For a brand new business owner, there’s nothing like the thrill of opening day — your name on the door, customers streaming in, sales ringing up. But then the weeks go by and reality sets in. Sales aren’t what you expected; your “perfect” assistant just gave notice; and the money you budgeted for advertising isn’t nearly enough. Welcome to the world of operating a business day to day.
Finance Your Dream
Every business, no matter how big or small, requires money to get off the ground and to keep running. And no matter how much you start with, there may come a time when you need to go looking for more. As a new entrepreneur with no track record in running a business, your funding choices are limited:
You can self-finance … First option when your business runs short of money is to take a serious look at your personal financial assets. Can you withdraw funds from savings? Cash out your stocks? Sell your boat or luxury auto? Downsize your standard of living? Take out a second mortgage? If all else fails, there’s always your credit card. Many small businesses have charged their way through the early years of operation, but beware of exorbitant interest rates. Use a card with favorable terms and make every payment on time.
… or, you can borrow the money you need. Commercial loans to businesses are approved based on the owner’s capacity to repay as indicated by past business experience, personal credit rating and collateral. A carefully crafted business plan that makes a strong case for your company’s potential profitability can improve your odds of securing a loan from the following potential sources:
Commercial banks which are generally cautious about financing business startups due to high failure rates. Funding options vary from bank to bank, and small businesses may find those that are locally-owned and -operated most receptive to their needs.
Credit unions which offer many of the same products and services as banks, typically feature higher interest rates on deposits and lower rates on loans. As nonprofit institutions, credit unions are supportive of small businesses and place emphasis on personal service.
Commercial finance companies which may take higher risks than banks and, as a result, typically charge higher interest rates. These firms customarily evaluate loan applications more on strength of collateral than a company’s track record or profit potential.
Loan options specifically for small businesses
The U.S. Small Business Administration (SBA) works with lenders, community development organizations and micro-lending institutions to provide loans to small businesses. SBA-guaranteed loans generally have rates and fees that are comparable to non-guaranteed loans and typically feature lower down-payments, flexible overhead requirements and, in some cases, no collateral requirements. In addition, some SBA-guaranteed loans come with continued support to help recipients start and run their businesses. Applications for SBA loans are treated like any other commercial loan application; demonstrated ability to pay the money back is the primary consideration, and the decision to approve or disapprove a loan application rests with the lending institution, not SBA.
For information on loan types, eligibility requirements, lending sources and other concerns, visit the Florida SBDC office nearest you.
Alternate Financing Sources
Failing to secure a business bank loan may not mean the end of your dreams. You might still:
Attract a private investor. Venture capital firms or private individuals called “angels” may be willing to invest in your business if they not only see potential, but also the opportunity to exercise some level of control and/or receive a percentage of future profits. Venture capital firms are often controlled by banks, insurance companies and large corporations; angels are typically wealthy individuals looking to support “hot” ideas. In either case, these types of investors will take risks only if they truly believe in you and/or your product or service, so a business plan heavy on “wow” is essential. See page 34 for a list of Florida venture capital firms or visit Florida Venture Forum at www.flventure.org for more information.
Try crowdfunding. The idea of crowdfunding as a way to underwrite small business growth was triggered by passage of the federal JOBS (short for Jumpstart Our Business Startups) Act in 2012, which allows private companies to solicit investors on the web and opens the door for anyone to become shareholders. SEC rules lay out the specifics, including the paperwork required and limits on how much money an issuer can raise. If crowdfunding appeals to you, look to specialists at your local Florida SBDC office for advice.
Apply for a grant. Some businesses engaged in scientific R&D may qualify for federal grants under the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs if their projects meet certain federal objectives and have high potential for commercialization. Visit www.SBIR.gov for details. For information about grants available in Florida, visit https://florida.grantwatch.com.
Manage Your Money
Wealth is power and money talks. If you want to succeed in business, you must pay attention to ebb and flow. The amount of money flowing into and out of your bank account on a daily basis is an indication of your company’s overall health. A positive cash flow indicates that your liquid assets — cash or other assets that are readily convertible to cash — are increasing and that your business is growing. A negative cash flow signals that your business is on the decline. If you want to stay in business for any length of time, maintaining a positive cash flow should be your No. 1 priority.
My records show that my business is growing and making money, but my bank balance barely covers my monthly expenses. What’s going on here?
Improve your odds of securing a loan
Prove you can pay the money back. Provide a written analysis of anticipated cash flow and a description of any collateral that could be used as secondary repayment.
Present with a good track record and a realistic number. Before meeting with a banker, know your credit score and read your complete credit report. Correct all mistakes in advance and be ready to explain any potential “red flags.” And never ask how much the bank might be willing to loan; suggest an actual dollar amount instead.
Put some of your own money into the mix. Don’t expect a loan to cover all your financing needs; lay down some of your own cash too. After all, if you don’t believe in this venture enough to invest in it yourself, why would anyone else?
