Archive for the 'Finance Strategy' Category
Problems Building Business Credit Part Two
September 2nd, 2008
By The XBanker
In a previous post, I replied to a reader who is skeptical about building business credit. Here is some more correspondence on this topic:
I appreciate your response to my question. My business is two years old and I have perfect business credit with DNB and an intermediate score with Experian. Additionally, far as personal credit, I did all I could to increase the score.
I have a student loan that will not be paid off any time soon. In the beginning I believed that building perfect business credit would be the perfect solution to my problem. Of course, after I followed the steps I realize ultimately personal credit still plays a factor. I have several trade accounts with small credit lines nothing serious.
But I am looking to obtain a line of credit from $100-$200,000.00 dollars. That is the reason I formed (my corporation) to acquire an existing company. Technically my company is a start up, but through building credit I established creditability of paying on time and my company has matured to the time banks require businesses.
Ms. Detweiler, I’ve been at this for six years with no results. I hired every consultant I can think of. Should I give up? What would you do in this case?
This is a great conversation, because it illustrates some of the myths floating around about business credit. Read the rest of this entry »
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Building Business Credit webcast available now
July 28th, 2008
By The XBanker
The Wells Fargo Small Business Webcast Sound Credit Practices for Your Business is now available. I was honored to be chosen to participate in this panel discussion with leading financial industry insiders and business owners as we talked about how to build business credit, and effectively manage business credit and cash flow. The program focuses on financial management principles that support long-term stability and growth.
Sound Credit Practices for Your Business offers tips and strategies to small business owners looking for ways to safeguard and strengthen their businesses. This webcast will provide informative, relevant and timely advice on how to implement and manage sound credit practices.
If you haven’t viewed a webcast before, it is like attending a seminar…from the comfort of your home or office. You simply watch online with both audio and video.
The webcast was moderated by Rich Sloan, co-founder of StartupNation.com. I’ve seen and admired Rich’s work for years, but was even more impressed when I met him in person. He’s both very smart and very funny. And I learned a lot working with the other panelists:
• Michael Billeci, Regional President, Greater Bay Area Region, Wells Fargo
• Scott Anderson, Ph.D. Senior Economist, Wells Fargo
• Jerry L. Mills, CPA, Founder and CEO, B2B CFO
• Sharon Evans, President and CEO, The Business Resource Group
Free registration for this webcast is now available at www.wellsfargo.com/biz/webcast.
About the Wells Fargo Small Business Webcast Series
Wells Fargo’s Small Business Webcast Series of interactive, online sessions is designed to help small business owners meet their business growth and management goals. The series, which launched in 2007, is one of Wells Fargo’s many resources to help small business owners succeed financially.
The latest addition to the library of small business resources in the webcast series is Sound Credit Practices for Your Business. The webcast series library also includes: Financing Strategies for Your Business, Protecting Your Business, Technology and Your Business, and Health Care Options for Your Business.
For more information on the series or to view one of these programs, visit www.wellsfargo.com/biz/webcast.
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Credit Investors: Partnering For Personal Credit
July 18th, 2008
By The XBanker
Like it or not, your personal credit will open or shut doors for financing your business. If you have terrible personal credit, we can help you obtain trade credit, credit cards, equipment leasing and potentially some bank financing. However, we can obtain much more financing, if a business owner has great credit (preferably 700+ FICO). This has important consequences for you, if you are trying to finance a business and have poor personal credit. You need to consider bringing on a credit investor or partner that can help you obtain bank financing for your business.
Last week, I asked an entrepreneur about his loan readiness and he told me his credit was in the toilet. So I turned to his partner, “My credit is even worse,” was his reply. I guess when it came to selecting partners, this criteria slipped their minds – don’t make the same mistake. Unless a partner brings irreplaceable technical expertise, they can always be replaced with someone that brings skills and credit to the table.
If you’re an entrepreneur with poor personal credit, you should consider bringing on a credit investor or partner. Ideally, you’ll need someone with 700+ FICO scores and good ratios (feel free to ask one of our consultants to do an analysis of a potential partner before you tie the knot). You may have better luck finding an investor or partner with good credit, than finding one with cash.
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Preventing Unnecessary Dilution
July 15th, 2008
By The XBanker
One of the biggest mistakes entrepreneurs make is that they give away too much of their business too soon. I’ve spoken with entrepreneurs that own less than 2% of their brainchild after diluting for “friends, family & fools” and for venture capital. You need to properly stage the financing of your business and to do so under the best circumstances possible to prevent unnecessary dilution.
Let’s say you are raising $250k from investors to start your business, if the business is only worth $500k, the investors will own 50% of it; if the business is worth $1m, they’ll only get 25%. The higher the valuation, the greater the percentage of your business that you’ll retain. It can be challenging to justify your valuation without revenue – which is where promising entrepreneurs routinely get taken to the cleaners. This is why I typically recommend convertible debt to raising hard equity, and why I recommend obtaining debt financing in the early stages of your business.
First of all, most business won’t raise a dime in outside capital. Investment networks are flooded with hopefuls that burn time and money trying to raise money – not recognizing the complete tooling they will receive in the event that someone actually believes their concept has merit and wants to invest. It is a lot easier to attract capital, and to do so on your terms, if you have successfully proven the concept and have some traction.
