ASSISTANCE OF SMALL BUSINESSES:PARTY PALACE AND GIFT SHOP

Prepared forCindy Gasper

Owner and Manager of Party Palace

Prepared byMikayla Gasper

April 28, 2016

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April 28, 2016

Party Palace & Gift Shop2380 32 StreetColumbus, NE 68601

Dear Cindy Gasper:

The attached report, requested by the owner of Party Palace & Gift Shop, describes the common causes of small business failure. The results of this study will be useful as you continue with the hopes of becoming more profitable.

With the recent decline in sales, steps were taken to ensure Party Palace does not become another one of the many small business that fail every day. The results of this research indicate the major causes of small business failure, indicating areas of improvement necessary for the business of Party Palace & Gift Shop. The six common reasons for failure are presented based on the following research findings:

Inadequate management Financial difficulties Nonexistent business plan Bad location Poor customer service Inability to stay current

Primary research consisted of a personal interview with the manager, Cindy Gasper. Aaron Cerrone, local entrepreneur and college professor was also interviewed. Secondary resources include professional literature found through the UNO library database, and small business management literature.

It would be a pleasure to discuss this report and its conclusions with you at your request. Thank you for your confidence in the selection of myself to prepare this comprehensive report.

Sincerely,

Mikayla Gasper

Attachment

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TABLE OF CONTENTS

EXECUTIVE SUMMARY 4

INTRODUCTION 5

BACKGROUND 5

DISCUSSION 5

Managerial 6

Financial 7

Business Plan 8

Location 9

Customer Service 10

Trends 11

CONCLUSION 11

REFERENCES 12

LIST OF FIGURES

Figure1 Party Palace Cash Flows (2015) 7 2 Analysis of Clients Experiencing Good and Bad Customer Service 10

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EXECUTIVE SUMMARY

By the fifth year after the initial startup of a small business, 74 percent of these businesses will fail. Research has indicated some root causes of small business failure. This report will discuss those causes. To avoid the failure of another small business, an analysis of Party Palace & Gift Shop will be conducted and recommendations for success will be provided. The intention of this report is to benefit the Party Palace & Gift Shop so that the company may stand as an example for small businesses everywhere.

Both primary and secondary research was conducted. Primary research consisted of a personal interview with the manager, Cindy Gasper. Aaron Cerrone, local entrepreneur and college professor was also interviewed. Secondary resources include professional literature found through the UNO library database, and small business management literature.

Party Palace opened in 1997, being open for 19 years, despite the odds. However, after ten years of positive growth, there has been a recent decrease in sales. To accurately assess the reasons for decline, standard causes for business failure will be explored, specifying if Party Palace is adequately achieving the stipulations for business success. The six common reasons for failure are presented based on the following research findings:

Inadequate management Financial difficulties Nonexistent business plan Bad location Poor customer service Inability to stay current

On the basis of the findings, Party Palace, and small business everywhere must conduct an internal analysis of the company. Improving management organization, creating a compact business plan, and understanding current demands will increase sales and promote the quality of the business.

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INTRODUCTION

According to Bloomberg, 8 out of 10 entrepreneurs who start a business fail within the first 18 months (Wagner 2013). This report will discuss the research-backed sources of small business failure, analyze a small business in Nebraska, and provide the business recommendations for success. Both primary and secondary research was conducted. Primary resources include an interview of two business owners, Cindy Gasper and Aaron Cerrone, who is also a college professor. Secondary resources include published periodicals, the UNO library database, and small business success and failure books.

BACKGROUND

To avoid the failure of another small business, an analysis of Party Palace & Gift Shop will be conducted. Party Palace is located in Columbus, Nebraska - population of 22,111 as of the 2010 census (United States Census Bureau 2010). Party Palace is a retail store providing high-quality custom screen-printing apparel, paper supplies, gift items, and balloon bouquets. Onsite decorating, wedding consulting, and tent rentals are also offered. The short-term goals for this business are to establish a thriving and competitive presence in the party supply market. In the local market place, direct competition is present with the products and services offered. Core competences include excellent customer service, uniqueness and in-depth selection of products, and a friendly, family-owned business environment (Gasper 2016).

Despite the odds, Party Palace has survived 19 years as a small business, having opened in 1997. However, after ten years of positive growth, the owner has seen a recent decrease in sales (Gasper 2016). To accurately assess the reasons for decline, six standard causes for business failure will be explored, specifying if Party Palace is adequately achieving the stipulations for business success.

