Financing Blog

Why don’t more people start a business?

In the USA, many people do regularly start a business. It fluctuates but over 200,000 new companies are registered with the secretary of States each month.

The bulk of job creation in the US comes from small businesses contributing to approximately 60 percent of the net new jobs. Small firms in the 20-499, employee category typically lead job creation. There are approximately 28 million small businesses in the United States. Establishing a business and realizing a dream is obviously a rewarding and liberating experience, but unfortunately, one that doesn’t last very often.

How Many People, who Start a Business succeed

According to the SBA’s Office of Advocacy: “About half of all new establishments survive five years or more and about one-third survive 10 years or more.” Five years of sweat, money, and hope vanishes for at least 1 out of 2 business start-ups and thereafter a similar amount fails in the following years. Accountants will tell you the actual figure is much higher. Most start-up businesses never make it to the stage where they register with local authorities, so their statistics aren’t recorded. The odds are stacked against entrepreneurs. It’s the journey and not the destination that counts – Trying and failing is part of the journey to success, Right?

The goal is to be in the ranks of business owners that make it on the first attempt, but not many do. The good news is their chances improve on following attempts. Founders of a previously successful business have a 30 percent chance of success with their next venture, founders who have failed at a prior business have a 20 percent chance of succeeding versus an 18 percent chance of success for first-time entrepreneurs. Don’t give up, just be smarter, use your experiences as fuel.

Why do People, who Start a Business Fail?

Obviously, each business failure may happen for a specific reason, but often multiple. It’s possible the entrepreneur was doomed to fail, without the talent for the job. They run out of money with no access to working capital, the market changes, supply chains fail, lack leadership or unforeseen regulation changes impact profitability. Every venture is not the same, each business has its own unique set of variables-the skills, knowledge, and experience of the founding entrepreneurs, how established the product and market is. When starting, there are so many unknowns to deal with from name, logo, which phone carrier, website, marketing, supply chain…

The reality is there are only two questions to be focused on answering and directing energy towards solving.

– Are there enough people out there who will buy the product or service at a profit?

– Does the business have enough cash (capital) to cover costs until they are found?

Challenged Beginnings

Most new startup operations are initially funded through the founders' personal finances. Capital from the owners’ personal savings, credit cards and other personal debt, retirement rollovers, and investments accounts are used. Founders, feverishly pursue sales revenue, pressing to win enough clients to support their venture before funds run out.

On average it takes a business 2, to 3 years to reach viability. Significantly undercapitalized from inception, starting with only a 3rd of the capital needed is a recipe for failure, and there are lots of ways to fail, lurking around every corner.

Start-up Business Statistics:

Business Statistics Financing (Small Business Trends, SBA)

– The vast majority of startup funds (82 percent) come from the entrepreneur themselves, or family and friends.

– 77 percent of small businesses rely on personal savings for their initial funds.

– 40 percent of small businesses are profitable, 30 percent break even and 30 percent are continually losing money.

 

What’s it all about Alfie?

Within 5 years of starting, 50% of small businesses are gone. When a business fails it often takes the owners personal savings, credit, assets, and many valued relationships with it. Most of the small businesses that survive past year 5 have created a long hour low paying job for themselves where their business has less than $100,000 in annual owner’s discretionary cash flow, and if sold not worth a great deal. Only a small %, of business owners, create a business value of $500,000 or more and have at least $125,000 in owners’ discretionary cash flow.

– Having two founders, rather than one, significantly increases your odds of success as you’ll:

  • Raise 30 percent more money
  • Have almost 3X the user growth, and
  • Are 19 percent less likely to scale prematurely

– 82 percent of businesses that fail do so because of cash flow problems

A lot of entrepreneurs attempt to start a business by bootstrapping, stretching resources-both financial and otherwise, as far as they can. Regardless of how much capital you begin with, its the effective use of whatever capital you have that drives results and ultimately, success or failure. It is worth noting, taking steps early on in a venture to build business credit, separate from personal credit can have a resounding impact on liquidity and the ability to progressively access affordable capital throughout your business journey.

