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THE BERRY GROUP |
The other day I got an inquiry from the principals of an impending partnership. They wanted to find an investor for a substantial amount of money to construct a new building in which they sought to locate their start-up business operation.
After working with sole proprietors, partnerships and corporations for over a decade, I have seen repeatedly that the two most fundamental causes of business failures are, (1) lack of capital, and (2) lack of managerial expertise.
Taking on an investor presents its own peculiar range of problems, including loss of control of the business entity. Using invested money (especially that from the "tertiary market") to create a balance sheet, of no value to the partners, is not a sound start up principle. Taking on initial long term or permanent debt, rather than concentrating on short term debt, is another pitfall.
Then, there is the problem presented by creating long term debt for fixed-size facilities which are likely to become obsolete by short term growth: if the business takes off, the building could become too small before completing the first year's debt service.
A start up company should run as lean and flexible as possible, dealing only in short term debt wherever possible to maximize its strategic and financial flexibility.
Otherwise, the cost of your business education may include a failed business and even bankruptcy. You'll hear many stories in the aftermath of such failures. These tales of woe often bear the tone of adventures in romantic finance. But there's no adventure in failure if the wisdom and experience exists to prevent it and are accessible. In short, that is our mission: to serve as the front line vehicle for business successes.
Business is in a downmode. Cash is short and your days of debt in accounts receivable are getting longer. You have no more or your own cash to put into the business. You don't really see any way out. Not only is your long term debt a problem, you can hardly deal with short term expenses. What do you do?
"Borrow to stay alive?", you ask yourself...do I need an investor or should I leverage my personal assets with the bank?
Let's say that you seek and obtain an investor. Your problems are solved, (so you think). You now have the cash to pay those bills, do some capital repairs and have a comfortable cash balance in the bank.
But, have you solved your problems? A few months later you find yourself in the same cash short position. You are no better off and now you have an investor who owns part of "you" from either a debt or equity position. The investor is licking his chops because while you were "obtaining" him he was taking you over and he knew that you would be back to him in need of more cash. You were on a roll and he saw it coming. Meanwhile, your so busy trying to keep the business afloat, you fail to see what is happening. In the background the investor has his own players ready to take over your business. And on and on...
On the other hand, in dealing with a bank, you are happy that they have "given" you a loan. (Repeat the same senario as above, with modifications and adjustments and you are left in the same position)
I know that these situations are extreme but the point is that when you borrow...realize some of the implications. Borrowing comes at a cost and can result in fatality for you and your business. For one thing, borrowing can keep you in long term debt for many years to come.
In general, don't borrow to pay off short term debt. If you don't have the cash to pay current bills, you have serious problems that need to be carefully reviewed. Start by generating more sales rather than putting yourself further in debt. A quick fix, via borrowing, will, almost always, come back to haunt you.
Use borrowing for capital improvements or long term debt. Don't be proud of the fact that you are the "leverage king" on the block.
We all need to borrow at various points in time. It is our way of life. But borrow for the right reasons. Ask yourself the question...is the benefit of borrowing this money outweighing the cost?
I've been approached so many times by various phone companies wanting me to "switch". You know the approach...join us and save 30%...or come on board to get a 40% discount.
Hasn't anybody asked...30% off of what?...40% discount from what?... No, the public's response has been...30%...great...Super, I'll join... or 20%...that's not enough...I want 25% and one month's free calls.
The point is that when you are thinking of phone companies, ask how much the RATE PER MINUTE is. Get an actual figure and compare it with another actual figure. If it's .20 cents per minute, then you know what your actual cost will be. The percentage game is nothing but a marketing tool, using the old carrot and stick principle, and the public is buying it.
I happen to pay .10 to .13 cents for national calls and .40 cents per minute on international calls. I use a regional carrier. These carriers are normally less expensive than the national carrier. My rates are extremely competive so that when I get a call from the "usual"... they can't compete.
Of course you need the technical expertise in running a business, but you have to be able to market your product or service - the marketing makes the difference.
I know a fair number of businesspeople who have the education, skills, training, etc. in their business but they don't know how to sell it! Sometimes they try hiring a salesperson to make up for the deficiency. Other times they seek a partner who will supposedly cure their ills - or create business and cash flow. The partner then becomes a long standing problem.
Why is picking up the phone or making a sales call such a difficult thing to do? I hear people say, "I'm no salesperson - I just can't do it"; as if they were placed in life with all of the tools except "asking for the order". If you can't get past asking "the question" you will always be depending on someone else to do the job for you. If you can talk about everything else in life with people, then why can't you talk about placing an order? Is this a question that only a "talented" salesperson can ask?
It is really a matter of attitude: 99% persperation, 1% inspiration. Believe in yourself and just do it! With some practice you'll find that "the question" get easier to ask.
In the end, if you can't (won't) do it...save yourself the trouble and work for someone else.