Secrets of Small Business Funding Unveiled (Part 2 of 3)

small business funding

Once you’ve run your hurdle race, it’s time to decide where to go to seek funding. Sometimes, it takes more than once source if some of the hurdles from the first step are too high. Many clients use more than one source for loans. And that’s the secret to funding we want to share with you. 

Unsure of how to take your business from good to great? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Secret Sources of Funding for Jackie

Since Jackie was looking to build a business that she wanted to keep for the long-term, we wanted to ensure she kept as much control as possible. Once we cleaned up the financials and the business plan, we then had to choose how best to get her the capital she needed. Before we get what we did, we need to take a bit of a detour through the different funding options available.

Main Funding Options for Small Business

These are of the most common and most successful funding options:

Bootstrapping 

No matter whatever source you use, all will be looking for some degree of bootstrapping. All investors or capital sources will want to ensure that you have some ‘skin in the game’. Having your own capital at risk increases the likelihood that you will follow through. Funds can come from personal savings, loans, avoiding wasting moneyetc. However, BEFORE you do ANY self-funding, make sure that you set up a legal structure for your business first. You can invest your money in the business. However, you need to separate your personal assets from the business. It protects your personal assets from creditors. 

Friends & Family

This is a typical step for many. These are typically micro-loans of $5 – $15,000. It can also be a difficult step for many as well. Unless your family member or friend has a specific skill set that will help the business succeed, you probably better off to set up any investment as a short-term loan than selling equity. This is for two reasons. First, it avoids entanglements when it comes to decision making. Second, if things go south, creditors are in a preferred position to equity holders in case of a liquidation of assets.

Grants & Governmental Funding

These funding sources aren’t a secret, but they are often overlooked. The SBA provides special treatment for Women & Minority-Owned Businesses. Under the Obama administration, LGBTQ owned organizations were covered as well, but this seems to have all but disappeared in the Trump era. Hopefully, this will be rectified in 2021. There are also community grants and development zones. You should check with your local and state governmental agencies to see if you qualify.

Lenders

Lenders come in multiple varieties. We covered the whole lending ecosystem in a prior post, so we won’t go into it in detail here. We will just share this rule of thumb. Unless your personal credit score is over 700, avoid commercial banks. If your score is between 620 and 700, alternative lenders are an option. If your score is below 600, you may be better off fixing your score first before seeking funding.

Angel Investors

Angel investors are dedicated to investing in start-ups and small businesses for financial gain. They will look for investments that will return a certain percentage over a fixed period of time, usually between 3 and 5 years. These investments will be made in exchange for a share of ownership in the company. Therefore, it is important to make sure they have a similar vision for the business as you do. Of the equity groups, Angel investors tend to be more open to conversation and persuasion as they are generally individuals or a small group of individuals. They may be more willing to support businesses where they have a personal passion.

Venture Capitalists

VC firms are more formal than Angel investors, and they tend to be more discriminating in their investment choices. Here, you will need to have all the ‘I’s dotted and ‘t’s crossed in order to have a shot. While they may be tougher, they do come with a degree of business savvy and knowhow that can be very helpful if applied correctly to the business. As with Angels, you are giving up some control of the business, and therefore, you need to make sure there is a good fit between your vision and theirs. 

Crowdfunding

Lastly, there’s crowdfunding. Crowdfunding is where you make your concept available to the public. You can ask for donations, or you can provide some fractional share of the company for a certain amount. Success in crowdfunding rests on your shoulders. If you have a compelling story, and you are willing to push it via social media channels, this can be somewhat effective. It’s a slower process, as you are raising money in small increments, and you are competing for people’s attention constantly. 

Now, Back to Jackie

Ok, if you stuck with me this long, thank you! Since Jackie wanted to retain control, we could eliminate Angels, VCs, and Equity Crowdfunding. Jackie was funding women-owned business, so she did qualify for some not-so-secret governmental assistance. She also had a good credit score, but not enough to go to the commercial banks. Therefore, we crafted the following strategy for her. 

First, Jackie had a few family members, who were interested in investing in her venture. We were able to set these up as low-interest short-term loans. Second, we were able to secure some local government funding for her business, and she was able to secure some local government contracts as her first customers. We sourced the remaining capital needs from two lenders. The first lender was Kiva. It’s a zero-interest crowd-sourced loan geared mainly to underserved groups. The other was through an alternative lending source that provided preferential rates to women-owned businesses.  

By leveraging all these sources, we were able to achieve her fundraising needs, while allowing her to retain 100% control of her business. Plus, she had the added bonus of a guaranteed first sale through the local government contract.  

With all of these funding secrets, come back next time for even more information. 

Secrets of Small Business Funding Unveiled (Part 1 of 3)

small business funding secrets

For many of our clients, the unfortunate truth Is that funding their small business is the biggest obstacle that they encounter. In this series of three posts, we are going to share the story of Jackie, the problems she faced, and how she overcame them. 