DISCUSSION

The results of this research indicate the major causes of small business failure, indicating areas of improvement necessary for the business of Party Palace & Gift Shop. The six common reasons for failure are presented based on the following research findings:

Inadequate management Financial difficulties Nonexistent business plan Bad location Poor customer service Inability to stay current

Management

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According to national annual reports under the Bankruptcy Act, poor management is the number one cause of business failure (McMahon et. al 1993). Managers often do not have the experience, educational knowledge, or expertise in planning and research to fulfill decision-making skills. Lacking in areas of proper understanding and education can result in fatal consequences for the company (Wagner 2013). Small business owners are often at higher risk because the tasks within a small company are just as meticulous as those of a large corporation. Expected to go beyond an 8-5 day job, small business owners might have sleepless nights and no weekends off. Owners must have discipline to be at work even when they are in control of their own hours and job duties (Hatten 2012).

Small business owners often underestimate the amount of effort that goes into the daily tasks of growing a business, and the workload becomes overbearing. “...Small firms that try to do everything themselves will carry higher costs and will fail under the weight of administration and compliance. (Shelton 2015).” Larger companies divide tasks among multiple workers. Many times, small businesses attempt to complete tasks with one or a few people, resulting in poor execution throughout all areas, such as financing, accounting, marketing, staffing, etc. Failing to delegate tasks among hired professionals or employees is a common mistake for small business owners. Unnecessary and time consuming tasks become the focal point of a business day, causing owners to be taken away from important areas of focus (Cerrone 2016).

As manager, Cindy Gasper is in charge of overseeing all areas of the Party Palace. Personal life often hinders daily managerial tasks resulting in rescheduling and postponing important responsibilities.

Recommendations include: Gaining education and training on business education through classes, other

successful business owners, mentors, and networking groups. Hiring additional non-family staff to create professionalism in the workplace.

Party Palace currently has three employees, all which are family members. Having a set schedule for time allotted for the business, making it easier to

complete all areas of work. Organizational structure should be established, eliminating room for inconsistencies and miscommunication between manager and staff.

Allocating management tasks to employees and hiring business professionals to do time consuming tasks. Determining areas of expertise versus areas lacking in a certain skillset, and hiring professionals to complete needed responsibilities. A business coach, a marketing consultant, and a lawyer are recommended additions to the Party Palace.

Financial

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Each business day, approximately a dozen U.S. small businesses declare bankruptcy. The majority of these business failures are caused by poor cash-flow management (Hatten 2012). On average, 71% of firms fail because of poor financial planning (McMahon et al, 1993). A company needs to be financially sound to successfully grow and expand; the managers not only need to know from where the money from their business is coming, but also where it is heading in the future (Mason).

According to SmallBizTrends.com, a business news resource, 40%of small businesses make a profit, 30% come out even, and the remaining 30% lose money Having a basic contingency funding plan is essential when budgeting for the upcoming years, managers must recognize the importance of putting emergency funding aside. Many corporations do not keep a careful record of the money coming in and going out (Cerrone 2016). Cash-flow management allows managers to perfect products and services. Party Palace records cash flows per month. Figure 2 shows cash flows for the entire year of 2015 (Gasper 2016).

Figure 1 Source: Party Palace & Gift Shop Cash Flows 2015.

With total cash sales of $82,797.74 and total cash paid of $85,811.63, total cash flow the year ending in 2015 is -3,013.89. March through May and September through October are the only months resulting in a positive cash flow. Party Palace must have extra cash by the end of each year for unexpected problems or investment opportunities. A continued negative ending balance leads directly to bankruptcy (Hatten 2012).

Recommendations include:

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Analyzing financial statements to understand areas of success versus areas of failure. Analysis should include ratio analysis, liquidity ratios, activity ratios, leverage ratios, and profitability ratios (Hatten 2012).

Maintaining performance indicators to measure the company’s progress. Crucial to understanding what is going on in the business, key indicators should include revenue, profit, turnover, return sales, and sales.

Creating a cash-flow management strategy to establish what accounts should be concentrated on. The basic strategy is to maximize use of cash, so ensuring consistent cash inflow and developing a basic approach to cash outflows.

