7 Funding Tips for Entrepreneurs

funding tips

In March 2016, The Alternative Board surveyed hundreds of business owners to learn more about how they funded their business and what they learned from their funding experiences. According to the results, the large majority of business owners (80%) got their businesses off the ground via self-funding, then primarily turned to bank loans (62%) for additional cash flow and growth.

The survey results reveal what these business owners learned from borrowing capital and how you can apply their insight and experiences to borrowing successfully for your own business. Based on this quarter’s industry research, here are the top 7 funding tips for entrepreneurs from entrepreneurs:

  1. Be sure you have a strong relationship with more than one bank 
     
    According to 57% of business owners surveyed, borrowing from banks is getting harder. To give yourself the upperhand, TAB Member Simon Banks, President of Sampson Products Ltd suggests treating potential lenders like potential suppliers. “Always have at least two quoting to gain your business,” says Banks. “Lenders may well be reluctant to negotiate rates, but if challenged they may move on securities, guarantees and other fees.”
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  3. Be well prepared 
     
    As with all things business, when taking out business loans, planning is key. A good rule of thumb is not to borrow money unless you are absolutely positive that it will benefit your business. TAB Member Brad Hickerson, Owner of Fast-Pak Supply Corp, recommends you understand what you’re asking for and why. “For example, you can justify a $1,000,000 loan when you’re buying a machine that will help your business provide $2,000,000 in new sales.”
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  5. Borrow before you are desperate
     
    Looking back, business owners wish they borrowed more (29%) rather than less (11%). Of the business owners surveyed, several stressed the importance of taking out loans before they become a necessity. “Get loans or credit lines setup when you don’t need them,” says TAB Member John Hill, CEO of Allegiance Technology. “Then, when you are ready to put them to use, have a specific plan on how the money will help grow your business.”
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  7. Spend conservatively
     
    “Don’t overspend your capital,” says TAB member Jeffrey Robinson, President & Owner of Efficiency Systems Co., Inc. “There’s no need to drive expensive cars or have large expense accounts. No matter how good you think your business’s prospects are, unexpected expenses, like bankrupt customers who can’t pay and dishonest employees – can and will come up.”According to Robinson, conservative spending also relates to being vigilant about your bookkeeping. “Always be aware of your bank accounts. Don’t give other people in your office check signing ability, unless they can be completely trusted.”
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  9. Only borrow for strategic initiatives
     
    TAB Member Dave Younge, Owner of Progressive Stamping only establishes lines of credit for help with temporary cash shortfalls and quick opportunistic purchases – and only when he knows he can repay within six months or less. “Borrowing should only be used for fixed assets that will have lasting value. Borrowing for a marketing campaign or hiring is like using credit to buy groceries.”
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  11. Establish a substantial relationship with your investor
     
    Be transparent with your investors from the very beginning to ensure the smoothest possible transaction. Don’t opt for the first investor that comes your way. “Pick a banker like a spouse,” says TAB Member Mark Nonweiler, Owner of P. Nonweiler Co. “It works best if it is like a lifetime career commitment.”As with any healthy relationship, honest communication is key. “Talk to your lenders. Share plans and progress on a regular basis,” says TAB Member Kristine Van Cleve, President of Dental Prosthetic Services. “Help them see you as a person and part of the community – not just a loan application. Keep the relationship ongoing.”
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  13. Don’t forget to factor interest fees
     
    Seek out funds with historically low interest rates, and be aware of the effects of sudden rises in interest rates on your business. “If you are having difficulty with profitability under low interest rates,” says TAB Member James Teat, Owner of Axcess Technology Source. “Just imagine what a 2, 4, or 6% increase will do to your business and its ability to be competitive.”

Across the board, the number one tip business owners had to share regarding funding was to be prepared. Know why you’re taking out money, how it will positively affect your business, and how you will pay it back. Having a concrete strategic plan allows you to identify all of these factors when opportunities present themselves. That way, if an amazing business opportunity comes up, you’ll know whether it’s worth the additional funding or not. The Alternative Board works with business owners to help them develop a strategic plan for their vision.

