Financing Your Business
How to Weather Serious Financial Crises
Here are some tips on weathering financial storms in your business that Judy Paradi, owner of Paradi Marketing (jparadi@paradimarketing.com) and teacher of an entrepreneurial course at the University of Toronto, presented to participants of the Step Ahead One-on-One Mentoring Program:
- Work with your suppliers - develop good relationships so they will support you in troubled times - for example, by allowing you to pay their invoices in small increments over time.
- Avoid the 80-20 rule: i.e. when 80% of your billings come from 20% of clients. The minute you get a client, plan on losing that client - whether that may happen next year or in 10 years.
- Prospect for new clients constantly.
- Be more philosophical - do what you have to do (eg. downsizing) for the future of the business. Women often have a lot more difficulty than men letting people go, but it could mean the difference between the survival or demise of your business.
- Use freelancers more than full-time staff if that works for your business.
- Get to know your bank manager. Ensure that he/she gets to know you and understands your credit needs, etc.
- Always anticipate. Look at business trends and technology and reinvent your business if necessary. For example, in Judy's business web-based marketing and interactive marketing are far more prevalent now.
Finding Growth Capital
Sorting through the myriad of financial alternatives available for your businesses'
growth needs can be time consuming and frustrating. Here are some guidelines to help you in choosing what is right for you:
1. Banks
These are general rules
for borrowing amounts up to $500 million. (For under $50,000, no business plan is required;
to apply online for amounts up to $100,000, click here.)
What banks require to assist companies with expansion:
- Have a business plan. Banks expect clients to understand and explain their
vision, goals, strategies and expectations. We document our understanding
and make a risk assessment based on the business plan, current financial information
and projected financial statements. These include balance sheet, income statement
and cash-flow analysis. All of this information is used to determine a financial
risk rating for the business. The factors primarily include three key ratios
- current ratio; debt/tangible net worth ratio; and debt servicing surplus.
The addition of pledged security, usually from assets owned by the business,
can offset weaker ratios. The "rule of thumb" is past behaviour
predicts future behaviour.
- Provide a statement of affairs of the business owner/guarantors. Be prepared
to provide, at the very least, a partial personal guarantee to support the
business lines of credit and the last two years of your personal tax assessments
from CCRS. Remember that you are in control of the business.
- Have current copies of aged accounts receivable, accounts payables and accruals
on hand as well as a detailed list of inventory. We also require the particulars
of your present financing, i.e. balances owing, payment terms and collateral
pledged, including leases.
- Insurance is an important factor in mitigating risk. Inquire into business
insurance, accounts receivable insurance, key person insurance and disability/life,
if you have not already done so.
- Be able to provide proof that your potential priority credits are up to
date, i.e. WSIB, GST, PST, Canada Customs Revenue Service, business taxes
and property taxes.
- There is generally a fee involved in order to go forward with an application
for credit.
What you should expect your banker to provide:
- A clear understanding of a turn-around time.
- An understanding of costs: including application, ongoing monthly/annual
fees and legal fees.
- What financial reporting would be required, why and when - monthly, quarterly,
etc.
- What are the collateral security requirements and why.
- Why he/she recommends the structure, rates and fees and collateral security
and covenants. What would be needed to reduce interest rates, fees, financial
reporting and covenants and within what time frame and under what conditions.
- What other options would be open in lieu of traditional bank financing.
i.e.: asset-based lending, Export Development Canada insurance, the Business Development Bank and
personal resources financing.
- Recommendations: other services to minimize your administration costs and
time - eg. Appropriate electronic banking/cash management solutions; service
charge package; referrals to experts within their bank; direct foreign exchange treasury services; and referrals
to experts outside their bank including lawyers, accounts, associations and
government departments.
Remember that these are guidelines and information only - every deal is unique
and each will be assessed individually.
2. Venture Capital
- What you gain with a venture capital firm:
- Money
- Networking/contacts
- Information/knowledge (especially regarding financing)
- A different business perspective
- What you lose with a venture capital firm:
- Some independence - you must be prepared to not be the 100% owner.
- Administrative freedom - which can actually be an asset if it's a more
disciplined approach.
- Make sure you ask for enough money the first time. Think strategically and
long and hard about the amount of investment you need in order to succeed
so you don't have to go back to the table and ask for more. Investors lose
confidence if you haven't thought ahead.
