me for giving her back her time, and in reality, her life!

She’s now able to focus her incredible talent & energy on growing their business and truly enjoy the “why” behind starting the business in the first place – building a community that will impact the world for good.

Bottom line, helping someone with a few simple graphics for marketing collateral can have a much bigger effect than I ever realized. I’m proud of my team for that.

Can you share a tip, trick, hack, tool or service with our readers that makes you better, or makes your days more effective?

I’m totally NOT a micromanager, but need to keep tabs on where my Pickle People sit on both big projects and daily dealings alike.  We use Trello for managing event plans and content strategy, and I Done This for the day-to-day tasks.

We get the satisfaction of checking off the to-do list each day in I Done This, but can keep big-picture plans moving via Trello boards.

What was the situation before you used Earth Class Mail, tell us how EarthClassMail makes you better at your job, or your company better at what it does?

I think we were in a pretty standard situation for location-independent teams. I had my home office, my team had theirs, and we’d convene regularly to calibrate our plans at the local coffee joint.

I didn’t want my home address used for mail (read: my wife wasn’t thrilled by the idea of our humble abode’s location being broadcast to the world). Having a P.O. Box is the simple answer, but no street address lends itself to the “ehhhh, is this a legit business?” from clients & potential partners.

Plus you have to GO to a post office regularly to collect said mail (they don’t mess around when you neglect to pick up mail regularly. The disapproving side-eye from the clerk is the stuff of nightmares).

I found ECM and immediately knew it was for us. Secure, consistent, reliable, friendly. It’s kept me on top of the important mail and simplified the check deposit scenario for us.

What has Earth Class Mail been worth to your business in terms of $?

Let’s see…by my calculations *carry the one*…Can I just say it’s been “priceless”? Because seriously, the peace of mind knowing that no Design Pickle team member is spending their time sorting through pre-approved credit card offers and penny-saver ads is especially valuable to me.

What would you say to someone considering Earth Class Mail as a solution?

DO IT! Right now! How you wouldn’t see the obvious perks of this service is beyond me. Until everyone on this planet goes green & moves to digital correspondence, this is your ultimate weapon against wasted time.

What feature can we add or improvement can we make that would make you say, “shut the front door, I need that!”?

Would you consider a service that sends thoughtful replies to Aunt Irene’s annual family status letter? How about going through my spam folder so I don’t miss out on that “Earn_thousands in ur sleep with this 1 $imple Hack” email?

Other than that, I think you’ve got all my needs covered!

Thanks so much for taking the time to chat with us today, any parting words or advice for our readers?

Thank you for having me! I think my honest advice would be to make sure you’re systemizing or automating every task you can… just because it’s important enough to do, doesn’t mean you have to do it yourself!

Free up your bandwidth to focus on making moves and growing your business!

Also, pickle juice is an amazing option for relieving muscle cramps, so if you’re an active person, make sure you’re stocked up…knowing is half the battle. 

11 Mistakes To Avoid When Selling Your Business

Guest post by Greg Elfrink @ Empire Flippers

The majority of entrepreneurs build their businesses to, one day, sell them. You dream of the big exit, that payday that will line your pockets with enough cash to validate all your work.

Since selling a business is a complex process, there are many obvious pitfalls and mistakes that you can make.

Some of these mistakes can cost you a lot, as you’ll read below, but the good news is that the majority of them are pretty easy to avoid with a little advance planning.

What Are the Top Mistakes?

While this list is by no means exhaustive, below are some of the most common mistakes we see at Empire Flippers when people list their businesses for sale. 

#1 Don’t take your foot off the gas

Many entrepreneurs seem to check out once they list their business for sale. They put up the “For Sale” sign and wait around for a big paycheck.

This is one of the worse things you can do.

Unless your business is truly passive, this attitude will result in a revenue slump. You take your foot off the gas and the business starts tanking.

The next month, when you need to update earnings with depressed revenues, be ready for a wakeup call – the value of your business has fallen.

When a potential buyer finds sees the downward revenue trend, they’ll be much less open to paying the asking price. You’ve provided leverage for them to negotiate the price down, or simply deterred them from considering your business in the first place.

