Episode #32 Where Do I Get Money To Start A Business

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There’s a lot of people out there who’s looking to start their own business but do not actually have the money to invest in starting their own business. When you looking to loan money for business, it really depends of what type of business you’re looking to start. There first thing that goes to people’s mind is usually going to a bank and availing a loan but it’s not that easy. I’m not a very big fan of banks and I usually say that banks like to loan money to people who don’t need money. They look to loan to people who have good credit, who have a good cash flow and overall just lower down their risk of loaning you their money.

Discussing the advantages and pitfalls of certain business funding choices

A lot of people want to own their own business but don’t have the money to invest and aren’t sure where they should get that money.

The type of funding you pursue really depends on what type of business  you are trying to start.

  • Do you have grandiose, large-scale plans? An internet startup, maybe?
  • Are you trying to buy a franchise?
  • Do you want to own a real estate business or a small commercial business?
  • Do you want to work part-time and/or work from home?

All of these different types of ventures require different levels of investment.  What your goals are has a lot to do with what type of funding you need to get.

Going To A Bank

“Banks are only interested in loaning money to those who don’t need the money”.

Many people think about just going to the bank and getting a loan.

But, there are a lot of disadvantages to this unless you already have perfect credit and significant collateral.

The reality is that banks are really good at holding and managing money but they are not necessarily interested in taking a lot of risk in investing in new businesses.

They will only make loans to those with so much existing collateral because they want to lower their risk by having their loan backed up by having plenty of assets they could sell or liquidate.

Going To A Venture Capitalist

Going to a venture capitalist is primarily for people who have developed something related to technology, i.e. a new app or new software.

Before the “dot.com bomb” in the early 2000’s, they were giving out money like crazy but that is not necessarily the case anymore.

Also, most people don’t understand exactly what they do.

To make their business model very simplified, their strategy is:

 If they have $10M to invest, they want to make 10 $1M “bets.” 

They want 10 companies that can hit a hockey stick. 

A hockey stick is a reference to the curve from no money to millions in a very short period of time.  That curve on a graph looks like a hockey stick.

They do know that all 10 will likely not hit it but if 1 does it was worth it.

If you keep hitting the financial goals they set out for you, they pretty much leave you alone.

BUT, if you don’t, they get more and more involved in your business, to the point that they start replacing your board members, your management, and in the end they may end up completely managing your company and perhaps even owning it.

Here’s My Real Life Example:

One of my early business plans was an integration business where we were helping companies get into high speed internet and putting their businesses online. It was very solid. They did $1.4M the first year in sales, $4.7M in Year 2, and they wanted some VC funding to grow it for another year or two and then make it public.  Several of the VC’s that I approached were not interested because his company had a solid 10 to 15% year over year growth, NOT the “hockey stick”.  It was too conservative for them.

Partnerships

Silent Partners

This is where someone invests in your idea or company with theoretically no active day to day involvement.

The reality is that they’re usually not silent and they give a lot more advice than you asked for. As they get to know the business, they start making recommendations and it can turn you opposite from the direction you wanted to go in.  Sometimes, their ideas are good, but it’s definitely not for everyone.

Equal Partners

You have ideas and your buddy has funds.  You decide to go into business together and split everything 50/50.

Here the issue becomes that it’s never going to be truly equal because one person has “sweat equity” while the other has sweat equity AND cash.  The one with both is eventually going to want more $$ equity back or put in less sweat equity.

This partnership CAN work but many more don’t work out than DO .

Here’s my take on this is to do very loosely defined partnerships.

This is where you have partners who are going to give building it “a go” and see if it’s successful. If it’s not, okay.  If it is and it looks like it’s really going great, then you can handle the particulars, such as setting up the business accounts, seeing the lawyers, etc.

Solo Entrepreneurship (Sole Proprietorship)

            That’s what the majority of my businesses are.

This is basically you “bootstrapping” yourself/your own venture.

The goal is to try to make at least some revenue as soon as you possibly can with any business venture, even if it’s not exactly the way you want the final business to look/be.

If it can’t make money on its own it may be not worth doing.  If it does make money, then you keep refining it, reinvesting your profits, and let it grow like any other business.

                One of his tips:

When I was starting a new business in a new market he may go into that market and find a leader/guru and offer to partner with them on something or offer to do something for them for free or low cost.  This way, I can get some insights into what they’re doing and any info he gains is good.  Even info on how not to do something and where the mistakes are is valuable.

There are a lot of home-based businesses and solo entrepreneurship that are started up with direct marketing (aka multi-level marketing)

There’s a lot of negative press out there on this because there are some scammers but there are also a lot of legit businesses. It is a good way to make some money.

I would just caution people on buying into the “hype and energy” of being told if you do “these” things you are going to make a ton of money.

Most do not become successful overnight and they work at that like any other business venture.  You still need to work on it every day, you still need to do marketing, and you still need to meet clients.  There’s still a lot to be done on your end.  Going to conferences and sales meetings is not going to get you rich.

If you have a question for Anthony, head over to www.anthonyflatt.com and leave him a voicemail message to have a chance to have your question featured on this show.

All the Episodes are available on our website:

www.businessatthespeedofsell.com

Also available on iTunes:

https://itunes.apple.com/al/podcast/business-at-the-speed-of-sell/id990650976

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