Small Businesses Still Obtain Financing Despite Economy

If you listen to the news reports and pundits, small businesses are having an extremely difficult time obtaining financing due to the mortgage industry’s adverse impact on the banking industry and the resulting tightening of credit.

“Lack of capital is not the real issue, although it is a much bigger issue than in 2007. Capital in 2009 is still available. The primary issue is lack of knowledge of and access to capital. The younger the entity, the fewer the sources,” says Tiffany Wright, author of the new book Help! I Need Money for My Business Now!!. “Most small and medium businesses are completely unaware of the variety of financing sources that exist for their business type or they are highly unprepared to meet the requirements from a relationship and financial packaging perspective.”

Wright contends that there are always several financing alternatives available for any small business. To access these entrepreneurs and business owners must educate themselves and think creatively. “Most business owners think of bank financing when you say debt and venture capital when you say equity. While these two sources provide a significant amount of small business funding, there is a vast pool of working capital for business and other ways to raise capital available from other entities. There are even providers of financing that looks a little like debt and a little like equity.”

Help! I Need Money for My Business Now!!:How to Access Traditional and Creative Financing for Your Business has over 25 in-depth yet succinct case study examples of what other real business owners have done to raise capital to grow their businesses. The material covers not just what is available but the how to obtain it - what works best and why for your particular business type, templates, websites. It includes everything from pursuing business-friendly community banks to forming strategic alliances to tapping supplier financing. This ebook manual shows business owners how to raise the capital they need to survive the economic downturn and grow their business. Help! I Need Money for My Business Now!! helps business owners lay the financial framework to create a viable, sustainable business to sell or pass on.

According to the U.S. Census Bureau, as of 2004, there were nearly 5.9 Million firms with employees in the US and 19.5 Million firms with no employees. 2.8 Million firms had 1-4 employees and another 1.0 Million firms had 5-9 employees. Only 86, 538 companies had 100 or more employees and only 17,047 of those had 500 or more employees. Thus the impact of small businesses on the economy is huge. Wright says, “We must help more small businesses grow into larger, financially stable and viable firms. This way we ensure the return to health of the American economy.”

Help! I Need Money for My Business Now!! can be ordered from Toca Family Business Services, 595 Piedmont Ave.., NE, Suite 320-206, Atlanta, GA 30308; fax credit orders to 404-348-4469; or order online at www.moneytogrowbusiness.com . The price is $59.99 and is delivered immediately upon order confirmation. For more details visit http://www.moneytogrowbusiness.com .

About the Author: Tiffany Wright is the president of an interim management consulting firm and publisher of Equal Construction Record, a commercial construction newspaper, both located in Atlanta, Georgia. In addition to extensive corporate business development and finance deal participation, she is a former financial and business advisor to numerous small businesses in industries ranging from manufacturing to transportation to business services. She has an MBA from the Wharton School at the University of Pennsylvania in Finance and Entrepreneurial Management and a BS in Industrial Engineering from The Ohio State University.

5 Creative Ways for Business Owners to Obtain Financing

Capital is the crucial ingredient for any business to grow. This holds true whether you are a one-person firm with minimal revenue or a 100-person company with significant sales. Yet so many entrepreneurs and business owners complain about how difficult it is to attain. Here are just five of the numerous ways to access capital taken from the informative new book, Solving the Capital Equation. Use these ideas to spark your creative thought process and get the money you need to elevate your business.

• Form strategic partnerships. Consider the following: Who is already reaching your client or customer base? Who offers products or services that may be a great fit for your client or customer base? Who has a skill set or functional expertise that your firm lacks? All of these entities would make great prospective partners. Identify them, then craft a win/win partnership. Why spend money you do not have when you have something else of value to offer them – your firm’s product and services! You can use partners to access the sales force, marketing, IT, accounting, management expertise - to name just a few – of the services you would otherwise have to pay for.

• Barter. As a business owner, you have a product or service that someone wants. Otherwise you wouldn’t be in business. You can barter these products or services for those products and services you need to grow your business or service your customer. Or you could barter for items you would typically remove from the company to pay yourself, then spend on personal items. You can barter for advertising, travel, legal or accounting services, televisions, landscaping, cleaning services…

• Find a strategic investor. Is there a larger company that would benefit directly from your service or product offering? If so, contact them. If you can convince them that your company can directly or indirectly positively impact their bottom line either through a sales increase or a cost reduction, you are likely to garner financing in the form of direct equity, a loan, use of their credit, prepaid contracts, or payment of development costs. Look around. Potential strategic investors abound.