The lesson here is simple: Work on your business as if you are not selling it.

It’s common sense, but many entrepreneurs often forget this piece of advice while daydreaming about their big exit.

#2 Don’t wait until the last minute to implement analytics

Every digital, online business should have tracking installed to validate how much and what kind of traffic they are getting.

The two most trusted forms of analytics are Google Analytics (Free) and the third party analytics company Clicky. These are what we use.

The more analytics history you have, the better.

You’ll also want to be diligent about annotating your traffic and accounting for any huge spikes or dips in traffic.

For example, write clear notes if a spike in traffic from three months ago came from a Facebook ad experiment. That way, a potential buyer can understand the history of the business.

You need at least six months’ of analytics history, and the longer your track record the better off you will be.

#3 Don’t skimp on proof of income

Screenshots are great. They are also very easy to photoshop.

Depending on the business, there will be different ways to verify income. A seller should have a way to allow the buyer to see the business’ cash-flow, as well as the expenses tied to the business.

If you have an AdSense or Amazon affiliate site, for example, you could give a potential buyer view-only access permissions to your account.

This is an excellent way to help a potential buyer verify your earnings and build trust between you and the buyer.

Of course, how you show proof of income will vary depending on the monetization strategies you are using. An Amazon FBA business, for instance, would need a detailed P&L (Profit & Loss report).

Whichever monetization strategy you are using, make sure you have some sort of verifiable proof of income.

#4 Don’t list too soon

If your business has only been around for three months, it is unlikely anyone is going to purchase it.

Does it happen? Sure, but not often and the task of selling a business that young is very difficult.

Similarly, asking price and track record have a strong correlation. A business valued at seven figures is going to need a lot more history to attract a buyer than a business priced in the four or five figure range.

At the end of the day, the more history your business has, the better. Not only will it create more buyer confidence, but it can help improve your multiple as well resulting in a higher valuation — which is what we all want.

#5 Don’t overprice

With new sellers especially, selling a business on potential is a super common issue.

There is a lot of emotional investment in the business that doesn’t translate into actual value. It’s easy to overprice your business because of this, and could have an adverse effect on potential buyers.

It is best to sell your business based on what it is doing right now. You can feel free to highlight growth channels that a new buyer can use, but it shouldn’t be the main selling point.

Instead, frame your business so that the right buyer can imagine the potential growth channels themselves.

If you’re hung up on the potential, then don’t sell it yet!

#6 Don’t ignore your business’ shortcomings

One of the best ways to help a buyer realize the growth opportunities for a business is to highlight the flaws.

Many entrepreneurs shy away from this, but a lot of buyers find businesses with flaws extremely attractive – they see opportunity in the untapped potential.

You should be totally transparent with everything about your business, especially the parts where you feel the business is failing.

If you have a SaaS business that has a healthy cash-flow but no marketing whatsoever, then that is a huge opportunity for the right marketer.

If you have a giant content site where the majority of the articles have no internal links pointing towards them, then that is a huge win for an advanced SEO.

More often than not, your business’ flaws can become one of the greatest selling points.

#7 Don’t forget documentation

Running your business, any business really, requires some proprietary knowledge. The clearer the path is for a buyer to take over and get ramped up quickly, the easier it will be for you to sell.

One of the best techniques is to have detailed standard-operating-procedures (SOP) for every position and role in your company — the more detailed, the better.

If you have a team in place that you will be taking to your next project, this is even more important.

#8 Don’t dig your heels in during negotiations

Nothing kills a deal faster than a seller unwilling to work with a buyer.

Selling your business is all about how willing you are to make a deal. Think outside the box, with your end goal in mind. The higher your asking price, the more flexible you need to be with deal terms.

There are other forms of negotiations outside of price. It will come down to what you can get in exchange for the cash you’re asking for upfront. Here’s a short list of considerations in exchange for cash:

  • Equity – you can keep some equity or shares in the business in exchange for less cash.
  • Royalties – you can collect a percentage of every sale in return for a lower upfront price.
  • Monthly payment plan – you can spread out a chunk, or all, of the selling price over a set term.
  • Include less – you can adjust what’s included in the sale price to meet a buyer in the middle.