- Most firms make investments based on a 7-10 year term, but it does vary,
and most look for a 25% return. Some may want to see a return on their investment
quicker than you are prepared to offer, so ask questions.
- Choose your venture capital firm wisely by visiting Web sites, reading profiles
and talking to others who have had success. Here are four URLs to begin your
search:
- Canadian Venture Capital Association. www.cvca.ca
Click on "Members" and you will find a list of many venture
capital firms with short profiles of each.
- Toronto Venture Group. www.tvg.org
This group organizes breakfast meetings, seminars and other events and
is great for networking and gathering information. There is also a link
to the Toronto Angel Group.
- Springboard. www.springboardenterprises.org
A U.S.-based organization for women entrepreneurs, it produces programs
that educate, showcase and support female entrepreneurs as they seek capital
and grow their companies.
- CATA WIT (Women in Technology) Forum www.cata.ca/wit A network designed to boost women's participation and advancement in the high-growth technology sector through mentoring, networking, professional development and advocacy.
- What to provide to a venture capital firm:
- Company profile.
- Business plan: the "full-blown" edition and be sure that you
understand the details.
- Executive summary of your business plan: should outline the highlights
of your company, your market, peers and competitive advantage, your clients,
a financial summary, risks, the management team and their background.
- Show up prepared with a PowerPoint presentation.
- And remember to follow-up!
How to Access Credit
Here are some tips and options on how to best prepare yourself to secure financing from a bank.
- Maintain a strong personal credit rating. A credit rating is one of the most important means that a bank uses to evaluate a credit request, so establish your own personal rating and keep it clean. Overdue bills, cheques returned for insufficient funds and failure to make payments on your credit cards can diminish your chances of obtaining a loan for your business. Check your credit record regularly and, if you do find a black mark or inaccuracies, contact the credit bureau and do what you can to erase it. Note that your personal credit rating is typically the sole criteria used by bankers when approving loans under $50,000.
The following tips are also recommended if you are looking to borrow over $100,000:
- Prepare a good business plan. Be thorough, clear and realistic, creating a plan that conveys your story to a lender, is achievable and is one that you can be measured against. Consider this your blueprint for success. In preparing, use the many resources available to you, including RBC Royal Bank's The Big Idea business planner (visit www.rbcroyalbank.com/sme/bigidea). Your local Board of Trade or small business centre are good sources for seminars and coaching on business plan development. Address best and worst case scenarios in your plan and demonstrate your willingness and ability to repay your loan if things go wrong.
- Do your homework. It's important to show you've done your research to support your financing request. Have you done credit checks on customers and potential customers to verify they will pay you promptly? If you want a loan to buy an expensive piece of equipment for your growing business, have you demonstrated that projected new sales are legitimate - for example, by securing a contract first and leasing the equipment? And remember to select business partners wisely. Don't get hoodwinked by someone with a poor credit history who can take advantage of your good rating.
- Choose a lender who understands your business. Shop around for a banker who is genuinely interested in your business and prepared to give you ongoing advice, tools and support. RBC Royal Bank's Women's Champions, for example, are trained to understand the unique needs of women entrepreneurs and can act as a portal to all kinds of free information and services. Educate your banker about your business and be proactive in communicating both your successes and setbacks.
Financing Options
If you are turned down for a loan, ensure you understand the reasons why so that you can assess what you need to do before your application can be reconsidered. Ask your banker to suggest other sources if a bank loan is not the best type of financing at this point in your business development. According to Janie, some alternatives include:
- Equity in your home: You can mortgage your home to help finance your business, but carefully consider how much you are willing to invest. Note that, historically, home mortgages have the lowest rate of interest, so that will save you money.
- Personal line of credit: Establish a personal credit line against your home. If you put your home up as security, you can borrow and invest the funds in your company. When your personal investment is no longer required to finance the business, you can withdraw your shareholder loans tax-free from your company.
- Relatives and friends: With interest rates so low, now is a good time to offer family and friends interested in your business a better return on their investment than a GIC, for example. Be sure to set this up as a proper business deal.
- Suppliers: Negotiate longer payment terms with suppliers or potential suppliers.
- Barter exchanges: You can barter with other companies for everything from advertising to goods.
- Moneris (i.e.Visa* or MasterCard merchant): Sell to customers on a credit card to get money up front and mitigate your risk. Don't worry about the discount; the improved cashflow and elimination of creditor risk should more than compensate for the discount.
