me. In fact, I believe it helped propel me to success. Why? Because I had no other choice. Not only did I want to make money fast, I needed to!
And that drive led me to an incredibly successful entrepreneurial career as well as an Inc 500 ranked enterprise sharing leadership and business strategies with other women business owners.
By definition, entrepreneurs are risk takers. Just by picking up this book, I know something about you: You have dreams that are probably much bigger than your bank account. You know you are more than your credit score. And you are ready to turn your dreams into reality no matter what “they” say.
You don’t have to get a small business loan to start a business, but there are times when access to credit can be an asset. If you are going to get a loan or raise money through crowdfunding, you want to be smart about it. And that’s what this book will help you do.
Since launching my business over fifteen years ago, I’ve had the privilege to work with thousands of entrepreneurs from all kinds of backgrounds. One thing I’ve learned and share with them is that it is critical to have mentors and coaches; smart people who can help you fill in the gaps and avoid pitfalls.
Garrett Sutton is one of those people in my network. He’s a corporate attorney with a passion for helping entrepreneurs. With his co-author Gerri Detweiler, a nationally recognized credit expert, he has created this guide to help you navigate the sometimes rough waters of financing a business.
If you are like me, you aren’t willing to wait until conditions are perfect for starting your business. You want to dive in now. Finance Your Own Business will give you lots of strategies for raising the money you need to get off the ground or take your business to the next level. I wish I had this kind of information when I got started!
~Ali Brown, Leading Entrepreneur, Mentor, Angel Investor, www.AliBrown.com
Part One: Finding Financing
Overview
A Tale of Two Business Start Ups
Mike, Jan and Liz had worked their way up the ladder at the PR firm where they landed after college.
Talented and hardworking, they loved their jobs in the beginning. But as the company grew and they moved up the ranks, they found themselves in endless meetings, scheduling more endless meetings. When a much larger agency acquired the firm, they pictured more endless meetings. All three of them decided to take their severance money and pursue other opportunities.
Starting with his $50,000 severance pay Mike built his PR firm into a boutique agency billing over $5 million a year. Creative and personable, Mike’s reputation and company grew quickly. As it did, he found himself constantly putting out fires—and all too often, they were financial fires.
Many of his clients were Fortune 500 companies that paid well, but slowly. Sometimes, it took six months to collect from them. The larger the client company, it seemed, the longer it took to get paid. In the meantime, he had to keep paying salaries and overhead. More than once, he threw expenses onto his personal credit cards. And he missed a payment more than once because he was too busy to notice when the bills were due. His interest rates on his credit cards were now all in the double digits.
One day, Mike was contacted by a company that told him they could factor his firm’s receivables. The pitch was attractive: Get paid for work right away, and let someone else worry about collecting on the invoice. The cut he had to give the factoring firm shaved a little more off his already thin margins, but at least he was making payroll.
Then the bank where he held his business accounts, including his operating line of credit, was sold. The line of credit—his lifeline—was cut, because he didn’t meet the new bank’s credit criteria. Now he didn’t have the funds he needed to float him between client payments, and it looked like his business might not make it. In his moment of desperation, he received a call from one of the bigger firms. They were looking for companies to acquire and were interested in his.
Like Mike, Jan and Liz joined together to start their own PR firm at the same time. They each took $15,000 from their severance pay and parked the $30,000 in their business bank accounts, agreeing not to spend it except in an absolute emergency. Both women had excellent credit ratings, and wanted to keep them strong. On advice from their CPA, they carefully researched the business credit building process so they wouldn’t run into the cash flow problems the CPA had seen so many of his clients encounter.
Their firm also grew, but they watched their expenses like hawks, reviewed their finances every week, and avoided tapping their personal credit. When Jan and Liz needed computers and a phone system for their small office, they leased them. When they needed office supplies, they charged them to their office supply account and paid them off when they came due.
Many of the accounts they established allowed them to pay in 30, 60, and sometimes 90 days. Whenever possible, they chose accounts with companies that gave them the longest terms, and once their firm established a payment history, they negotiated even better terms. They also established an operating line of credit at their bank, but used very little of it.
Unlike Mike, who hired the best and the brightest, Jan and Liz outsourced a lot of their work to avoid a large payroll. Several of their best employees agreed to work on more modest salaries, but with a generous bonus plan at the end of the year based on the firm’s profits. They, too, were billing several million dollars a year when they received a call from the larger firms.
How Deep Is Your Well?
Mike’s story is a common one, except that the vast majority don’t survive the financial turbulence that Mike and his business faced. Entrepreneurs are usually self-starters who are good at what they know. They come up with great concepts, invest in marketing and advertising, and are willing to work hard to get the job done. But ultimately, they fail because they never planned for their capital needs. Think of capitalizing business as digging a well. Smart business owners dig the well as deep as possible—or at least lay that groundwork for doing so. Otherwise, they are constantly trying to refill the well every time it stops raining business.
The biggest tragedy is that many business owners wait until it is too late to start digging that well; that is, looking for capital. At that point, like Mike, they usually end up out of luck. The reality is, no one wants to give you money if they know you need it. Word to the wise: Dig your well when you don’t need the water.
What is Financing a Business?
This is a book about financing your business. It is not about business finance. What is the difference? Business finance is the broad activity of managing money and other assets within a company. Business finance courses in college and in graduate school deal with accounting methods, strategic investing, debt management and financial principles. You will often hear people say, “He’s a finance guy.” Or “She’s a financial whiz.” These are people who know how to manage, move and manipulate money to the company’s (and their) benefit.
Financing a business, though it sounds similar, is not the same thing. Instead, it means bringing money into your business. It’s a much narrower activity than business finance, certainly for young businesses. But it is arguably a more important activity. You can hire the finance guy to manage all the money later. But first you need to get started and you need money to do it. And then you need to keep going—and unless your business is rolling in cash, you need the continuing financing to grow it.
As a corporate attorney, Garrett Sutton, one of the authors of this book, has worked with business owners all over the world, at all stages of their businesses—from