• Tap your suppliers. Are you trying to rapidly expand your business and need money to pay your suppliers? Why not ask your supplier to advance you the money? If your expansion will contribute a sizable portion of your supplier’s annual receipts, you can induce the vendor to provide a 12-18 month loan by promoting how he/she stands to benefit. At the least, negotiate a 90-day payment arrangement.

• Seller finance. Who knows the business or asset better than the person or entity selling it? If you are growing your business through acquiring other businesses, seek seller financing. Give them a lien against the business so they get the business back if you default. Suggest it as a way for you to know you are getting what you paid for. Added benefit: reduces risks that the company has hidden problems which greatly decrease its value and that the owner would start another competing business.

10 Ways to Raise Capital for Your Construction Company or Other Service Business

There are myriad sources that construction companies can access when seeking working capital for business or funds to grow the business whether that is to broaden the geographical area, expand the array of services, or pursue significantly larger contracts. (Acquisition financing is not covered here.) I have covered many of these sources in previous articles. However, the question sometimes is, “What options should I pursue and in what order?” For construction companies, the answer lies below.

Follow these steps to procure financing to grow your business
1. Personal finances.

2. Friends and family.

3. Banks. Typically a line of credit is what will provide you with the working capital cash your business needs. If you are purchasing equipment, materials, and other assets, consider financing from the seller (distributor, equipment leasing vendor, or other supplier) and credit cards. For all other working capital needs – payroll and other payments in advance of payment from customers – the line of credit should suffice.

4. Credit cards. Refer to the bank discussion. Use credit cards to purchase office supplies and other materials.

5. Accounts receivable financing or factoring. If you have contracts or purchase orders or proposals from which you create invoices, and hence receivables, then accounts receivable financing may work well for you. As mentioned in previous articles, this can be expensive but is often a great short-term solution. Comparison shop for the best service and rates. Some receivable financing and factoring firms do not finance construction projects due to the reserves/retainers often contractually required.

If you are working on specific government contracts or with a specific government sub-agency, there may be dollars set aside to provide lower interest loans tied to the receivables from the contract. Ask. Investigate. This is a good source of working capital for business.

6. Microloans. If the amount of money you need is low (under $25,000) consider microloans. There are a number of microloan providers in the Atlanta metro area and throughout the state of Georgia. The same applies across the United States.

7. Angel investors. If you have a rapidly expanding business or have a plan for one, an angel may provide the equity funds you need to grow your business. An angel that is actively involved in the business may also serve as a guarantor for a bank line of credit if your personal credit or your business credit rating is too low to qualify for a loan.

8. Joint venture.

9. Strategic investment.

10. Private equity. Business service providers such as construction companies, IT services companies, marketing firms, and business consulting providers (the list goes on) can only attract equity if and when they have a plan to expand regionally or nationally, occupy a strong market niche or have successfully differentiated their company from their competitors.

Private equity funds typically need a 20% or greater expected return and without the larger expansion plans and scope, a construction firm or other business services company will not provide the required returns. In addition, some funds do not like the lack of contractual recurring revenue inherent to the construction industry. You cannot attract equity and raise capital for your ten-person firm. However, if you have the management team, business development acumen, sales strategy, and operational foundation to grow the business to a 100-person or larger enterprise in a few years, private equity funds may be interested.

Construction firms tend to be small, local operations. Therefore, most firms will not qualify for any equity investment. However, if you want to make the leap from a small consulting type shop with historical revenue of $3 Million or less to one with $30 Million or more, you need to first create the vision and goals, then the plan to achieve those goals . If necessary, engage business consultants and coaches who can help you identify the company’s and your weak areas and put the things in place that will lay the foundation to help you achieve your goals.

If you only reached $3 Million in all of the last ten years, and now you want to make the jump to $30 Million in five years, you must address the huge credibility gap you are now burdened with. Utilizing consultants and coaches will get you on the path to raise capital sooner. These entities can also help you write a plan that incorporates the necessary changes.

If you have been on the path to larger revenue from the beginning, then you do not have the credibility gap with an equity source. However, you must clearly understand and clearly communicate how you are different and how you will achieve revenues of tens of millions when the vast majority of your peers will never come close. This is not to discourage you but to simply help you understand what the investors’ point of view will be.