#9 Don’t neglect qualifying Buyers

You should have some kind of system to minimize “tire-kickers” who aren’t really qualified to buy your business.

You could have a deposit process like we do at Empire Flippers, where every buyer needs to put down a refundable deposit before they’re allowed to look at the intimate details of the business.

This will help get rid of the “lookie-loos,” and leave you with just the more serious potential buyers.

You can qualify buyers in other ways, of course, such as by having extensive Letters of Intent (LOIs) in place.

The majority of business brokers will take care of the qualification process for you, but if you are selling on your own, you definitely want to make sure you have some kind of process to weed out unqualified buyers.

#10 Don’t ignore professional brokers

Obviously, I’m a bit biased when it comes to using a professional broker. The broker industry can be a shady place, with a lot of fly-by-night brokerage businesses.

Despite this, a good, legitimate broker can make the entire process of selling your business far easier.

Here are just a few benefits worth considering:

  • Buyer reach – most private sellers will not have an email list of tens of thousands of hungry buyers looking for good deals.
  • Negotiation & deal structuring – brokers literally live and breathe the deal making process, which can take a lot of pressure off the seller.
  • Qualifying buyers – remember mistake #9? Pretty much all good brokers have processes in place to make sure only quality prospects are looking at your business.
  • Market valuation – not sure what your business is actually worth? Brokers are some of the few people around that have their pulse on the market and how much a digital business is going to be worth. 
  • Migrations – this is something we’re about to talk about below, so keep reading.

Every case is unique and this should be a decision you think critically on before selling a business — or buying one, for that matter.

#11 Don’t neglect the transition details

One of the most tedious aspects of selling a business is migrating everything over to the new buyer.

Before you sell your business, you should really consider HOW you are going to transfer the business over.

Create a checklist of everything a new buyer is going to need or want to know when it comes to taking over the business.

Outline everything — content, domain, hosting, product inventory, the various services you are currently paying for that will need to be switched over, etc.

You will also want a way to mitigate fraud here, especially in smaller deals where fraudulent activity is likely to be more common.

The last thing you want to do is to push your business’s website domain to the new owner and have him or her fail to pay for the business, while reaping the rewards of owning the domain.

One way you can mitigate this is by using an escrow service. Even then you want to be careful, because many escrow services will not be overly familiar with the online business space and could make some very bad mistakes.

To come back to our previous mistake about sellers not using brokers, most professional business brokerages have a migrations process already in place.

This takes a ton of weight off your shoulders and is definitely worth considering, depending on what kind of business you will be transferring.

Preparation Is Key

As you can see, these 11 mistakes can really make or break the business sale process.

That is one reason we created a totally free valuation tool, which can give you a rough estimate of what your business would be worth.

Have you sold a business before? Are there any mistakes you see other sellers potentially making?

Leave a comment below and share your wisdom with other entrepreneurs looking to make their big exit to a successful payday.

5 Ways To Secure Your Small Business From Hackers & Identity Thieves

Guest post by Jennie Lyon, Founder @ jennielyon.com

Russian hackers, Anonymous, internet trolls with a grudge, independent criminals looking for a quick payday – the world is full of not-so-benign threats to your business.

When you get hacked, it hurts. Maybe not $5 Billion hurts, but it hurts nonetheless. It’s a distraction, it’s usually not free to fix, and it keeps you from focusing on your business.

There are a few free or cost-effective ways to mitigate your business’ exposure.

Preventing Fraud & Identity Theft

Not every scam is as obvious as receiving an email from a mysterious “Nigerian Prince”. More and more sophisticated phishing strategies and identity theft scams are being used every day.

Just ask the dozens of call center employees recently arrested for defrauding more than 1,500 people in an IRS scam. 

Be careful about following links from your email. Just check the URL to see if it matches the official website for any given company, it’s a simple step that could save you.

Never give your credit card information to anyone who phones you, and always phone the official bank or company telephone number yourself.

NEVER give your password to anyone, ever!

