Anita Campbell, Editor of Small Business Trends will be one of five panelists on the GrowSmartBusiness Webinar (next Thursday, April 30 at 2pm ET). Her well-rounded expertise will shed light on two of the biggest challenges for small businesses –marketing and finance – as revealed in the Small Business Success Index. We asked Anita to address some of these issues in advance of the webinar.
1. What do you think is the most challenging aspect of raising capital for a small business?
It depends on the age of your business.
(1) STARTUPS — If you are a startup, uncertainty about the future is your biggest financing challenge. Your business is unproven and you don’t have a track record yet. Emotionally it may feel much riskier as a startup entrepreneur to seek funding, because you don’t know what the future holds. How do you predict sales? How fast will your business be able to grow? Are your expense predictions realistic?
You know what they say about a startup seeking money: divide your sales projections by half and double your expense projections. It always takes longer and costs more to get a new business off the ground. And I’ve found that to be true when I started my own business and in many startups I see.
The problem is that because the future is uncertain, too many startups underestimate their capital needs. Then they give up just before the dawn, because it looks darkest then. And that’s a shame.
Startups need to get creative about alternative financing sources. Common sources of funding for a startup:
• Personal savings
• Side business (while still employed full time)
• Working spouse (whose salary pays living expenses which in effect subsidizes the business startup period)
• Family and friends (available even during recessions)
• Angel investment (again, available even during recessions)
• Credit cards (just be careful – easy to overextend and get into trouble)
• Home equity loan (but you may be putting your family at risk)
• Public grants (often through your local community or philanthropic organizations)
• Venture capital (only for very high growth business models)
(2) ESTABLISHED BUSINESSES – Established businesses that have been around for at least a few years, tend to have one of two challenges. (i) Growth demands more cash than you have, or (ii) you need cash just to survive during a recession.
Your business may get caught in a catch-22. Growth eats cash. Here you may need capital to expand your business and hire staff or invest in marketing and R&D in advance of sales coming in. In some businesses, higher sales actually can cause there to be LESS cash in the business in the near term.
Or, the other situation is that your sales may have slowed so dramatically due to the recession, that you need cash to make up the shortfall just to survive. You may not be able to cut expenses fast enough or without eviscerating your business.
And if your bank has cut back on its small business lending, you could feel the pinch and need to look at other options. Some available financing options are:
• Bank loans (if larger banks are unable to lend, seek out smaller community banks or credit unions – they’ve not been hit as hard with the credit crisis)
• Revolving lines of credit, or charge cards like American Express (disclosure: I write for their site)
• Trade credit (2/10/60 and the like can ease up cash flow if volumes are sufficient)
• Credit cards
• Cutting expenses and raising prices (the two-punch can ease cash flow concerns)
• SBA loans
• Invoice factoring
2. Why do small businesses struggle to effectively market their products/services?
It’s the double whammy of complexity and cost. Marketing (especially online marketing) has gotten much more complex with so many more options today. The choices alone are mind-boggling. Plus, there’s a cost to everything – either time or money or both. Even social media, which typically costs little in hard dollars, often can be costly in terms of time devoted to it, as its very hands on and time intensive.
When you think of the range of skills and expertise needed to carry out marketing today, it’s pretty daunting for a small organization with a few people who have to wear many hats and may be generalists rather than specialists.
3. What is your mantra for successfully running a profitable small business?
Stay on top of your numbers. Know exactly how much you have to sell each week in order to hit your sales goals – and measure it weekly. Monthly or quarterly isn’t enough because you may not have time to react if sales fall seriously off track. And keep close tabs on expenses and receivables.
Also, it helps to have a cash flow budget, especially if you are in a business where customers tend to pay slow (e.g., 60 – 90 days or more). Tracking sales isn’t enough if you aren’t getting paid right away for those sales – you have to know what your available cash level is at all times.
There’s nothing like sitting down with a cup of coffee and your books to set your priorities straight.
Register for the GrowSmartBusiness Webinar at www.growsmartbusiness.com/webinar.
Find out YOUR marketing and finance score by taking the survey – your results will be benchmarked against the Small Business Success Index.
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