Startup Essentials: Financing

Do you really need a bank to start a business? What role does a bank or other financial institution play in your ongoing success? How do you build a solid business and be in position to expand or exit at willprofitably?

In this column, Ill explore these questions and suggest ideas you might find helpful in financing your business, securing operating capital for those rainy days, and using basic financial tools. Ill also discuss options for small-business owners and provide a checklist of key startup strategies.

The Pitch

One of the first and most difficult steps is finding a financial institution that will listen to your proposition. This should be easy, right? After all, these institutions are in the business of lending money. But finding one with small-business savvy that is interested in acting on your behalf is a challenge. Bankers are very programmed and, as a result, find it pretty tough to think outside the box. So the trick is learning how to communicate your proposal to obtain the required funding while establishing a long-term, meaningful relationship with your lender.

If your financial needs are for a startup, the most important document youll create is a business plan, a blueprint of the who, what, where, when, why and how. Bankers and investors are numbers people, and they have seen hundreds of these plans. Therefore, yours must be factual and realistic to be accepted. Your profit-and-loss statement, cash flow and balance sheets have to be on target. If youre not an accountant or CPA, consider having a trusted professional help you prepare your documents and accompany you when you make your presentation.

Options for Small Business

Many new owners make use of Small Business Association (SBA) loan-guarantee programs to secure their financing. The SBA has had great success in funding car washes, and most urban areas have an SBA office. For more information, visit, where youll see details on the available programs. The two youll want to investigate are the 504 and 7a. The difference between them is subtle and has to do with terms, rates and amounts.

As you explore the website further, youll find a list for creating financial and business plans. Download this information, make a few calls, and set up a meeting with a local SBA official. This individual will help clear up any questions you have and provide further insight into the programs. Most people who have worked with the SBA find its guidance to be invaluable. When you have the backing of your representative and follow his direction, the odds are in your favor to obtain financing.

If youre feeling a little overwhelmed just now, consider taking advantage of another government service, the Small Business Development Center (SBDC). Most universities are affiliated with one. They offer a plethora of services, from psychological testing (to see if you are cut out to be an owner) to complete business planning. Theyll even put you in contact with other professionals who can address your specific needs. The fees are generally small, and the quality of input is terrific.

Addressing Future Needs

Once your business is up and running, do you finance future acquisitions and growth out of your cash flow or establish an ongoing line of credit with a bank? This is a tough question for all owners. The ability to finance ongoing needs based on the ebb and flow of your business may not be possible. Your option is to explore, and hopefully obtain, a bank line of credit (LOC).

Again, youll need to present a full set of financials. Theres a cost to having an LOC, but in most instances, its far less expensive than a lost business opportunity. Chances are, your need to tap this resource will be small and your fees minimal. But its comforting to know the money is available if a situation arises.

Working the Plan

All of this talk about financing is blue sky unless you have control and knowledge of all aspects of your business. Its impossible to be successful and grow without a plan. Fortunately, your business plan contains more than financial projections, it also includes strategies for implementation and basic financial tools, which youll put to use during operation.

The most basic tool is your budget, which establishes all parameters regarding sales, cost of goods, fixed expenses, profits and taxes. For your budget to be useful, you must review it monthly, comparing actual to forecasted information and adjusting operations as necessary.

Another critical tool is cash flow. I suggest using a rolling 13-week and 12-month statement. These project your cash receipts as well as expenses, so you can immediately see where you are and where you need to be.

Checklist for Success

  • Prepare a thorough and accurate business plan.
  • Have a professional prepare and work with you on your financials.
  • Know what your needs are for acquisition, startup and cash-flow shortfall.
  • Prepare and use budgets and cash-flow reports.
  • Review and adjust your cash needs based on business flow.
  • Maintain accurate financials. Report and track everything!
  • Hold yourself and your staff responsible and accountable.

Running and operating a business is one of the great privileges of our society. Pat yourself on the back for having the guts to take a risk. Finally, remember that unless youre a nonprofit organization, your first priority is to be profitable!

Fred Grauer is president of Grauer Associates and vice president, investor services, for Mark VII Equipment LLC, a car-wash equipment manufacturer in Arvada, Colo. He has made a lifelong career of designing, selling, building and operating car washes. He can be reached at [email protected].

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