Market Research on the Cheap: How to Do It

If you are not in touch with your customer base, then you need to start anew. If you have traditionally pursued the “low hanging fruit” – any prospect who is relatively easy to obtain -, you may not know who your real target customer is. Nor will you know how to access that customer. If this sounds like your company, then you have probably been garnering business based predominantly on price. Now is the time to conduct the research to find out who your real customer (the best customer for your product or service offering and your strength in that area) is and craft a strong value proposition that will help you weather the construction industry downturn and position your business for serious growth when the economy recovers.

Here are some recommendations for conducting that market research affordably:

1) Get back to basics. A lot of the most valuable market research comes directly from prospective customers, not from a 50-page industry research report. Identify who your target customers are, build a list of people or businesses to call, craft a questionnaire to get the answers you seek and dial for dollars. Enlist the help of employees, temporary staff, or use a virtual assistant if the list is lengthy.

2) Use Hoovers.com or similar website to determine who the larger companies in your industry providing a similar good or service are. Many of those companies are public which means they must publish detailed quarterly (10-Q) and annual (10-K) financial reports. You will find these in the investor information section of the companies' respective websites or on the SEC website at www.sec.gov/edgar.shmtl. These reports are filled with significant current industry and market information that is often directly applicable to your company.

3) Some of the best research involves competitors. Obviously, no direct competitors in your area of operation (i.e., construction companies in Georgia) will freely share information with you but often direct and indirect competitors in completely different regions of the country will willingly answer questions that could help you assess the market, identify prospects, and avoid pitfalls. Find out who they are and call (preferred) or write.

In an economic or industry downturn, many times business as usual doesn’t work. So many industries - the construction industry, the automotive industry, the real estate industry, the heavy goods industry - are cyclical. During a down cycle those companies that focus on good fundamentals - which includes identifying and keying in on the most appropriate customers and ensuring your company has an excellent value proposition for them – continue to do well relative to their peers and ultimately position themselves to excel when the market shifts.

Small Businesses and the Credit Crisis

How are small businesses weathering the credit crisis -practicing cash management and maintaining cash flow? What does this mean for your business? It is now more important than ever to keep an eye on working capital for business needs. Below is some guidance for now and the future.

1) Those businesses that have built and now maintain strong relationships with their respective bankers or other financing entity initially encountered few, if any problems, at the beginning of the credit crunch. However, as banks encountered more difficulties with access to capital and their own cash flow, a number of these business customers have also experienced some issues with their bank. Yet, it is in times like these that a strong relationship and a good communication program eliminates surprises and helps enable companies to weather their internal ups and downs or their lender's tightening standards.

 

2) Yes, it is harder for small companies to obtain bank loans. Many small banks, which often finance residential builders, have been hit hard by the drop off in residential construction and sales and some large banks have encountered serious issues from bad mortgages and the resulting impact on the financial markets. As a result, cash flow has ebbed and credit standards have risen. The good news is companies that qualified easily before, still qualify but at lower amounts. And the alternative sources for cash flow - accounts receivable financing, equipment financing, bartering, economic development loans, etc. - are still plentiful if people know where to look.

 

3) In general, B2B businesses outside of directly impacted industries (i.e., do not serve mortgage brokers or residential builders) are experiencing less pain that B2C. Consumers are spending less but companies are still spending although how much they spend and where is shifting. Companies that traditionally focus on great service for good value are doing better than those that focus on being the low cost provider to the exclusion of anything else.

4) Businesses can weather a downturn if they focus on tightening up their fiscal and other operations, practicing strong cash management, strengthening ties to and seeking out various financing sources, and providing strong customer service and support. All of this will ensure the company has sufficient cash flow - enough working capital for its business.

Birthing the Business: Entrepreneurship

by Tiffany Wright

Many of those who are starting businesses and those of us who own businesses sometimes get stuck in the "what to do next". Birthing a business or growing a business can be difficult. We head into it with passion but sometimes that passion wans. Below I offer some tips to keep the ebbing to a minimum, constantly rejuvenate, and maintain the focus and passion needed to recruit employees, negotiate with bankers, or simply to experience joy when awaking each day:

1) In order to create anything, you must first envision it in your mind. If you focus on your vision and take action every day towards that vision, you will eventually achieve it. However, mistakes are inevitable - sometimes devastating mistakes - but it's the tenacity and the continual learning and modifying the roadmap that gets you to your goal.

 

2) If you are having difficulty weathering the ups and down, I highly recommend you join a Chamber of Commerce, Rotary Club, or other club with a high number of entrepreneurs among the membership. You can find someone to discuss your issues with or hear the problems others have, both of which allow you to put your problems in perspective.

