How To Finance Your Business
Hello, everyone. So today we are on lesson 12 how to finance your business. And I am really excited for the goal that I've got for you guys today. Which is that I want you to find $1000 to invest in your business. Now you can change that number if you want. Make it whatever works for you. Maybe it's 300 maybe 10,000 whatever it ISS. But I want you to actually find some money to invest in your business, even if you're not ready for it yet. I want you to know how to do this. I want you to be prepared in case an opportunity comes up right. And that's our goal. We're gonna find you some money, right? But you can take advantage of those opportunities that you can connect with your customers and so that you could accelerate the growth of your business. And you may never have to use it, but it's always good to know where you can get some if you need it. Right. So in the last lesson, we let go of some of the money myths that might be holding your business back, right? We talked about this idea...
that the Internet is not a golden ticket to a free business. Right? And we adjusted your make a living number a little bit to reflect your new revenue goals. And we talked about this idea of debt, right? And we're gonna talk a little about more that today as we are in session, too. And lesson 12 financing your business. So what opportunities could you take advantage of if you had more money to spend on your business? A couple people share theirs at the end of the last lesson, but I want to hear from a few more. What opportunities could you take advantage of if you had more money, better Web development, Something that actually makes it easier right for customers to order your product? Right? Trade shows awesome. Yep. I think that's a big one for a lot of people, right? Doing a trade show Anyone else equipment? Yeah, because you're ceramics. That's pretty equipment heavy, right? And that makes a big difference in your production time, right? Having a better piece of equipment? Definitely some perfect. All right, so we also talked a little bit in the last lesson about bootstrapping versus borrowing So bootstrapping is when you fund the business through the business, and that is often the best way for growth. And the more of that you can dio, the more financially stable your business is going to be. But sometimes you are going to have to borrow money. You don't have to say you may want to write. You may want to take on that opportunity for growth. We spend the last couple of lessons identifying your ideal market. And if your idea market is a trade show, I don't want you toe limb belong in your business for five years to get to that goal, because part of this is that we have to test and see right. And so if you live along for five years because you're waiting for the money and then you dive into the trade show and you realize that that wasn't actually the right market for you five years of wasted time, right? So I'd rather if you have an opportunity that seems like the right fit. I want help you find the money so that you can take advantage of that. So now we're actually going to be joined by a really special guest, Mindy Crary, who is a financial advisor. She runs creative money dot biz, and she works with individuals with creative entrepreneurs to help them straighten out their finances. So I'm really excited to welcome many via Skype. Hi. Hi, Mindy. How are you? I'm doing good. Thank you so much for joining us today. I'm so excited, and I think everyone's gonna learn a lot. So you tell us a little bit more about yourself and what it is that you dio. Yeah, Well, I have been a financial planner for about 16 years now. I started in the traditional financial services world and quickly realized that I did not like the conflict between products and advice. So I have been on my own for about 10 years, just doing advice, and really, uh, I work with a lot of different people, but I do work with a lot of entrepreneurs who are trying to make the hard decisions about bootstrapping and financing. And and really, what I love about it is helping people get their best work out in the world. However, that makes sense for them specifically awesome. That is great. That's really what we're trying to do here. So when I'm jump right in, you know, I have been sharing kind of some anecdotal stories that I have about how I find in my business. But I wanted to bring you on because you are an expert and you can really talk with a lot more authority and credibility. Then perhaps I can. So often in the beginning of a small business, financing means borrowing just based on your personal credit. So what are the pros and cons of this? Well, the pro is is that you don't have to do anything different to get the credit. It's your credit. Uh, con is that there's no separation between church and state that if you mess up your personal credit, there's no getting away from that, right? But I think that's something that a lot of people don't realize is true. No matter when you start business, it's always gonna be based on personal credit. So you might as well jump in and start doing doing things the way you think you will be doing things when everything's working, right, right, And it takes time, right to build up equity for the business to