Funding your business

“You have to spend money to make money” is something that I heard from the managers and owners in my earliest jobs. What I never asked at the time, but found out the hard way when I wanted to start my own business is: Where do you get that first bit of money to spend so you can make more?

Maybe you need some seed capital to buy some inventory or perhaps you need to pay for some advertising space.

Here are some ways for you to raise capital for your business:

1. Fund it yourself with savings. This is a common way to fund your business and you tend to watch these dollars closely. However, there’s a lot of risk, too, since you’re spending the very cushion you’ll need to rely on if you fail. If you do this, you might want to put your savings into 2 tiers – one tier you can borrow against and another tier that you refuse to touch, “just in case”.
2. Fund it with loans. This in itself is an entire spectrum. Some loans, like a small business loan or a renegotiated mortgage can give you some money without necessarily stinging you with high interest or massive payments. Credit cards are an all-too-common way to fund a business and the occasional success story of a credit-card-funded business does a disservice to the entrepreneurial community. Loans might be necessary but a cautious course is needed.
3. Fund it with grants. Grants can be a nice way to get money for your business but it isn’t always easy to get them. There’s lots of competition and you sometimes can spend an inordinate amount of time complying with grant requirements. I would suggest that this is a good bonus that you can use to catapult your business to the next level but shouldn’t be your primary capital injection model.
4. Fund it with revenue. This one makes sense once you start earning revenue, and I hope that you always set aside some money for operations, some money for a cushion, and some money to invest in the business. But if you don’t have a lot of revenue, or if you don’t have any at all, obviously this may not be a choice. (However, you might consider revisiting your business model to start smaller, just to get some cash flow. Then grow from there).
5. Fund it with investors. Investors represent a great way to fund the business because they can provide capital plus their expertise. However, there are many challenges including: You don’t want to fund it with family and friends because that is a recipe for disastrous relationships. You want to be careful how vocal your investors get because you can spend all your time worrying about them rather than running your business. And, you need to watch what you commit to because you might end up giving up too much equity or getting saddled with bond payments you can’t afford.

There are other ways to fund business growth and I found some interesting ones here. These aren’t all perfect ideas for everyone – you’ll need to make sure they match your business – but you might find one that gives you the money you need to make more money!

Jessica Routier, IAC-EZ

How cash flow influences your business choices

I have a friend who is a freelance writer. He jumped into freelancing with both feet by quitting his job before he had any real clients. And in starting his work as a freelancer he realized he had two distinct choices:

1. He could do web writing, which tended not to pay so well (for people who were as new as he was)
2. He could write for magazines, which tended to pay considerably better.

The choice seemed easy, right? But consider this: Writing for the web meant getting paid the same week via Paypal while writing for magazines meant waiting up to 6 months before a check was mailed (because magazines pay after publishing and usually take a couple of months to publish an article).

That changed his thinking: A small amount of cash today versus a large amount of cash in the future. Given his circumstances – jumping right in with no safety net of alternate income – he started with web writing to pay the bills. Slowly he incorporated more and more magazine writing into his work but in the early days, he told me, it was nearly 100% web writing.

Although things might be different for whatever you do, the reality of cash flow opportunities is probably similar. You may have to accept smaller projects on an ongoing basis in order to keep the cash flow coming in, even if it’s not the gigantic windfall that you could have in months or years to come.

I’m a big believer in cash flow. Cash flow is huge and often under-appreciated by small business owners. In my opinion, cash flow with a little bit of profit margin is far superior to larger, slower, and irregular payments that have larger profit margins.

In thinking about increasing your cash flow, think of it like a hose. Let’s say you want to water your garden but when you turn on the hose, only a trickle comes out. You want to not only increase the amount of water coming out of the hose but also the pressure with which it comes out.

With your cash flow, it’s the same thing: You want to increase the amount of cash coming into your business but also the amount of times it comes into your business (the “pressure”). You can do this by increasing the number of clients you have, increasing your prices, getting paid in installments, creating passive income opportunities like ebooks, creating membership sites that accept regular payments, keeping on top of your receivables, and accepting advanced payment for discounted service.

Your business will be healthier when you turn up the faucet and increase the amount of cash and pressure which with it shoots out of your sales pipeline and into your business.

(And as an added tip, do what my freelancing friend did: While you may have to accept those smaller, faster-paying jobs early on, slowly try to increase the number of higher-paying, slower projects so that you’ll eventually replace your cash flow entirely with those higher payments).

