The Entrepreneur’s Chicken-or-the-Egg Problem

Entrepreneurs launching a new product face a common chicken-or-the-egg problem. How can you grow revenues on your product without the capital to build and distribute it? And how do you raise capital without traction in the market?

A large distributor that could make or break a company’s bottom line – a Walmart or Costco, for example – might show an interest in your products – say, a line of nutritional supplements. If you can show some traction in the wider market and prove that you can deliver, they will consider giving you a Purchase Order. This will help you raise capital from Investors.

When a fellow investor was apparently unhappy with the answer of the entrepreneur pitching his company’s funding need, I found myself asking my compadre for clarification to his previous question (something the small business owner probably should have done, when all is said and done). “We have been fortunate enough to be able to purchase all of our technology; and therefore, have not needed to lease any of our hardware or software…” was the response from the CEO of a small manufacturing firm seeking $1.5M to expand his clientbase in the defense industry.

We’ve found that…

Getting funding to buy an existing business is hard. Lenders will put the prospective buyer and the target company through a rigorous examination. They’ll look closely at everything for any potential risks – the buyer’s track record, his or her future plans for the target, and the target’s recent performance. A new owner will always find it harder to borrow than the seller did, even though the business may have a strong track record. As small business financing remains tight, financing business acquisitions is particularly tough.

EquityNet will work with you to overcome the financing obstacles to buying an existing business.

Improving working capital is a common goal of most manufacturers. This becomes particularly important when a business is looking to raise capital from investors or undertake strategic growth initiatives, whether it be upgrades to equipment, purchases of new equipment, facility expansion, transportation of materials, or research and development. Here are some ways access more working capital to grow your manufacturing business.

Einstein: SBA = 7(a) + CDC/504.

Henry Ford once said, “Any customer can have a car painted any color that he wants so long as it is black.”

As many small and medium size business owners know, Ford’s quote doesn’t apply to the options that seem available when looking for a loan. The list can overwhelm: Interested in an SBA loan? In that case, which is it: 7(a), CDC/504, or microloan? How about an BLOC? If not commercial-bank ready, maybe you could use an ACH loan or PO funding? If the choices are starting to look like an incoherent word scramble or a computed-generated password, don’t despair: In this brief article, I’ll help you decipher the the basics of the loan landscape. Alternatively, you can scroll to the bottom, contact me, and I’ll work through it all with you.

Financing working capital is a common hurdle that small business owners have to overcome. Whether you’re a manufacturing, service, transportation, or tech company, it is vital to have working capital on hand when you’re looking to upgrade equipment, purchase new equipment, expand your facilities, transport materials, or invest in research and development.

Best Practices to Improve Working Capital:

Track payment behaviors of your customers

Be sure to set up an automated tracking mechanism to flag you for consistently bad customer behavior. Customers that regularly pay late, don’t pay, or are generally difficult to deal with can take a large toll on your business. In other words, it’s ok to fire your customers. Refocus your attention on existing customers and new customer acquisition.

The market for self storage facilities is booming. Even though the average size of new homes is around 2,500 square feet, up 15% over the past 20 years, 10% of the country rents self storage units. Why? Because families are out of space, an increasing number of adult children are moving back home, and a credit crunch is limiting families’ mobility to bigger houses. None of these trends show signs of slowing down.

This translates into a $30B industry that is growing at 3% a year, with unit occupancy steady at 90% even as rents are rising 3% a year.

Partnership buyouts are common for small businesses. Often the equity partners are no longer aligned or one of the business partners is looking to retire. These business buyouts can cause disagreements if not handled thoughtfully. Here are some tips for the successful financing of a partnership buyout.

Business Valuation

One of the most important details to settle on for a smooth partner buyout is the valuation of the business. We’ve developed this guide to help you understand the particulars of small business valuation. Alternatively, many firms ask a 3rd party valuation firm to run an analysis for them – but this is a bit more pricey – often costing thousands of dollars.