I hope you enjoyed my recent two-part interview with Joseph Lizio from Business Money Today discussing the current state of funding a small business and some of the critical issues you need to consider when applying for a small business loan.


As a follow up, Joseph turned my on to a good article on Entrepreneur.com, “Numbers That Matter” by Kate Lister.


I’ve had more than one solopreneur come back and say, “the bank turned down my loan and I don’t really know why.” This article helps answer some of those questions by giving you the inside scoop as to how the bank really looks at your business plan. Hopefully, you get to read this article before you apply for a loan.


And if the bank still turns you down for a loan, don’t despair … there are other possible options outside of banks.


I recommend you check out Business Money Today. The site gives easy to understand guidance in a user-friendly format for finding the funding options that are best for you based upon what stage your business is in and what you need the loan for.


If one of your obstacles is developing a business plan, contact me. I can help.


All the Best,


Doug Dolan
The Solopreneur’s Guide

OK, I’m back with part 2 of the interview with Joseph Lizio, CEO of Business Money Today. If you missed the first half of the interview, I recommend you go back and read Part 1.


I left off with the following question:


DD: If someone was interested in starting a small business in the next six months to a year, and they were planning to apply for some form of funding, what should they start doing now to prepare?

JL: Prepare is the right word. Plan is another. One must plan and prepare just like a boxer getting ready for a fight – that boxer trains and plans for months in advance for one event. That is what a business owner should do.

Examples, fix your credit if it is not excellent. Reduce your overall debt, making your personal or business debt-to-income ratio as small as possible. And lastly, understand what (how much) you or your business will need at a very minimum. Break that amount out into specific needs, then seek out lenders who will meet each of those needs. When you find specific lenders for your needs – work to understand what their requirements are then assess how you meet those requirements. When you find weaknesses – work on them. Once those are set – then apply.

It all comes down to planning and preparing – just like developing and researching a business plan for the overall direction of your business. When seeking capital, the business owners should also formally prepare and plan.


DD: You offer debt consolidation services, too. I see quite a few people who have been out of work for a while or who are struggling with debt that want to (or feel they have to) start their own small business. What impact would going through debt consolidation first have on their chances for getting funding for their start-up? Would it help them or hurt them?

JL: It really depends on the type of debt consolidation. If your debt consolidation efforts results in re-negotiating your current debt with your current creditors – like interest rate reduction or principal reductions – then that will hurt – it will hurt your credit as these lenders will report this to the credit agencies.

But, if you are seeking ways to get a single loan to take out all your other debt, that can help in several ways. First, it can help your credit via a better debt-to-income ratio – your credit score should improve. Second, it can help your cash flow situation – many times consolidating into a single loan may mean lower overall payments – putting more money or cash flow in your pocket or making it available to service future debt obligations.

Or, if your debt consolidation is about better budgeting your current income and expenses and changing your spending behaviors – this will always help – not just now, but in the future.

There are companies in the debt consolidation industry that can help will all of these.

The thing to really keep in mind here is when you get your debt under control and your spending under control – to not just fall back into old habits. I have seen it time and time again – someone consolidates their credit card accounts into one loan – then just run right back out and run up those credit cards or new credit cards again – making their situation worse than it was before.


DD: Do the laws for debt consolidation vary by state?

JL: Not that I am aware of – but, I don’t profess to understand debt consolidation as much as I do business financing. I only include this information on our web site because finding ways to better manage debt can go a long way in helping entrepreneurs better manage their new or established business.

If you find a debt consolidation company or provider in your state – more than likely they are in compliance with all applicable laws – the same should be true for companies from other states that operate in your state. What one should be more concerned about is the reputation of the company or provider as there are many, many scammers out there.


DD: What criteria do you use to recommend a source or sources of funds for a new business? For example, when is it best for a new business to seek out investors or VC funding versus taking out a loan from a bank?

JL: The things to understand with VC or debt financing (and some VC will provide debt financing – usually convertible debt) is to 1) understand your business and its needs – if you only need a small amount of working capital – then bank financing is your path – If you need millions in capital – then VCs may be your path. And 2) understand where you fit within these industries – VCs are equity partners – debt is just leverage to grow what you already have.

