Other Avenues to Get Capital for Small Business

If I hear it one time a week I hear it ten times (well maybe an overstatement there) but anyway I hear it weekly.  And if you work in the business development/economic development field of helping small business owners and future owners then you do to.  There is simply no way around it - you are going to hear it. What is it you ask?  The statements "No bank is willing to lend to me." or  "I can't find anyone willing to give me the money."

I admit we would think with the current talk of small business being the true savior of our economic recession that banks would be more willing to lend. But they are not. In fact, it seems they have tightened up their lending criteria even more. I understand they are nervous with the mortgage crisis but to help us get out of it, lend some instead of letting it sit in the bank.

When I work with a client and we determine the need for capital, I always recommend they start with the local banking system in their community. That sounds like I am talking out of both sides of my mouth but I have a reason for it. I feel this is important to help them start to establish a relationship with their business banking partner. At sometime they will need that partner and at sometime that partner will be willing to lend to them - so get to know each other early in the process.

Clients may not meet the lending criteria due to credit scores, past mistakes, poor or no business plans or do not present well during the bank interview.  If after they have shopped the local banks and they have gotten a solid goose egg, then it is time to go to the second tier of lenders I use at my center. But it needs to be said, banks are still lending - they have not stopped totally lending.  I am still getting clients funded through bank loans. In fact, this year has been better for me than the last two years. So I really think the secret is the connection you and that potential banker make during the initial interview.

The second tier is made up of organizations like community development corporations, regional planning organizations, economic development organizations and special business groups like downtown redevelopment entities. Here they want to help the local entrepreneur and often do by filling a gap in the financing or taking on the whole deal if they can afford it. So I talk to my clients and give them the listing of area opportunities and they go shopping again. I tell them this may not be as fruitful as my other lower tiers but they often know of opportunities that may exist to help. While I have not had much luck in getting clients funded here, I have found many other resources out there to help with more exact funding opportunities than I ever knew existed in the area.

If that one goes bust, then we move on down the ladder to tier three - non traditional lendors.  Here many people may argue my placement but since I am writing I am deciding the placement. My center is a member of a few national lending networks where I take the client and post their application on the website. Just like in LendingTree, banks from all over the county review the package and then place their offers/questions for us to review and respond. So the client and myself review the offers and make a decision if to take the deal or not. Of course, it is not that simple of a decision or process but we all know that. As for my center, I have posted many deals, gotten bites from out of and in state banks but the clients have all gotten cold feet at the prospect of dealing with a banker they will never meet.

In this tier also is alternative banks who are national in scope  but do not act like a traditional bank. They offer programs for specific industries or categories of the populations (i.e. Veterans, women, etc.). I always make a point to check on them to see if there is any programs my client may qualify for. 

The fourth tier is the true non-traditional lendor - funding sources that are willing to take the risk and the client pays the higher price.  Nothing wrong here at all, just sometimes the interest rate these companies charge are more like a credit card than a financial source. I am currently working with a client who is in a situation where he has no way to go but to this level - no collateral that is not already spoken for, no capital, in the red but yet is so close to the breakeven point.  We have submitted the proposal to the cash flow lender and will see what happens.  I make my clients aware of these lendors when we have to since their interest rate is higher and often the client can't receive the full amount they really need to move the needle.

The fifth tier is venture capital/angel firms. Yes even here in Southeast Missouri there are such firms.  Now admittingly, this tier may come up sooner depending on the needs of the client. I currently have three clients working with VC firms.  I was surprised to learn they often do not operate the way you are told. I prepped my clients for the three minute presentation, helped them create handouts, got the financials ready and even rehearsed.  When we went to the meeting, they just wanted to talk to us about the product, the client, why the money and what they hoped to achieve with it. Personally I loved it because it was so relaxed and my clients could handle it. In fact, they went in over prepared with my prep work but yet they answered all the questions dead on.

My final tier is personal capital - credit cards, the 3F plan (friends, family or fools) or P2P opportunities. Now again, this opportunity may come up sooner depending on the situation presented to the client. But I know of several businesses who maxed out one card only to pay it off while maxing out another.  Yes high interest but when that is what you have you use it.

I usually get a chuckle at the 3F plan but it is a serious opportunity but one that comes at great risk - the loss of a friendship/relationship. We have all heard of family members not speaking to each other because of a deal gone south. That does not make for a fun Thanksgiving dinner around the family table.

With the P2P (peer to peer), you can go to websites and pitch your idea and people will decide how much they want to give. I have not had any clients go this route yet but a few have looked at it since they were considering a home based business and did not need a large amount. I understand it to be safe and sound for both parties since the money is managed by a third party.