Business Plan

A study conducted in 2001 by Stephen Perry concluded little planning occurs in small business in the U.S. However, the small businesses that prepare a formal plan tend to thrive while similar businesses that have failed did not have a prepared plan (Perry 2001). The first moment an entrepreneur has a business idea, documentation of the business needs to be established. A concrete and credible business plan is the basis of a successful business.. Because banks require a business plan for a loan or additional capital, the business plan is catered to the bank instead of the ideas and future of the business, incorporating only the financial plan and basic strategies for starting. Building a well-written and detailed business plan from the start will aid the direction and development of a business (Hatten 2012).

Owners have trouble conveying the vision and goals of a business that was self-created and often blind to potential conflicts. When a business plan is well thought out, room for error is eliminated. Although many small business owners are hopeful, when the business plan is only centered on the positives, a well thought out plan for adverse times is absent (Cerrone 2016). Below is a list of the necessary components of a business plan compiled by Patricia Schaefer in the article "Why Small Businesses Fail: Top 7 Reasons Startups Fail and How to Avoid Failure."

Description of the business, vision, goals, and keys to success Work force needs Potential problems and solutions Financial: capital equipment and supply list, balance sheet, income statement and

cash flow analysis, sales and expense forecast Analysis of competition Marketing, advertising and promotional activities Budgeting and managing company growth

(Schaefer 2011).

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Party Palace & Gift Shop created an initial business plan when receiving a bank loan 19 years ago. Since then, Party Palace has expanded with the addition of a screen-printing business (Gasper 2016). An objective and future plans for the business is unclear.

Recommendations include: Implementing a detailed business plan to incorporate goals and structure.

Strategic guidelines must be established to execute good decision-making. Combining the original business with the new additions of screen-printing,

potentially establishing a new name incorporating screen-printing in the title. Letting customers know what is being offered will attract more of them in.

Incorporating future goals such as a 1-year plan, 5-year plan, and exit strategy. The short-term goals should establish how Party Palace will transition into incorporating more screen-printing and promotional items, phasing products that are no longer beneficial. Handing down the business to a son or daughter and retiring is the current exit strategy. Accomplishing each step with not be completed unless it is exhaustively defined.

Location

Businesses often thrive due to the location of the business. The majority of the population will choose convenience over quality, depending on the type of business. Author Patricia Schaefer also provided a list of factors to consider when establishing a good location:

Where target customers are Traffic, accessibility, parking, and lighting Location of competitors Condition and safety of building

(Schaefer 2011).

New business owners need to look for the signs of an ideal location of a business. An area of high customer foot track and convenience is often indicated by the existence of a Wal-Mart or McDonald’s. Large corporations, essentially doing the work for the small businesses, conduct extensive analyses on these areas (Cerrone 2016). Party Palace is located in a strip mall near the busiest intersection in Columbus, behind the only McDonald’s. Although in a primary location, many Columbus citizens are unaware Party Palace exists. While moving locations is not an option, procedures can be taken to ensure the maximum customer base can be reached.

Recommendations include: Compensating areas of customer doubt by improving marketing strategies.

Extending the popularity of the business to areas beyond Columbus city limits.

Customer Service

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Customer service can be the deciding factor in whether or not a business succeeds. According to a CEI Survey, 86% of buyers will pay more for a better customer experience, but only 1% of customers feel that vendors consistently meet their expectations (Wagner 2013). Generally customers will remember the quality of service they receive rather than the quantity of work that has been done. Ninety-five percent of customers will tell someone else about a bad experience. A customer must feel valued. Based on the findings in a 2015 article in Caribbean Business, good customer service is more important than price and product when determining whether a business succeeds. Findings of the research are shown in Figure 1. (Roura et al, 2005).

Businesses may have excellent customer service but fail to listen to what the customer has to say and do not realize the value of a customer’s opinion. Customers are the best judges of the efficiency and sensibility of a product or service; if owners listen, the product can be modified to fit market need. An easy way to prevent a business failure is to keep in touch with the current and impending customers, while understanding trending prices or goods (Investopedia 2010). According to research, 78% of consumers will listen to the input of other consumers online more than any other source. Giving customers an easy and immediate way to interact with a business through the Internet allows for immediate feedback and a continuing relationship (Roura et al, 2005).

For small businesses, great customer service can be a competitive advantage, setting it apart from large corporations. Catering to a smaller amount of customers can guarantee a sense of importance and individualism. Being able to know regular customers on a first name basis will keep a customer coming back. Being polite and helpful is essential, no matter the industry. Party Palace is built on excellent friendly service and will continue to keep customers number one. The owner and employees go beyond expectations; however, the business lacks an online presence.

