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The growing interest by credit unions in expanding into small business services was evident again when credit unions gathered here last week. But one person cautioned that the carrot credit unions see-lending volume, fee income, new business-often blinds them to the stick-high transaction volume, business failures, and their own lack of expertise in a complex undertaking.

The opportunity is apparent, but the risks demand attention, according to Steve Abercrombie, president of Business Resource Services Inc., Seattle. Abercrombie cautioned credit unions at the Ohio league's meeting that while members may be clamoring for small business services, research shows 80% of new businesses fail within the first 10 years, mostly because of poor financial management. According to Abercrombie, the primary financial killers:

* Failure to plan properly before start-up.

* Failure to monitor financial position.

* Failure to understand the relationship between price, volume and costs.

* Failure to manage cash flow.

* Failure to manage growth.

* Failure to borrow properly.

* Failure to plan for transition.

That credit unions are seeing increased demands for small business services are no surprise, Abercrombie suggested. Many people affected by job cutbacks often seek to start small businesses, he said, pointing out that in 1990, 16 million small business tax returns were filed. In 2000, that number increased to 26 million.

"There are a lot of people coming back into the free enterprise system and they need help and they need services," he said. "If we want to compete, we need to meet and exceed their expectations."

Their immediate needs include trusting the party they are dealing with (local credit unions have the advantage), wanting people who understand their business (which most credit unions must learn), and not wanting a financial institution whose goal is to push the product of the month down their throats.

Typically creative, action-oriented, impatient and fast moving types, they also need people they can connect with, Abercrombie said.

That said, these new entrepreneurs also have various management styles that will vary from professional and sophisticated to "seat of the pants," he offered, adding that credit unions need to be honest in assessing their own competency.

Among the borrower variables to consider, he said:

* Experience in their industry and general business.

* Reputation in the community and in the business world.

* Knowledge of their industry, impact of technology and competitive factors.

* Financial background: Do they use professional advisors, an accountant, an attorney, and insurance agent?

"All of these things are critical to deciding whether to serve them," he said.

Also important, Abercrombie said, is know the form of business the member is creating, such as proprietorship, partnership, S corp., C corp. and limited liability company-each of which comes with different legal and tax liabilities.

"Hopefully, they have used solid professional advice to choose the form of business structure," he said. "Learning lessons through 20-20 hindsight can be very expensive in terms of both time and money. You have to really stretch to get the right partners. You are looking for people that are solid and understand cash flow. I hope you are ready to take the challenge on."

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