3 years ago, we started out as a commercial finance company, intending to provide funding solutions to the capital-starved SME communities. Soon after inception, we recognized, to deliver on our purpose, and help more businesses succeed we would need to do more, a lot more. We adapted to develop a broader value chain, beyond just business funding - to combat causes of failure, deliver growth and performance solutions, and drive more business success. Our own business survival and growth has been and continues to be underpinned by many of the solutions offered through the business success platform.

During the first 3 years, our business model rapidly evolved, and much by necessity. How to start, grow, and sustain a business is always evolving - Being aware of the changing environment was essential to us - How to take advantage of change was and is critical.

Business Building Blocks

The basic precepts for building a successful business are no different. We believe 6 key building blocks are foundational and common to most successful businesses; Appropriate capital, talent, structure/organization, purpose, networking, and of course planning, which is the first step to being appropriately capitalized.

Planning is a core discipline to achieve success. Developing a road-map to meet business goals including budgets, timeline, what is the average contract value per customer? how do you plan to acquire customers? what is the cost of customer acquisition and length of time on average to acquire? Plan, run, review and revise, to fine tune results.

It costs around 5 times less to keep a client than to acquire a new one. Listen to clients to help ensure quality customer service, for higher client retention and to drive direction. Maintain client relationship management systems to seamlessly merge marketing, sales, and client service. Explore multi-channel marketing strategies - digital, inbound, outbound, events, social media, emailing, mailer, networking to determine how best to reach your audience and keep them loyal. Keep ahead by tracking key performance indicators, and tweaking behaviors to maintain and or improve results. KPIs; costs quality, timeliness, customer satisfaction and staff motivation all impacts and drive the 3 numbers that help define and maintain business health - sales, spend and cash flow.

Business Stages

We believe a business can progress through 7 distinct, and fluid stages; From startup to viability, growth, and various levels leading to and from sustainable success, or failure. Sustainable success is characterized by an agile and highly functioning business. Resources are effectively used to deliver predictable results. Each stage has identifiable hurdles, but many common to business type or industry. To navigate each stage and steer towards, or maintain business success, requires varying degrees of emphasis and focus on the precepts. The structure or organization that works for a start-up does not necessarily apply or work as the company chooses to grow. The skill-sets or talents necessary to lead a larger enterprise are different to the flatter structure in an early stage company.

What has changed?

Digital Transformation is impacting How to Start and run a successful Business

As the title above suggests. It is the framework in which a business operates that’s dramatically changed over the past 10-years and continues to.

How consumers and businesses decide to buy, and from where. The exponential technologies businesses use to compete, and the lightning speed at which they are evolving - Big Data, Cloud, AI, Machine Learning, Block-Chain, Augmented Reality technologies - We are in the midst of a 4th Industrial revolution driven by digitization, profoundly impacting all industries, economies, and disciplines.

Digital has transformed business resource capabilities and the resulting possibilities. Lowering the costs of managing a business across all disciplines from financials, purchasing, inventory, sales, and customer relationships to project management, operations, and HR.

Rapid deployment of proven cloud solutions helps ensure a company has a single source of data truth across the whole business. Immediate adoption of value-adding functionality allows for more time to focus on the business not implementing software.  Actionable intelligence enables quality decision making throughout the firm and can empower, motivate and help the most important resources, the people.  Not complex, solutions help with;

– Profitability

– Cost reduction

– Improve reputation

– Develop new revenue streams

– Accelerate growth

Digital transformation and agility are essential to compete

To succeed in an increasingly digital economy, you need to constantly create value from the latest innovations to meet changing customer expectations and fierce competition. Businesses, even the small mom, and pop ones, who adapt and embrace digital, can compete without complexity, or prohibitive costs to grow businesses their way.

Keeping up with it all is a challenge, but the changes drive opportunities, which is exciting and exhilarating. The opportunities abound for people that want to take the leap of faith, leave their corporate world to start on their own. Stay thirsty my friends. 