Are You a Good Credit Risk?
Consider how well you measure up against the 4 c's of credit that bankers use as criteria in assessing loan requests:
- Collateral: If you have a new business with no track record, lenders will expect you to pledge the fixed assets of your business, such as the building, or personal collateral, such as your home, in case your business fails. Incorporated businesses will usually be asked for a personal guarantee as a proof of commitment. And your bank will require accountant-prepared financial statements to support the existence and value of the assets of the business.
- Capacity to Repay: Lenders will look at your income and evidence of earnings to ensure you can repay the loan, and they will use standard financial ratios for your type of business to ensure your projections are realistic and in line with industry norms.
- Conditions: The lender will assess the economic climate and the opportunities and threats that are in the environment for your business.
- Character. The lender assesses how well you understand your business (both its strengths and pitfalls), the skills you bring to it, your commitment and personal credit history.
Bankers assign weightings in their risk assessment: for example, 15% to your industry, 20% to your company and its management, and 65% to the financial picture (historical and forecasts).
Financing Alternatives: A Guide to Professional Investors
By Caroline Avery, CFA
Finding money to start or grow your business is often the single biggest challenge facing many entrepreneurs. Many start with at least some of their own savings. But, at some point, most need to explore other sources of financing, such as:
- Banks, which offer personal lines of credit, loans and credit cards
- Investors, which include:
- Family and friends;
- "Strategic" investors, such as suppliers and customers;
- Professional investors or "angels";
- Venture capital companies.
Women entrepreneurs usually turn first to banks and to family and friends for help in financing their businesses. Traditionally, few women have pursued other alternatives, like professional investors. However, this is changing. As more women learn how these financing markets work, and as they build their credibility and expand their networks, they often come into contact with members of the investing community.
Think your business might be ready for some outside investment? Here's a short guide on professional investors -- who they are, what they look for and how they may be able help your business grow. Find out more about:
Strategic Investors
Professional Investors
Advantages of Professional Investors
Disadvantages of Professional Investors
What Professional Investors Look For
Information Investors Want to See
About Non-Disclosure Agreements
Finding a Professional Investor
Strategic Investors
Customers may help with financing, if your product solves a big problem for them. Alternatively, if your product complements a customer's product line and will result in increased sales for them, they might invest as they have an interest in your product succeeding. However, be careful, as you may be restricted from selling to their competitors. Similarly, talk to your biggest suppliers as they might offer vendor financing or other programs to assist new companies that will be purchasing a lot of their products.
Professional Investors
Both of these types of investors are primarily looking to share in the ongoing profits of your business. However, there are some distinct differences in what motivates them to invest.
Business angels are investing their own money and have a lot more flexibility in the types of businesses they finance. Typically, they are high net-worth business leaders - often, successful entrepreneurs who want to keep their hat in the ring. They've made their money and may even be semi-retired. They often act as the farm team or talent scout for venture capitalists, discovering promising businesses, and coaching and supporting them through early growth stages to the point where the interest of venture capital companies can be attracted.
Venture capital, despite the media coverage devoted to it, is the least common type of investment source. Venture capitalists or VC companies usually invest in technology or biotech companies, which have intellectual property often protected by patents.
Advantages of Professional Investors
Catching the interest and involvement of a professional investor is a challenge. But there are many advantages to seeking one out (besides the money!). These advantages include:
Contacts: Professional investors usually have many contacts within the industry. They may be able to help with introductions to customers, marketing alliances and additional financing sources. They may also be able to help with recruiting staff and other directors and, as noted above, are often willing to work with you to build your company's products, sales and reputation
Experience: Professional investors can bring a lot of objective advice and know-how to your company. Their "been there, done that" experience and insight may be invaluable in helping your business to avoid costly errors.
An improved balance sheet: By selling part of the company for equity rather than financing it with debt, you will have a stronger balance sheet. If you need to borrow money later, this will help convince banks to extend your line of credit or give you a loan.
Better cash flow: Equity investors are in for the long haul and can accept periods where no dividends are paid. Your company won't have to make payments on interest and principal, which can eat up cash flow at a time when you need it most for building the business.
Faster growth: An immediate cash infusion will enable your company to expand far faster than if you financed growth out of cash flow.