Well just know aspiring entrepreneur, there are many other avenues to the cash you need besides the local bank. Don't give up - just come see me and we will get you started.

Any thoughts or discussion. Where would you place your lending community opportunities in the scale. Let me know and let's talk.

Habits - Good or Bad - We've Got Them

Habits are a mixed breed of human behavior. Some are good and some are not so good for us. We all have habits we wish we could do away with and behaviors we would like to make habits for us. I know I do and every day I am reminded of them. That reminder serves as my change agent to work harder at changing what I can and to accept what I cannot change.

Well in the business world, we have to make changes as our customer's habits change. We don't have the luxury of staying the same all the time because our customers do not stay the same. The Model T is a prime example of how it did not change but yet today the American auto industry still seems to live in the mindset of "I have every color you want as long as you want black." The industry had to have a big jolt of reality before it could start making changes to reflect the American car buying audience.

Habits have an effect on not just large business but small business also. In fact, habits probably have a faster effect on a small business's bottom line because of how close it is to the ultimate customer. In small business, the owner is often in front of the customer while in big business, the owner is many times removed.

So how can a small business owner change his or her habits and improve the bottom line? The first thing an owner should do is make sure the inventory is in line with the customer's needs and desires. Consumers change over time and what was needed last year may no longer be needed. So if you don't update your inventory you may be selling last year's fad which is this year's junk(bad habit). So talk to your customer's - ask them what they would like to see you carry. Ask them about how they see the market changing and what their expectations are (good habit). Involving the customer in your decision making process is one way to make sure your habits on inventory are changing and you don't get caught with your pants down.

Then once you involve the customer in your store, it is easier to ask them to buy more - the second thing you can do to change habits. Many times, small business owners are happy to get the order (bad habit). Once you have the order, then is the time to ask how else you may help them and grow that customer in terms of sales. It may be a purchase of an auxiliary product, something totally different in another product line - whatever but do the ask! (good habit)

The third habit to change is complacency with the competition (bad habit). We all know competition is there and more of it every day. It is surprising to me when I talk to a business owner and they say they have no competition. Bull Hockey! We all have competition. Heck even I, as a free service, have competition from for profit sources. So go out there and shop the competition (good habit). Have friends and family members go to them and shop them. Check out the customer service, inventory, policies, etc. Get to know them so you can identify their weaknesses (and yours) and build a stronger case for "why buy you."

Next recognize the value of the repeat customer and start paying attention to her. It is not a good practice to offer new customers something and not the existing ones (bad habit). It is on average nine times more expensive to acquire a new customer then to keep an existing one. So reward the repeat customer (good habit). How? Try a customer loyalty card, customer appreciation events, insider sales, preview sales, special packaging or services etc. Give them a reason to come back more often and buy from you. Many times these special services are not expensive when compared to the sales they generate.

We are all creatures of habit so reinforce your customer's habit of shopping with you with your own good habits. So I invite you to share with us some examples of good and bad habits you may have or have witnessed in small business. Let's talk about them.....

Sometimes I just have to be honest.....

I had a moment the other day that I did not like my job. This does not happen very often as I really like the client interaction, the research I do for them and overall helping to grow the economy of Southeast Missouri. It really gives me a charge when I see a new business open up that I assist in the planning stages or a client gets a loan in these times. So overall I really do enjoy my job.

But the other day, it was different. I had a client counseling session scheduled and I knew it would not go well. I had done the financial analysis of the past five years and it did not look good. I did the projections and of course they should look good but based on past historicals, I could not match the hopes of the business owners. I tried changing this number or that number or reducing this or increasing this and it always came out the same - not in favor for the client.

We met last week and I shared with them the results of the financial projections. I made sure they understood what the numbers were saying and what they would tell a banker when asking for a loan. They said they understood but the question still remained - they knew their sales projections were right.

So we talked about what were they doing differently in the business to generate this additional revenue. We got creative in their explanations and even stretched some areas. I would do a quick financial redo on the PC and come up with the same results.

The client started to see where this was headed and finally asked the inevitable question "what should I do? This is my livelihood and I need this money to keep it going."

I was in the moment where I did not like my job. I knew I had only one answer and it was not a kind one. I put on my best counselor face and told them they had only two real solutions - 1) continue to limp along and eventually go out of business or 2) get out now and start looking for a new job or new idea to start a new business.

I sat there and held back my desire to reach out and try to smooth it over. That was not the right thing to do for the client. I let the couple think it over and consider their options.

After a while, they asked questions regarding on how they could get out of the business, sell the equipment, sell the building, and how could they potentially recover some of their investment. We discussed options and methods to do that.