TAB’s executive peer advisory model provides business owners with firsthand advice from other business owners – just like the tips in this blog post. If you’re interested in learning from the experiences of other business owners, get in touch with a local TAB board.

 

How to Better Negotiate with Vendors (and Save Money)

iStock_000043961564_CompressedSome business owners are born negotiators. They know how to persuade, cajole, seduce and otherwise convince vendors to accept the deal they want.

But plenty of other CEOs and business leaders don’t have negotiating built into their DNA. The outcome of every negotiating session is a question mark, which adds an element of stress to an already difficult situation. What’s the best price I can hope to obtain for a supplier’s goods or services? If I need the vendor’s offering badly enough, am I always destined to pay through the nose?

The good news is, your negotiating skills will improve with some advance planning and some real-life experience. Business leaders aren’t obliged to accept onerous requirements in order to secure a deal with a vendor. In today’s fluid and highly competitive marketplace, everything is negotiable—a fact vendors probably understand as well as anyone.

There are at least a couple schools of thought on how best to approach a vendor. Serial entrepreneur Scott Gerber advocates a hard-nosed approach: “Haggle and then haggle some more. Play vendors’ bids off one another. If a vendor doesn’t give you what you want and you believe you’re being absolutely reasonable, walk away and find someone else.”

In case you miss his point, Gerber adds: “Remember, a vendor’s primary goal is to sell you a product or service, not to make your business a success.”

Other business leaders believe cooler heads should prevail. The world of commerce is progressing towards a model of transparency and the art of negotiating should evolve as well. Honesty and openness can help you achieve the deals you want. Adopting a warlike stance will likely generate hostile relationships that can prove harmful down the road. Positive negotiations, on the other hand, have the potential to foster favorable, long-term relationships with suppliers you need for the growth of your business.

Here are cost-savings tips to keep in mind when preparing for your next high-level negotiations with a vendor:

Be strategic. Never go into a negotiating session with the idea of “winging it.” You and your team should have already explored all of the possible outcomes and how each aligns with your overall strategic plan. Knowing ahead of time what’s genuinely essential and what’s not provides clarity and focus. It also helps you determine where to adopt a “line in the sand” response and where flexibility is indicated.

“Many folks ultimately lose a very good opportunity due to poor negotiations—simply because they were trying to win things that were not that important,” notes TAB President and CEO Jason Zickerman.

Renegotiate every contact on a yearly basis. Business author and educator Steve Odland urges businesses not to assume that a multi-year vendor contract is the best way to yield cost savings. “A smart company policy is not to have the life of a contract exceed one year,” he writes. “This forces annual bidding or at least renewal discussions with the current suppliers.” Though such negotiations may be time-consuming, they almost always “result in lower cost of goods.”

Regardless of its length, every contract eventually comes to an end. This can work in your favor, since suppliers understand that you’re not likely to renew a contract if their demands are too burdensome for your business.

Look for opportunities to negotiate volume discounts. Your team should have a pretty clear idea of how much is regularly spent with current vendors, and what competing vendors might charge for the same types of products or services. Armed with this information, it’s a good idea to look at aggregating purchases to achieve savings in volume.

Keep your options open. You may have a good relationship with a particular supplier, but they operate in an especially competitive environment and they know you know that. There’s nothing wrong in exploring other suppliers and obtaining formal bids, ahead of your negotiating session.

You and your team may be unaware of innovations in the design and development of supplies you seek—innovations available from another vendor at considerably lower cost. You owe it to your business to examine all the alternatives. When you let your current vendor know you’ve done this due diligence, it will likely inform their next bid for your business.

Negotiating doesn’t have to mean knives are drawn and blood is shed. As you become more practiced in this area, you may see that small compromises here and there yield the bigger objective you really want. Working out an agreement that satisfies both you and your vendor is certainly the best approach towards saving money now and in the future.