Opening or investing in a small business is always a gamble, but investor Jack Stack, who has acquired or invested in more than 60 ventures, has picked up some valuable insights about evaluating the potential success of a new business.

Stack, the founder and chief executive of SRC Holdings in Springfield, Mo., is one of the foremost practitioners of open-book management, which means that all employees are privy to information about a company’s finances. Employees are taught how the business works and how they can be part its success.

While Stack has had a hand in many successful ventures, he’s also seen his share of failures. In a blog in the New York Times, Stack says those failures helped him develop three questions to ask when evaluating a business’ potential.

1. Does the company produce positive cash flow? To be successful, every business needs a steady cash flow, which requires managing the spread between payables and receivables. A business need to get paid before its bills are due.
2. Does the company cover its costs? Ask if the business can absorb its own overhead. That means they must break out the fixed costs from the variable costs. The fixed costs are the ones that don’t fluctuate with volume, like rent.
3. Can it be diversified? Is the company capable of producing different products and services, or can it expand existing products and services to new markets. A businesses shouldn’t put all its eggs in one basket.

Stack says business owners need to ask themselves these questions and look at the business as an outsider would. “If you don’t like what you see,” he says in the blog. “It’s time to begin making some changes.”

Microlending is now the buzz word in America when it comes to giving loans to entrepreneurs.  Kiva and Grameen Bank, two microfinance groups are well known for the support that they provide to small businesses operating in America and abroad.  Kiva, an international microlender, has already lent $150 million in 53 countries.  Grameen Bank, that has its foundation in Bangladesh, has lent $9.4 billion through over 2,500 of its branches worldwide.Branding itself as ‘Grameen America’ the bank has opened one branch in Omaha and four new branches in New York.

Microfinancing works with a mission to alleviate poverty and not just to make a profit.  Microlenders see the passion and commitment of applicants toward their businesses.  So, they insist loan recipients to attend workshops on marketing, business plans and money management to ensure their success.  Grameen also makes it mandatory for its borrowers to become a member of an entrepreneur’s group that conduct meetings every week.  It also makes it compulsory for borrowers to save at least $2 from their weekly income.

Kiva has helped 137 American companies receive $900,000 in loans, since its American debut.  Overseas the borrowers can get $3000 and in the US they can receive $ 10,000.  There are many examples of such recipients.  Ms Amanda Keppert, who runs Mandy’s Korner, a hot dog stand in San Jose, California, received a $6,500 loan from Kiva.  Her sales plunged 60 percent and she is convinced that her business would have collapsed if she had not received a micro loan.  Her loan carries a 6 percent interest rate and has three years payback time.  The pilot program, Opportunity Fund, that Ms. Keppert attended is available in California and New York now.  Premal Shah, President of Kiva says, “People talk about buying local — why not lend local?  It’s a personal stimulus package if you’re the working poor.”

Mr. Craig Adams wanted $50,000 loan for opening a restaurant and event space.  His long time bank turned him down on the pretext of his debt and then by a second bank.  He finally received a $15,000 loan with 12 percent interest from ‘Justine Petersen’, a microfinance group having its base in St. Louis. Mr. Adams says “It’s not the greatest way to go, but it’s the only way to go.”

Kiva works like a middleman, and has teamed up with microfinance groups, maintains a website www.kiva.org, where individual entrepreneurs’ profile and loan requests are uploaded. People then can lend money through a microlender to an entrepreneur.

Grameen Bank plans to open offices in Washington, Boston, San Francisco and Charlotte. N.C.   Grameen, helps people below the poverty line with first time loans of $1,500 having an interest rate of about 15 percent.

Biz2Credit has partnered with many microlenders as well, including ACCION and Seedco Financial to provide business owners in our network access to micro loans.

Apple Inc is planning to undergo a major expansion. The company that has products like the iPhone and the iPad is now targeting small business. They are planning to hire engineers in at least a dozen U.S retail stores to install Apple computer systems meant for small businesses.

This expansion makes sense given that there are already thousands of businesses that run on Apple products, the company has now focused on consumer and niche markets such as media firms and design. Apple wants to use the iPhone and iPad as selling points to leverage more expensive products like Macintosh computers and servers. It is using its 300 retail stores to reach out to local businesses. Apple is also recruiting from within the sales staff so as to form a specialized team to negotiate leasing and pricing terms for customers.