The world is changing faster and to survive so must a business

By 2020;

– The average person will have more conversations with bots than with their spouse (1)

– 100 million consumers will shop in augmented reality (1)

– 85% of a customer brand experience will occur without any human interaction(2)

– Over 80% of the G500 will be digital services suppliers through industry collaborative cloud platforms (3)

– By 2030, organs will be biologically printed on demand (4)

 

Sources

(1) Gartner, Top Strategic Predictions for 2017 and Beyond: Surviving the Storm Winds of Digital Disruption Oct, 2016(2) Centric Digital, How Omni-Channel Customer Experiences Drive Brand Transformation Oct, 2015 (3) World Economic Forum, Healthcare in 2030: Goodbye hospital, hello home-spital Nov, 2016(4) IDC Research, Inc. Nov, 2016

Should I get a business credit card or a small business loan?

High-Quality Small Business Loans, business credit cards & Funding choices

Small- and medium-sized enterprises (SMEs) should carefully explore the broad and growing range of business capital programs, and understand which ones they qualify for.

Not all business funding solutions are made equal. Each is intended to serve a purpose, and there is a clear hierarchy. The most attractive small business loans,  business credit cards, lines of credit and other desirable solutions are available to low-risk businesses. Qualifying underwriting criteria are more stringent, which help to satisfy a lender or investor's primary concern,  to get their money back. Business cash flow can support the debt service, and there is adequate collateral in place to recover the debt in case of a default.

With up to 90% of loan applications denied, business owners should know what is required for approval before applying. Not just a waste of time, a bank loan application impact the owner's credit due to a hard pull inquiry. More than a few inquiries will often mean a 6 month waiting period before a new loan or credit facility will be entertained. This is because lenders will assume credit has been granted from an inquiry and will wait for the size to be visible and reported on a credit report(s)to be sure debt burden is known.  Business owners should determine the funding solution(s) they qualify for prior to applying. There are easy steps to follow, to reveal where you stand and or what needs to occur to access other programs.

Multiple solutions can be tailored to fit each unique business. More than 20 programs exist from unsecured business lines of credit, SBA loans, traditional bank loans,  off-balance sheet asset-based loans, lines of credit, term loans, revenue programs, merchant cash advance, and much more to provide custom results. If you're considering applying for a business credit card, small business loan or any other business credit you should complete plenty of research.

Advantages of Business Credit Cards

Be aware of the advantages associated with business credit cards to help determine whether they're a suitable fit. Some of the benefits include;

  • Extension of credit and ability to manage liquidity where payment for expenses, services, and products can be postponed by 30 days keeping valuable working capital in the business.
  • Unsecured credit cards enable flexible access to a revolving balance limit and do not have a set repayment term like a traditional loan. Manage well this credit facility provides access to emergency short-term funds for unforeseen situations, good or bad. The unsecured cards mean a business is not deleveraged with collateral or asset pledges, typically required for a small business loan.
  • Helps to organize business expenses in an efficient and logical manner, separate from personal expenses.
  • Help establish and develop a corporate credit history that is separate from your personal credit and the reliance on your personal guaranty.
  • Safeguard your business from all kinds of fraud where fees include insurance coverage that is not typically covered when using other payment processes.

Be aware that many business credit cards actually report to your personal credit profile and therefore cannot help build business credit through trade-line reporting to business bureaus.

Qualifying criteria differ for personal and business credit cards. As with all credit, you should understand the whats required before you apply. Be aware many business credit cards report to personal credit bureaus and not business bureaus so do help build business credit.

If you're looking for unsecured lines of credit for your up-and-coming business, there are few options that can compete with a business credit card. Many of these cards have 0% introductory rates for purchases and transfers, along with attractive cash back or travel reward programs.

Find out if you qualify for a “real” business credit card today without the need for a hard credit inquiry.

Small Businesses loan Benefits

Many small business owners qualify for and opt for business credit cards, enjoying clear benefits. A business credit card used responsibly is a strong qualifying step towards a small business loan approval. A business credit card, reporting to a business bureau establishes a tradeline and business credit history. A strong business credit profile opens the door to cost-effective business capital solutions otherwise not available. Building a profile separate from your personal profile as early as possible is highly advised.  If you're thinking about taking out a loan, or any other form of business funding you should be aware of the pros and cons.