Unless you’re building airplanes, you can probably get things moving with less than $100k. This is why the XBanker is an important asset in the Shared Success family – we are here to help entrepreneurs establish a strong foundation, nailing the fundamentals and obtaining “seed credit” so they can get things moving. So if you are still slumming on the investment networks and forking over gobs of money for a business plan that no one will read (and if they read it – they sure won’t believe it!) – stop. Let us help you get your first $200k, so you can bring on investors under the right conditions.
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Want your business to survive and thrive?
July 10th, 2008
By The XBanker
You may have heard the statistics that half of small businesses fail in the first year. The Small Business Administration says it’s not quite that bleak. They report that two-thirds of new employer establishments survive at least two years, and 44 percent survive at least four years. (Still that’s 54% that don’t make it four years.) These results were similar for different industries.
Major factors in a firm’s remaining open include an ample supply of capital, being large enough to have employees, the owner’s education level, and the owner’s reason for starting the firm in the first place, such as freedom for family life or wanting to be one’s own boss.
Other studies have pointed to the following causes of failure as… Read the rest of this entry »
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What’s Your Hurdle Rate?
July 9th, 2008
By The XBanker
My mother always taught me that “beggars can’t be choosers” and my father preferred the “don’t be penny-wise, but pound foolish” – either expression is fitting for this topic. In the last week, I’ve had three experiences that made me think about being wise when you need money for your business and understanding the concept of a hurdle rate.
My first experience was a discussion with a consultant to a portfolio of companies in various stages of their business – all with immediate capital needs. We were exploring potential solutions for these people. Most simply needed $50-100k to purchase inventory or to invest in new opportunities – getting the money is critical to their success. Yet, as I started asking questions, I was being shot down with every possible financing option. It was apparent that these business owners were looking for $100k for 2-3 years at less than 5% interest with no colateral and no personal guarantee and they wanted it now, despite their less than stellar credit.
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What's Your Hurdle Rate?
July 9th, 2008
By The XBanker
My mother always taught me that “beggars can’t be choosers” and my father preferred the “don’t be penny-wise, but pound foolish” – either expression is fitting for this topic. In the last week, I’ve had three experiences that made me think about being wise when you need money for your business and understanding the concept of a hurdle rate.
My first experience was a discussion with a consultant to a portfolio of companies in various stages of their business – all with immediate capital needs. We were exploring potential solutions for these people. Most simply needed $50-100k to purchase inventory or to invest in new opportunities – getting the money is critical to their success. Yet, as I started asking questions, I was being shot down with every possible financing option. It was apparent that these business owners were looking for $100k for 2-3 years at less than 5% interest with no colateral and no personal guarantee and they wanted it now, despite their less than stellar credit.
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Small Business Owners On the Frontlines of Credit Crunch
June 16th, 2008
By The XBanker
While the sagging housing market has been garnering most of the attention lately, the challenges small business owners face should not be overlooked.
The credit crunch is only likely to get worse, predicts economist Joseph E. Stiglitz in a recent article in Inc. magazine titled, Raising prices amid a sputtering economy? We’ve been here before. Here’s how businesses should prepare. (June, 2008 pp. 75-76). He also warns that “…small businesses are likely to feel the pinch the most.”
“Credit availability appears to be erratic,” says Stiglitz. If you are looking to for VC money or a bank loan, that may well be the case, as The XBanker recently pointed out in his advice for getting cash fast. On the other hand, many vendors are eager to keep selling their goods and services, and may be willing to negotiate even better terms than before, especially if you can demonstrate that you’re a good credit risk.
Take action now to prepare for the worst — and the best. Things will turn around again, and when they do, your business may look very different than it does right now. If you are doing the same thing you’ve always done, don’t be surprised when that strategy no longer works. On the other hand, there may never be a better time for your business to grow.
“Stagflationary times are complicated,” warns the economist. But business owners encounter challenges all the time.
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Are You Entering The Danger Zone?
June 13th, 2008
By The XBanker
Sales are up…things look good, right?
Wrong! warns Jerry Mills CPA in his terrific book, The Danger Zone: Lost in the Growth Transition which I read on a flight to San Francisco last week. I had met Jerry a couple of weeks earlier at a conference in Baltimore, and would be seeing him again, so I knew it was time to learn more about his business.
The Danger Zone proved to be a deceptively easy read (Jerry tells me his second book is even better). I say “deceptive” because the writing style and content kept me engaged throughout the whole book. No CPA-style knuckle-wrapping here. Just solid insight and advice. But the advice he shares should not to be taken lightly. Ignore it, and your business may crash and burn like so many others have.
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Fast Cash For Your Business!
June 10th, 2008
By The XBanker
Do you need fast cash for your business? Want a small business loan with no personal guarantee? Are you looking for immediate business financing? Chances are that you answered “yes” to all three of those questions. We all want cash for our business and we want it as soon as possible. Unfortunately, the financing world doesn’t always tell us what we want to hear. If you are properly prepared and have a proven track record (as demonstrated by your revenues and your credit) you can probably get more money – and faster than you think. If you are not prepared … well, you reap what you sow.
Most people don’t start looking for capital for their business until it is too late. “Too late” can mean a lot of things: damaged credit, out-of-line ratios, too short of a time frame, etc. These oversights, plus the procrastinator’s itch for a quick fix, are two of the most common ailments we deal with. I wish every entrepreneur understood this truth: accessing capital is a process.
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