Are you an Aspiring Entrepreneur? Here Some Tips from Small Business Experts


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Tips for Aspiring Entrepreneurs from Small Business Experts

Q&A with Susan Lamping, VP of Sales, and Chuck Sinks, Senior Business Advisor at CDC Small Business Finance, a nonprofit small business lender.

Not everyone has what it takes to be an entrepreneur. According to Chuck Sinks, of CDC Small Business Finance, we should all have “tremendous respect for the risk, sacrifice, uncertainty, stress and the ‘make or break/ it’s all on the line’ decision-making entrepreneurs engage in.”

We spoke with Susan Lamping, Vice President of Sales at CDC, and Chuck Sinks, Senior Business Advisor, about the difficulties that entrepreneurs have to overcome when they are starting a business.

Why It’s Hard to Meet Lender Requirements

One of the first challenges that entrepreneurs have to face is getting access to capital. Lamping shared with us the most common reasons entrepreneurs fall short of meeting lender requirements. Typically, she says these are due to cash flow, credit or length of time in business. She explains that “lenders often want to see that entrepreneurs have enough cash flow to meet their existing business and personal obligations as well as the new debt service, and still have a small cushion left over,” which is something that many businesses don’t have. Another deterrent to access to capital is credit, since “many of the larger banking institutions are seeking credit scores upwards of 680 with no or minimal blemishes from the past.” It is also challenging for start-ups to get financing since a lot of lenders want to see at least two years in business, and some will not consider start-ups at all.

Solving Early Challenges

Chuck Sinks has been around small businesses his whole life, “involved in one way or another with the start-up’s, owning, operating, purchasing, turning-around, and selling.” He started working at CDC Small Business Finance in 2010 and says advising at-risk small businesses during the recession was “incredibly rewarding.” He typically approaches challenges by figuring out whether the business decision at hand is going to “make money, save money or save time.” This approach allows him to narrow down the options quickly and start solving the problem. He says that “it’s not always easy, and we don’t bat 1000…but if we stay at it, working with the business owner, we can usually get to a satisfactory or better outcome.”

One of the early challenges that Sinks sees in a lot of small business is bookkeeping. He says, “good, reliable bookkeeping seems to be a shortfall for many small early stage business owners. Reliable operating financial statements help business owners make fiscally sound tactical decisions day in and day out.”

Advice for Aspiring Entrepreneurs

We asked Sinks what he thinks aspiring entrepreneurs need to understand about the risks associated with starting a business, and he gave us a list of 7 things entrepreneurs should consider.

  1. Ask yourself “can I tolerate the risk for the reward or outcome I’m after” before you take the plunge into business ownership- there could be a heavy price for overestimating one’s tolerance for risk
  2. Write a well-thought business plan, including candid financial projections and market analysis- it’s magic when you write things down
  3. Have sufficient capital
  4. Be optimistic— “a ‘no’ from a potential customer today means you are now one ‘no’ closer to a ‘yes’ from a customer tomorrow”
  5. Be flexible; if the market is telling you to change; listen, confirm and act
  6. You will lose a little stomach lining along the way, make sure you have plenty when you get started
  7. Remember where you came from; give back, help out and share what you have learned

Evaluating Alternatives for Small Business Debt Capital

Sinks told us about a simple graph that CDC has developed to evaluate the various alternatives for small business debt capital. In this graph, the X axis is Effort and the Y axis is Cost, and they are inversely correlated. He explains that Small Business Administration (SBA) loans involve effort, but have a low cost of capital for early stage small businesses. On the other hand, Merchant Cash Advances (MCA), which is when a small business’s credit card service vendor makes a cash advance to the business and takes a percentage of the daily credit card swipes, is very easy to get but the cost of capital is very high. The Annual Percentage Rate (APR) – often upwards of 30% – is usually “very opaque or just not disclosed by the MCA lender.” So, Sinks recommends always making the effort to secure low cost debt capital.

 

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