Small business loans generally have longer-term durations with predetermined repayment schedule and end date.  Many programs are available, offered by traditional banks, conventional, non-conventional sources, private and alternative lenders. Terms vary, from as short as 12 months to over 25 years, aligned to the risks of the business and borrower. Structured with Interest and capital repayments, and interest only with a balloon repayment of the capital at the end date.

Small, to assist startups, aiding businesses in their earliest stages with equipment, working capital, inventory and capital expenditure. Often approved to help businesses interested in growth and in taking things to the next level. Loans can come in handy for small businesses trying to offer additional products or services. Typically with longer repayment periods, low-interest rates monthly repayments. The term length is consistent with the use of funds, and intended benefit.  With longer terms than credit cards of other typical revolving facilities the purpose of a loan and use of funds is clearly defined to help ensure assets and liabilities align, and debt service sensible. 

If you're thinking about funding options and best practices to capitalize your business, you should consider working with an independent commercial funding advisor, and or experienced business consultant. Loan officers and other funding advisors either at a bank or affiliated to a direct lender are not positioned to provide impartial advice. Indeed they are not well placed to determine and consult on program suitability, as the lender does do not provide them all

If you would like to learn more about business funding solutions, or other business topics we focus on through the business success platform please reach out to one of our consultants at Lavan Financial Group.

How to Build Business Credit

The Importance of Building Business Credit

If you have ever wanted to form your own small business, the Small Business Administration (SBA) can be of great help in teaching you the best ways to make your company grow. One of the most important things you can ever do as a small business owner is to build business credit. This is an integral component of ensuring that your company has working capital and can ultimately thrive. Maintaining a separate credit history from your personal credit history gives you the opportunity to separate your private and professional finances and is essential for the overall success of your business. Here are a few steps that can help you establish business credit.

Check Your Business Credit

If your business is very new, it’s wise to check its credit reports. Although personal credit reports include certain legal requirements for free access, this isn’t the case with business credit reports. You can check with the three major business credit bureaus -- Dun & Bradstreet, Equifax, and Experian -- to obtain copies of your reports for a fee.

For more information, click here for how to Business Credit Building (Step-by-step instructions with coaching)

Get a Federal Tax Identification Number (EIN)

An EIN is essentially a Social Security number for a business. It’s needed for opening business bank accounts as well as for filing federal taxes. You also need an EIN in order to open a bank account for your small business, which is very important. The EIN number is necessary for larger businesses to be paid by their vendors for their services as well.

Open a Business Bank Account

Open a checking account in the name of your small business. Afterward, you must be diligent about paying all transactions of your business only from that account. Of course, if you acquire a business credit card, you must pay off the credit card bill directly from your business checking account.

Open a Business Credit Card Account

While business credit cards are somewhat easier to obtained than traditional Banking unsecured revolving lines of credit, there are higher underwriting hurdles to overcome than with personal credit cards. Opening at least one business credit card account that is separate from your personal credit is an important step towards building business credit. Like building personal credit, which is represented through a FICO score, a business needs to establish corporate credit (attached to the EIN), and develop a history of borrowing and repaying on a regular basis to establish a pattern of fiscal responsibility. Before applying, be sure to understand the requirements for approval. As with all credit applications, which can often lead to denial and hard inquiries, your credit is impacted. Part of the due diligence should include choosing a card from a company that reports to the major ‘business’ credit report agencies, not personal! Many business credit cards are not what they seem. Many of the business credit cards furnished with your business name actually report to personal credit bureaus, and not business bureaus. Business trade-lines where regular positive payments are reporting are so valuable to building business credit.

Get a Small Business Loan, and or Other Forms of Capital

Often, when a small business is just starting out, it’s wise to look into commercial lending and other funding options to ensure you are obtaining sufficient access to capital to reach viability. On average it takes a new enterprise up to 3 years to switch reliance from external funding to that generated from sales. Small business loans, can help boost your business credit as long as you make timely payments back to the lender who report to the major credit bureaus to give your business credit a boost.

Interestingly, 97% of all small business lending in the United States is business to business and not lender to business. Using “net” vendor terms for products or services your business needs is a strong way to benefit your liquidity management, and also build business credit. Again, like any credit facility understanding credit extension approval criteria of vendors will ensure your capital management and access to funding is where it should be for peak performance.