It is unlikely that Apple would be facing more competition from competitors like Hewlett-Packard Co. and Dell Inc. But Apple is eyeing the $310.8 billion that North American businesses are expected to spend on information technology this year. The figure will rise to $328.3 billion in the coming year. By capturing the sales, the annual revenue of Apple can grow up to 46% amounting to $62.6 billion in the current year. Brian Marshall, analyst in Gleacher & Co., says, “They’re well aware of the opportunities in business. This is something they’re focusing on even if they’re not talking about it publicly.”

A Virginia-based MacPro Solutions owner, Allen Cleaton, says, “Almost half of our new customers come from the Apple Store.” Cleaton can find local business as Apple’s general staff do not have the expertise to handle set up and maintenance of business computer networks. Apple just maintains an expert team for government agencies and big companies. As far as small and mid-sized businesses are concerned, it currently hands over responsibility to its retail stores. But now, Apple is updating its retail stores with conference rooms meant for meetings between sales team and higher echelons of business executives in order to equip their expansion plans.

Job seekers choosing to open their own businesses dropped to a record low, according to Challenger, Gray & Christmas, a Chicago outplacement firm.

Just 3.7 percent of high-level job seekers exiting the program were starting new businesses down from 7.6 percent in the first half of 2009 and 9.6 percent in the second half of last year, according to a survey conducted by the company on July 19.

Experts suggest that an improving job market and the difficulty getting small business loans may be steering people away from entrepreneurship, said Business Week.

Federal Reserve Chairman Ben Bernanke said last week that small businesses, and especially startups, are crucial to job growth and economic recovery. Bernanke once again called on banks to loosen credit to small businesses.

Some see the lower startup rate as a sign that the economy is improving. The unemployment rate is still high, but the private sector added 593,000 jobs in the first half of 2010, according the Bureau of Labor Statistics.

Startup activity typically increases as the economy improves, Challenger CEO John Challenger said in a statement.

The economy will not recover until banks start lending to small businesses, said Federal Reserve Chairman Ben Bernanke.

Bernanke urged banks to loosen lending to smaller companies at a Fed conference Monday, saying that small businesses employ about half of all Americans and account for 60 percent of job creation.

Startups are especially vital, Bernanke said. Over the past 20 years, startup businesses accounted for about a quarter of all job creation.

Meanwhile, big companies are building up their cash reserves and are expected to report strong earnings in the coming week, said the Associated Press.

According to the National Federation of Independent Businesses, roughly one-third of small businesses seeking credit have had trouble getting it. Banks counter that the demand for credit remains weak.

Several big banks, including Bank of America, JPMorgan Chase and Citigroup, have pledged to increase small business lending this year. Total lending to small businesses has continued to decline, however, dropping from around $710 billion in the second quarter 2008 to less than $670 billion in the first quarter of this year, said the AP.

A number of small business owners say they are relying on personal credit cards or dipping into their own savings to stay afloat.

There are any number of pitfalls entrepreneurs can make when trying to start a business. USA Today columnist Steve Strauss has advice on four start-up mistakes to avoid.

1. Don’t take on too much debt. It’s expected that most entrepreneurs will have to take on some debt, but Strauss says to keep it to a minimum and have a plan to pay it back. It’s easy for a business to go under as debt accrues interest and cash flow shrinks.

2. Not having a marketing plan. The only way to get your name out there is through marketing and advertising. Social networking is a great way to do it on the cheap, says Strauss. On his web site www.MrAllBiz.com , he offers a webinar called Marketing on a Shoestring.

3. Don’t jump into decisions without carefully consideration. Before entering a partnership, for example, work on a project together to find out if your styles and goals are compatible. Strauss also says to beware of bad vendors and lousy locations.

4. Not having a great team. The problem with being too independent is that there is not another person around to give you feedback and share the work, says Strauss. How do you build a great team? The Small Business Administration and its Related Small Business Development Centers offer no-cost and low-cost counseling and training seminars. Find interns at local business schools, or consider hiring part-time employees. Tap business associates and fellow entrepreneurs to serve as informal advisors.

