Joe Abraham

Small Business – Time to get out of debt

// March 17th, 2010 // View Comments // Small business

Moody’s Investor Service just send out another warning shot suggesting that the US could lose it’s AAA credit rating.

Some of us look at that and get alarmed.
Some of us will tie it to political agendas.
Yet others could care less.

But as business owners who depend on the financial systems in the marketplace, we do need to care. At the least, we need to war game the scenarios and prepare.

What if Moody’s finally decides to change the US credit rating? (the US has spent more than it made in 16 of the last 20 years – how long would you keep a company’s AAA rating with those statistics?)

Well, then it will cost the government more to borrow money.
That will trickle down to higher rates for everyone in the world.

Accessing cheap money will be harder…
Carrying debt will become more expensive. (That means higher cost of goods and operating expenses without any new revenues to offset it).

Whether you believe that is going to happen – or whether you believe we are invincible is besides the point.

The point I want to make to small business owners is this.

Why not plan for the best and prepare for the worst?

If you are carrying a significant amount of personal or corporate debt, now is the time to get rid of most (if not all) of it.

Here are two key ways to do it.
1) Pay it off – I know that sounds really elementary – but sometimes it is as simple as that. Sit down with your financial team and put a plan together to reduce your debt service by 50%-100%.

2) Sell it off – Many savvy entrepreneurs are exchanging debt for equity in this marketplace. After all, investors don’t have a lot of places to park their money today. Why not in your business? You can go from being debt ridden to debt free in no time at all. Then, if the worst case happens and interest rates skyrocket, your business won’t be as adversely affected.

I say “as adversely” because any increase in the cost of money will impact us – even if it is indirectly through higher costs of doing business. But who will be better positioned to make it through a time like that?

Option A: Your competitor who ignores this advice and has to deal with the double-whammy of higher costs and expenses.
Option B: YOU! who are debt free and able to absorb higher costs because you have lower expenses.

I just don’t want your business to be the one that had to slow down (or shut down) because the captain (you) didn’t anticipate and prepare ahead of time.

Securing bridge financing – a linkedin question

// November 27th, 2009 // View Comments // Small business

To get the most out of this post, listen to the audio version by scrolling to the bottom. The text is simply an outline of the audio.

Q: I need to secure some bridge funding to cover expenses between now and closing on some Angel funding in a few months. Any suggestions?

A: When it comes to securing bridge funding, there are several options I’d recommend you look into. But first, here’s the most important question…

What is this a bridge to?

Is it a 90-120 day bridge funding to pre-approved and contracted funding from a bank or angel investor? If so, securing bridge financing should be a cinch.

If however, it looks more like a “maybe, probably” or a firm “verbal”, then you’re not looking for bridge funding. You are looking to raise traditional working capital.

So I’m going to assume you are calling it bridge funding because on the other side of this bridge is a solid and committed funding event.

In this case consider the following options:

1. Contract Leveraging – I recommend the good folks at Boom Brothers Commercial Capital.

2. The Receivables Exchange

3. Your law firm and/or accounting firm. Get them to leverage their rolodex. If not, fire em and find a firm that will.

4. Friends and family – do the people around you believe in you?

5. Traditional bank financing – if you have the 2x in assets to pledge for a short term not.

6. Non-traditional bank financing (my favorite) – Local high-net-worth business men/women. Consider even working with your suppliers, vendors and clients.

If none of those are an option for you, or if you cannot get good traction, then consider one or both of the following:

1. Increasing revenues – retail industry does this all the time – do an inventory blow out.
2. Decreasing costs – owners and key staff may need to take a significant cut in lieu of payback in the future. Some may even want to invest in the company. Talk to an attorney who specializes in business law to decided whether to structure it as debt or equity financing. But make sure you have developed a new and fresh strategic plan/business plan if you intend to engage any of the sources above.

The bottom line? There’s plenty of money out there for the right entrepreneur…even in a tough economy.

Go get it!

Click the audio player below to hear the full audio version.

If you have any questions or comments, post them below.

7 Steps To Business Startup

// December 22nd, 2008 // View Comments // business startup

Seven Steps?

You mean I just don’t come up with an idea, form a corporation, build a website and get rich? You ask.

Nope!

I’ve watched the statistic of business failure grow from 85% to 96.5% over the past 10 years. A lot of it has to do with how impatient first-time entrepreneurs are with the startup process. You’re not taking the time to make sure your business is starting on the right foundation.

Of the hundreds of companies I’ve been involved with, I’ve extracted out a 7-step process that every single successful enterprise went through.

If you’re an entrepreneur getting ready to embark on a new journey, take the time to study these 7 steps. I’ll be posting some short videos on each of the 7 steps so depending on when you read this blog post, you’ll either have to wait a few days or you may be able to find those videos on this site right away.

So here we go…the 6 steps that savvy entrepreneurs have used to build highly successful companies.

1. The Paper Napkin: This is where you answer questions like who, what, when, how for your business. Who is my customer? What is my product? What is my unique selling proposition? Who are my competitors? What can I learn from them? How will I find customers? etc etc.

2. The Vetting Process: Once you have your paper napkin step complete, its time to take your “idea” and make sure it is viable, profitable and scalable. This is the SINGLE MOST IMPORTANT step in starting your business. This is where you build a strategic plan to achieve your vision. Then you need to have 3-5 very smart people look at your strategic plan so they can help you see past any blind spots.

3. The Business Plan: Now you’re actually ready to write your business plan. If you did the first two steps correctly, this is the easiest step of the process. You won’t have to go and buy a useless business plan template from some website. You’ll have 90% of the strategy in place. You’ll just need to organize it in the right sections.

4. Capital Sourcing: Here’s where you set aside (or raise) the working capital its going to take to get your business off the ground. But hear this from me…If you skipped step 1 and 2 and went right to step 3, you’re not going to raise a penny of startup capital.

5. Team and Infrastructure: With your startup capital in place, you can now build your core team and acquire the basic infrastructure to start operations.

6. Advisory Team: Who is going to be guiding your mission-critical decisions? Who are the people who are going to keep you accountable for the plans you made? This is where you recruit an advisory team who can help you become a better and more effective CEO in the months and years to come.

7. Pre-Launch: This is finally the stage where you start to create your brand, build logos and stationary, design your website and start production on your product/service offering and start pre-marketing your business.

If you take the time to complete each of these steps methodically, you’ll have a safe startup. More importantly, if you follow these steps, your chances of getting that loan or investment are increased exponentially.

I’ve seen a lot of entrepreneurs short-cut this system in the excitement of the moment. But then again, most if not all their companies either failed or are struggling to get off the ground.

Take the time to study these steps. Ask any questions below…