Credit crunch forces small businesses to get creative
United National Consumer Suppliers, a Ft. Lauderdale, Florida broker of clothing, toys and other merchandise for discount stores such as Marshalls, has been seeing more suppliers ask to be paid up front amid worries over the uncertain economy.
But that’s not necessarily a bad thing, said CFO Todd Hartstone, who in exchange for complying can often garner deeper pre-payment discounts.
“We’re going to monopolize on that opportunity,” said Hartstone, whose business has been putting up good sales numbers as consumers seek more bargains from discount stores. “Fortunately having a little cash strength puts you in a position where you can drive the purchase.”
During a downturn, successful entrepreneurs work to create their own financing infrastructure by improving trade terms with suppliers and vendors, said Jeff Stibel, CEO of Dun & Bradstreet Credibility Corp, which studies credit ratings of small businesses.
“They’re becoming a proxy for credit and debt,” he said. “What they’re trying to do is build stronger relationships.”
Nick McKay, president of EnviroScent, a maker of room freshening products sold at retailers such as Lowe’s and Michaels, agreed.
He said his Atlanta-based company has many suppliers that offer EnviroScent extended payment terms, the result of longstanding relationships built on trust.
10 questions to find the right bank for your business
– Mary Goodman and Rich Russakoff are co-founders of Bottom Line Up Enterprises. This article originally appeared on The Money Dept. column for BNET. The views expressed are their own. –
Finding the right bank for your business is not all that different from finding the right mechanic for your car, or the right surgeon for an operation. You need some objective information first.
The best way to determine whether or not to consider a particular bank is to find out the answers to the following 10 questions. Use them as your starting point, but know that you should dig deeper if you can.
1. Is the bank healthy with strong financials? Given today’s economic climate and the recent dramatic rise in bank failures, you must check the health of any bank that you seriously are considering. (For more information on how to do this, read this post.)
2. Does the bank have a business division focused on lending to small and medium-sized companies? What percentage of their business is geared to this market? The easiest way to find banks with a business division is the old fashioned way. Just look to see what banks have a phone number for a business division in their yellow page advertisement. I know, this seems old school. But in my experience, the information on bank websites can include a lot of hype. You’ll get much more information if you call and get connected with the right person in the business division so that you can ask detailed questions.
3. Is the bank on the SBA’s current list of top small business lenders? This information is available from the SBA’s most recent study on small-business lending activities. In addition, Entrepreneur Magazine created an excellent website on the banks that are the most business friendly, broken down nationally and by state.
4. Is the bank familiar and comfortable with your industry? Does it lend to your type of business? What industries does the bank specialize in? When you contact a loan officer by phone, tell her what your company does, how long you’ve been in business, how fast you’re growing. Tell her that you’re looking for a long-term relationship with the right bank and be specific about what you need, a $X line of credit, a term loan of $X, etc. If the bank doesn’t work with companies in your industry, ask for recommendations for other banks. Local banking markets are small and bankers are well aware of what type of loans their competitors are making.
Exclusive: Survey says small businesses upbeat about 2011
Small businesses are feeling better about the economy and are looking to grow in 2011, according to a new survey released this week by online marketing firm Constant Contact.
Of the more than 1,400 small business owners that responded to the survey (view full results), 73 percent expected their companies to grow over the next 12 months and nearly 40 percent felt “positive” about the economy over the course of the next year.
“They see the darkness behind them and looking forward they see some light,” said Eric Groves, Constant Contact’s senior vice president of global market development. He added the survey is a “followup” to the Waltham, Massachusetts-based company’s larger spring polling of roughly 4,000 small businesses. Groves said Constant Contact has more than 400,000 clients, predominantly small to medium-sized businesses.
Another key finding was that small businesses remained disenchanted with the Obama administration’s efforts to help, with a combined 51 percent of respondents rating the federal government’s attitude toward small businesses as “very unsupportive” (28.7 percent) or “moderately unsupportive” (22.6 percent).
“They’re looking at this as something they’re going to have to figure out themselves,” said Groves on the challenge respondents face in growing their businesses in a slow economy.
More than 70 percent of small businesses said they had not sought financing in the last 12 months. Of those that did secure financing, just 12 percent said they obtained a loan from the U.S. Small Business Administration – the prime government lending arm to small firms. In order, the most popular targets for funding were: banks (50 percent), family and friends (23 percent), angel or venture investors (13 percent) and Community Development Financing Institutions (CDFIs) at a mere 2 percent.
