In this series of articles, we will examine the financial options and programs available to business owners to fund their business.

By Debbie Gregory.

Whether you’re looking for start-up funds, capital to expand, or money to hold in reserve to get you through tough times, how you fund your business is one of the most important decisions you will make.

The term self-funding includes using your own money to invest directly in the company and using your personal assets as collateral for outside funding. If you are in a financial position to fund your business yourself, this option allows you to be independent and retain complete control of your business.

These monies could come from sources such as your savings, equity in your home, credit cards or even your retirement account.

Saving up the money to fund your business ahead of time saves you money since you will not be paying any interest, although it does involve risking your personal savings.

If you have equity in your home, a home equity loan or home equity line of credit (HELOC) is another option. Home equity loans provide a one lump-sum payment, while a HELOC works similarly to a credit card, where you only pay interest on the outstanding balance. But keep in mind that you are at risk by using the family home as collateral, something you wouldn’t want to lose.

One of the most expensive ways to self-finance your business is by using credit cards. Many successful business owners have used this method and made it work, but again, this is very risky, and depending on the interest rate, could be very expensive.

For a short burst of cash, you can withdraw money from your IRA interest and tax free, as long as you replace it within 60 days. However, make sure you pay back the money on time. If you’re just one day late in replacing the money for any reason, you’ll have to pay a 10 percent penalty and taxes on any of the money you haven’t paid back.

You may also be able to get funds from family members and friends. But please consider, each one of these methods does have a potential down-side should your business be slow to show a profit.

Veteran and Military Business Owners Association, VAMBOA,

By Debbie Gregory.

Chances are you would never leave for a road trip without your GPS device, or if you’re old school, your map is in the glove compartment. The same holds true for starting a business; your business plan is the road map that will guide you through each stage of starting and managing your business.

Your business plan determines how you will structure, run, and grow your business.

Business plans are essential if you are trying to secure funding or investors. Your business plan is the tool you’ll use to convince people that investing in your company is a smart choice.

So how do you write a business plan? First you will need to determine the format by choosing either a traditional business plan format or a lean startup business plan.

The traditional business plan is very detailed and very comprehensive. You will want to include a description of your company, your service or products, an executive summary, your organization’s structure, key personnel, your future projections and if you are requesting funding, how much you are asking for and how you will use it.

The lean startup format is less detailed and advantageous over the traditional business plan if you want to explain or start your business quickly. This works best if your business is relatively simple, or you plan to refine your business plan at a later date.  Be sure to describe your company’s value proposition, infrastructure, customers, and finances.

The good news about writing a business plan? It isn’t carved in stone. If you’re not satisfied with the format or need to make changes, you can always revise your plan as needed.

Regardless of which format you choose, the important thing to remember is to be concise. Your business plan works as a guide for you and your team, making it easier to identify goals and allowing you to work towards a common vision for your company. Having this kind of document contributes to the success of the business; all while enabling you as the CEO to have more confidence in your overall business goals.

Veteran and Military Business Owners Association, VAMBOA,

By Debbie Gregory.

As a small business owner, you want to take advantage of every opportunity that will help you start or maintain your business. One tip is to periodically check in with your audience, so that you don’t leave potential business or revenue on the table.

One of the ways to monitor your audience is with: Market Research.  This is a handy tool that blends consumer behavior and economic trends to give you a insight into your prospect’s and/or client’s thought processes.

Benefits of market research include:

• Developing compelling marketing materials
• Getting ideas for expanding your products and services
• Identifying trends before they become widespread, giving you a jump on the competition
• Reducing risks

Once you have identified the demographic information (age, wealth, interests, etc.) of your target customers, you will want to ask questions such as: where are my prospects located, how will they find my business, how much competition do I have, what do I have to offer that puts me above the competition, and how much of a need or demand is there for what I am offering?

One of the best and most cost effective ways to gather this information is via your social media following, such as with Facebook, Twitter, Google+, Instagram, and even LinkedIn. You can ask for feedback, with survey participation or questionnaires to be filled out. You can vastly increase the number of responses by offering something in return, such as a discount, free shipping, etc.

Just as important as market research is competitive analysis, this is where you identify your competition by product line or service and market segment. You will want to look at your competitor’s market share, strengths and weaknesses. Is this an advantageous time to go head-to-head with a company that has been doing what you’re doing? Are you doing it differently?

Remember, even if you’re selling widgets, there is more than one place selling widgets, you just have to do it better, have more value, or a more compelling offer or a superior widget or all of the above! What shape does your planning take in order to win a greater market share?

Veteran and Military Business Owners Association, VAMBOA,

By Debbie Gregory.

By Debbie Gregory.

One of the most important elements to a successful small business is strong financial health. Here are some metrics that every entrepreneur should make sure they consistently focus on:

The Break-Even Point – This is the the dollar amount you need to get to in a given period, generally monthly or quarterly. This amount needs to allow for the company to cover its own costs and sustain itself. Also, take into consideration even if it is not making a profit during a slow time, you will still have outgoing costs. This is sometimes called the margin of safety.

Operating Cash Flow – This lets you know how much cash your business brings in from its normal operations. It is common for businesses just starting out that they may operate at a loss in the beginning. Once established, this number should be positive.

Net Income Ratio/Profit Margin – Your profit, the money left over after operating expenses are subtracted from revenue.  This is a very important metric. You need to make sure your business still makes money overall after you pay your expenses. A business just starting out, or one experiencing a bit of a slowdown may have a bottom line in the red at some points, but you should always set your sights on growing your profit margins. If you are losing money, it’s time to look at ways you can trim expenses or reconfigure your operations.  

Working Capital – This number is determined by taking your current assets (cash, accounts receivables, short-term investments) and subtracting your current liabilities (liabilities due within the next 12 months).

Gross Margins – The gross margin is calculated as a company’s total sales revenue, minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. The higher the percentage, the more the company retains on each dollar of sales to service its other costs and then enjoy as profits. Tracking margins is important for growing companies, since increased volumes should improve efficiency and lower the cost per unit (increase the margin). 

Veteran and Military Business Owners Association, VAMBOA,

By Debbie Gregory.

By Debbie Gregory.

Contract financing, often referred to as “factoring” or “invoice financing” is a general term used for asset based lending products that will allow companies to finance slow-paying accounts receivable.

Contract financing differs from loans from a bank in the fact that rather than being based on the borrowing company’s credit record, it’s underwritten based on the creditworthiness of invoiced customer and the terms of the contract that customer has with the borrowing company.

That means that contract financing is a useful tool when the credit history of a small or medium company is such that it would limit or prohibit access to conventional bank loans and commercial lines of credit.

An agreed upon rate and fee amount between the borrowing company and the factoring company is withheld until the factoring company has been paid in full, at which point the factoring company releases any reserves.

This arrangement is beneficial to the borrowing company’s cash flow, which is vital to the success of any company.

Each financing company will have different rates and fee structures. By shopping around, comparing rates and doing due diligence businesses can avoid making a bad deal.  The right financing company will offer transparency, with their rates and fees upfront and clear.

You may be wondering if a company has to factor all of their invoices. The answer depends on the factoring company selected. Some will allow their borrowers to pick and choose which invoices to finance, while others may require the borrower to finance all of their invoices.

Contract financing companies are most often private firms, and you can usually find them online. The general procedure is to leave your contact information and wait for a phone call from the finance company.

Under many circumstances, contract financing can be a powerful financial tool for business owners to take control of their cash flow and use it strategically to work for them.

Veteran and Military Business Owners Association, VAMBOA,