VCs don’t want to fund local or regional companies – they don’t want to fund million dollar opportunities. They want global businesses with hundred million dollar or billion dollar opportunities. Thus, if your business is not in a huge market with lots and lots of potential then forget about VC funding. Also, VCs don’t fund businesses – they fund people and markets. They fund people who can execute an opportunity. You can have the best idea in the world – but, if you can’t execute it – it will only remain an idea. I have seen good people – those who could execute anything – take a bad idea and succeed – just because of their abilities. Thus, most VCs want to see some type of track record from the business management or the entrepreneurs – demonstrating that you or your management team can execute. Plus, they only look at huge markets – local and regional markets are small – national and global markets are big.

Bank financing, on the other hand, is essentially leveraging current business cash flow or current assets to acquire additional capital that can and will make your business better or more profitable. Thus, take a loan for $100,000 based on your current cash flow and leverage or use those funds to return $200,000. That is proper debt financing


DD: If the investor or VC route is best for a business, what consultation, if any, do you provide to help them succeed?

JL: Business Money Today does not provide any type of consulting – In fact, we only offer information and resources – all online. Our web site is designed to educate business owners on many of the financial avenues that are open to them given their needs and stage of business as well as information and resources so that they fully understand what they are getting into and how to protect themselves. Further, we offer resources that we have identified to not only be legitimate, but leaders in their industries.

Regarding venture capital, we offer information about how business owners should seek out private equity and alternative equity financing as well as a searchable database where users can search for venture capital firms, angel capital groups or Small Business Investment Companies (SBICS).


DD: Do you know of any upcoming legislation that will have a significant impact on the availability of funds and ease of approval for small businesses – good or bad?

JL: Yes, the Senate just recently passed a Financial Reform Bill that now must be reconciled in the House. When this bill is signed, access capital will slow down even further and those sources that remain viable options will get much more expensive. We have already seen this with the credit card reform Bill that passed in February – since the passage of that Bill, businesses have seen an increase in their cost of credit – up some 13% and access to credit cards (credit cards are essentially unsecured lines of credit) has not improved for any group – business or consumer.

This new Bill will entice banks and other lenders to pull back until they figure out the true impacts of this legislation. Plus, the Bill is expected to have language in it that further restricts how Angel Investors can invest in small businesses. While on the surface it may seem a good provision to protect these investors (those that are already accredited), it will 1) increase the time-frame for businesses to get funding as all investments must be registered and 2) make each deal more expensive to both the investor and business as they have to wade through more and more regulation.


Thank you, Joseph, for the excellent insight into what concerns so many people looking to start a new business or struggling to hit their goals – money.


If you need help with funding or have other questions for Joseph, here is his contact info:

Joseph Lizio, CEO
Business Money Today
www.businessmoneytoday.com


And if your small business struggles go beyond finance, I’m here to help with my consulting and writing services.


All the Best,


Doug Dolan
The Solopreneur’s Guide

Today, I’m starting a two-part interview with Joseph Lizio, CEO of Business Money Today. Through my solopreneur consulting and participation in online business forums, one of the top topics for discussion is “How can I get money to start (or grow) my small business?”
 

My focus here at The Solopreneur’s Guide is helping people with finding the right business idea for them; helping them start, restructure and grow their small business. Finance, I leave to other pros. And as you will see from his insightful answers, Joseph is the person to talk to regarding this issue.


I broke the interview into two parts because although I had only 10 questions, Joseph provided a wealth of information.


DD: What is your professional background and what inspired you to start Business Money Today?

JL: I have a MBA in Finance and Entrepreneurship from the University of Oregon as well as a BA in Business Administration from Lewis and Clark College in Portland, Oregon. I have spent the majority of my career in commercial lending with organizations like Silicon Valley Bank and Wells Fargo Bank. I even held a position as a bank examiner. Further, after graduate school, I spent some time as a Senior Financial Analyst with Intel Corporation.

In my last position, prior to starting Business Money Today, I was the Executive Director of a Business Incubator in Texas. It was here that the ideas for Business Money Today began to materialize. One of the hardest issues we had with our incubated businesses was finding them capital sources. Thus, in my research for traditional and alternative business financing sources for my clients, I gleaned a tremendous amount of knowledge about different financial resources for businesses regardless if they were start-up or established entities.


DD: When did you start Business Money Today?