Feeling like your business isn’t going the right way? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Jackie’s Story

Jackie was like any other entrepreneur. She was so excited about her idea. She knew she had a winner. What she didn’t really know what how to bring that idea to market. It wasn’t that she didn’t try to learn, but the steps are challenging and complex. Plus, the advice she was getting was conflicting, confusing, or frankly, condescending. Listening to too many cooks can be a mistakeWhen she was referred to us, she was feeling a bit defeated and beaten down. She had been struggling to get funding for her small business, and she wasn’t sure why.

The Struggle Is Real...

Depending on the business, start-up costs can be small to strikingly high. Even if you aren’t in start-up mode, the process is the same. The first step is always to create a comprehensive list. How? If you’re in start-up mode, it starts with your business model. Our post is a great primer if you need one. If you’re not in start-up mode, make a complete list of all the project’s costs.

Jackie needed a model makeover

Jackie had built a good business model, but it needed a little makeover before it was ready for showtime. She was missing a few basics. We don’t want to bore you with all the details. However, suffice it to say, there were some gaps between spending and sales projections, a few production cost omissions, and somewhat over-optimistic overhead costs. So we helped her revitalize that business plan for a new age. And that was step one to find small business funding.

The Olympic Hurdle Race for Small Business Funding

When trying to determine what’s getting in your way, it can sometimes feel like the Olympic hurdle race. This can leave you feeling like you’re struggling. But that doesn’t have to be the case! 

  1. Yourself 
    What do you mean me? Yes, you. The first hurdle is to be brutally honest with yourself about what you want this business to be. Is it a legacy? Is it to make money, and leave? Is it something to put every cent intoWhat is it to you? We have to answer this question first, or we could waste our time chasing the wrong type of funding for Jackie’s small business.  
  2. Business Concept 
    Being laser-focused on how you are different is key. If you can get that across, then it’s game over. Once you cross that hurdle, it has to pass the red-face test. Is it believable? Credible? Can it be done? Sometimes these issues can be fixed with minor changes, but sometimes you have to go back to the drawing board.  
  3. Singing & Dancing 
    I sincerely wish it wasn’t true, but the presentation can make or break the deal. If the energy level isn’t right or the audience doesn’t perceive a high level of enthusiasm, a great idea can die. This is one of the hardest lessons that I, personally, had to learn. 
  4. ‘T’s crossed and ‘I’s dotted 
    Regardless of how great a show, if the numbers don’t make sense or the market doesn’t seem well researched, you can easily lose your audience. Yes, there are some unicorns that just sold dreams, but they are as rare in real-life as the were in myth. 
  5. Sticker Shock 
    This is one of the key areas where mismatched expectations can really be a problem. It’s very important to be realistic about how much you can raise. It’s better to base your strategy on standard financial metrics than on luck.  
  6. Market Competition 
    Even the best idea can get drowned out by all the noise. You can bet there are more ideas than money. Therefore, being able to communicate your point of difference quickly is critical. You have to cut through market competition, or you will not be heard. 

Jackie's Hurdles

We had a long heart-to-heart talk with Jackie about her business and what she wanted from it. She was looking for something she could build long-term. Jackie wasn’t against bringing on a partner if it made sense, but wanted to maintain as much control as possible. She had a solid business concept. Truthfully, all she did need was a little spit and polish, plus ensuring all the ‘I’s and ‘t’s we in place for funding her small business. Her ask was reasonable, so we were left we the next step. Where to go? 

Well, come back tomorrow to learn more!

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

5 Small Business Budgeting Tips for 2020

small business budget

If you’re thinking to yourself that you can coast into the new year, think again. The time to think about your 2020 budget is now. It’s the end of the year, and there are thousands of things going on. But this is perfect time to start to get your budget in order for 2020 if you haven’t done so already. Don’t wait until the new year to make your resolutions. Your best chance of starting the year right is to plan now for saving. Let’s tell you about our client “Daniel” and how we got his budget back into shape as well. 

Unsure of how to take your business from good to great? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Daniel’s Dilemma – Great at His Job, Not with his Books

Daniel owns a small but growing wellness center in the city. He offers a mix of holistic healthcare treatments, from massage to acupuncture. He loves what he does. His sense of accomplishment and pride shines through when a patient feels better. It’s infectious. It’s what keeps his clients coming back. While Daniel loves his patients, he hates his finances. Sound familiar to anyone? This isn’t to blame Daniel. He loves treating patients and that’s why he’s a success. But avoiding something you hate can cause problems later, as it did with Daniel. Daniel is a great guy, but he’s not a guy who likes to budget. While this is great when things are good, it can be disastrous if things go south. 