Password Management

Using weak or default passwords is one of the single biggest security holes in business today.

Trivia: In the 1995 cult-classic Hackers, what is claimed to be the most common administrator password? (answer at the end of the post)

Unfortunately, people choose passwords they can remember. These tend to be shorter, made up of dictionary words, and use only the letters of the alphabet.

They also re-use the same couple of passwords for every account they have, with services that have varying levels of security – and risk of being hacked.

Ideally, you should be using a password manager to generate a unique password for every website you use.

The longer the password, the harder it is to crack using brute force programs. Even harder when you include special characters and numbers in randomized order, avoiding patterns at all costs.

Services like LastPass and Dashlane will keep all your passwords in one place, secured by a master key that only you know.

Password managers add value by generating unique passwords for each service you store credentials for. Many also enable you to share your account access with team members, without revealing the password.

Encryption

Encryption dates back to ancient civilization. Put simply, encryption is the practice of obscuring information behind a method and/or key that will help the recipient make sense of it.

In modern terminology, you can basically think of encryption as a method of protecting electronic communications and data using complex algorithms.

Encryption is built into a lot of the processes and devices we use every day. Everytime you send an iMessage from your iPhone, it’s encrypted and completely indecipherable to hackers, unless they have your pin, password, or thumbprint.

Emails are encrypted when we send them, assuming you’re using a secure email service. You can encrypt and password protect documents such as PDFs or files in a ZIP archive too.

Encryption is a broad and immersive topic, and you should definitely read up on it some more.

The main lesson here is, do your best to use services that encrypt your information. Most of the time it’s just a simple decision to use iMessage instead of an alternate platform, sometimes you might have to pay for it.

A short list of encrypted communication services:

  • Signal (Free)
  • iMessage (Free, iPhone only)
  • WhatsApp (Free)
  • ProtonMail (Freemium)
  • SendInc (Freemium)

Document Destruction

If a document has personal or business contact information, contains signatures, proprietary information, or other sensitive material, you can’t just throw it in the recycling bin.

Unfortunately unscrupulous employees, trash pickers, and identity thieves often go through improperly disposed of documents for anything they can exploit.

This is another reason why digitizing documents is so useful, digital copies can be password protected and encrypted, while the originals can be destroyed.

This cuts down on the number of important documents which need to be stored in hardcopy, and limits exposure to unauthorized copying or outright theft.

It’s important to oversee destruction of documents yourself, or have it taken care of by a trustworthy company. HIPAA compliance is a strong signal that the service you’re using is up to the highest standards.

Multi-way shredding prevents simple piecing together of destroyed documents, and appropriate disposal or destruction measures should always be taken.

The Old-Fashioned Approach

For those documents which you need to keep hard copies of, there are always secure office storage and secure off-site storage. A good locking file cabinet would do the trick with contracts and other slightly less sensitive material that you might have in large quantities.

However, those are obviously not thief-proof. If there’s something really valuable inside it’s not hard to get past these limited security measures.

A modern, high security safe is a good step up in protecting your most important documents, like: personal identification, fundamental business records, intellectual property, and the like. Make sure whichever safe you invest in is fireproof and waterproof if possible, and installed correctly.

Whenever you’re looking at partnering with any kind of business services, it’s within your rights to investigate their security measures.

Many business-class services will have a page dedicated to their focus on security. Don’t be afraid to inquire for more information.

If you’re shopping for enterprise solutions, then a security questionnaire is par for the course. Your due diligence can end up saving you a lot of trouble in the end.

Trivia Answer: There were actually four – “God”, “Love”, “Sex”, and “Secret”.

Will Your Idea Work? Claimsender Series, Part 4

In our last post we learned that people will potentially pay to file their health care claim forms online, enough to support a business at least. Wahoo!  

Now we build everything, right? Absolutely not. Hold your horses, buckaroo, and put that hammer down.

The data told us that a good number of people want this problem solved, and will pay enough to make it worthwhile for us. Now we need to make sure a real product can be built to support this business.   

In other words, I want to know: Is our core idea technically possible?