While 55 percent said they expected to enjoy moderate growth, just 35 percent said they would be hiring over the next year.
A startup financing strategy that works
– Kenneth H. Marks is the founder and managing partner of Raleigh, North Carolina-based High Rock Partners. He is also the lead author of the “Handbook of Financing Growth”. The views expressed are his own. –
Statistically no one gets venture capital. The ratio of the number of companies started each year vs. the number of companies funded is minuscule. For most companies it’s just plain unrealistic. So, how do the 99.9 percent of startup businesses get funded?
The financing strategy is bootstrapping in stages based on iterative phases of success and only doing what must be done to get to the next phase with minimal capital. This is a resourceful and practical approach:
- Start with the customer
- Establish the critical path items for at least the first stage of the company or project
- Define what it takes to validate the market and prove the company’s ability
- Develop a list of where and from whom you can get the resources needed (i.e. who has a reason to care about my company’s success)?
- Assess – “Can we bridge the gap with friends and family and personal investment?”
Start with the end in mind – that is, the customer and the market need. Many businesses start with a solution and look for a problem to solve; this is natural when you have technical entrepreneurs and creative people. However, capital is attracted to situations that have proven market demand with a solution that is feasible at a validated price that allows the business to make a significant return based on the risk involved. The idea is to validate the market and price as soon as possible in the development of the company and shape the product or service offering to assure profitable revenues, or at least those that can generate a reasonable gross profit (revenues minus direct costs). This means talking with potential customers as you are crafting the business plan and strategy.
Next, leveraging the knowledge gained to develop the critical path items required to launch the company, create a working prototype and confirm the business model works. One of the outputs of this train of thinking and process is a clearer understanding of the amount and timing of capital required.
Let’s take an example:
Well-reasoned approach. One company with which I’m familiar taking just such an approach is BizGreet (I’m not affiliated with them). http://www.bizgreet.com The founder understands all too well that a product without customers generates no cash (for future operations) and no funding (for future growth).
What to do when the money runs out
- Seth Kravitz is the co-founder and CEO of Columbus, Ohio-based InsuranceAgents.com, which has been named one of Inc.com’s 500 fastest growing companies in the U.S. The views expressed are his own. -
Maybe you saw it coming, maybe it blindsided you, but whatever the cause you may run into a huge challenge millions of business owners have faced: you’re out of money.
A couple times over the course of the last six years my company has hit some pretty significant money problems. Each time we made it through, but it was a struggle.
First off and most importantly, are you out of money because your business model is flawed and/or your management is terrible? Or are you out of money because of an unforeseen problem or something outside your control?
Think about that long and hard before you decide to keep going. Sometimes shutting down is the smarter choice.
If you decide to push onward and want to try to get your bank account back on track, there are a lot of ways to perform financial CPR on a dying company.
Do you actually need a loan or credit line, or do you just need to do some creative bill balancing?
What is the world debt?
what is the per capita debt?
If everyone says world is progressing, then where is all the money going – Fortune 500s ???huh
Can’t pay your taxes? Don’t worry
- Thomson Reuters Tax Analyst Jim Keller provides some options available to help taxpayers pay their balance due. This article originally appeared on ThomsonReuters.com. – Are there options for Americans who cannot pay their taxes? According to Jim Keller, senior tax analyst for the Tax & Accounting business of Thomson Reuters, if you discover on April 15 that you have a balance due on your 2009 Form 1040, you won’t be alone.
In addition to the traditional causes of tax underpayment (such as the receipt of interest, dividends, or other non-wage income), the government estimates that more than 15 million taxpayers will be unpleasantly surprised to discover that they owe taxes with their 2009 returns as a result of the way income tax withholding was reduced to account for the “Making Work Pay Credit”.
“Taxpayers who fail to file on a timely basis and pay their taxes face penalties and interest charges,” said Keller, “these folks can expect to come up against a more aggressive IRS. For example, the IRS filed more than 683,000 tax liens during 2008 and served over 2.6 million levies during that same period.
