Key Idea #1: Brains are more important than bucks Tim, his wife Sherry and his brother Mike are all bright. The fact that they had no money did not stop them from building a business. As Tim described, he put together many business plans, but the banks paid no attention. Eventually, he found a worn out fish farm for sale with an owner who was willing to finance it. Then Tim convinced a bank to loan him the 20% down payment by offering the buildings on the property as collateral.

Topic for discussion: Should lack of money be a good reason not to pursue an idea?

Answer: No. You can borrow from family, borrow from friends, find a partner who will put up cash while you put up "sweat equity" -- in other words, you do all the work, borrow from a bank, take a second mortgage on your home, sell your home, start very small and use the profits to finance your growth.

For more about money, study three special programs: When the Banker says, "No.", All about money, Succession Planning, Exit Strategies and Liquidity Models

Editor's Footnote: There is more within the discussions about the eight steps to start and grow a business. Particularly look at Steps 1 - 4. Also in that same area, there are discussions about money. Work through all four stages about startup money.

Key Idea #2: Patience pays .

Topic for Discussion: Is there such a thing as an "overnight success?"

Answer: Because Tim bought an aging business that had to be re-built on nature's time schedule, he had to be patient. He also realized that his original idea of raising shrimp was a bad one, so he decided to raise tropical fish instead. Because his business is so unusual, Tim had to write his own computer software. He had to build greenhouses, dig the ponds, and keep buying land to create a business that would attract employees. By gradually buying the homes adjacent to the farm and making these homes available to employees as living quarters, Ekkwill became somewhat like the old fashioned extended family.

Topic for Discussion: Can something truly great be accomplished quickly? If not, why do people give up? ?

Answer: Dolly Parton once said that it only took her 25 years to become an overnight success. There is probably no such thing as an overnight success. Even though they are young, the guys at Id Software have been involved in computer gaming since they were 12 or 13 years old. The public accepts a new idea only after it is proven. Most people give up because they lose interest or enthusiasm for the dream. To learn more about patience, study Albert Black (two full-time jobs for ten years) and Bob Orenstein.

Key Idea #3: Innovation differentiates. Ekkwill has developed new kinds of fish while improving existing varieties. They have surged ahead of their competition because their approach to farming is a completely modern one. Every step in the breeding, growing and shipping process is tracked, and Tim looks constantly for ways to improve. The company attitude is, "what can we do to get better?" This kind of corporate culture stimulates innovation.

Topic for Discussion: Is it harmful to the psyche to be striving constantly?

Answer: It can be. Always striving to be better can make a person feel that he/she is never good enough. No sense of accomplishment is ever reached. Take time to applaud yourself for a job well done before you set out on the next goal. On the other hand, if a person never tries to improve, he/she will never discover his/her potential.

You think about it: Learn more about continuous improvement from Bob Sakata, Chris Fortune and Dale Crownover.

Key Idea #4: Do what you say you're going to do.
John Dolan said, "When products are sold, there's a general rule that the FTC has applied for a long time. You need to give a shipping time--that is, four to six weeks that you'll see many times on an advertisement. If you don't give a shipping time, then 30 days is the amount of time imposed by law within which you must ship, or else you can be liable for damages. This applied essentially to things that were advertised, but they really hadn't extended it until March 1st, 1994 to things like electronic billboards, to receiving a fax. And here's the critical thing for small-business people to understand: the 30 days begins to run when you receive the order, not when you process the order, but when you receive it."

Topic for Discussion: Should we fulfill promises just to avoid lawsuits?

Answer: Of course not. Companies that don't keep their promises can not sustain. However, it is good to know that a customer can sue you if you don't employ standard practices.

Study the 90 year-old company, Calise Bakery, to learn that the only thing that really counts in business is your reputation.

Editor's Footnotes: Business Plan. If you do not have a business plan, check out this template. For your first draft, just do what you can. You will be working on this document for the rest of your days. Just get the first draft done by yourself. The second draft will come more easily. Within a few years, it'll be "a piece of cake."

Commitment to Financial Integrity: Read the story about Chris and Sarah Fortune or John Stockbridge.

Key Idea #5: Win Awards.
Tim Hennessey was recognized as the "Small Business Person of the Year" (SBPY) for the state of Florida, but first he was recognized ocally by his Chamber of Commerce.

Think ahead. To win an award, you have to apply.

The deadline for applications for the SBPY is usually in the Fall of the year before the awards are given.

Also, whenever there is an opportunity, submit your work for peer review within your national trade association.

Mike Neary, owner of Oregon Log Homes, built his dream home for himself utilizing all the techniques he had tried to get others to buy from him. He included character logs, which are logs that on the surface seem damaged but when finished out can be works of art in and of themselves. He included carvings, logs with the root base still attached, river rock at the foundation, and a suspended staircase. The people who saw the home were so impressed that he decided to enter this home in the National Homebuilders annual contest. To Mike's surprise, it won the "Best In American Living Award." The prize was given to him at a huge convention in Las Vegas and pictures of the home appeared in a number of construction publications. After the award, hundreds of inquiries flooded into his office including a request for proposal from the Disney Corporation.