Recommendations include:

No changes

Recommended others not buy those products or services

Switched to a different company for that product or service

Stopped buying from the company

0% 10% 20% 30% 40% 50% 60% 70%

BAD CUSTOMER SERVICE BEHAVIORSFigure 2 Source: Roura, P. S., Fajardo, R., Monclova, H., and Costa, D. (2015). Service More Important Than Price and Product in Determining Whether A Business Sweeps in Revenue and Succeeds. Caribbean Business, 43(3), 16-21.

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Creating a method of communicating with customers through surveys and an online presence. Gaining feedback will let Cindy know the items and services customers are looking for, cultivating innovative ideas while eliminating unnecessary ones.

Trends

Lacking financially can lead to the failure to upgrade technology. Managerial stubbornness can lead to failure of adapting to customer needs. An inability of a business to change with the times can lead to its downfall. Failing to foresee or react to competition, technology, or other changes in the marketplace can result in a business flop. In today’s world, half of the market for most businesses is online. If online marketing is not involved in the marketing plan, a business will lose potential customers. Conducting studies on other thriving similar-market businesses and incorporating these findings into marketing will ensure a business will not be left behind (Investopedia 2010).

If the original business model is not continuously updated, the consumer will outgrow that product or service. Party Palace has done well keeping up with current trends, such as the need for screen-printing in Columbus; however, Party Palace is lacking in a strong Internet presence. Over the past few years, the market for paper supplies has become saturated. Party Palace has had a decrease in this merchandise due to lower priced stores such as Family Dollar and Dollar Tree.

Recommendations include: Increasing focus on screen-printing and promotional items and reducing paper

supply merchandise, therefore, increasing sells. Developing a strong Internet presence and improving the company’s website.

According to research, through Invesp, 80% of Internet users have used the Internet to make a purchase. Additionally, 81% of Internet users research products online before making a purchase (Mason). Offering free shipping of products can appeal to a wider range of online customers.

CONCLUSION

After discussing the importance of thorough management methods, financial statements, business plans, location, customer service, and trends of small businesses, this report analyzed the Party Palace & Gift Shop’s status in these areas. Recommendations were provided to help the small business succeed. Direct and indirect benefits affecting Party Palace will have a positive impact on the business’s success and culture, resulting in the prevention of another small business failure.

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REFERENCES

Cerrone, Aaron. (13 April 2016). [Personal interview].

Gasper, C. (2016, March 25). [Personal interview].

Hatten, Timothy S.(2012). Small Business Management: Entrepreneurship and Beyond, Sixth Edition. Cengage Learning.

Investopedia, LLC. (2010, October 29). Top 6 Reasons New Businesses Fail | Investopedia. Retrieved April 28, 2016, from http://www.investopedia.com/slide-show/top-6-reasons-new-businesses-fail/Management, 39(3), 201-208.

Mason, M. K. (n.d.). What Causes Small Businesses to Fail? Retrieved April 12, 2016, from http://www.moyak.com/papers/small-business-failure.htmlmore important than price and product in determining whether a business

Perry, S. C. (2001). The Relationship between Written Business Plans andR. G. P. McMahon, S. Holmes, P. J. Hutchinson and D. M. Forsaith. (1993). Small Enterprise Financial Management: Theory and Practice. Sydney: Harcourt Brace

Roura, P. S., Fajardo, R., Monclova, H., and Costa, D. (2015). Service

Schaefer, P. (2011). Why Small Businesses Fail: Top 7 Reasons Startups Fail and How to Avoid Failure. Retrieved April 28, 2016, from http://www.businessknowhow.com/startup/business-failure.htm

Shelton, D. (2015). The right recipe for small firms. Money Marketing, (1467), 35.sweeps in revenue and succeeds. Caribbean Business, 43(3), 16-21.the Failure of Small Businesses in the U.S. Journal Of Small Business

Wagner, E. T. (2013, September 12). Five Reasons 8 Out Of 10 Businesses Fail. Retrieved April 28, 2016, from http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/#60be5f9a5e3c

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APPENDIX

On March 25, 2016, an interview with owner and manager Cindy Gasper was conducted. Specific questions were not written down, however the topics covered are as follows:

History of the business Organizational structure Strengths and weaknesses Financials of the company

Professor and entrepreneur, Aaron Cerrone was interviewed on April 13. As teach of Entrepreneurial Foundations, Cerrone offered advice for business success as well as personal examples of business failure.