Small Business Development Center
At Chemeketa Center for Business & Industry
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Monthly Archives: February 2010

Small Business and Borrowed Startup Capital

By Chemeketa SBDC

little-marciaMarcia Bagnall

A common question here at the Small Business Development Center from our business owners: Should I borrow money to start my business?
And would doing so help or hurt their chances of success?

Here is the reality of starting a small business with borrowed money — this type of money is usually scarce, costs are relatively high and the competition is significant.  Small business loans are not simple to get because of the preparation that is required.  There is always a list of qualifications to meet, such as equity requirements, collateral, business plan, profit and cash flow projections, personal financial statements and what seems to be a ton of other loan application information.

If you take all of the people who would like a small business loan – most of them will not even apply because once they know all the requirements or won’t go to the trouble to try – few will succeed.  Of those that decide to apply for a new start-up loan, many of them will become discouraged because they didn’t realize it would take so much effort or find they do not have the minimum qualifications.

Even more important than the loan process is the debt you would put on your new business. Consider that the customers you seek to serve are currently getting their needs met elsewhere.  You want them to change their ways of buying from your competitor to start buying from you.  To do this, you have to spend money to get your business up and running, spend more on advertising and promotion to let them know of your very existence, and wait out the “start-up” time until they find you and the revenues start flowing.  So, you are spending more than your competitor and are taking in less revenue.

This is the picture without debt.  If you add debt, you now have the interest expense plus principle to pay.
It is difficult enough starting up a business without this burden.  The debt makes it more difficult not only because of the payments you have to make, but if you falter, you can potentially lose everything.  To get the debt in the first place, you typically have to pledge everything you have in your business—and probably your personal assets as well.

Try to start your business with as little borrowing as possible, and none if you can do it.
If you borrow most of the money the business needs (meaning you are providing little of it) your chances of success are much reduced.  Your chances of losing a great deal are substantial.  You are better advised to start as small as possible and let the business grow the cash flow that will allow your expansion, at least for the first couple of years.  Once established, the chances of getting a loan are greatly enhanced and the business is in a much stronger position to service the debt of an expansion loan.


Business Goals have impact when aligned with your Personal Goals

By Chemeketa SBDC

Scott Sadler, SBDC Advisorp1000488-group-shot-boarder

Goal setting.  It can be an overused term and an underutilized tool. As owners we go into business, for the most part, because we love the idea of being in business.  It is easy in the beginning to keep motivated because our personal goals and business goals are in perfect alignment.  There are few disconnects since the business is in its infancy, and is still a passion for you as you watch it grow.

After a few years it may be that your business has morphed into something that needs much more money, time, or experience than you had ever imagined.  The distance between your personal and business goals become more obvious in the forms of burnout, stress, and consistent lack of motivation.   Your business may not be serving you personally any longer, yet it is now in the young adult stage and needs more and more from you to take it into the maturation stage.

So how do you go back and find the enthusiasm of the earlier years when your personal and business goals were in better alignment? How can you get back that motivation?

I had a client recently whose business had been a joyful experience for many years.  Business was good and he had hired several staff members to help.  This was good for the business and the bottom line, but the passion had dissolved because now he was managing the process through others, essentially becoming a production supervisor, something he did not enjoy.  It was okay for a couple of years but he missed his flexible day going from task to task and dealing with his customers face to face.  Before long he was dreading going to work and feeling burned out and tired.  Because he got away from being very hands on in the process, he had lost the balance between business and personal goals.  He noticed and customers noticed.

Through a series of questions about what he wanted personally, he and I worked on restructuring his operation to accommodate both business growth and personal goals.  He reallocated staff, hired a personnel manager and reoriented his role towards a deeper personal meaningfulness.

He still has to do some of the things he does not like to do from time to time, that’s just the reality of entrepreneurship.  But now he spends the bulk of his business hours focusing on doing the things he enjoys in the business.  His personal and business goals are back in alignment. He has returned to the place where he started from originally, when he could imagine his business serving him, instead of his serving the business all the time.