WARNINGPLEASE don’t skip validating if a product and service can actually be built to solve the core problem. I made this mistake a few times in the past, and wasted months and years of time and money as a result.

ClaimSender.com requires a few things to work, some business related, some technical

Business items to confirm:

  • We need to make sure that insurance companies will accept our claim forms when we fax them in.
  • Since we’ll be storing health information, we need to make sure our hosting is compliant and affordable.
  • Our app will fax in claim forms, and that process needs to be HIPAA compliant and affordable.

Technical items to confirm:

  • The main value proposition of the product is speed and convenience, so we need to collect information from user, and write it onto an existing claim form – then deliver it as a complete PDF.
  • We will also need to collect a digital signature from the end user, then write it onto an existing claim form PDF.

Let’s walk through these issues one by one, and answer them with the least amount of time and cost.

Issue: Will insurance companies accept faxed in claim forms with a digitally-created signature?

Testing this turned out to be easy. I happened to have a few claims I needed to file. Remember, this is why we went down this path in the first place!

So I called up my healthcare company and asked if I could fax my claim form in. They said yes, and gave me their fax number.   

With that in hand, I headed over to HelloFax.com. I uploaded the claim form PDF, filled in the claim info, and signed electronically.  

I faxed the form in and held my breath. Ok, I didn’t hold my breath, because claims can take 7 days to make it through the insurance companies’ claims department.   

A few days after faxing my claim in I logged into my email and saw a “New claim processed” email from my insurance company. Boom! Success. Total cost? $0. Time spent? 20 minutes.

To make sure the digital signature would count as a legal signature, I pinged Earth Class Mail’s Chairman, Jonathan Siegel.  He founded RightSignature, an electronic signature company, so he knows the space well. He gave a big thumbs up.

If you don’t know any experts in the space, UpCounsel.com can serve as a good resource. VALIDATE.

On to the next issue… 

Issue: Do cost effective HIPAA web hosting solutions exist?

Storing people’s health information requires the utmost security and care. This requires ClaimSender be HIPAA compliant. I won’t bore you with the details of HIPAA compliance.

In general it means you follow a bunch of strict guideliness on storing and transmitting health information.  

A few hours of web searching turned up a few options, including HealthCareBlocks.com, which isn’t too expensive. That works, on to the next issue.

Issue: Can we find a HIPAA compliant fax API?

ClaimSender will fax in healthcare claim forms. Healthcare claim forms contain a lot of of sensitive personal information. We need to make sure our fax provider sends this information securely.  

A few more hours of web searching revealed a few candidates, including Phaxio.com. After some back and forth with their excellent support crew, they confirmed their service can pass HIPAA muster when set up correctly.

Their pricing pleases too, so consider this answer a “yes”.    

Issue: Can we collect information from users, and write it onto an existing claim form PDF?

I wrote code in a former life, and still fancy myself a developer. A “pretend” coder if you will. Real developers won’t call my code pretty, but I can code enough to test a concept.

To answer this question, I wrote a simple ruby script (I love rails) to see if I could write fields onto a PDF. I tried a few different ruby gems, and landed on the prawn and combine_pdf gem.

I kept the script as simple as possible, just coding enough to confirm I could place text onto an existing PDF. After an hour or so, my script gave me the “yes” I hoped for.

Before we move on, notice what I didn’t do…. I skipped creating a new rails project. I left data design for a later day. I bypassed everything except validating my core question.

My natural tendency is to start building the end app at this stage. After years of learning the hard way, I finally learned to focus on just answering the core question.

Issue: Can we collect a digital signature from the end user and write it onto an existing claim form PDF?

This question proved beyond my meager coding skills. To answer it, I created a small project on Upwork. Upwork runs a freelancer marketplace, and provides a great tool for one off tasks.

They have a ton of developers, which made getting this question answered quick and cheap (< $50). 

Do research before posting your project so you can specify as much detail as possible. For our project, I made sure I captured our key requirements before posting the job on upwork:

  • I knew the solution should use prawn and/or combine_pdf for the PDF manipulation.  
  • A little research led me to this github project to accept the end user’s signature – https://github.com/szimek/signature_pad.
  • Using what I learned above, I wrote a specific job description with as much detail as possible.
  • I prefer to post my small projects as a set fee, instead of hourly. That gives me confidence on how much I will pay.