How to Budget Burden-Free for 2020

While planning may be fun for some of us, most people see it a chore, a necessary evil at best. It’s doesn’t have to be so hard. There are some easy steps you can take to help reduce the drudgery.  

Why is planning so important now? Well, let’s face it. 2020 is going to be a year of uncertainty from the impeachment, tariffs, global slowdown/recession, and the elections… and your budget, too. This year is full of potential pitfalls, and that’s why planning is so important. So, let’s talk about how to do it, without too much effort. 

1. Know where your largest costs lie

The first step in effectively budgeting is to know where your largest expenditures lie. If you are servicerelated industry, it will likely be labor. If you are productbased, it may be marketing and sales. Wherever they lie, the top 3-4 expenditures are where you should focus the most. Big swings in those categories can wreak havoc.  

For Daniel, it was labor and rent. As a provider, the bulk of his costs were staff and practitioners. Living in a high commercial real-estate market like New York City, space is at a premium. This was his second largest cost. Marketing and lead generation was third. 

2. Your “Break Glass Here” fund

As we’ve said in earlier posts, we believe that holding 2 months of expense either in cash or as a line of credit is a wise strategy, especially in uncertain times. Like we said, 2020 is shaping up to be a very uncertain year and your budget may need that help  

Excluding acupuncture, most of Daniel’s business is fee-for-service, which means if discretionary spending is impacted by a downturn, he is at risk. It’s always easiest to save when times are good, so we counseled David to put a little of his profit into this fund over the past 12 months. He now has a balance of cash and cash equivalents to cover 2 months of operating expenses. 

3. The time to borrow is now

It’s always easier to get a loan or line of credit when times are good. Banks want to lend, but people don’t usually go to them until they are in dire need. That puts the bank in the drivers seat. If you go to them when times are good, you are in control. Ironically, the best time to seek capital is when you don’t need it. It’s when your financials will look their best. If you are considering a line of credit to cover you in case of downturn, now is the time to apply. If you wait until a crisis is at hand, you’re chances of receiving a fair deal are reduced significantly. 

Daniel’s sales were good. We didn’t need a line of credit, but we took out a small one, just in case. Why? For two reasons, one a line of credit doesn’t cost you anything until you use it, and second, it helps build your business credit rating. The better your rating the easier it will be to secure financing in the future. 

4. Focus on the ROI of your discretionary spending

Some costs you can’t avoid, such as cost of goods/services, rent, and the like. But for things like marketing, it is important to focus on the return on the investment. By having the ROI for each tactic or strategy, you can make informed choices about where to spend.  

For Daniel, it was looking at his marketing ROI. We ranked each tactic by performance. We could then fund the tactics that were working and cut those which were not.

5. Finally, Try to Reduce Your Fixed Costs

In uncertain times, flexibility is an asset. Some costs are unavoidable, but some costs could be cut. For example, taking a 1-2 year lease vs. a 5 year commitment. This may be a slight hit to your profitability, but it does allow you the option to reduce fixed costs if things take a wrong turn. Another option is to use hourly workers vs. full-time staff. This gives you some flexibility to ensure labor tracks demand. When appropriate, utilize contract workers in lieu of staff. For many reasons, you need to careful in how you use contractors, but if done correctly, it can reduce expenditures. For example, contracting accounting services vs. having an internal accountant. 

Daniel uses hourly employees. For a multitude of reasons, we did not recommend using contractors for any of our service delivery. They are highly directed and would be at risk of being challenged by the state. We did, however, use contactors to help with accounting and some of our lower ROI marketing tactics, where we could give them free reign to do their work, saving us both time and money.

In Conclusion

While this is a very exciting time to be a small business owner, with growth opportunities everywhere, it is wise to plan for contingencies. So, if the happen, you are well prepared to handle them. The better prepared your budget for 2020, the greater your chances of surviving the storm in one piece.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

3 Ways to Market Your Small Business Almost for Free

3 Marketing Tips Nothing

The advertising market is insane. In 2019, it’s estimated to be a nearly $600 billion industry, and that’s almost over the topIn this crowded marketplace, how can small businesses compete? If you don’t have the same resources, how can you market your small business for free? Well, do you remember when your mom said “kill them with kindness”? We want to encourage you to kill them with creativity. It may help your business grow in the long run.

Unsure of how to take your business from good to great? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Kill Them with Creativity

We know we can’t beat big brands with spending. However, big ideas tend to die at big companies. Creativity dies in committee. I spent 20 years at major companies, and I’ve seen more creative ideas which died on the vine than survived. So, trust me because I know how your small business might need to market itself and free your route to successOn top of that, you might not have the capital to compete with those massive marketing budgets. Luckily, small businesses and entrepreneurs aren’t afraid to be creative and take smart risks. The followinthree breakthrough ways to market your small business are inexpensive and effective, and we encourage you to consider them.