Austin is the best city in the country to start a small business, according to a Portfolio.com/bizjournals study.

The Portfolio study analyzed the nation’s 100 largest metro areas, looking for the places that are most conducive to the creation and development of small businesses.

The highest scores in the study went to areas that have prosperous economies, are expanding rapidly, and are densely packed with small businesses. A small business is defined in the survey as any private-sector employer with 99 or fewer employees.

Despite the recession, Austin experienced impressive population, job and small business growth. The number of small businesses in the Texas capital increased 5.6 percent between 2006 and 2007, the latest period covered by official statistics. The typical metro area experienced small-business growth of 1.4 percent, said Portfolio.

The most promising region for entrepreneurs is the South, which is home to 12 of the 20 best metros for small businesses, according to Portfolio.

Rounding out the top five cities are Baton Rouge, La.; last year’s top city, Raleigh, N.C., came in third; Charleston, S.C. was fourth; and Portland, Maine was fifth.

Detroit came in last in the small-business rating, along with Youngstown, Dayton, and Toledo, Ohio, and Milwaukee.

With the collapse of secure corporate jobs, more people are pursuing an entrepreneurial path, says Entrepreneur.com.

The Kauffman Index of Entrepreneurial Activity, which measures new startups, shows a slight rise in the creation of small businesses even since the recession began, and that is expected to continue through 2009, according to Entrepreneur.com. About 1 million people a year become self-employed, and enrollment in entrepreneurship programs at universities is up.

But how does this square with the hits small businesses have taken in the past two years?

Many experts say that the recession is actually the perfect time to begin planning a small business startup. Office space and supplies are cheaper; with larger companies closing or downsizing, there are service gaps in many areas; and with the high unemployment rate there are plenty of talented people looking for work and ready to hustle.

While entrepreneurs may not see an immediate payoff, smaller, more flexible and creative companies are the business model of the future. And new technology will be the key to creating this new entrepreneurial society.

“Suddenly, you don’t have to have a large physical plant to start a company,” Michael S. Malone, author of “The Future Arrived Yesterday: The Rise of the Protean Corporation and What It Means for You,” told Entrepreneur.com. “The cost of entry is getting close to zero — now the little guys can build a business without the overhead. The best strategy is to get small and adaptable, strip things to a solid core and hire from the cloud of talent out there — then blow up like a puffer fish when you encounter a potential market.”

Cupcakes are the latest entrepreneurial frontier, at least according to the New York Times.

New York City’s Magnolia Bakery, which was featured in an episode of “Sex and the City” and a popular “Saturday Night Live” video, seems to have started the cupcake craze which is quickly spreading to other parts of the country. Traffic to cupcake blogs is on the rise, and the Food Network will debut a new series called “Cupcake Wars.”

The market research firm Mintel predicts cupcake sales nationwide will grow by 20 percent in the next five years, the Times reported.

The Times outlines four cupcake business models:
— The Chain: You need a great product, brand and location to get a chain off the ground.
— Web-Only Store: One blogger decided to start selling cupcakes through her Web site, but has yet to make enough money to quit her day job.
— The Cupcakes and More Store: A number of bakeries make cupcakes their signature product but also sell coffee, lunch fare and other baked goods to draw more customers.
— The Cupcake Bakery: This means making enough cupcakes to sell to other bakeries and stores. One business owner stressed the importance of branding and marketing in making this kind of operation successful. For example, she lets customers know her cupcakes are made with organic, local and natural ingredients.

If you’re looking to start a small business, you should consider Oklahoma City as a launch pad, according to a report by CNNMoney.com.

Growing economies, affordable workers, stable housing markets and low crime are the factors entrepreneurs should consider when starting a small business, said the CNN report.

CNN used 2007 U.S. Census data to compare a city’s population and the number of small businesses employing up to 50 people. They determined the top 10 small-business-friendly cities are:

1. Oklahoma City
2. Pittsburgh
3. Raleigh
4. Houston
5. Hartford
6. Washington, D.C.
7. Charlotte
8. Austin
9. New York City
10. Baltimore