Business is a lot like a muscle-building
workout. You stretch your capabilities, you work through sore spots and adapt. You grow stronger, then you push
the limits again.
“I don’t know of any successful business
owners who are willing to remain stagnant
and don’t want to grow,” says Lori Geier,
vice president and team lead, business
banking, Fifth Third Bank, Cincinnati.
Smart Business asked Geier to review
the various stages of a new venture’s first
year in business, prompting questions business owners should seriously consider so
they don’t end up writing an episode of
“failure to launch.”
What is the most challenging time for a business owner who wants to expand or start a
new business?
The hardest part is what happens before
the door opens — that all-important planning phase. This is the time before you
secure capital for your business and during
the point when you should be discussing
with your advisory team (accountant,
attorney, insurance specialist, banker, etc.)
the viability of your new product/service/business. In short, you need a
well-laid plan. Be prepared to define why
this venture will work, which customers
you will target and what resources will
support your idea. Do you have the right
people in place? Is competition doing the
same thing? If so, are they in close proximity? As you analyze the upsides, also consider the potential obstacles and risks. Use
your banker as a sounding board when
answering these questions. It’s important
that he or she serves as one of your trusted
advisers — someone who can provide candid feedback based on experiences with
other clients in similar and different industries.
Why is assessing risk such an important
exercise before securing capital?
A banker can sometimes assess the level
of confidence business owners have in
their ideas based on the equity they are
willing to invest or assets they are willing to pledge. However, it’s important to set a
limit and decide ahead of time how much
risk you are willing to take in leveraging
your personal assets.
Aside from personal risks, consider risks
associated with the economy, your industry, seasonality, suppliers and materials.
Determine whether there will be enough
return on your capital to make it worth the
risks involved. Your accountant can help
you determine this by helping you project
cash needs and expected returns.
Even if you are leveraging capital against
a current, successful business, be careful
about how much you are willing to lose.
What are some common mistakes business
owners make when they are securing capital
to fund a new venture, product line or expansion?
It’s important to have access to adequate
capital to finance your venture. If you are
borrowing, use the appropriate credit facilities. Generally speaking, you don’t want to
take out long-term financing for a short-term need; rather, time the loan repayment
to the useful life of the asset that will support it. Also, you want to anticipate your
cash flow needs — don’t underestimate
your organizing and operating costs. Work with your banker to balance your cash
flow so that you remain properly capitalized.
No matter how tight cash flow gets,
always be sure to pay the basics: real estate
taxes if you own property, business insurance, health insurance and payroll taxes.
That brings us to the first 90 days of a venture/new product/business. What should
owners consider at this point?
This first three months is an evaluation
phase. Is your idea taking hold in the marketplace? Are you targeting the right customers? Do you have the right suppliers
and are they reliable? Did you secure
enough of the right kind of capital? What
obstacles do you face at this point, and
who is your competition? Answering these
questions when you are so close to the
business is a challenge.
In addition to your advisory team, recruit
a peer group of business owners that face
similar challenges. They can often see the
rough spots in a business process before
you can, especially if you are focused in
everyday operations.
Once an owner establishes a successful
process, secures a strong customer base and
reliable suppliers, what’s next?
The nature of most business owners is to
expect success. But the first year isn’t
always profitable, and rarely does an entrepreneur strike it rich on a venture after the
first 12 months. So be patient. Consult with
your advisers, your peer group and your
colleagues. Strategically implement
changes to strengthen the operation. At
this stage in the game, building a solid
process is just as important as growing the
top line.
LORI GEIER is vice president and team lead of business banking for Fifth Third Bank in Cincinnati. Reach her at (513) 561-2359 or [email protected].