GOING IT ON MY OWN!!!

Yes, that’s right, I’ve decided to go it on my own – become a “social” entrepreneur.  Wow, nothing like going into business for your self is there. I know, I know – I was a business consultant for the last three years and I’ve owned three businesses, so if anyone should know how to do this, I should. But, knowing how to do something and doing it – especially finding the cash – is another story.  So I’ve decided I’ll write a couple of stories of where I’m at and what I’m doing…

First, I’ve gotten two contracts approved.  I received one from my previous employer to market and teach the Creating the Creative Business class; and one to continue to work on Rockford’s Downtown Entrepreneurship Project.  Very happy about both of them and I have several others in the works.

Now comes the hard part – financing the business until the funds start coming in.  I’ll probably bill out for services for the first time on Oct. 31^st and then won’t get paid until November 30^th or if I’m really lucky November 15^th.  (Please note that I probably won’t be eligible for unemployment because I’m technically working, but that’s O.K.  I would rather work, although if this State is really interested in new small business start-ups they should be giving some sort of “perk” to those that are unemployed and want to start a business.)

Cash flow is probably one of the hardest things for a small business to handle.  Here is what I’ve done.  I didn’t want to touch my 401K and I don’t have a lot saved up (sound familiar to any of you other entrepreneurs), so what I did was get a 0% credit card for 15 months. I get these offers in the mail all the time, but you need to be very careful with this.  I could probably say I’m an expert at using credit cards to start businesses, but I consider it “real” business debt and I generally have a plan to pay it back in the short term OR I  start a payment plan (on my own volition) to pay it off in 3 to 5 years.

What I’m doing is keeping my final paychecks in the bank and paying for gas, groceries and business expenses on the card (it has a $6500 limit).  By the end of October, I should have about a $3000 stash in my bank account, enough to keep me going until I get that first big check in November.  I’m hoping by the end of October to have enough in services to pay of the credit card, but if not, I will definitely put it on a payment plan.

Sound tricky, well it is a little, but any genuinely experienced entrepreneur will tell you that cash flow management is both a science and an art.  Until you have experienced the ups and downs of this, it is hard to explain that constant ache in your stomach or sleepless nights that are the familiar symptoms of not
having enough cash to pay the rent.

Also, I had to get private health insurance.  I’m 57 and single female – I think it’s a pretty good policy through Humana, but it costs $500 per month…see what I mean about cash flow.

Questions, comments – let me know.

Creating the Creative Biz Step 3: Location, Location…ah, maybe not yet!

I wish I had a nickel for every client that walks into my office with just a rough business idea and a location.  No information on their target customer…no marketing plan…no information on competitors, but they believe they know where they want to locate this business.  Some even come with a signed lease agreement.

The number one “killer” of small businesses is lack of capital in the first year.  In most businesses, a significant amount of capital is generally eaten up by overhead: rent, utilities, taxes, and maintenance.  Any business advisor will tell you that finding the right location is very important to a small business’ success, but it should not be the first thing that you go out and do when deciding to start a new business.

As mentioned in my two previous “steps” – first you need to have a good business idea and then you need to “know” your target customer and determine where they are, what they need (or want) and where they shop at.  Clients incubating in a place like the Rockford City Market have a special opportunity (albeit some weather challenges) to test their market before taking on excessive amounts of overhead. 

Still others decide to start out in their homes.  There are obvious drawbacks for the person that decides to do a “home-base” office/business.  But at least the home-based business owner understands the need to keep over-head to a minimum in the initial start-up phases.

Small shop means Big Biz potential

Here is a photo of a new business that I know that is taking their time before they make a full blown investment in a shop or store-front.  By “boot-strapping” or keeping loans and capital injections in a business to a minimum gives them ample time to learn more about their markets, pricing and customer needs before taking the big leap. 

Bella Luna Bakery started at the Rockford City market last summer and is now using a small (closet-like) space at the Millennium Center where they can deliver their product; and bake in the shared commercial kitchen.  Admittedly, they have almost outgrown this space, but by keeping over-head low they keep their cash flow as high as possible which allows them the funds to continually expand.

The problem with rushing into a larger location and overhead expenses is that so many businesses use all of their spare cash flow and start-up capital on the overhead expense leaving no cushion to carry them through seasonal fluctuations or errors in planning.  Many of these businesses want to grow after a year or two, but can’t because they don’t have any money of their own left and banks are unwilling to loan anymore to the enterprise.  Research has shown that sometimes it can take businesses up to twenty years or more to dig out of financial problems that they encountered within the first or second year of business.

Starting out small and waiting for a more expensive location until you have demonstrated your business’ ability to survive and thrive with good market intelligence and great customer service could mean the difference between creating a good business or a great business.

Food for thought…

P.S. – Never ask a realtor or developer about what comes first in the business plan.  Make sure any discussions regarding your business location is discussed with someone that does NOT have a vested or financial interest in the property.

The Importance of Capital and Cash Flow

I can see most of you creatives out there grimacing at the title of this one, but believe it or not, if anyone wishes to have a successful business, working capital (cash in the bank) and cash flow are at the top of the list.  You obviously need a good product or service, as well as, promotion, but nothing will ever replace the cash flow. 

 Knowing how to teach creatives (most of whom hate math) to take the importance of budgeting and cash flow management seriously has been a dilemma I’ve been thinking about for quite some time.  Yesterday, I was reading an article by Melinda F. Emerson: 9 Reasons Why Baby Boomer Businesses Fail.  You can find the article at http://www.secondact.com/print/9-reasons-why-baby-boomer-businesses-fail .  The article was very interesting and applies to more than just baby boomer businesses.  Emerson’s #9 was particularly of interest “Lack of personal and fiscal discipline”.  Following was her comment:

                 “If you do not run your household on a budget, you likely will struggle to run your business on one.  You must make business decisions based on up-to-date financial information.  Will you make money decisions without consulting your budget?  How will you focus on tasks that generate money?  Will you raid the cash register whenever you need money?  You should   know in advance how much money you are making on each sale; otherwise, you might have  an expensive hobby.

 I’ve discussed the issues of “selling one’s soul” before with my students.  It is difficult, especially for creatives to put a price on their work, but if you wish to make money with your art or creative product you must have a system in place to review your cash flow on a regular basis.  You also must be able to budget.  You are not “in business” until you have at least monthly financial statements showing exactly where your company is financially.  The number one reason for businesses going out of business in the first year is lack of capital.  I have seen many clients that have a great product and a good level of sales, but do not manage the cash they have appropriately and find themselves in bankruptcy within the first 1-5 years of business. 

If you don’t know what a cash flow is; how to create one; or how to read one then take a course or get a good accountant. Cash management IS important.