After posting our project, I read the reviews and explored the work history of any applicants.

I can’t stress this enough – READ THE REVIEWS.  

If someone doesn’t have reviews yet, proceed with caution. I like working with individual developers instead of companies. I find I pay less and get stuff done faster.   

I often ask applicants to write a tiny bit of code using the language & tools asked for in the job to make sure they know what they’re doing.

This also shows you how responsive they are, and how they communicate. Make this something tiny, so you don’t waste their time. I posted my project, chose a freelancer a day later, and within a few hours he delivered validation that things would work.  

Boom! That makes us five for five on our questions.

Now what? How can we find out if people will really buy this? Great question. Let’s dive into that with our next post.

3 Keys to Social Media for Startups and SMBs

In many ways managing a social media presence has become just another thing all companies do, a mindless daily task to cross off your to-do list.

Partly that’s because doing it well requires a lot of time and effort. The activities that tend to take up a bunch of time don’t always result in value for the business.

Earth Class Mail is no different, so we took a lean and focused approach to managing our social channels.

There are a few basic fundamentals you want to build your social media presence on:

  1. Listening – tracking what others are saying about you, your industry, and your competitors.
  2. Engaging – communicating directly with others.
  3. Sharing – building an audience that can relate to and appreciate content that you broadcast.

To execute them effectively we had to make some compromises, be clever, and maintain control while allowing for applications to take over some of the tedious work.

Key 1: Admit your limitations, and focus on one or two channels

Yes, many will scoff at this compromise, but it’s completely necessary unless you have a full-time resource dedicated to engaging across a lot of networks.

If you don’t, then you’re just turning in a half-hearted effort on many channels instead of a world-class effort on one.

That’s the triage decision we made, to focus exclusively on Twitter where our largest and most engaged audience has been

Frankly, it was an easy decision. We have more followers on Twitter than any other network, we have been using it as a customer service channel for years, and Twitter is just easier to build an audience on than most other networks.

You may have a similarly obvious decision to make, or it may be more difficult. If you’re not sure, ask yourself a few questions:

  • Where do I hear from customers most? i.e. customers reaching out to you, or mentioning your company by name.
  • Where are my competitors most active?
  • Which network am I the most comfortable with? i.e. if you’re already a Facebook power user, follow many brands etc. and get the ecosystem then that could be for you.
  • Which network is most suitable for my skill set? i.e. each network has a basic premise that is hard to ignore. Twitter is all about short headlines and news. Facebook is extremely image and video heavy. Instagram is all about creating visual stories etc.

In the end, we decided to focus our efforts where we felt they could be most impactful – you should do the same.

Key 2: Automate as much as you can

Anything that you do on a set schedule or with a repeatable process can be automated. We decided on a basic toolset for our needs, here it is:

  • HootSuite – we use the Free version. There are more features in the paid versions, but we just need this to listen for certain keywords and occasionally reply to mentions or DMs. There are lots of alternatives: Sprout Social, TweetDeck, and Buffer to name a few.
  • SocialOomph – this is the foundation that everything rests on. It’s the only tool we’ve found that allows you to recycle posts and inject spun content, so that the network doesn’t bounce it back as duplicate. There are no great alternatives that we’re aware of.
  • Flutter – a great tool, still early in development, but it really helps automate posting content that you can’t easily get from something structured like an RSS feed.
  • Buffer – you can do a lot with this tool, but we use it primarily as a medium to post content that is being pulled from a structured data source like RSS feeds.
  • IFTTT – a great, free, conditional logic tool that lets you automagically post stuff to your social profiles via a tool like Buffer. (there’s a lot more you can do with IFTTT)

It’s critical that you take some version of this step to automate your workflow so that you can free up time for the activities that really need a human touch. Auto-replies to mentions and DMs always come off as robotic, so spend your manual time there and let the machines take care of the rest.