Disadvantages of Professional Investors
Of course, there are always strings attached to any investment. Disadvantages of working with professional investors include:
An aversion to "lifestyle" businesses. Small business owners who prefer to stay small in order to pursue lifestyle-related goals are not good candidates for professional investors who are looking to make the best return possible on their investment in your company.
In other words, there's a big difference between:
- Family angels who provide "Love Money" - family and friends who know and love you and who may lend you money for your lifestyle or part-time business, and,
- Business angels who 'Love Money' - they're investing their money in your company because they want to make more money. Building the most profitable business possible is their primary goal and this will likely conflict with your desire for more time for yourself.
Higher costs: There are up-front and ongoing legal and accounting costs associated with professional investors. At a minimum, you will need to have an incorporated company. Industry Canada's Web site offers a great deal of information on how to do this. You'll also incur added legal costs because it's imperative to consult a lawyer before signing any documents. You will also need ongoing advice on corporate governance, and you should have a shareholder's agreement drawn up.
You also may see increased insurance costs, as your new board of directors may want the company to take out Officers & Directors insurance.
Loss of control: A professional investor will want a seat on your Board of Directors and thereby participate in the big-picture decisions. Some professional investors are more actively involved in their investee companies than others, and this is something you should be comfortable with from the start. Professional investors rarely walk away from an investment, so expect them to be more involved if things are not going as well as initially hoped.
New management: The role of a CEO in an emerging company is unlike that position in an established enterprise. As your company grows, and grows more quickly, you may not be the right person to lead it further and this can often be hard to accept.
What Professional Investors Look For
This can vary from investor to investor, particularly among business angels. However, at a minimum, companies should have very high growth potential and an experienced and motivated management team. Remember that an exceptional team with a so-so product will usually do better than an exceptional product with a so-so team.
In particular, be able to show that you have the following team members with the requisite experience:
- A Chief Executive Officer and/or President, with experienced leadership and management skills;
- A Chief Financial Officer, with industry experience in managing the finances of a fast-growing company;
- A Vice President of Marketing, with solid industry experience;
- A Vice President of Sales, with a track record of closing deals;
- A Chief Operating Officer or Chief Technology Officer
From the investor's perspective, it's important to have someone who has senior level experience in implementing a business plan. If there's a President and a CEO, often one will also be the VP Sales + Marketing and the other be the CTO/COO. Generally, what VCs will look for is 'the suit (business knowledge - MBA type), the ponytail (creative type - marketing) and the propeller head (science/tech geek)
Other factors that play into investor decisions:
Existing revenues: This is actual proof that there is some market demand for your company's product or service. It's much easier to convince an investor of the merits of your business if you've already got customers lined up.
If you don't have revenues because you need working capital to develop your product, your best bet is to try getting letters of intent, or letters of recommendation from potential clients saying that they believe in the business you are offering.
Compelling potential: Alternatively, if you have solid market research and a well-developed business plan, you may be able to convince an investor you're worth a second look if you can demonstrate your idea's unique strength. This might include:
- "First-mover advantage": Can you show that you will have a 6-12 month lead over any competitors and a believable plan to become the major industry player?
- Promising market size and share: If you can demonstrate how you can achieve a 2% market share in a billion-dollar industry, that adds up to about $20 million a year in potential revenues.
- Competitive advantage: Is there something about the business or service you're offering that is completely unique and can be defended against potential competitors? Investors don't like to think that a bigger company could come along, copy your product and undercut your prices, putting you out of business.
Information Investors Want to See
When determining whether to invest in your business, investors may want to see some or all of the following:
- Audited and projected financial statements and sales records, if appropriate;
- Your business plan, with a comprehensive marketing plan;
- An "implementation plan" detailing how you plan to grow the business, what you will be spending the money on and when. It should incorporate Gantt charts that detail what has to be done, by whom, and by when. It shows the investors that you have really thought everything through, that there's a plan in place with defined milestones. The business plan is akin to a high level strategic plan; the implementation plan is how you are going to make it happen in practical terms.
Keep in mind that both you and the investor want to build a profitable business, so have patience. Provide whatever information it takes -- and make sure to emphasize your expertise in the business. That's a major consideration among investors and lenders alike.
About Non-disclosure Agreements
Many entrepreneurs don't like handing over their strategic or business plan or even an executive summary without having a signed non-disclosure agreement in place. Often, people in the business will refuse to sign one.
