Starting and Growing a Business
Starting a business is both, an exciting and nerve-wrecking venture and not for the faint at heart. A dear friend and a man that I truly admire, Wayne Shackelford, shared a quote at a recent meeting where he was the guest speaker and is now scribbled on the back of a receipt and hanging on my office wall: “You’ll never reach your potential, unless you are willing to risk failure”. But, remember, you are not alone. There are many resources available to you to help guide you along the way to successful entrepreneurship. I would like to share just a few of the most valuable resources I’ve discovered for starting and growing our business.
One of the smartest investments for our business was joining the Gwinnett Chamber of Commerce. The Chamber boasts more than 3000+ members, representing large and small, domestic and international businesses and is celebrating its’ 59th anniversary at its’ annual dinner on January 26th and will include more than 1000 in attendance. I whole-heartedly recommend a membership for any type of business in Gwinnett. But, you cannot reap the rewards of membership by just joining--you actually need to participate. There are numerous networking and program opportunities. I encourage you to visit their website and see for yourself the many ways to get involved. Be sure to tell them, “Pam, sent you!” and I hope to meet you at a future Chamber event.
A valuable resource that more and more small business owners are taking advantage of is the Small Business Development Center located on the campus of Georgia Gwinnett College. The SBDC offers confidential one-on-one consulting at no charge to help you start or grow your business on such topics as: how to start a business, how to write a business plan, how to apply for a loan or seek out other financial resources, how to market their products and services, and how to plan for succession of the business. They also have many continuing education programs available. We would also like to thank Robert Andoh and his staff at the SBDC- Gwinnett for providing much of the content for this business feature. It was hard to decide which articles to run in this issue—all were so great. Watch for future SBDC articles over the next few months. This is just an introduction to our Business in Gwinnett series of articles and we hope you find them helpful in pursuing your dreams of success!
Going to Work for yourself? Plan Ahead
By Scott Phelan
Are you thinking of striking out on your own and joining the growing ranks of the selfemployed? It’s an exciting—and possibly a little scary—prospect. But you can remove some of the fear by doing whatever you can to prepare yourself financially for life as an entrepreneur.
CONSIDER THESE STEPS
SAVE AS MUCH AS YOU CAN. Ideally, you would want to have a couple of years’ worth of living expenses saved before you go solo. But that’s a pretty tall order for most people. And if you have a spouse earning a good income, you may have less need to put away a large sum. Nonetheless, it’s almost always a good idea to save as much as you possibly can before becoming your own boss.
- THINK TWICE BEFORE CASHING OUT A RETIREMENT PLAN. If you’re leaving a job that provided you with a 401(k), 403(b) or 457(b) plan, you might be tempted to cash out your account to help pay for the transition to the world of self-employment. However, try to avoid this move. By liquidating your employer-sponsored plan, you will face early withdrawal penalties if you are younger than 59-1/2, and income taxes, too. Just as importantly, you will be depleting a valuable resource for your retirement. If at all possible, try to find other sources of income. For example, you may want to consider a home equity loan; interest rates on these loans are usually competitive, and your interest payments may be tax-deductible. Be aware, though, that you will be using your house as collateral, so make sure you can afford the payments.
- CONSIDER OPENING A NEW RETIREMENT PLAN. Once you make the jump to self-employment, start thinking of what type of retirement plan you might want to choose. Fortunately, you have some attractive options that offer both tax advantages and a wide range of investment choices. If your business has no employees except yourself and possibly your spouse, you may be able to establish a SEP IRA or an “Owner-only” 401(k). If you will have employees, you might want to consider a SIMPLE IRA or a “Safe Harbor” 401(k). Your tax adviser and investment professional can help you choose an appropriate plan.