Targeted Financing Opportunities
If you are black, Hispanic or female, your business may be eligible for targeted financing:
The Black Business Loan Program (www.floridajobs.org/BBLP) provides loans, loan guarantees and/or investments through loan administrators to black business enterprises that cannot otherwise obtain capital through conventional lending institutions. In addition, Black Business Investment Corporations throughout Florida (see stand ready to facilitate access to capital for black business owners.
Hispanic business owners may find funding information pertinent to their needs through Prospera (formerly Hispanic Business Initiative Fund Florida) at www.prosperausa.org.
And while no government loan programs exist exclusively for women business owners, experience has shown that SBA-guaranteed loans are three to five times more likely to go to women than non-SBA-guaranteed loans. On the local level, Women’s Business Centers can provide assistance in applying for loans and also may provide access to alternative capital financing programs.
Improve your odds of securing a loan
The Jim Moran Institute for Global Entrepreneurship at the Florida State University College of Business offers two veterans programs each year — at no cost to participants:
The Entrepreneurship Bootcamp for Veterans (EBV) Accelerate provides veteran business owners the tools and coaching needed to propel their existing businesses to the next level: sustainable growth. Topics addressed include: acquiring growth funding, rebranding for expansion, determining a sustainable growth rate, establishing partnerships and managing cash flow.
The bootcamp for veterans’ families (EBV-F) provides an opportunity for immediate family members of veterans with a service-connected disability to receive cutting-edge, experiential training in entrepreneurship and small business management with the aim of launching and growing their own small business that will provide a vocational path complementary to family responsibilities.
For more information, visit jimmoraninstitute.fsu.edu.
Randy Blass, Ph.D., executive director of the Jim Moran Institute for Global Entrepreneurship, instructs veteran business owners as part of the EBV-Accelerate program at Florida State University.
I’m a veteran looking to launch a new business. Are there any special funding opportunities to help me get my company off the ground?
Many small businesses start out as one-person operations with the owner doing pretty much everything. That may work for a while, but as the business grows — and isn’t that your goal? — you will probably need to bring on extra hands. Friends and relatives may be able to help out at first, but sooner or later you will need to hire personnel.
What’s the best way to find qualified employees? I see a lot of websites where job seekers can post resumes, but I’m not sure they are legit. Can you give me some advice on how to select good candidates and screen applicants?
In the early stages of small business ownership, entrepreneurs often try to function as jacks-of-all-trades. For example, in addition to working on cars, the owner of a small auto repair shop might typically greet customers, answer the phone, pay the bills, order the parts, place the ads, etc. That’s a heavy load, and when it becomes too burdensome, it’s time to consider turning over one or more of those responsibilities to someone else.
I am a relatively new business owner and use the QuickBooks accounting software system by Intuit. Do I also need the services of a bookkeeper or a Certified Public Accountant?
Advertising and Promotion
With an estimated half million new businesses opening every month across the U.S., the competition to attract consumers is fierce. To avoid getting lost in the herd, you must come out of the gate running — establish your brand quickly and promote it like crazy.
As a brand-new business owner, I don’t have a lot of money to put toward advertising. My products appeal to a lot of different age groups and I don’t want to miss any potential buyers, but with limited funds, how do I reach them all?
Start with a logo
a name for your business, start thinking about a logo to represent it … and don’t be tempted to cut corners in the process. Your logo will appear on everything — business cards, letterhead, website, signage, boxes, bags, receipts, advertising — so make sure it’s clean and well-executed. This is one place where quality should be considered before cost.
Consider all media options, but settle on only a few
The promotional vehicles available for your business fall into two very large categories:
Traditional Media: Newspapers; magazines; TV; radio; direct mail (flyers and coupons); outdoor advertising (billboards and signage); specialty advertising (t-shirts, pens, mugs, etc.)
Digital Media: Company website; email marketing; social media; online review sites
Before signing on any dotted line, do this: Set a realistic budget for advertising, research your options, talk to other business owners and seek advice from consultants at your local Florida SBDC office.
In the end, you may have only enough resources for one promotional tool and, if so, make it your company website. A website serves as the face of your business; it’s the place customers will likely go first to learn about the products/services you offer. And unless you are highly computer savvy, hire a professional to create a site that is both computer and mobile friendly. It will be money well spent.
Make deliberate media choices
Generally speaking, it is never wise to put all of your promotional eggs in one basket. Use a combination of vehicles instead: a dedicated company website plus paid advertising in the local newspaper or on TV plus a social media presence on Facebook and Twitter. Just beware of spreading yourself too thin.
With regard to social media, limit the time you personally spend responding to comments and queries; designate a staff member to be your “social media specialist” instead. And when considering the purchase of ad space in traditional media, keep in mind that frequency and continuity are more important than the size/length of an ad or the amount you pay for it.