Business Capital | Why your business is not fundable!

Greetings! It’s already the start of a new decade and according to reports the economy is booming! How are you faring in business? Have you gained from the last decade boom? If not, I can bet there are three major reasons why: (1) Capital, (2) Capacity, and (3) Customers. In this article, I will focus on capital.

          Are you aware that there are several options to capitalize your business and that as a President and/or Chief Executive Officer you are responsible for setting the vision for the company, identifying the resources necessary, and securing those resources to execute your business plans?

          Well, let me tell you the major reasons why your capital strategy is failing:

1. You don’t have a capital strategy
2. You have not created the proper legal structure for your business
3. You have not created the proper credibility elements
4. You are banking with the wrong type of bank and have not created the correct banking relationships
5. You are filing losses each year on your Tax returns to reduce taxes, but killing your chances for personal or business finances
6. You are not managing cash-flow appropriately
7. You don’t know who to consult to get the correct strategic guidance to fix the above problems and forecast for future growth
8. You are operating your business like a job, and not a business so making “employee” focused decisions rather than “employer” decisions

A capital strategy requires some foresight based upon not only past performance, but knowledge of the dynamic macro and micro market influences, in plain language you are not taking into consideration the impacts of a turbulent political environment and how the global market decisions always impact domestic business operations (e.g., Trade War with China).

The proper business structure is important based upon the industry and sector in which you operate. For some firms the use of a Limited Liability Company (LLC) structure will suffice, for others who operate firms requiring licensing, another structure might be required (e.g., general contractors must form corporations).

Once you have properly identified the appropriate legal structure for your firm and industry, establishing credibility begins with addressing initially some very basic items: (a) Dun & Bradstreet account; (b) business address in commercial location; (c) business email account (e.g., no Gmail, yahoo, Hotmail accounts); and (d) business telephone numbers (e.g., cell phone is not appropriate). These are just a few of the credibility items limiting your funding options.

When establishing banking relationships, it is important to interview and research the lending practices of the bank you are considering, and further to ensure that the bank is focused on business and not just retail customers. Many of the big-name banks are too large for your initial firm and will not take an interest in your business until you are in the 100s of millions of dollars in gross revenues. Some of those banks go further and basically rob you of your hard-earned dollars without recourse, while refusing to provide any lending options to assist you with growing your business. If the bank is so large that your accounts are just numbers in the system, you are banking without a relationship.

Too many owners are going to bookkeepers or Certified Public Accountants (CPAs) with the only focus on reducing tax liabilities. Depending on the experience, a bookkeeper is not a qualified Tax Code expert, actually most CPAs lack in this area they might know a few codes, but the Tax Code is over 70,000 plus pages and has more relevant deductions which allow you to claim top line earnings and still reduce your tax liability. Ever wonder how billionaires make billions and often pay less in taxes than you? It’s not by claiming losses on the top line, but through having a talented fiscal management team comprised of Chief Financial Officers, Certified Public Accountants, and others on the team determined to manage the capital with precision. I know, you are a small operator and cannot afford these layers internally, however, it is in your best interest to consult with some external professionals to make sure you have the appropriate fiscal management strategies to successfully manage and grow your business.

Finally, you are not operating like an entrepreneur, but following the mentality of an employee and making poor business decisions as a result. An entrepreneur who is debt adverse is going to fail to grow, it is difficult if not impossible to grow relying only on cash from operations. There are situations which require an upfront investment to ensure that you can gain market traction, or expand, or managing the supply-chain requirements. Any of these matters can be presented and are opportunistic for growth, yet if you have limited capital resources, you might miss the opportunity to advance.