HootSuite, Buffer, and IFTTT are all incredibly well documented. We won’t spend time detailing how we use them here, but there’s lots of content already available with a quick search.

Get the most out of your existing content

Queuing up a bunch of content is day one of intermediate social media management, but we took it a step further by putting the content to work for us into perpetuity, or close to it. 

That means if we have a slow content month, we don’t need to scramble to fill up our queue again or risk that deadly black hole of silence on Twitter.

SocialOomph actually makes it really easy. They use standard spun content schema, so if you’ve done something similar on the SEO side of digital marketing then you should be really familiar.

Basically, we load up the content of our post and format a bunch of alternate text variations that the program then randomly chooses to Tweet out. 

We then set a recurring schedule for posting the content and voila! Suddenly our entire content library is on permanent repeat with multiple unique variations of the post. If you’ve been managing social media for a while, this tool is a game changer.

Use third-party content to improve your profile

Automating re-posts of content from RSS feeds is really easy. That’s how we use IFTTT and Buffer, it’s actually a standard integration you can just plug and play.

Getting content from a non-RSS source posted to Twitter automatically was a totally different challenge. We struggled for a while before accidentally stumbling on Flutter.

Flutter is a pretty basic tool, still being worked on so it’s rough around the edges, but extremely powerful for this use case.

It works by allowing you to choose a CSS selector (the id of an “element” on a page) that it will scrape on some recurring schedule and post to Twitter, or push to Buffer if you choose that option.

This is honestly amazing! You can scrape content from the web version of a newsletter, a subreddit, a blog without an RSS feed, and basically anything else.

Imagine how much more content you have access to that you won’t have to pull and share manually anymore.

Key 3: Communicate with others in a real, human voice

Since you aren’t wasting time with all those tedious tasks anymore, thanks to automation, you can start to have real conversations with others.

As a customer service channel, Twitter has been a great network for us. It’s really easy to react to negative feedback quickly and correct issues, or find those customers that are primed to become brand ambassadors.

We also take the opportunity to just engage with others in a conversational tone. It’s great for prospecting new customers, or simply developing a brand personality that’s relatable to your target audience.

The best part about this approach is the freedom it provides to focus on growing your audience instead of constantly keeping up with maintaining the content. That by itself was worth the initial effort to set it all up.

3 Inexpensive Ways to Validate Your Idea

This is a guest article by Jonathan Chan @ FoundrMag.com.

Everyone out there has a big idea. If you count yourself as an entrepreneur, chances are you have an idea for a startup.

The problem is that few ideas are actually any good. Even with a great idea the reality is that it won’t necessarily translate into a great business. But, you can save yourself from a lot of heartache and wasted effort.

That’s why you need to validate

Validation is when you actually put the pressure test on your idea, to see if anyone even wants what you’re offering in the first place. Too many would-be entrepreneurs make the mistake of keeping themselves in a bubble and fall out of touch with the real world. 

Check out our own journey into market validation, where we build a business online from the ground up.

The goal of validation is to find the true fans of your product. A true fan is someone who would put down money for your product even if they don’t have it yet. You should get at least a hundred of them to validate further investment in your idea.

When it comes to validation, it’s important to remember these rules:

  • The goal is to find 100 true fans.
  • Always listen more than you talk.
  • Keep in mind that great ideas don’t always translate into great products.

Talk to your customer

Here’s a quick little exercise to get started. Quickly write down at least five people you know who would use your product. That’s five people who would fall over themselves in order to do business with you. Then talk to them.

If you can’t think of at least five people, then maybe that’s all the validation your idea needs.

Don’t stop at this step! It’s a good first step, but for the most part you’ll probably get a load of people telling you that they could see themselves using your product. 

The first mistake entrepreneurs often make is they rely solely on their friends and family for feedback on their idea. This is exactly the reason you need to expand your validation beyond friends and family. 

You need to ask people who are complete strangers. In fact, you need people to tell you that your idea sucks. You need to find a way to actually get in front of your target customer and start asking them what they think.

For that you need to clearly define, in writing, who you believe your target customer is and get in contact with some of them (this could end up being totally wrong, but you need to start somewhere). 