While this may seem unreasonable, consider that you are asking them for help in finding an investor, and at the same time expecting them to take on the risk of signing a legal document. Unless you are paying them consulting fees up front, they are not being compensated for taking on this risk, and will likely be unwilling to do so.
The best ways around this are:
- To only deal with people you trust or who have good reputations;
- To ask up front if they have any existing clients or portfolio investments in companies like yours. If so, you will need to feel confident that they are trustworthy, or else refrain from divulging any sensitive information you would not want your competitors to have access to.
Finding a Professional Investor
Finding friends and family who will invest in your start-up is straightforward: you just have to start calling them. However, finding business angels is more difficult. Both business angels and venture capitalists invest mostly in companies that are introduced to them by trusted sources, so you will need to develop a good network of personal contacts that will refer you directly. Here are some ways to start:
- Build a good Board of Directors. Ask people to join who have contacts within the business angel community and who will agree to tap into this network for your company.
- Ask professionals if they can help. Doctors, dentists, lawyers, accountants, corporate finance brokers, bankers and investment advisers all may be helpful. Customers and suppliers may have contacts as well.
- Be open and honest with potential referees. Remember that any potential referee will want to know your business well and have a lot of faith in you personally before recommending you. Often, they act as informal gatekeepers to angel investors who trust their judgment, and they will want to safeguard that relationship.
- Try cold calling. It may work but realize that investors are swamped with business plans from hopeful investees, so a referral is the best way to get their attention.
More Sources of Information
Canadian Venture Capital Association
Canadian IT Financing Forum
The Facts on Spousal and Personal Guarantees
We've all heard those stories about women business owners who couldn't get a bank loan without their husband's signature. Does gender bias actually exist - or is there a legitimate need on the part of financial institutions to request personal and spousal guarantees?
Q: Why do banks require personal guarantees on loans?
A: It's common for banks to seek personal guarantees from business owners when there are limited or no hard assets or insufficient equity in the business...in other words, when no underlying collateral security exists or what exists is of limited commercial value relative to the loan. It may also be the financial institution's way of ensuring that there is commitment to the business, particularly if the entrepreneur has invested limited personal funds. Each situation is very different and is addressed on its own merits.
Q: From your perspective, what is the biggest myth about spousal guarantees?
A: That banks only ask women to obtain a spousal guarantee. If a bank requests a spousal guarantee, the same criteria applies whether the principal of the business be a woman or a man. It depends on who owns the non-business assets. The perception that only women entrepreneurs are asked to provide a spousal guarantee is unfounded.
Q: When and why would a bank ask for a spousal guarantee?
A: When a spousal guarantee is requested by the bank, it is usually because the spouse has an ownership interest (either actual ownership or future deemed ownership under family law) of the personal assets being used as collateral security for the loan (for example, the matrimonial home). Depending on a variety of factors, a bank may require that the spouse seek independent legal advice to ensure he/she clearly understands the implications and obligations of signing such a guarantee.
Q: If a woman believes she is being turned down for a loan or being asked for a spousal guarantee solely because of her gender, what should she do?
A: First, open up the dialogue with the banker and ask for a full explanation of the reasons. If you are not satisfied with the explanation, you should pursue it with the banker's supervisor or through the appropriate escalation process within the bank. At RBC Royal Bank, we have a formalized, published escalation process where clients can discuss any issue to ensure resolution is attained. As well, your lawyer, accountant or other professional you trust should be able to provide an impartial opinion.
Q: What other advice would you offer women business owners in dealing with their bankers on guarantees?
A: Insist on clear communication with your banker about what security is being taken for a loan and why. Many people - both women and men - focus more on the loan and less on the security for the loan. The lender has to focus on both the loan and the security, just in case things don't work out as planned. We recommend that you obtain an independent professional opinion on what is reasonable in your individual circumstance. Your banker should be able to discuss what financial results (or other expectations) are necessary to obtain the removal of guarantees (fully or partially). The key is to keep communicating until you completely understand your options and reasons for the action taken.
Manage Your Credit Rating
Most businesses need to borrow money sooner or later. So it's essential to build and maintain a good credit rating. Here's how.
Your ability to borrow money - if and when you need to - is an important asset to your business. And that ability to borrow is determined, to a great extent, by your credit rating. So it's critical for women entrepreneurs to both build a good credit rating - and maintain it. Women's financial expert Joanne Thomas Yaccato of the Thomas Yaccato Group (416-367-3677; e-mail: joanne@tyg.ca) tells you how:
1. Pay bills on time and resolve any disputes promptly. Making timely payments to your suppliers will establish a credit history and build your rating.