JL: I start Business Money Today in the summer of 2007 after spending approximately a year teaching myself how to program html, php, and javascript. I taught myself these programming languages as I wanted to 1) keep my cost low thus program myself and 2) so that I would better understand what was happening in the online industry as Business Money Today is a strictly online business.


DD: I still hear from quite a few people trying to start a small business that they are struggling to get approval for a loan or find investors. How would you describe the financial environment for small businesses today?

JL: Most financial gurus or those that think they understand business financing will tell you that this is a hard market. But, that is not entirely true. Yes, it may seem harder to find funding today than it was a few years ago, but, the financial industry has really just reverted back to where it should be – a return to equilibrium.

Accessing capital should be hard for new businesses – those without a track record or adequate collateral or cash flow. The reason is not that it protects the banks and their depositors or investors but it is good for new entrepreneurs to struggle a bit and find unique and innovative ways of overcoming their own obstacles instead of just throwing money at a problem. Not only will this struggle make the entrepreneur a better business owner and manager, but it will help the business be better positioned to weather any future storm that may materialize – like another financial crisis.

Businesses that understand how to operate lean and mean (even during good times) are the ones that will survive the next financial disaster, as well as be the company that squeezes the most out of the assets and processes that it employs (that is the goal of business – to generate the greatest return possible for the set of assets the business has to deploy and as a note, cash or capital is just an asset to used in a business – it does not make or break a business).


DD: Do you find a common mistake or assumption that most small business owners make when they are trying to get a loan or other lines of credit?

JL: There are really three common mistakes that business owners make when seeking capital. The first is the assumption that they only need an all-inclusive loan – one loan that they can use to buy equipment, pay rent, use for working capital or to pay employees. The error here is that not all capital (especially in obtaining that capital) is the same. One of the first questions that most bankers or lenders will ask is what are the funds for? This question matters because there are different rules for different uses of capital.

Think about this way – when you go out to play golf, you don’t bring a baseball bat with you even though that baseball bat can hit a golf ball. It is just not the right tool for the job – the same is true when seeking capital. Find the right capital source and type of capital for the job or need – example, short-term financing like lines of credit should not be used to purchase long-term assets or used for long-term needs – but, time and time again, new business owners waste valuable time and money seeking out a line of credit for all their financing needs because someone told them that was the cheapest way to go.

The second mistake most new business owners make is that their personal credit histories do not matter. But, it matters more than they think. If you have shown that you cannot or are unwilling to pay past creditors, then why would a future creditor think you can change? Plus, if you are unable to manage your own life and your own credit situations, then why would a lender think that you will be able to manage a business.

Further, most lenders are looking for the big and easy deals. Thus, one of the first things they do is credit screen. If you fail this measure – they move on and move on quickly as they don’t want to miss the next big deal fighting for your deal with bad credit – a deal that has almost no chance of making it through a credit committee or credit review.

The third mistake most business owners make is that they fail to understand the lender – be it a bank or private lender. Lenders look for two major items when approving a deal.

1) The ability of the borrower to repay a debt. That means, does the borrower have the capacity to repay (at time of application – not what they think they can make in the future). Thus, the borrower must have either personal or business cash flow to service the debt payments (NOW) or adequate collateral (adequate to the lender) that covers the entire loan in the case of default.

And, 2) the willingness to repay the debt which is simply shown by credit history. All the other stuff that people hear about a loan is really just fodder. If you are strong enough in cash flow and credit history – your banker or lender will go to the mat for you – regardless of the rest of the deal (provided it is legal).


DD: If someone was interested in starting a small business in the next six months to a year, and they were planning to apply for some form of funding, what should they start doing now to prepare?


Sorry to cut the interview short, but the complete interview is just too long to have in one post. I want to make sure that you absorb and remember the great insight that Joseph is sharing here.

To get the answer to the last question and more, check back on Monday for Part 2 of this series on funding for small businesses.


In the mean time, if you wish to learn more about Business Money Today or need their help with finding your small business funds, here is their contact information:

Joseph Lizio, CEO
Business Money Today
www.businessmoneytoday.com


And if you need help with creating a business idea, performing marketing research, or creating a business plan, I’m here to help.


All the Best,


Doug Dolan
The Solopreneur’s Guide

This is post 4 of 10 in a series discussing the essential steps for launching a successful, sustainable solopreneur business. If you missed the disclaimer post, it is helpful if you take a minute to read it before going forward. Here’s the link to the post.