 

3) Read books and listen to tapes about entrepreneurship and entrepreneurs. You will find that many highly successful business owners have been through bankruptcy or other financial distress, have nearly called it quits, have "failed" miserably at one business only to start or buy another and do amazingly well. Do not operate in a vacuum or listen to all your job-holding friends and family who tell you to give up. Believe in yourself and strengthen your resolve by tapping into the resolve of others.

Calculating Cash Flow

By Tiffany Wright

As I have stated and restated in previous articles, cash flow and management of that cash flow is essential to the health and viability of your business. Most small businesses typically prepare Income Statements and Balance Sheets on an annual basis for tax purposes, sometimes on a quarterly basis for quarterly tax payments. Businesses that have bank lines of credit or term loans must usually prepare and present these same financial statements monthly so that the bank can track the company’s general performance and continued adherence to loan criteria. Most businesses do not create or track a cash flow statement. In any economic environment, cash is king. For capital intensive businesses such as real estate development or renovation, heavy construction, or over-the-road transportation, the timing of cash inflows and outflows can be critical to the success of a business during any 3-month cycle.

In this article we will focus on calculating cash flow. In the next two articles, we will cover how to prepare a cash flow statement and cash management techniques. Understanding cash flow statements and these concepts is important not only for business owners but also for those executives and managers with profit and loss responsibility at any level.

What is cash flow? Cash flow is a measure of the amount of money your company makes or brings in through various sources and spends during a given period in operations, financing, and investing. Cash flow is frequently used as a barometer of your company’s health.  It is the barometer in cash intensive businesses. Calculating cash flow accurately is vital to ensuring that your company has sufficient funds to operate.

What is cash flow? Cash flow is measured in a number of ways to provide various performance parameters of the company. There is the cash flow that the company tracks (or should track) on a daily, weekly, quarterly, and annual basis. This cash flow is tracked in the Cash Flow Statement.  Another cash flow measure is EBITDA - Earnings Before Interest, Taxes, Depreciation, and Amortization - determined from the Income Statement.

What is cash flow? The cash flow definition, according to the American Heritage Dictionary is “1) The pattern of income and expenditures, as of a company or person, and the resulting availability of cash.  2) The cash receipts or net income from one or more assets for a given period, reckoned after taxes and other disbursements, and often used as a measure of corporate worth.” The cash flow definition, according to Wall Street Words: An A to Z Guide to Investment Terms for Today’s Investor by David L. Scott is “The amount of net cash generated by an investment or a business during a specific period. One measure of cash flow is earnings before interest, taxes, depreciation, and amortization. “  It continues, “Because cash is the fuel that drives a business, many analysts consider cash flow to be a company’s most important financial statistic.”

Understanding cash flow lets you assess your financing and borrowing needs; appropriate timing of hiring and major expenditures; effect of receivables timing; payables timing; general and strategic cost-reduction efforts. 

Even a small lag in sales or payment receipt on a large product or service delivery can make a dramatic negative impact on cash flow. If you spent $50,000 delivering a service (personnel, materials, equipment rental,…) and expected payment of $65,000 at culmination of the service but payment is delayed by 60 days, the company must float the $50,000 from other cash sources and the $15,000 extra you had counted on as a buffer for another project is gone.

If you have never tracked your company’s cash flow, then start today. If you utilize Quickbooks, begin generating the Cash Flow Statement in the Reports section and populating the necessary fields with data. If you’re unsure how to proceed, use the tutorial, find a tutorial online, or ask your bookkeeper or accountant to provide you with a tutorial. Or, of course, you can have your bookkeeper or other knowledgeable employee begin inputting the data. Find the break-even points for your products or services.

Have your key employees determine the cash flow projections from their departments.  Combine these projections with yours to create the overall company projections.  Project out your cash flow needs for three (3) months, six (6) months, 1 year, and 3 years.  Some financing can take several months to obtain and other sources of financing can take up to one year so advance planning is extremely helpful. Com

pare your actual cash flow experience (i.e., quarterly Cash Flow Statement) against the projected or pro-form cash flow statement every month or quarter. Over time, you will improve the accuracy of your projections.

Tiffany Wright is the publisher of Equal Construction Record and owner of Toca Family Services, LLC, which provides interim management and project-based financial management services to small and medium businesses. She can be reached at twright@equalconstruction.com. This article is copyright protected.  All rights reserved©.