2. Get a charge card in your own name(not a "companion" card in your spouse's name) and use it responsibly. Even a small credit limit of $500 on your own card will build your rating.
3. Borrow a small amount of money and pay it back on time. A small loan is a great way to build experience in borrowing and repaying, even if you need a co-signer or collateral the first time. Not only is it an opportunity to become "credit literate," it helps you establish a good record for making timely repayments.
4. Be honest with potential lenders about your finances and credit history. Be candid about the challenges you've faced and demonstrate what you've learned from your experiences - both good and bad. A good relationship with your banker, while not the only factor, can be important in your bank's decision whether or not to extend credit to you.
5. Maintain good communications with your banker. When times are tough, make the minimum payment. If you must skip or delay payment, call the bank in advance to alert them, and discuss your plans and options for getting back on track as soon as possible. Then stick to that plan.
6. Check your credit rating every few years. Remember, your rating is only as good as the information provided by creditors. A periodic check for errors, especially when there's been a major change in your financial situation, will ensure that you (and your potential creditors) are not unpleasantly surprised. A credit agency, such as Equifax (1-800-465-7166) can assist you in checking your credit history and rating.
7. Get help to fix a poor credit rating. Unless you've declared bankruptcy (in which case you may have to wait a full seven years before applying for credit), most sub-standard credit ratings can be fixed. Explain your situation to an accountant or credit counsellor and find out what's involved in mending your financial reputation. Also, be honest and forthright with lenders about your poor rating, what caused it and how you're working to fix it. You might even be successful in getting credit before the full seven-year wait following a bankruptcy is up - e.g. you might get a credit card with a $500 limit if you provide a $500 GIC as collateral.
How to Improve Your Cash Flow
Working at 120% with the revenues rolling in but there never seems to be enough money to pay the bills? That's called having a "cash flow problem." And it's one you need to fix - fast! Try these tips.
It's a tough spot many new entrepreneurs - especially women - find themselves in. You're trying to build business and customer relationships. The longer-term growth picture looks good. But, in the short term, you don't have enough cash flow to pay the rent without a struggle.
Time to get tough on yourself. Ignoring the issue - telling yourself you love what you do and love being your own boss (and don't really care whether you're getting rich) - won't impress your creditors.
Put into play some of these financial tough-love tips, excerpted from a presentation by Paula Jubinville, President of AQUEOUS Ltd. (e-mail:pjubinville@aqueous.ca), to Toronto's Step Ahead mentoring group for women entrepreneurs:
- Focus on today. Yes, where tomorrow's growth is coming from is important but remember that to grow tomorrow, first you have to survive today.
- Never sacrifice cash flow today for the chance of more revenue tomorrow. Make sure you can afford to take on that big project if you won't get paid for three months. The outflow of cash is more important than the inflow. Your cash flow must reign supreme.
- Be willing to cut back on anything. Do you really need that spanking new leased car in Year 1 anyway?
- Admit to yourself immediately when you're off-track financially. Don't put off addressing the issue: it will only get worse. Put together an action plan for getting back on track. Remember this includes both paying bills on time and getting paid on time!
- Spend less time on marketing, more on sales. Many people fear and dislike asking for a meeting -- or the order. They'll avoid it by spending lots of time designing fancy business cards and brochures. A business card never made a sale. Master your fear. Make that call. Ask for the project.
- Don't take on a big-name client just for the prestige factor. If the deal isn't positive financially, you can't afford it. Concentrate on selecting clients who will enhance your bottom line.
- Know your profit margin. If yours is 30%, then tripling any new expense tells you how much harder you need to work to pay those additional bills. So, if you hire an assistant at $30,000 per year, be aware that your business must earn an additional $100,000 just to keep your bottom line intact.
- Understand exactly how an opportunity will lead to profitability. Often, the busier we are with meetings, proposals, etc., the less money we tend to make. Assess each opportunity - and if it won't make a positive contribution to your bottom line in a reasonable timeframe - don't be afraid to say 'no' to new business.
- Do less of what you do well and more of what you do best. It may sound simplistic, but it will increase your rate of success and improve your profitability.