Surprisingly, at the end of the counseling session, the client told me they somehow felt relieved with my honesty and they could now move forward on their own decisions. They told me they had discussed the same options many times but were unwilling to admit their failure. Now that someone from the outside had said it, they knew it was the right thing to do.

So with their minds almost made up, they left the session with a clearer path for their future. I found some relief in the new facts they had shared with me but I still did not like my job that night.

What are your thoughts? Share with me.

Random thoughts for Entrepreneurs

I am sitting here at my desk looking at the sunny skies (a change for us with all the rain here in Southeast Missouri) and thinking of the recent increase in entrepreneurial traffic I am experiencing in my center. It is like someone left the tap on and the drain is clogged with the increased traffic via phone, email and in person.

As I think about the time when I had my own business - yes I got bit by the bug and became an entrepreneur out of necessity. The advertising agency I was working for had closed down, I had no job but thought staying in advertising was what I wanted to do. So I opened shop and went after it. I can honestly say, I wish I knew then what I know now because I would have been successful maybe.

I got out there and talked to previous clients and the media about me buying their media for them. I knocked on a lot of doors, had several hours of meetings and very little results. As I look back, I chuckle at myself and think "how stupid I was."

I did not consider registering with the state, buying insurance, writing a business plan - I did not know anything other than I wanted to open my own media buying shop.

Well I did and in 6 months, I closed shop and went job hunting. Does not sound like a good example for a small business development counselor to admit to in public. It is kinda like admitting I imbibe in adult beverages in front of my mother at her Southern Baptist church.

But I learned from that experience and it provides rich examples for my clients when we talk about are you ready to be an entrepreneur, is your house in order and the many other necessary actions you have to take and consider as you start up a business. I often think back to my personal experiences when I am working with a beginning client and relate my story and question them. Sometimes we uncover decisions that need to be made and other times, we move forward because they have done their homework.

Needless to say, as a entrepreneur, you need to be prepared to face challenges, surprises and take the turns with a roll. I know I did when I decided to close down the advertising firm because I really wanted to do it but I did not have enough business sense to do it. If I had sought out the help of a local counselor or mentor, who knows.

Now when I got involved in the bar business...well that is another story for a later blog. Send me your examples of entrepreneurial turns and let's talk and share. Until next time...

Small Business Organization - Are you ready for a system?

Gotcha - you thought this was going to be about LLC, corporations, partnerships etc didn't you!

Well it is not. In fact I won't even touch on the LLC, corporations and partnership topic at all. How is that for you?

Actually I was reading the other day in one of my magazines and came across an article that I would really sink my teeth into - office clutter and how to get rid of it. Now I am not the neatest person and any visit to my office will attest to that but I tend to be a systems person. One of my co-workers finds my system approach to be way overboard and I fine with that because I am a "let live" person. But I know my system works for me.

Well let's on with the topic of this blog - office clutter.

I firmly believe that an organized workspace helps small business owners stay on top of their business. You always know where the project is, the invoices are or the next to do list. You are organized and the clean work environment helps you stay that way. The staying that way is probably the hardest trick.

The tips the article gave were pretty good. I will list them here and hope for some discussion from the readers out there in internet world. I will of course provide my opinion also.

Tip #1 - Clean out/Straighten up - Here I am talking about keeping your workspace free. I find I can always work more efficiently if my desk is clear of unnecessary papers, files even pens/pencils. I can get frustrated with the lack of space when working if I have an over crowded desktop. I often do that with my PC desktop also. I decide that needs to go into the trash, be filed, or created a file for it and then file it away. To make sure I don't forget about it, I have a task listing I use daily to help plan my work. Each project I am working on is put into file and on that task list. Some days that task list has saved my behind and other days it only made for a frustrating day of never getting to the to do list.

Tip #2 - Once you find a home, make it a home - Everything on your desk, office or work environment is searching for its home. You should decide what goes here and work hard to keep it there when not in use. I find this tip to be the hardest. I am so bad for getting something out, using it and then laying it down. Only to have to hunt for it later when I need it again. How frustrating is that I tell you? Some suggestions here are lateral files, wall hanging file keepers, desk top file keepers etc. It depends on your personality but if you have to keep in the projects out front, then make it happen. Or if you are like me and prefer to do lists, keep the to do list up to date and use it.

Tip #3 - Plan for your work flow when organizing - I learned a long time ago to keep my phone on the left and my paper and pens on the right. I am right handed and when I am on the phone, I take notes. So that set up keeps me from switching hands in mid-stream each time I am on the phone. I also keep the most used office supplies close to the top of my desk so they are handy. The office items I use the least are located in the bottom desk drawer or on the left side of the desk. Just me but it works for me.