really do it on that. So for most of us were adults here, and you've had that timeto hopefully builds personal credit s awesome. Yeah. Yeah. I think everybody has to start with personal credit and I'll just share with you. I've had LLC for 10 years now, and probably the 1st 4 years. It was based on my personal credit rather than the l l seek credit. So I just think that's a normal part of this mess. Yeah, absolutely. So now I actually want to dive right into some of the different types of financing. That's what I really want to talk about is what are my options? And are they worth it? So I'm just gonna We're just gonna go through the list, shot him out to you, and you can talk about them. So the 1st 1 is credit cards which I know are scary for some people. But I want to talk about how how that could work for your business. Well, I actually think credit cards with the least scary most the time because I think I'm a big boundaries person, and the boundaries of credit cards are very specific. Everybody understands it can figure out how long it would take you to pay off something once you put something on the credit card. And it's a relatively standard way to ship from personal credit to business credit at some point, too, right and often times they come with a really fantastic rewards. I always think if you're going to spend that money on your business anyway, my why not take advantage of it, right? Exactly. Awesome. So then let's talk about a business line of credit. So I know this is something that doesn't come from your personal financing. Eso. What about that as an option? So line of credit. And I like to make a distinction between a business loan and a business line of credit. So a line of credit eyes attached to your business. You can borrow what you need Teoh and make interest only payments if you feel like it. And it's actually a great option right now because interest rates are so low. What I tend to not like about business lines of credit is I see a lot of hunter burgers that just have this line of credit with a little bit of a balance on it, hanging out even 10 years after they started their business. So So, yeah, I see it. Is that again, that boundary thing? They didn't tell themselves. I'm going, you know, make this commitment. Pay this off during this amount of time. It kind of just languishes there sometimes. But yes, you're building your business credit in your business name. That's the good part of it. So if you are thinking that that's an option, is it better to go with the business loan versus a business line of credit or doesn't really depend on your situation? I think it depends on your situation. And the people that I see with a business line of credit most often are doctors because they just get them offered to them right out of school. But and that's the That's a kind of business that they actually do. You have a lot of start up costs with working on staff and and the different processing and the lab costs and the equipment. So I see why they might potentially need a line of credit because cash flow is so uncertain. Initially, I think for most Bruce trappers that I run into, they end up a needing it for specific thing that will help propel their business forward. And in that case, I must think alone is a better way to go. Yes, So one way to kind of maybe define which is the better option is whether you needed to help stabilize cash flow or whether you're making that kind of 11 time investment in your business. Exactly. Awesome. So what about maybe some home equity financing? So you've already you have a house you've got some equity built in. Is that a good option for funding your business? Or is that a little iffy? Well, I don't mind it around again. It's that boundary shit grow. If you know that it's for your business and you've established, I'm going to use this, this credit from my house and this is how it's do not gonna pay it off. Then I don't see any problem with that. The Onley risk associated with it is what happened in Seattle in 2007 is the housing market went down 13% and you might be underwater in your mortgage and not be able to sell. Your house would want to write, so that's a real threat Yeah, and I just want to kind of share a personal story. Because in the last lesson, I share with our group that when I went and tackled a trade show, I needed $10,000 so I had to go get alone. And so I actually used I actually started with a home equity line of credit. Interesting life. I kind of made that little mistake to borrow that money, but I was able to do it based on the equity in my home, and then we actually switch that over in, just made it a straight loan because I was running into that problem of, like, here's that money languishing in the line of credit. So I like that you pointed that out because I kind of learned that lesson in the middle of what I had done in. Luckily, my bank was very good to say. You know what we're looking at how this is set up. We think we should just switch you two alone and let's get it paid off. So yeah, so I learned that lesson as well, but the home equity financing was definitely an option that I took. Unfortunately, we had bought our house very low, so we had a lot of equity in it. Right holder, you getting? Yeah, I worked out. That's an advantage of