27. November 2017

Starting a business always begins with what you think or believe is a great idea. For most people that is where the story ends. Just an idea that they bring out over drinks with friends or at family gatherings but that never becomes more than just an idea. Taking action to move from an idea into an actual business for most is an overwhelming task and one for which they have not been trained or educated.

Having no practical experience in starting a business and no formal education on the same tends to compound what already seems like a huge task. It is at this point that many would be business owners freeze up and while they know there are lots of actions which need to be taken they do not know which to do first or in what order they need to be done. Let’s break it down into bite size tasks and place them in a relative order to make the idea to action part of starting a business a little easier.

Action 1 – Business Name
This may sound easy but maybe not as easy as it appears. You will want a name that no other business is using and not one that just nobody is using in your State. You will want the website name to be available for your business name so that you do not have to add anything to your business name just to have a website for it. Search the BBB.org site, use the godaddy.com domain search, check the TESS (US Trademark search), and you can check the Experian and Dun & Bradstreet business credit files.

Action 2 – Business Entity
Do not do business as a sole proprietor or partnership. Those forms of business are not stand alone entities and they put everything you own personally at risk. One mistake can result in you losing your savings, investments, your home, and anything else you own. Form either an LLC or INC to protect yourself personally and to have a standalone entity.

Action 3 – Your Plan
This doesn’t have to be some kind of canned plan, Rather it should be your idea written down. Answer things like “is there a market?”, “how much competition is there?”, “is it sustainable?”. There are many good business plan checklists out there that will help you write down your idea and see if it really makes sense. Demographics play a huge role, “does anybody want what you are offering?”. An example might be to not open a bagel and coffee shop where everyone has to make a left hand turn on their way to work. Your business has already failed. People will not cross traffic to both get to your shop and then to get back out. And they do not buy bagels and coffee on their way home. Do your homework.

Action 4 – The Money
“How much money will it take to start?”, “do you have enough?”, “do you have access to more when needed?”. Doing the budget before you begin is a massive part of your success. Most business that fail do so due to a lack of cash flow or financing. The budget was not well thought out to begin with, revenue production was over estimated, and there was no pre-qualification done to have access to more cash if and when crunch time came.

Action 5 – Required Services
Your cash flow can be gone quickly when you start adding up all the services you need to successful build and grow your business. You need; a phone system, website, accounting, ecommerce, local marketing, SEO, CRM, ERP, mobile marketing, location, email marketing, direct marketing, and more. By the time you add them all up you find you are spending thousands each month $49 to $499 at a time. But trying to operate your business without these critical services surely increases you chance of failure.

Action 6 – The Best News
The best news you can receive about starting a business is Fundability.com. All of our action steps are clearly laid out and provided. There are virtual coaches on each step instructing you what to do, why to do it, and how to do it. There is also a professional team you can contact at any time to get the answers. Your business success begins one step at a time and getting the best help possible each step of the way.

Business Planning, Business Startups, Entrepreneurship, Small Business Financing

23. November 2017

There is a massive difference in the types of debt you may have already or will take on for your business.

1 – Entity
First off if you are doing business as either a sole proprietorship or partnership then the point is mute because all the business debt is attached to you personally and there is no way of having it be otherwise. This is why your business should always be a standalone entity such as an LLC or INC. Without an entity then every dollar in debt your business owes you owe personally. If your business fails the creditors will come after all your personal assets to satisfy the business debt. In any scenario this is a horrible way to be in business and no one should risk it. Form an entity! In the case of a partnership, each partner is liable for 100% of the debt and creditors do not care who they take it from. In the event of a failure creditors will look to each partner individually and it is common to place liens on each partner for the entire amount owed. Yet another reason to form an entity!

2 – PG
The next thing to check for in your business debt are personal guarantees (PG). What these do is to make any debt that has them carry through to you personally in the event of a business default. This will be true even if you have formed an entity so these should be given out as little as possible. Many types of debt almost always require a personal guarantee. They are most common with business credit cards and term loans. They are far less likely and can be avoided all together with asset financing such as for equipment and vehicles, contract financing, invoice factoring, revenue based loans, purchase order financing and all types of vendor financing. Limit you use of personal guarantees when you can.

