Looking for a job? Create one!
For many college graduates, and many men and women across America, it has been challenging to find employment that utilizes their expertise and training. Many graduates, burdened by major college debt, are questioning what they should do next. Some are now thinking about creating their own business.
Recently, I met a young woman who created a new line of high-fashion women's accessories. She received rave reviews from fashion magazines and orders from many of the most sought after boutiques at the major trade shows. The large chains love the product line and said that after she proves herself, they will happily place orders.
So, the challenge is, how does she, or any of you with an idea and a dream, get the training and funding needed to start your business and prove yourselves?
Form a team and make a plan
Before risking your time and money, create a team, talk to potential customers and develop a business plan. A team can assist you to develop your product, marketing plans and a sound financial forecast. The financial forecast will provide you with an estimate of the amount of money you will need to carry you through to where your business is generating a profit from your sales. In life and in business it usually takes more time and more money than expected so prepare for this and have a reserve in your budget.
The team can consist of advisors, consultants, mentors and friends. Take advantage of the free counseling and classes offered through groups such as SCORE, the Small Business Development Center (SBDC), the Small Business Association (SBA) and many local colleges. These resources are available to help you succeed and are good sources for advisors.
Getting the combined experience of a team helps the founders make good decisions and provides a broader base of contacts when needed for advice or funding. When you start talking to banks and investors for funding, having a team makes your company much stronger and more attractive.
After arming yourself with a good business plan and customer references, where do you go to get the necessary funds your business will need?
Sources to fund your new business
Let's take a look at the climate in this country for getting funds for a new business. Due to the financial crisis, banks are ultra conservative. To make a loan banks want to see a proven track record, profitability, and assets to use for collateral. Entrepreneurs usually have little or no track record or collateral and may have used up their savings and credit cards to get to where they currently are. The banks are most likely going to say no.
The Small Business Administration (SBA) guaranteed loan programs, minority loans or loans for women owned businesses are not much different. The loans still come from banks and unless you have the collateral to cover the loan or can get another person to co-sign or guarantee the loan, the answer will generally be no. In these difficult times asking family and friends to pledge their home to the bank for your business is going to be challenging.
Now, how about the angel investors? Angel investors, like their bigger brothers the venture capitalists, are looking for that billion-dollar home run that they can achieve in the next three to five years through an exit strategy of selling the business or taking the business public. That leaves out most of our small business entrepreneurs and 99 percent of all other startups and small businesses across America. Yet, many of these businesses will grow, thrive and create many new jobs.
Now let's look at the private investors. Who is going to invest in a startup or a small business and why would they do it? It is usually family, friends and what some writers in the press like to characterize as "fools", acknowledging the very risky nature of small businesses. In 2010, however, family and friends funded nearly three times as much money into startups and small business as did angel investors. It is a group that needs to receive much more recognition and support. Let's call them family, friends and the faithful!
To increase your chances of success in getting the support of family and friends, be prepared with a compelling concept and business plan, just like you would do if you were approaching a bank. You need to show that you have researched your market, talked to potential customers, received positive testimonials, and have prepared a plan to accomplish your objectives. Remember, create a team and get the help you need.
To help college grads and many others across this country get the funding needed for their new businesses, new programs need to be created. One option is the new JOBS Act that includes a provision for Crowd Funding. This new type of funding will allow businesses to go online and raise small amounts of money from a large number of people. Until the Securities and Exchange Commission works out the final details of implementing the new law, the rules and costs for a new business to take advantage of this program and potential legal issues are still unclear.
Another option is to offer tax credit incentives to those investors who fund new businesses. Twenty-two states now have various laws offering tax credits to startups and small businesses. Most of these however, focus on promoting high-growth and high-tech startups. One solution is to help promote one of the grass roots Initiatives championing legislation for a national tax incentive plan for the investors that fund all types of startups and small businesses. Startups and small businesses create the new jobs and provide opportunities for many Americans to live a better life.
Your best solution?
For now, your best option may be to create a well-prepared plan and present it with enthusiasm to your family, friends and the faithful. Let them know how much money you need, what you will do with it, what sales you expect and how you will repay their loan or how they will get a return on their investment.
Your family may be there for you because they love you and want to see you succeed, but they and other investors will feel much more confident when they see that you have worked through the details of your business. They will also appreciate that you recognize the value of their money and have a plan to get it back to them.
For all the Family, Friends and the Faithful who support these startups and small businesses, often our college grads, I say Cheers! And thanks for helping revive the American Dream.