The Cash Flow statement is complete. You know how much you have to invest. Where is the rest of the money coming from? A very tough question indeed. But the options are many.
There are only three sources of cash, equity, debt or income from operations, which is not available for start-ups.
After your own personal funds, many new ventures rely on family and friends. You may use second mortgages on your home, even refinancing your home. Cash values from insurance policies, borrowing from pension funds, using severance payments or bonus payments, where available, may provide additional equity. Some even use credit card limits. This is strongly discouraged and is expensive.
Of course you can win the lottery but win it first.
Beyond these personal funds, there are the banks, commercial lenders, credit unions and other financial institutions. Banks are not very interested in lending money to new companies with out solid collateral.
There are federally guaranteed loans where the Small Business Administration may guarantee 85% of a bank loan up to $150,000.00 and 75% up to $2,000,000.00. There are licensed Small Business Investment Companies(SBIC), 504 certified development company loans and state and local lending programs. Each has its own rules for qualifying and requires an equity investment.
There are investors who may guarantee loans for a fee or shares in your company or they may invest directly through equity participation or convertible debt. Investors again have stringent requirements and their participation can be costly. But many companies would never have been started without venture capitalists willing to take the risk where the business concept was promising.
Investors look for a strong, accurate and complete business plan, your credit history, collateral and they expect repayment plus. They want to know that your product has a strong demand or an established propriety position. All of this could ultimately lead to a public stock offering often used to fuel growth for an emerging start-up company.
Other sources of funding could be floor planning (specific to certain types of business, where the debt is secured by the inventory). As companies become established, trade credit from suppliers may be available but seldom for start-ups. Factoring companies which buy accounts receivable are widely used in many industries. In some cases debt from vendor leasing or lease vs. buying helps to minimize cash requirements for a new company.
Whatever course you take, you must be open about your own personal financial status, listing all assets and liabilities, personal budget requirements (remember the personal budget from the June 03 article), any law suits, bankruptcies and any other information of value. Be open, tell it like it is.
Specify the amount and length of the loan. Display the sources and uses of all funds. Justify your loan request and demonstrate your ability to service the debt and repay it, but borrow money carefully.
Be certain to borrow enough but not too much because it is expensive. Avoid the tendency to be too conservative and borrow too little because you may run out of cash before the business is successful.
A good well thought out accurate business plan, financial plan and cash flow statement are the most important documents necessary to obtain the funds for your great venture.
Prepare them well and prepare them now.
August 2003
.”Ed” McMahon’s career includes the small business and corporate world. With degrees from Villanova Univ. an MBA from the City University of New York and completed postgraduate work at the Stanford University, he is the author of the book” UnderstandingSmallBusiness (http://www.Understandingsmallbusiness.com).
Ed has extensive small business experience. He has counseled several hundred small business prospects in the principles of small business.
He drafted the FTC disclosure statement for a major convenience store chain currently operating.
He has held senior posts as executive vice president of a mid-size oil company, headed up the polymer division of a major chemical company and was taught “UNDERSTANDING SMALL BUSINESS” workshops employed as an officer of a major consulting company.
Ed has taught Small Business workshops at the business college level, and for the past 11 years.
For 6 years his monthly column on small business has been published in a regional business journal. He can be reached at USB@houston.rr.com.
Just like all things in life, the ways to run a business are rapidly changing and evolving. The potential involved with having a domain name/web site is staggering to say the least. A web site gives the consumer a ’shop front’ that is not only open 24 hours a day, seven days a week, but is also situated right on their desktop. Instead of being locked into only the immediate area, the whole world’s marketplace becomes your sphere of interaction.
Customers can access information on all your products, no more salesperson with limited knowledge trying to explain something they no little about. No more waiting in lines for help, all people have access immediately.
The domain name of the website gives great freedom to the business process. Having your own name is like having an address, then infinite emails can be added to the name so different departments within the company can be reached without having to wait at reception. For example, sales@ Mary’s Plants.com will put the shopper in direct contact with Mary’s sales section.
As a business, the domain name adds professional authenticity, as your address is not affiliated with other companies. In the area of communication, the email system opens up many avenues. Instead of having to put clients on hold because of limited personnel, innumerable emails can arrive at once, even when there’s no one in the office. Then you can pick and choose which one’s to reply to first (the most urgent), while people browsing can wait till later. First come, first serve becomes obsolete as necessary customers automatically reach the front of the line.
Getting a website and domain name is an easy, simple, cost-effective process. You can register your name through web domain registrars like DomReg-M6.Net for as low as $15.00 U.S. per year. That is definitely a very limited risk compared to opening a store, renting a location, and the thousands of dollars involved in overhead costs. How can this be true? A key to the door for anyone who wants to enter a mega-mall that is as big as the Earth. Let’s hope you’ve got something special to share and trade with the global community!
About The Author
Mr. Somer is a human analyzing the positive aspects of the information era, and sharing the facts with the technological novice. And currently he is writing for M6.net
sales@m6.net