3 – Convert Debt
You should always take stock of what kind of business debt you have and focus on paying off that which holds you personally liable first. There are many ways to do this. For example, let’s say you have financed a vehicle and provided a personal guarantee. Now your business is a year older, you have taken the time to build your business credit and have your business become bankable so now you can refinance the same vehicle with a different lender and not sign a personal guarantee. If your business is now turning a profit and you have built strong business credit scores this will be true of any assets you have previously financed with a PG. If you have given your PG to vendors or other creditors you can now go back and ask to have it removed. If they refuse, then change vendors as there will be many ready to take their place.

4 – Personal Credit
Check your personal credit reports. Any business related debt that is reporting on you personally should be your top priority to either pay off or convert to true business debt. Also check your business credit reports. Many lenders such as Amex do not issue credit cards to small businesses. Instead they issue you a personal credit card with your business name on it. This is why you will not see it as a trade line on your business credit reports, but rather it appears only on your personal credit report. Kind of sneaky isn’t it?

5 – Ten Reporting Trade Lines
There are many articles out there providing terrible advice. Such as advice like “pay off all your small business debts first”. Pure junk! To build and maintain strong business credit scores you need at least ten trade lines that report each month on you paying your business bills on time. Way too many business owners do not know that this is a vital component of making your business bankable and able to stand on its own for financing without your PG. Instead when creditors pull up their business credit reports they see only 2 or 3 reporting trade lines. Business owners think this is great. IT IS NOT! Now you have no credit history for lender to base their approvals upon and you are forced back into everything requiring your personal guarantee.

The bottom line is that business debt is not a bad thing and neither is PG business debt when used to turn a profit. Having your business take all the steps to becoming bankable and thereby being able to stand on its own for financing is the key to your business debt not keeping you up at night.

Alternative Business Financing, Build Business Credit, Business Credit Scores, Small Business Financing

12. November 2017

Let’s compare business credit to personal credit and see what we know about both.

Scoring Systems
Both business and personal credit have a scoring system. In personal credit it ranges from 350 to 850 and with business credit it ranges from 0 to 100. What is common to both is that if you have 700 or higher personal credit scores lenders and offers will fill up your mail box and if you have 70 or higher business credit your mail box will be just as full.

Types of Credit
To achieve 700 or better personal scores you are going to need a mortgage, some installment accounts, and a few credit cards. One mortgage, 2 or 3 installments (cars, furniture, appliances) and 4 to 7 credit cards. The optimal is about 10 reporting trade lines all showing that you have paid perfectly for at least two years. Business credit is no different in that you are going to need at least 10 reporting trade lines to establish and build string business credit scores and to demonstrate to future lenders that your business has a history of on time payments. The 10 reporting trade lines can be bank or credit union term loans, business credit cards, store business cards, vehicle or equipment financing or leasing, or vendor lines of credit. You just need 10 and those ten must report every month.

Magic Number
There is nothing magic about 10 reporting trade lines other than the fact that many lenders and vendors have set that as the bar for no longer requiring a personal guarantee for lending your business the money or providing your business with the line of credit. Think about it, they need enough reporting payment history to determine a strong pattern of how your business pays its bills month in and month out and that cannot be established if your business only has 2 or 3 reporting trade lines. If you only had two credit cards and one student loan payment would you be qualified for a home mortgage? Probably not.

High Risk Versus Low Risk
Now, let’s make you the landlord and you have a choice between two prospective tenants. One has a five year credit history with 10 or more paid perfect reporting trade lines and credit scores in the 740 range. The other prospect has only 3 reporting trade lines, a few 30 day late payments, and credit scores in the 620 range. Both are willing to meet your lease terms. Which one do you select? Exactly! Lenders and credit providers are no different. They are going to approve the lower risk prospects and pass on those that have too little credit history or poor payment history, just as you would.

Becoming Bankable
Having at least 10 reporting trade lines on your business credit reports is a great step towards becoming bankable. Then you must also pay them on time over a period of time (at least one year) and during that time you must complete all lender compliance items and establish a low 5 bank rating. The 10 trade lines paid on time will create 70 or higher business credit scores. Lender compliance items and bank rating details are covered in separate blog posts. Together these four things make up how your business makes itself become bankable and be able to stand on its own for financing.

Build Business Credit, Business Credit Scores, Lender Compliance Items, Small Business Financing

6. November 2017

You are about to make that decision, "Do I play it safe and take that job or do I take that leap and start that business?"