Jessica Routier, IAC-EZ

Do you have that sinking feeling?

Let me tell you about an all-too-common scenario: You have a great idea for a project. A fabulous idea. An idea that keeps you awake at night. Even in the light of day it sounds good so you pour your time and money and effort into it. You produce it. You market it like crazy.

And no one buys. Do you keep marketing it? Many do. After all, they’ve put so much into it.

In his book “The Dip”, Seth Godin talks about how the modern myth is that winners don’t quit. He says that’s not true. In fact, winners quit all the time. They just quit the things that don’t make sense to continue.

Godin’s book is okay and I did find it thought provoking but I wanted some more practical advice. And I found it in this article by Jason Cohen who has a blog on ASmartBear.com. You can read the blog here. In the blog, Jason talks about how projects we own are more difficult to quit after we’ve invested time and money and effort into them.

After we’ve sunk money into something, if it doesn’t pan out, we should kill it and move on. But that is so difficult to do. I’m realistic enough to know that you can’t always do that. And, I’m optimistic, so I like to think that with a slight change you enjoy success from it (or, at least win back your investment). So, if you have sunk money into a project and you know you should kill it but don’t want to, here’s what I suggest doing first:

1. Check out the metrics that you’ve been using in your sales. (Note: If you haven’t been using metrics to track sales, that’s mistake number 1. Go back and add metrics and wait to see what they tell you). Make some minor modifications to see if those changes help.
2. Pass it off to a friend or mentor or coach who has some insight. Perhaps they can look at the project and they may immediately see if there are specific parts that are holding you back.
3. Convert the project into a joint venture and ask someone else to fill in some gaps. Perhaps their value add or their network or even just the addition of their name on the project can make all the difference.
4. Look at selling the project. Depending on what it is, you might be able to sell it as a complete package (like a turnkey business, for example) or break it up and sell the URL on a domain auction and sell the product to a private label rights reseller.
5. Give it away for free. Perhaps the project itself will still be valuable for you as a marketing tool. Give it away for free (or at least a portion of it) to generate some positioning equity.

If those 5 things don’t work, then you might consider killing the project and walking away, but try those things first and see what happens.

Jessica Routier, IAC-EZ

Connection to money

Recently, I posted a blog about the consequences of spending. The more I thought about it, the more I wanted to write! Here are two additional (related) thoughts about our connection to money. One of these thoughts is as a consumer and the other is as a business owner.

First, the overarching concept: We will understand the consequences of our spending when we are connected to money. Years ago, our parents or grandparents would spirit money away into an envelope and when they had enough they would go to the store and buy whatever they were saving up for. Although we tout it now as a discipline, there weren’t a lot of other options. As a result, they were highly connected to their money because they could hold it in their hands and understand that the value it represented had a physical, tactile feeling. Today, we’ve lost that connection to money: Our credit cards, debit cards, and online payments have created a disconnect, making it more difficult for us to understand the value of money we have and the value of money we don’t have.

Now, lest you think that I’m getting too philosophical on you, let me try to make a couple of connections:

As a consumer, this should be a cautionary note for you: Businesses want to make it easier for you to spend your money. Therefore, financial organizations create ways to make the transaction process as simple and painless as possible, as if it were a non-event. Let’s compare two transactions: The first transaction: My grandma wanted to buy a new arm chair for her living room so she would save up her money under a mattress until she had enough. Meanwhile, she would shop around for the right chair. When she had enough money, she would shop around for the best value and buy it. Buying something was an event. The second transaction: When I want to buy a chair, I drive down to the local chair store, find one I like, and I tap my credit card on the proximity swipe device (I don’t even need to sign anymore thanks to a chip in my card!). The transaction is a non-event and I have a chair. As a business owner, I would urge you to be cautious about your spending for that very reason. It’s okay to spend, of course, but we need to never lose sight of the value of money.

As a business, you’re on the other side of the equation. A business needs to help a consumer to buy. If you have a good product or service that will provide value for the consumer then there’s nothing wrong with offering it and helping the customer to own it. Your job is to take away as many of the obstacles to selling as you possibly can. Being able to accept credit cards is one way to enable sales now instead of later. Making sure the transaction is fast and painless is another way to make sure the sale happens.

Some of you might read the two paragraphs above and think they are diametrically opposed but they are not. There is a give-and-take tension in the consumer/business relationship but they are not diametrically opposed. Instead, the consumer needs to be cautious and understand the value of money and the business owner needs to make it easy for the consumer to buy.

Jessica Routier, IAC-EZ