Topic for Discussion: Should your small business seek recognition for excellence from its trade association or the SBA?

Answer: We think so. Something happens to you and your team when you ask others to look at your business. It is not business as usual. There is an edge created that was not there prior to the request. If you are doing well, contact your local SBA office -- listed by state at SBA.gov.

And, compete for local, regional, and national recognition sponsored by your own trade association. If you are not a member of a trade association, find one and become a member. If they do not have an awards program, recommend it and offer to coordinate it.

You think about it: How would your customers, your employees and your vendors react if you were recognized as an industry leader? Do you think going after that recognition is worth the effort it would take to get it?

Key Idea #6: Learn Bank-Speak.
When your business becomes profitable and is growing, you may find that your cash flow is tighter than ever! You have profits, net income, but no cash. This is because you are increasing your investment in inventory or receivables. One way to ease this situation is to leave the profits of the business in the business to provide the working capital the business needs. Another way is to borrow money from a financial institution.

Topic for Discussion: What kind of bank financing is available to a small business owner?

Answer: The most expensive money to borrow is the money you get for factoring your receivables. Almost all factoring arrangements are "with recourse" which means you have to pay if the customer doesn't. Basically, you sell your receivables, at a deep discount, to the bank. The bank or factoring company advances you the discounted amount and you advise your customer to pay the factorer directly. In addition to the discount fee, the factorer withholds an amount as a reserve against uncollectible accounts receivable. If not utilized, reserves are distributed back to you. Although factored funds are expensive, the lending institution rarely has credit or reporting requirements so factoring can be a solution in small businesses with high gross margins that can absorb the cost of factoring.

Less expensive is conventional bank debt. There are basically two kinds of bank borrowings: lines of credit and term financing. Lines of credit are available up to a maximum negotiated amount, through a period of time, at a certain rate, generally collateralized by inventory and/or receivables. The amount that can be borrowed at any one time is based on the borrowing base, a certain percentage of assets.

For example, a borrowing base might be 35% of inventory and 80% of accounts receivable less than 90 days. The percentages are negotiated at the time the loan is applied for. Frequently, lines of credit are renewed as they mature, but the terms may change as the economy changes and as your business changes. These lines require interest only payments although the bank likes to see principal payments and additional withdrawals, the line going up and down, based on the seasonality and growth of the business.

Mature businesses with constant line of credit amounts make bankers nervous; the bank generally considers the note "evergreen" and, when it comes up for renewal, they'll want to convert part or all of it to term. If you obtain a line of credit, don't leave cash in your checking account, pay down on the line and borrow it back. This minimizes your interest expense and convinces your bank that you really are using the line as a line.

Term financing is just like your home mortgage or car payment. Each month you pay a fixed amount of principal and interest. If your business owns land, buildings, or equipment (capital assets) these can be used as collateral for term financing. If you own such assets personally, you can contribute them to your business as equity and then use them as collateral for a cash infusion in the business from a term financing.

Topic for Discussion: How does a small business apply for bank financing?

Answer: Bankers are vendors; they sell the use of their money. They do this for a relatively modest return and they take modest risks. Shop for a banker the same way you would shop for anything else you buy, look for the most value at the lowest cost. Interview lots of bankers, preferably before you need one, and keep them informed of how your business is growing. Before you submit a loan application, make sure you are aware of the following: Who will prepare the loan package and what will it contain?

The loan package should not be confused with the loan application. The loan application can be as little as a one page administrative document. The loan package could be 3 feet high! It contains all the documents that you provide and other documents that the banker obtains to present to the bank's Loan Committee.

For example, the Dun & Bradstreet report is almost always considered as part of the loan package and the credit decision.

Who's on the bank's Loan Committee? What is their lending limit? If they recommend the loan be approved, is that the final word or does the loan package go on to an even higher authority? You'll probably be dealing with one banker; he or she will present your case to the Loan Committee. Your banker will be motivated, because one's compensation and career depend on making money for the bank which is only accomplished by booking loans. But nobody can tell your story as well as you can. Find out who is on your Loan Committee and invite them out to see your business and meet with you.

You think about it: Do you need to borrow money to grow your business? How much? Do you have the collateral and the capacity to repay the debt?

Editor's Footnote: If you really want to learn the language of banking, get familiar with the Risk Management Association and their credit scoring. It is the professional association for banking (over 3000 banks are members as well as 18,000 other financial institutions). If you are fully committed to making your business successful, you'll learn the key critical ratios within your industry and know where your business stands among the businesses within it.

Questions? Drop us a note.