Study Reveals Gender Differences in Accessing Capital
Fast-growing women-owned businesses are more likely to borrow money to finance business growth than women who own slower-growing firms, according to a 2000 U.S. study. But even female owners of fast-growing firms are still not as aggressive as their male counterparts in pursuing business loans and equity deals.
Conducted by the Center for Women's Business Research, the study entitled Entrepreneurial Vision in Action: Exploring Growth Among Women- and Men-Owned Firms reveals that one-third of women owners of fast-growth firms use personal credit cards to finance their firms compared to 21% of men who own fast-growth firms, with men relying more on bank loans. The study clearly indicates that women who understand how to leverage debt and equity have a far greater chance of becoming owners of fast-growing or 'gazelle' businesses.
Women owners of fast-growth firms are also less likely to sell an equity stake in their businesses, even though it can be the quickest path to growth.
Other findings from the study include:
- Women are more likely than men to own high-tech firms that are also fast-growing (i.e. achieving revenue growth of 30% or more over the past three years)
- The high-tech related women-owned firms are more likely to be in the fields of biotech or life sciences, while information technology dominates men-owned tech-related firms.
- Women owners of fast-growing businesses are more likely than other owners to consult outside sources on business management and growth issues.
The study was based on a survey of close to 1,200 business owners.
The report, Entrepreneurial Vision in Action: Exploring Growth Among Women- and Men-Owned Firms, is available for $90 (US). Contact the Center for Women's Business Research at Tel: 202-638-3060, e-mail info@womensbusinessresearch.org.
Building the Partnership: You and Your Banker
It's important to manage your relationship with your banker.
Access to financing is often cited as one of the greatest hurdles for women entrepreneurs. Here are some insights for established business owners with account managers, covering:
What you should expect from your banker
and
What your banker will expect from you
What your bank should deliver
Building a good relationship is a two-way street. It's up to the bank to satisfy your needs and explain any areas where they're unable to support you.
Here are the basics you should expect from your bank:
- Value for money;
- A sincere interest in your business;
- Intelligent questions to ensure they understand your business;
- Timely responses to your credit requests;
- Full explanations when credit is declined and suggestions on alternatives;
- Advice and referrals to other experts as required;
- Suggestions on cost-effective banking services you should consider for your business - and explanations of why they're a good idea;
- Easy-to-use, accurate reports and statements.
What your bank needs from you
You and your banker have something in common: you both suffer from a chronic lack of time. Here's how you can help your account manager get up to speed about your business, get excited about it and get behind it.
Tip #1: Make your numbers.
In preparing and updating your business plan, anticipate the best and plan for the worst. Both fabulous sales and poor sales have financial implications that your banker will need to understand. Bankers hate unpleasant surprises. Avoid over-promising. It's easier for your account manager to fight for your loan approval if you have a track record of meeting or bettering your sales goals and profitability projections.
Tip #2: Keep your credit record clean.
One of the most important aspects of granting credit is looking at past experience. So, your banker will always check your personal and business credit history. Late payments and NSF cheques signal poor financial management which, translated by a banker, means poor management.
Tip #3: Learn to understand financial terminology.
You must be able to fully explain your assets and costs. Your banker will talk about financial ratios; don't be afraid to discuss which ones are important to your business and which ones the banker is focusing on. It's also good to know where your business stands relative to its industry in terms of ROI (return on investment) or ROA (return on assets), etc.
Tip #4: Help your account manager understand your business.
Don't expect your banker to automatically understand the nuances: the details that make your business work or the threats it faces. Demonstrate that you have recognized the risks - don't hide them - and show how they've been mitigated.
Tip #5: Invite your banker to your place of business.
This makes the business real - easier to understand what you do and how you do it. It also helps your banker to see the potential … just like you do. Your banker will be looking for things like how organized your business appears to be, your inventory levels, the relationship between you and your staff and other subtleties.
Tip #6: Arrange credit before you need it.
Again, bankers don't like to be surprised by a sudden need to cover a cheque. Analyze your needs, including potential requirements for emergency funds, and discuss these with your banker well before you require a loan or increase in your line of credit. Pushing for a quick answer often brings a no.
Tip #7: Communicate with your banker in good times and bad.
If bankers aren't kept in the loop, they imagine the worst. They want to hear about your progress, your concerns and the challenges you're facing. In return, your banker can be a regular source of expert advice
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