There are some options available to help taxpayers pay their balance due:
GETTING AN EXTENSION
- No cash? File an extension. Assume that Don and Jody’s 2009 tax return shows unpaid tax of $5,000, but they don’t have the cash to pay the tax. First, they should not ignore the IRS – it will not go away. They should either file their return by the April 15 due date, or request a filing extension. Either way, the failure to pay the taxes due on April 15 will result in interest charges and a penalty for failure to pay of 0.5 percent per month on the unpaid balance (up to 25 percent) until the taxes are paid. But by filing or extending their return, they’ll avoid the more onerous late filing penalty of 5 percent per month on the unpaid balance (up to 25 percent) until the return is filed.
- Don’t do anything. If Don and Jody don’t do anything by April 15th, but file the return and pay their taxes three months later, they’ll owe a failure to file penalty of $750. If they extend the return and then file it and pay their taxes three months later, they’d pay a failure to pay penalty of $75 – $675 less than if no extension had been filed. “This shows how important it is to file or extend by April 15th even if you don’t have the money,” said Keller.
Thanks for the income tax pitfall refresher.
I was one of those who was not so pleasantly surprised to find a 400% increase on my tax owed for ’09 due to the income tax withholding that was reduced to account for the “Making Work Pay Credit”. As I made the check out to The Treasury, I couldn’t help think that “re-distribution of wealth” still lives on Main Street.
Would a CIT bankruptcy hurt your business?
CIT’s bailout talks with the government have fallen apart, setting the stage for a possible bankruptcy filing.
The lender provides crucial funding to small and mid-sized U.S. businesses, from clothing manufacturers to Dunkin Donuts franchises.
Founded in St. Louis in 1908, CIT boasts on its website that 1 million business customers depend on it for financing. Many may now have to depend on someone else, at a time credit markets remain tight, reducing business activity as the government tries to lift the economy out of recession.
Is your business affected by CIT’s struggles? Have you found it difficult to obtain financing since the financial meltdown? We want to hear your stories in the comments section.
CIT files for bankruptcy as they finally seem to have exhausted all of their options. It remains to be seen what the ripple effect of the CIT news will be on small and midsize businesses (SMBs), and the economy as a whole. The fallout of CIT will only exacerbate the struggle for these companies- especially retail and manufacturing. For our economy – and the small and midsize companies that drive it – to fully recover, it is imperative that they have broad access to small business financing.
There is one silver lining for the companies, The Receivables Exchange (www.receivablesxchange.com). The Receivables Exchange stands ready with more than $20 billion in liquidity from leading hedge funds, banks, ABL, factors and other accredited institutional investors to fill the liquidity gap these nearly one million companies will face. Our market-based solution delivers an efficient source of liquidity at competitive rates and stands ready to have our global network of accredited institutional receivables buyers compete to bid on the outstanding invoices of these companies. The Exchange can help these SMBs protect against exposure to a single source of liquidity and gain ready access to credit- all on their own terms.
Free financing tool to help startups get legal ball rolling
Leave it to a savvy law firm headquartered in the heart of Silicon Valley to develop an online tool that actually generates draft financing term sheets for startups using the simplicity of a web-based questionnaire.
The so-called “Term Sheet Generator” comes courtesy of Wilson Sonsini Goodrich & Rosati, a Palo Alto-based firm that’s played legal adviser to the likes of Apple and Sun Micro. It works with the responses and information provided by users to build fully formatted term sheet documents that can help entrepreneurs seeking outside capital get the ball rolling.
As Startup CFO blogger Mark Macleod astutely points out, the tool is no replacement for the advice of a skilled lawyer but can help cut costs when pondering early round funding. This is a sentiment shared by WSGR, which notes in the user terms and conditions that the service is “for general informational purposes only” and does “not constitute advertising, a solicitation or legal advice.”
The tool also offers up tutorials and annotations on terms for those who may be new to the world of financing, as well as market data that is worked into the standardized answer options of some of the more than 100 questions.
VC-blog altgate, which has a review of the generator and a sample term sheet, agrees that it’s a useful tool and reports that it’s but one of a slew of document generators WSGR plans to make publicly available on the web.
Let’s hope they also carry the lovely price-tag of $0.
(Photo: An attendee works on a computer at the 2009 Milken Institute Global Conference in Beverly Hills, California April 28, 2009. REUTERS/Phil McCarten)
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