That means actually go to the places where they’re hanging out, online or offline. Come armed with questions, ask them to fill out a survey, or maybe even convince a couple to be beta testers for you. Develop a 15 second pitch for your idea, that’s all the attention you’ll get from people you don’t know.

It doesn’t really matter how you approach this, as long as you’re actually listening to them and taking what they have to say seriously.

Smoke test

One of the best ways to validate your idea is to start selling it, even if you don’t have a product to sell. It’s never too early to start selling.

A smoke test is super easy to do and is often used by some of the best in the business before they even start building their products.

The easiest way to do a smoke test is to set up a landing page for your product or service. Don’t worry if you don’t have one at the moment; the entire point of this exercise is to just gauge interest for your idea. 

Make it so that the landing page actually has a strong call to action like, “Sign up now” or “Get a free consultation” that people can actually click on. This will become very important data for you later.

There are lots of inexpensive services out there to help you do this, even with no development or programming experience. Try these: Unbounce.com, Launchrock.com, QuickMVP.com

Now that you’ve set the bait it’s time to start casting the line out.

Remember to go after your target customer here, so don’t just do a social media blast linking back to your page and hope for the best. Actually find out where your potential users hang out and seed it out there. 

Come up with a real pitch, sell the value of your idea and incentivize people to visit your page. Early-bird discounts are a great incentive, so is exclusivity. 

Some common messaging examples: “Sign up today and get 50% Off”, and “Join our waitlist and be part of the beta test”.

If you don’t mind spending a little bit of money then you can drive targeted traffic to your site with Google AdWords, Bing, or Facebook. Do your research on how pay-per-click (PPC) marketing works, or find an inexpensive contractor to launch a small campaign for you.

This whole process shouldn’t take you more than a few hours of work, PPC campaign excluded, and a couple days of patience. After a few days, it’s time to check and see if you got any nibbles.

Remember the goal is to find 100 true fans. How many people visited your page? How many people actually clicked through on your call to action? 

Usability cafe

Developed by the tech-heads at Google, the Usability Cafe method is a very effective and cheap way for you to validate your idea. The best part is that you don’t even need any special tools to implement it.

Even though this is a method primarily designed for apps and developers, you can easily use this for other types of products and ideas as well. 

Although, unlike the smoke test method above, you will need a functioning version of your product. Remember to go as lean as possible, no need for any bells and whistles yet.

It can even be a bunch of static landing pages with links, laid out how you imagine the app working, for example.

The Usability Cafe is based upon the principle that up to 85% of your core usability problems can be found just by observing five people using your product. 

The method is simple: Just find a popular cafe nearby and ask the first five people you see to test your product for you.

All you really need is a couple hours of time, a simple (i.e. MVP) version of your product, and some rewards for your beta testers. Remember, all you’re asking them for is ten minutes of their time, nothing more, nothing less.

Give them five minutes to play with your product and ask them to talk out loud about their experience, any problems they’re encountering, and to be as honest as possible. 

After that’s done, just spend another five minutes getting a bit more in-depth about the app and their thoughts. When all’s said and done, treating them to a muffin or a coffee for their time can be a great reward.

The entire point of the Usability Cafe method is to take yourself out of your own bubble. Sometimes what’s obvious to you isn’t obvious to someone else. 

Getting out there and speaking to people can not only help you develop a better product, but open your eyes as to what’s possible with your idea.

Wrapping Up

Too many entrepreneurs out there make the fatal mistake of jumping without looking. While it’s important to have confidence as an entrepreneur, it’s also important to have the common sense to pack a parachute too.

By using these validation methods, you’ll be able to take your ideas out of your head and into the real world. See what works and what doesn’t, and make sure to double down on whatever it is that works best.

Again, remember these simple rules:

  • Find 100 true early adopters that would buy your product.
  • Collect feedback from people you don’t know, lots of it, and take it seriously.
  • Understand that great ideas aren’t guaranteed to turn into great businesses.

If everything goes right and you have yourself a validated idea, take that bold step forward. But always make sure to keep on iterating, pull yourself out of your bubble whenever possible, and always be listening.