Risk versus reward is the question every entrepreneur asks themselves before they start their business. Simply put, "is doing this worth the risk?"  You have a business idea for a product or service that you believe is marketable and that will have more upside than taking that job and that is where the decision is made and you elect to go for it.

Now take your entrepreneurial hat off and put on the lender's hat for just a minute.  You believe in your business idea but is that belief based on supportable research or just your enthusiasm. A lender cannot afford to share your vision as you are asking them to share your risk as well.

When lender's consider sharing the risk of your startup business it now comes down to the numbers and the numbers are stacked against you. The numbers say that over 90% of small business startups fail. Lenders look into their own loan portfolio for default warning and high risk signs. There they find that home based businesses fail more often. Businesses operating from cell phone fail more often. Businesses with only free email accounts fail more often.

Now in you walk all excited to get your great business idea going and to the lenders all they see is all these red flags of high risk waiving in their faces. Their answer has to be "Declined" because you have left them no other choice. They see your business as having all the failure warning signs of so many more that came before you and proven those numbers to be oh so right.

Well maybe their warning signs of high risk of default should be a wakeup call to the your level of risk as well. Most businesses fail due to not doing enough homework before they start and then not having enough capital to execute after they start. 

You can handle the first part by doing your homework. Research your proposed market and be ready to present the facts about; competition, market size, market penetration, cost to market, profit margins, time to market, market demographics, and how is new technology going to impact you.

You can also handle the second part by completing Lender Compliance. These are things like having a business entity, insurance, a real business address, an FCC business phone, a good website, social media presence, local and mobile search presence, a CRM, and a good accounting system. These are all things that you will need, that will send clients to you, and in the end will lower your risk of failure along with changing how lenders look at your risk of default.

To get the best grade possible, you wouldn't take that all important final exam without study and practice. So why would you start a business without research and preparation? We don't know, but that is what most small business owners do, and that is why so many fail. 

Knock out both parts right at the beginning of your new business and you will not only lower your risk but you will find more lenders that are willing to share it with you.

Small Business Financing, Business Startups, Entrepreneurship, Business Planning

3. November 2017

So you have a great business idea, now what? You want to turn your idea into a reality but how? Where do you start?

It starts with a fairly simple foundation. First, form an entity. You do not want to be doing business as a sole proprietorship or partnership where 100% of all liability and debt will flow directly back to you personally. Even if you plan to have no employees you should still operate your new business as an entity.

Consider forming either an LLC or Incorporation. There are a lot of inexpensive services out there to help you with that and to help with the features and benefits of each. Bottom line is that if you plan on having employees or if you plan on having a business that can stand on its own for financing then you are going to have to an entity to make that happen.

Next you need to write it all down and plan it all out. This is where going through the exercise of creating an SBA qualified business plan really helps. Whether you plan on applying for an SBA business loan or not is not the point here. The SBA business plan model will help you determine if your business idea is sound and if it makes sense. Also there are over one thousand Small Business Development Centers (SBDC) in the country that provide free help creating your business plan.

Turning your great business idea into a real business plan can help your idea gel and also point out to you many things you may not have thought of yet, such as; location, demographics, expenses, equipment, employees, out sourcing, taxes, inventory, materials, competition, technology, and more. The last thing you want to do is to create a new business where demographics, technology, or competition may have already made it out dated, not cost effective, or not feasible. Creating your SBA business plan will help you to look at all these so that you are not starting a Blockbuster Video or Tower Records.

Once you have created your entity and you're satisfied with your business plan, the next phase is to secure financing. Eevn if you have a lot of capital of your own you are going to want to secure your backup financing as when you really need it is not the time to start looking for it. Here is where Fundability.com really comes into play. Being a free service it guides you through all the aspects and steps required to get your new business pre-qualified and better yet to become bankable.

Becoming bankable simply means that your business has become able to stand on its own for financing without always having to rely upon your personal credit to do so. Make no mistake, when your business is a pure startup then its early stage financing is going to be tied to the personal credit of those owning 15% or more of the business. Fundability.com helps here too by showing you how to optimize personal credit and to maximize your financing opportunities.

Small Business Financing, Business Startups, Entrepreneurship, Business Planning