1. If It’s Fun, They Will Come

People are social. They love to come together. You just need to give them a fun reason to do it. According to Eventbritea recent poll of adults aged 18+ revealed that people are attending more live events than ever before. Some businesses lend themselves to this more than others. But, even a consulting group like ourselves, can put together an educational event and make it fun. Reach out to the public and you might find your new customers. 

Holidays give you a built-in platform. Even not-so-fun events, like tax season, can be a hook for education. If there is a business expo and you can’t afford a booth, consider holding an event nearby. If you can provide free help as a small business, you might have found your perfect market. It’s always better to bring the event to you, so if you have a brick and mortar store, think about how you can piggy-back on local festivals and the like. Small Business Saturday is also another great time to work with your neighbors to create and event. The key is to make it fun. Prizes, bragging rights, competitions are all ways to make something that may seem drab more interesting.

2.  It Takes a Village

If you feel like you need to market your small business, your neighbors might be looking for some of the same free help. So get to know your neighbors! You would be surprised how much it helps to talk to your peers. Small businesses can use each other to succeed, creating a real life network. Promote one another and build your own community. If that isn’t possible, use other forms of connections. Talk to your LinkedIn contacts and your friends and more to figure out how you can help one another without too much cost.

Another way is to put your customers to work. Referral programs work very well because people trust their friends. Even big name brands have built their businesses based on referrals. DropBox, when it started, offered 50MB of extra space for every friend you referred. After referring 20 friends, we had a free account with 1 GB of space, which at the time, was enormous. It doesn’t have to be big, a simple thank you gift will usually suffice. Plus, it may help you grow your circles of communication.

3. Earned Media Will Always Beat Paid Media

[Repurpose HARO from 4 tips on a dime]

Overall, Creativity and Elbow Grease Result in Free Social Media Marketing

While marketing on a limited budget can be challenging, creativity and our tactics might help you save yourself. In order to market your small business for free, you may need to think differently. But, don’t forget, some of these tactics can work exceptionally well whether you have a small budget or a big one.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

Three Awesome Tips For Cutting Costs in Your Small Business

Cutting Cost Small Business

Even when the economy or your business is going strong,
cutting costs in your small business is never a bad idea.  In fact, here are three awesome tips for
cutting cost.

The economy is hit or miss — one minute it’s up, the next it’s down.  So, if you’re looking for a reliable way to protect your finances, make sure you cut costs all year round.

Forbes

As we come to the back-half of the year, it’s a good time to look at your expenses and see where you might be able to make some changes. These are the three tips that we use for cutting cost, and we believe they can help you in cutting costs in your small business.

Feeling like your business isn’t going the right way? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Cut out
time-wasting activities

Activities that waste time are one of the biggest strains on
business resources.  Small business
owners often wish they had more hours in the day.  The truth is however, that we and our
employees probably spend too much time on unproductive activities.  If we could remove them, we’d be able to get
more accomplished.  We find making a list
of what you are doing throughout the day helps. 
Take a look at all the activities and see what is least
value-added.  Try to remove it one
day.  See what happens.  If everything is fine, then eliminate it.

Leverage Technology, cutting costs in your small business

Travel is a killer. 
It not only costs time but also money. 
With technology today, it is so easy to conduct meetings virtually, saving
both time and money.  Some people will
want face-to-face meetings, but others may not. 
However, it doesn’t hurt to ask.

Cutting costs in your small business by Saving Resources

Space

In cities like New York, space is a premium.  The same is true in any major city.  But, this just isn’t office spaces, it’s server space, storage space, etc.  An e-mail or a file retention policy can help with cutting cost in your small business .  A semi-annual file clean-up can cut down on unnecessary storage.  Also, smart use of shared space can be more cost-effective than renting or owning office space.

Office supplies

Even in our electronic world, we still use a lot of paper and ink.  While these aren’t the most expensive items, wasting them can add up.  Ask yourself, do you really need to print that presentation, letter, etc.?  If so, can you print it more efficiently, side view or double-sided for example? It’s a simple step to cutting cost in your small business

Utilities

Let’s face it.  Most
businesses waste electricity, gas, etc. 
Therefore, to cut costs in your small business, think about where you
might be able to reduce your energy usage. 
First, how can you make the most of natural lighting?  Second, could you switch to a more
energy-efficient option like LED lighting, for instance?  Third, could you use window shading to reduce
AC costs?  Finally, could you install a
smart thermostat or smart appliances?  In
fact, some electricity companies provide discounts for use or for
purchase.  Either way, it’s a great way
to cut costs.

In summary, these are just a few ideas for cutting cost in your small business. There are others that we explore in our post “4 Ways to Avoid Wasting Money as a Small Business”.  You’ll probably come up with even more.  A consistent effort is what’s key.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.