- PAY YOURSELF A REGULAR “SALARY.” Depending on what type of business you are opening, you may well experience an uneven flow of income—which could, at times, force you to dip into your long-term investments to help you meet your daily and monthly expenses. To avoid this potential problem, consider paying yourself a regular “salary” out of your business’s earnings. It’s crucial that you live on a pre-agreed amount— even if the only person you have to agree with is yourself. Too often, entrepreneurs use up one month’s “paycheck” and then have nothing left in the next “down” month. But if you have the discipline to stay within the income you’ve allotted yourself, and your business succeeds, you should eventually build up a cash cushion that can be used for emergencies or investments.
Your career as an entrepreneur can be rewarding in many ways—and you’ll enjoy it even more if you make the right financial moves.
Preparing for a Small Business Loan . . . By the Numbers
By Bill Deegan
Loans for small businesses are often difficult to obtain. The major reason for this difficulty is based on the increased risk of a loan to a business as opposed to the relatively lower risk of loss to the lender in making a home or car loan. The requirements can be generally categorized as: Good Credit, Equity, Experience, Business Plan, and Collateral.
The general criteria for successful borrowing can be quantified. Numbers or ranges of values can be placed on them before one ever applies for the loan.
- GOOD CREDIT: One must have a good credit history. The reason for this lender requirement is obvious. Many are coming to banks daily applying for loans. Loans must be made only to those who present the least risk of failure to repay. Past
repayment history is the first and most important requirement for a successful loan. Lenders have subscribed to a credit measuring system in which a generalized credit score is rendered from various factors. These scores range
from 350 to 850. Observation of past successful lending has shown that the numeric value of the credit score
needs to be at or above 700. This can vary. Credit Score (700+)
- EQUITY: Equity in borrowing can be thought of as similar to a down payment. The lender wants the borrower to have a financial commitment to the venture for which the loan is requested. Even if all the other four criteria for successful borrowing are met, the bank usually will not lend 100 percent of the funds requested. The numeric value often placed on required Equity is in the range of 10 to 20 percent of the needed funds. Equity (10% – 20%)
- EXPERIENCE: No lender wants to lend monies to a borrower who has little or no experience. Here again, the question goes to risk. The more experience and talent the borrower has shown in the past, the lower the risk in lending from the bank’s point of view. The minimum numeric value often seen here is that the borrower should have at least three years of experience in the management of the type of business for which he or she is borrowing the funds. Experience (3+ Years)
- BUSINESS PLAN: The fourth requirement of the lender is a well thought out, researched, and constructed business plan.
This is a document that:
-
- Will introduce the business in a clear and complete manner.
- Describes the business, the potential market for the goods and service to be offered, the existing competition, and states who will be employed, who will lead and manage, and how the borrowed funds will be expended.
- Will include pro-forma financial documents. These are Cash Flow Statement, Income Statement and Balance Sheet.
- Finally, the plan will have a section of supporting documents.
The numeric value for this criteria is that the business plan’s cash flow should become positive and remain so after the first six months of operation. Business Plan (6 Months Forward + Cash Flow)
- COLLATERAL: Collateral is any asset of value that can be pledged by the borrower(s) as security for the loan. Collateral requirements of borrowing for a business can range up to and above 100 percent of the loan principal. This percentage again depends on the level of risk that the lender calculates.
The value to be placed on a collateral asset is usually estimated or appraised by the lending institute. The number to meet in the final area is often 100 percent + of the loan amount. (Collateral 100%+)
In summary, when going to the bank or other commercial lender, the numbers that the business borrower is likely to have to meet or better are:
- 700+ Credit Score
- 10-20% Equity
- 3+ Years Experience
- 4. 6 Months to Positive Cash Flow
- 5. 100% + Collateral Assets
Billions of loans are made to small businesses in this country each year. However, to improve your chance of success, you need to know the numbers before you go to the bank.