Building business credit is an art and science, which can be achieved in as little as 6 months These are all great options available to small business owners who are looking to build business credit. Consider the advantages of each, and determine which options are best for your business.

If you want to learn more about establishing and building business credit to help with your long-term funding, Lavan Financial Group is here to help.

For more detailed information and help you can:

  • Visit our website where you can download various business E-Books including our Business credit building E-book
  • Reach out to one of our small business advisors (203) 308 4547
  • Complete an online pre-qualification questionnaire to gain free access to our comprehensive business funding and credit building system that’s packed with educational material and resources to help you rapidly establish business credit and access the funds you need to help your business succeed.

How a Merchant Cash Advance Benefits Small Businesses

A merchant cash advance is a financing option where you will get an advance of credit card sales. Typically, the amount you can get is based on past sales and sales forecasts. It can be a great way to get money when you really need it, and it offers you a few great benefits. Ability to Get Much

Needed Cash Right Now

One of the biggest benefits of a merchant cash advance is that you can get the cash you need when you need it without having to wait. If you are in a business that has slow periods throughout the year, then this type of financing could be helpful. It will let you get money to get over the slow period. On the other hand, if you are entering a busy season, then you can get an advance to have money for extra inventory or salaries so you can get through the busy time easily. 

Ability to Save Time

Another great benefit is that it can save you time. To begin with, it is much easier to secure this type of funding than a conventional loan. You don’t have to go through a lot of financial checks or fill out document after document. The application process is pretty easy and doesn’t take much time at all from start to finish. This can save you a lot of time that you can spend focusing on your business.

Ability to Grow Your Business

By using a merchant cash advance, you can have the opportunity to get money to put back in your business and help it grow. For example, if you need some extra money to hire more staff so you can begin taking on more customers, then an advance can help you with that. You are able to get the money you need to invest right now and once you begin paying it back, you will be making more money, so it won’t be a huge loss.

If you do a lot of credit card sales, then you may benefit from a merchant cash advance. You can simply get an advance on your future credit card sales. This lets you use this money now when you need it for whatever you want, such as growing your business, hiring more staff or purchasing more inventory. It can be a great option that offers you many benefits over trying to secure more traditional funding. So, if you need money now for important business investments, then this is an option to consider.

9 Reasons Independent Practices Should Use Medical Equipment Leasing

Medical companies have a lot of money invested in equipment. This can be challenging for start-ups and for companies that may be having cash flow issues. A great alternative to buying equipment is medical equipment leasing. Here are nine reasons why you may want to consider leasing over buying.

  1. Quick Access

When you try to buy equipment, it can take a lot of time. You may have to come up with the money to make the purchase and then go through a lot of paperwork to actually make the purchase. With leasing, you fill out an application and usually get your equipment quickly.

  1. Upgrade Potential

One of the best things about leasing is that you often are able to easily upgrade your equipment. This is not something you can easily do if you own equipment. You can’t just trade it in for new. You usually have to sell it or store it and then go through the whole process of making a new purchase.

  1. Flexible Terms

Most leasing contracts have flexible options, especially when it comes to the end of the lease term. Typically, you can choose to return, continue leasing or buy.

  1. Low Risk

You can general enter into a lease contract very easily without having to risk any assets or even money of your own up front. The lease company assumes all the risk and will simply take back their equipment if you fail to pay.

  1. 100% Financing

Medical equipment leasing companies usually offer complete financing. You don’t need money down, so you can get the equipment you need with no investment to begin.

  1. Customer Service

Something many people overlook about leasing is the customer service that comes with the lease. You have technicians and specialists available to help you learn how to use and install the equipment. Maintenance issues and repairs are also usually handled by the leasing company.

  1. Easy Process 

Medical equipment leasing is much easier than getting a loan to buy equipment. It involves far less paperwork and time. The process is pretty easy to manage on your end, too, when it comes to accounting.

  1. Tax Benefits

Leasing also offers you some great tax benefits because lease payments are considered a business expense that you can write off.

  1. Easier Accounting

Managing the lease payments is easy. You know how much you spend each month because you know the number of payments and how many you have left, which makes forecasting a breeze.