Plus, since the process is in sequential order, make sure you’ve defined your UVP and prime prospects, started your market research, and your business plan. During the creation of your business plan, you will calculate how much capital you will need – both personally and professionally – to cover you until your business reaches self-sustained profit.


So let’s start with a calculation of your personal financial needs.

Personal Finances

If you’re cash-rich, debt-free, and are going to fund your start-up with a minute amount of your personal money, skip forward to Professional Finances. No sense in wasting time.


If however, you are not so fortunate and don’t have personal budgeting software, I’ve added a link to a worksheet for reviewing your personal finances.


When you launch the Excel spreadsheet, you will see two tabs at the bottom. Complete the first tab, “Monthly PnL” before filling out tab 2, “Projected Cashflow”. You can either print out the worksheets and manually enter your information or simply type your numbers in and the spreadsheet will automatically calculate your totals.

TSG Personal Finance Worksheets

 
It’s necessary to review your personal finances before calculating your business budget. Your personal budget will indicate if you need a loan for your business or if you can self-finance your start-up. Plus, if you do need a loan, to be eligible, not only will need to submit a personal budget to a lender, but you may need to clean up your credit, too.


Once you complete the worksheets, here are a couple of important points to remember before moving forward.


1. Make sure you add in any upcoming changes.
Don’t budget solely based upon your cash flow today. Include all increases in income or spending (from sources other than your new business) that may be a month or more away. For example, do you have an upcoming tax bill that will take a bite out of your savings or better yet, a return?


2. Are there opportunities for cutbacks and increases?
If you can’t balance your monthly personal budget, you will have problems doing the same for your business. Good business requires that you are aware of your profits and losses, and have the ability to identify opportunities for reducing your expenditures while finding new sources of profit. Doing the same for your personal finances is a plus.


3. Talk over the figures with your partner.
If you are married or share income / bills with another person, make sure you review the numbers with them and they agree, not only with your numbers, but the risk you are willing to take. If a spouse has to be the sole earner for a period of time to help get your business growing, you need to make sure you agree to the same period of time. You don’t want to start your business hoping your partner will cover you for nine months when they are thinking three. Get consensus upfront.


4. Build in a buffer.
Don’t take the saying “life is full of surprises” lightly. Not all “surprises” are pleasant.


What’s an appropriate buffer? That will vary based upon your scenario. If your venture fails, how long will it take you to find a new source of income? What is your risk threshold? While many personal finance gurus recommend you have sufficient savings to cover three months worth of bills, you may want to double that time frame. First, they calculate that number considering you have a stable income. Second, if you need to ditch your business, are you going to be another job seeker in today’s troubled employment market?


5. Set limits on your loss.
No, you don’t want to be a pessimist, but you don’t want to be a penniless fool either. I recommend you set two limits – the early warning review limit and the time to do something else limit.


Don’t leave the review (and if necessary, conversation with your partner) until your are cashless. Desperate people tend to make riskier decisions. It’s better to have time to review your current cash situation while you still have time to adjust than waiting until you feel like you have no other options.

Professional Finances

So how can you go about figuring out how much money you need to build your business?


Click on the following link to download an Excel spreadsheet with a column for one-time start-up expenses and additional columns for projected monthly expenses (both re-occurring and future one-time charges).

TSG Start Up Costs n Monthly Projections

 
After calculating these fees, compare them to your Personal Finance data. Do you have enough money in your personal finances to foot the bill?


NEED FUNDING?
Depending upon the amount of funds you seek, you have a couple of different options. Right now, lending is still very tight. Although it often seems as if you have to prove that you don’t need the money and have a guaranteed way of paying it off in order to qualify, here are some options to consider:


1. SBA Loan
You can go to a local bank that works with the SBA or go to the SBA web site for additional data on forms, requirements and lenders.


2. Investors
Whether a friend, family member or stranger, bringing in an investor may be your only option. There are some things you need to consider when pursuing this path:

1. What share of your business are you willing to give up for the investment?
2. Who is a good match for you? Bringing in an investor is like getting married. What decision-making rights do they have? Can you get along? What other professional benefits do they offer? What is their desired exit strategy?
3. If you’ve never sought out an investor, find a pro to help you with the process.
4. Put your agreement in writing.