The Power of Networking
By LORI CANTERBURY
As someone once said, “The more people who know you and what you do, the more business you will have.” Is it really that simple? Many successful people believe that it is that simple when the concept of networking is taken seriously. Are there that many business people consciously networking out there? The answer is yes. Internationally known speaker, Dr. John Demartini, sums it up, “Knowledgeable people know facts. Successful and prosperous people know people.” What is networking really? Susan RoAne, in her book, The Secrets of Savvy Networking, says the best definition of networking comes from her friend Sally Livingston, who defines networking as a “reciprocal process based on the exchange of ideas, advice, information, referrals, leads, and contacts where resources are shared and acknowledged.” However accurate, this sounds very formal and somewhat academic. For small business owners, time is money and networking takes time, so any time and effort put into a networking event must ultimately generate sales. With this thought in mind, another good definition might be that networking is the ability to walk into a group of strangers and, in a short period of time, come out of the other side with a group of new business prospects. Now that sounds like a definition a small business owner can sink his teeth into.
Many business people have the misconception that networking must provide instant results. Rarely does a first time contact with someone at a networking event generate a same day sale. Instead, consider what Landy Chase, president of Rainmaker Associates, Inc., calls the five rules of networking. First, he says to be patient. It takes time to develop relationships with people who will eventually become customers. It also takes time to find the best networking opportunities. Second, he strongly urges business people to realize that the networking event is not a sales call. “Focus first on establishing business friendships, not customers.” Number three ties into the first rule when he says that persistence pays for those who are patient. It takes time to identify the “key players.” These people are the ones who are well connected and have networking down to an art. Chase says to make it a priority to become a part of this “Inner Circle.”
Rule number four is to be an active volunteer, which may include serving on local chamber of commerce committees and advisory boards of community organizations or becoming involved in local civic clubs. There is a catch. Volunteering should not be done solely for the purpose of personal gain. Sincerity and personal commitment to the cause are essential.
Successful networking also involves activef ollow up. Following any meeting with a quick handwritten note is a very effective way to reinforce a positive prior meeting. It is also a nice touch to follow up on any information learned about someone at a meeting, such as remembering a birthday, anniversary, or special event. Along these same lines, clipping an article of interest and mailing it to someone in the “Inner Circle” is usually a well-received gesture of friendship and concern.
Finally, it is crucial to remember the importance of body language in a networking situation. Things such as good posture and eye contact are non-verbal signals other people either consciously or subconsciously notice. A handshake speaks volumes about a new acquaintance. Supermodel Cindy Crawford strongly urges women in particular to have a firm handshake and not to “give it that little lady finger wiggle.” A firm handshake certainly exudes confidence.
Small business owners have enough to worry about these days without fretting over developing networking skills, right? But in view of the information above, how can a small business owner afford not to network actively? Consider the Proverb that says, “If you want to be prosperous for a year, grow grain. If you want to be prosperous for ten years, grow trees. If you want to be prosperous for a lifetime, grow people.” Remember to make it fun and take the “work” out of networking - the results will be amazing.
New Business Resource Guide
Gwinnett is fortunate to have so many organizations in which to become involved and assist you in growing your business.
GWINNETT CHAMBER OF COMMERCE
If you are not a member of the chamber, then you are not growing your business to its’ full potential. Join today!
6500 Sugarloaf Pkwy, Duluth
www.gwinnettchamber.org
770-232-3000
SMALL BUSINESS DEVELOPMENT CENTER
The SBDC offers confidential one-on-one consulting at no charge to help you start or grow your business. On the Georgia Gwinnett College Campus
1000 University Center Ln, Bldg A, Lawrenceville
www.sbdc.uga.edu
678-407-5385
GWINNETT NETWORK
Visit this website to find a listing of networking groups and business associations within Gwinnett.
For more info, visit www.gwinnettnetwork.com
Accent Gwinnett has used its best efforts in assembling material for this list but does not warrant that the information contained herein is complete or accurate, and does not assume, and hereby disclaims, any liability to any person for any loss or damage caused by error or omissions herein whether such errors or omissions result from negligence, accident or any other cause. Advertising in Accent Gwinnett is not linked in any way to the selection of doctors in this issue or any future issues. Any information provided is not a substitute for the professional judgment of a qualified heath care provider based upon actual examination of a patient’s condition and history.