Tip #4 - PC clean up - If you keep a junky office, chances are you keep a junky PC. Clean it up. Run file clean up software to take care of the debugging, cache, formatting, etc. Each time I do it, I am always surprised at the junk I have accumulated on my PC (Yes I am a PC guy.) This also goes for security/virus updates. Nothing is more frustrating then when you are working and the computer shuts down and the circle of death appears. A tip the article mentioned that I just did recently, is bundle your power cords together. I was so surprised when I did this and my physical desktop and floor all looked so much cleaner.

Tip #5 - Consistency - Once you got it all planned out, then keep it that way. How hard is that to do? Believe me it is hard but once you get into the habit, then you start to see the improvements in your work and you keep doing it.

So tell me what your "system" is for reducing office clutter. Share some tips and what works and what does not work.

Until next time.....

Access to Capital for Small Businesses

Taking a different turn here with this post - I am going strictly with my feelings on this topic. That will probably get me in hot water somewhere in someone's office but this topic is a big one for me.

Recently, a client of mine came to me with a idea that I felt skeptical about mainly because I could not understand his small business idea. He was persistent in making it happen as he had the passion for it and had a successful model to follow. We worked on the business plan and he produced a solid one. He got it. He went to four banks and after six months, the fourth agreed to fund him. I was so excited for him.

Another client has an even stronger idea for a small business in the area and she also has a strong idea. In fact, if we can get this to happen, it will be the only retail outlet between St Louis and Memphis offering the product locally. With this client, she cannot get funded from any bank. We have practiced the pitch and interview, reviewed the business plan for weaknesses and tightened the financials even more. She finally turned to her personal retirement fund and is now moving forward. We went to six area banks and not one would even touch it past the first meeting.

So here is the question - if small business start ups provided 70%+ of the new jobs in the last 10 years, why do they have such a hard time getting financed? Yeah yeah the fact that only 10 out of 100 survive the first 5 years is a biggie but the loans are secured so the banks can get their money. They even have the SBA guarantee option for the loans also.

I know there are many conversations starters with this topic and are started every day in my world of small business development. But why is it so hard to get an answer out of a bank?

Share with me your thoughts and opinions on this one.

Cash is the King of the Royal Family and Then Some...

We have all heard it and probably seen it to be true in some form of real life situation - Cash is King. We can either be inside the gates and enjoying life at court or we can be outside living as a pauper. Which would you prefer? I know I want to be inside the gate with all the other fine Lords and Ladies.

But on a more serious note, if you are not tending to the court of Cash in your small business, you could be in trouble. You need to be regularly checking the books to make sure you are not in the red and spend when you need to and at other times not spending to carry over the balances.

I recently came across some tips to help protect the cash balance of your business and wanted to share them with you.

1) Cash may be 6 feet under in your business - you may have extra inventory sitting around or equipment you brought and no longer have any use for in the business. Ask an employee to review the physical layout of the business (meaning places like warehouse, storage etc.) or have someone who does not work there come in and question the existence of such items. Once you find the buried cash, sell it to generate revenue and add that to your books.

2) Track your cash - monitor your cash flow reports regularly so you can better manage your small business. You will start to notice signs telling you something is going to happen and practically scream at you to make a change in the operation/sales side of the business. Make sure you ask the people who impact your cash flow what are they doing to drive it up. You may get a P&L monthly but make sure you dig into it and understand what is happening. Where did the cash come in from and where did it go?

3) Sign your own checks - nothing else to be said here.

4) Grow at the pace you can afford - growth is a cash eater and you need to be careful you don't start to grow faster than you can afford. Manage your growth to a rate you can afford while still providing adequate returns on the business to any investor like yourself.

5) Communicate to your bankers- do not surprise these people. If there is one person you don't want to surprise it is your banker. Talk to them about your situation, tell about your first sale and your last sale of the day. If you think you are going to miss a payment, get on the phone and work something out. They want you to be successful so let them help you be just that.

6) Build a stronger castle for the King - the King likes it when you build his treasury (your business net worth) so concentrate on increasing the company's net worth or equity as you grow the business. This growth in equity will allow you to borrow without increasing your debt to equity ratio which is a very good thing for a small business. So watch your equity account and help it grow by putting money aside but don't starve the business by not spending when you need to.

7) Look into new opportunities - Star Trek went where no man has gone before and you may need to do that too to keep your business fresh and growing. Don't be afraid to ask people for their thoughts on your business and what you can do to grow it. Be creative with outreach programs when seeking input.

Remember cash is king but you rule the business so plan to survive, thrive and grow and you will come out on top.

How do you manage your cash accounts? Let me know and share your thoughts and ideas. Let's talk.