 
3. Business Money Today
I recommend you not only check out the Business Money Today website, but contact them for additional help. I participate in a few different online business forums with the people behind this site and always find their advice insightful and honest.


4. Improve Your Personal Finances
While this may not be the option you’re hoping for, it may be what’s needed. If you are like many Americans with a higher-than-healthy credit card debt with lower-than-hoped-for income, you likely will need to improve your personal finances before you can qualify for a loan or before you should consider launching a new business.


If you are going for outside funding options, you will need to include a balance sheet, income statement and cash flow statement.


Need help turning around your personal finances quickly? Let me know. A friend recently completed an easy to follow and implement ebook titled, “Taming Your Financial Beast Today” that hasn’t hit the Net yet. If you’re interested, leave a comment below or send me an email (address following) and I’ll see what I can do to get you a discount.


Next up, “Licenses, Permits, Certifications and Legal Structures”.


And as always, if you still find yourself stuck, leave a comment below or send me a note at thesologuide@gmail.com for additional help.


All the Best,


Doug Dolan
The Solopreneur’s Guide

Last week was National Small Business Week (NSBW); a celebration of the nation’s economic backbone according to the Small Business Administration (SBA). Did you feel extra festive last week as a small business owner?

Before I get into my points, it might be helpful to know how the SBA and your current administration define a small business. Wisely, the definition varies based upon the industry – either by revenues or number of employees. For example, if you are a wholesaler in the B2B Electronics Market, you must have less than 100 employees (easily met as a solopreneur) whereas if you are a florist, your annual revenues cannot exceed $7M.

For full disclosure, I must admit that I didn’t attend the ceremonies in DC, so I reviewed the NSBW website and the SBA site plus did some searches on Google. On the NSBW site, there is a video of Karen Mills, newly appointed head of the SBA, addressing the attendees.

According to Mills, the top 3 priorities for the SBA are: 

1. To “implement the Recovery Act and get that money out into the hands of small businesses”
2. To “invest in and revitalize the agency itself” meaning the SBA
3. To “make the SBA the strongest voice for small businesses in the United States”

Following are some excerpts from her speech:

“… you’ve built stronger, healthier communities …”

“… how important the small business roll is in our nation’s economy …”

“… small businesses create … 70% of all new jobs in America …”

“… more than half of all Americans own or work for small businesses …”

“… develop the most innovative patents and ideas in the most cutting edge industries which will keep us competitive into the future …”

“… of the $730M in Recovery Act funds allocated to the SBA …”

 So Ms. Mills, if you are to become the strongest voice for small business, I have a few questions.

1. How many small businesses knew about National Small Business Week?
2. Why was there almost no TV press regarding the event?
3. Why was the week’s schedule dominated by representatives from large corporations (e.g. IBM, HP, Visa, Symantec) giving speeches instead of giving the small business owners an opportunity to discuss their interaction with the SBA and benefits that they received from the Recovery Act?
4. If small businesses represent all the good things for our communities and economy as mentioned in your speech, why are billions of dollars quickly dispersed to failing mega-corporation when only millions are allocated for small businesses – and mainly in lowering fees and reducing taxes?
5. Could you please ask President Obama why Chrysler won’t need to repay nearly $7B in bailout loans as it goes through bankruptcy (as reported by CNN Money) while the SBA will only receive $730M to service America’s economic backbone?
6. Where is the true celebration of the small business with recognition and visibility in the regional, national and international markets?
7. Where are the tax breaks to incentivize the operation of a small business instead of only in the start up fees?
8. When will the SBA eliminate awarding government contracts to larger corporations instead of small businesses?
9. What is the SBA doing to proactively educate entrepreneurs and the small business market about its educational services?  
10. Why didn’t President Obama attend?

Now not all was bad – or at least it appears that the SBA is trying with the implementation of America’s Recovery Capital (ARC) with details to be released to lenders next month. According to Mills, ARC will provide a bridge loan of up to $35K to once successful businesses to help them get back to better times.

However, for National Small Business Week 2010, I hope Ms. Mills and her department truly celebrate America’s small businesses by elevating them beyond dining at the kiddie table and giving them balloons.

All The Best,

Doug Dolan
The Solopreneur’s Guide