buying a fixer upper, so All right, what about tapping into your 401 K or some other kind of retirement plan? If you if you have a day job, you've got some money saved out there. What about that? I could see the cringe. I know this and what I run. It's you. So I have a still finance the reason. And it as everybody says, I'm paying my self interest. It's a good loan, but what's happening is you're paying yourself back with taxed money, and then when you pull it out a return, it is taxed again. So ahora, when Kahlo intrinsically is double tax money, no matter what you dio. The other thing is that if you find your enable champ for about 98 you have to pay it back, and fuller shows up in your income that year or if you leave your employer. What if your business goes awesome and you decide that you wouldn't leave your employer than you have to pay it back in 60 days or again, it goes income, Right? So, Tim, either it's just this, like, tangled ball of yarn that I like go there if there's another option, right? And so that's really the key, right? They kind of take all of your other options. New account. First, that one should really be the absolute 100% last resort, and really? Probably not at all. Awesome. So what about just borrowing from friends and family, right? You know it Good, bad, murky. I like that option. And I'm gonna bring up my big word again. Boundaries. I actually have an entrepreneur that I won't go into this business and everything. But essentially, he knew that his parents had about 50,000 just sitting in a low interest bearing account. And he needs a love equipped first business. So he came in, gave them a business proposal, said he was gonna pay off in five years, paying a plan and interest rate, and he was actually able to pay it off in a low over two years. And they made better interest than it would have been sitting in the bank account. So it was a great deal for both of them. And I think that's the key is if you are gonna borrow from friends, family, make sure it's a structured bar opening situation and that they really it is really a win win. And it's not just them, you know, feeling bad for story or you know how parents. Right, right, right. It is a good deal. It's a business, right? Right. And I think that's really important, right? So it's a business deal. There's it's written down. There's a plan and not just like hey, kick me, kick me a little cash. And I'm going to pretend that you didn't loan me the money when I see you at the next family gathering, right? Hey, we want to avoid those kind of awkward scenarios. So another option that you had kind of brought up to me that I was actually not really familiar with was this idea of peer to peer lending, which is different than crowdfunding, which we're going to a whole separate. Let's not talk about this peer to peer lending option, cause I'm really intrigued by that. Well, peer to peer lending is just kind of this. I'm sure everybody's kind of heard the jargon, a micro lending, and it really is about just everyday people who are looking for other opportunities to. So to me, it's almost that friends and family program on steroids, because you can go someplace like prosper dot com or lendingclub dot com and applied for how much of a loan you want. And based on your credit, uh, people will crowd essentially crowd fund you through that format through prosper dot commer lendingclub. And so if somebody doesn't have great credit and maybe they don't have home equity or there have business hasn't been around long enough to get a business line of credit or a loan, then this is a really good option. And especially what I have noticed is that they do a really good job of offering loans to people that don't have that great of credit. So it ends up being a venue that you can explore along with all these other ones that you're exploring and just put it in the mix and see if it's a better option, depending on the terms that you qualify for. Yeah, that could be really fantastic to, because when you're borrowing from strangers on the Internet, you don't have to sit down with them at Thanksgiving dinner and she'll get you have hate right and talk about like, Oh, you still owe me money like, why'd you by such an extensive Thanksgiving spread, right? All right, so now I want to ask you, you know, whether it's money from bootstrapping or borrowing or any other source, what can create business owners, you to take the emotion out of the decision making process because something There's a lot of emotion that happens when you're investing money in your business. So how can we kind of make those decisions a little smarter and more strategically? Well, you can. I know, right? It's funny you say that because I was sort of laughing about some business owners that I worked with, probably every month. And it seems like every time I show up there in the midst of struggling with a business decision that I can come in and say, Oh, no, used to do this on. I really tried to analyze. What is it about me coming in that takes the emotion out and what am I looking at? And I think one of the things is I'm always prioritizing the question. Does this produce more revenue for you, or does it make it easier to produce revenue for you? So for me, that's always the number one criteria and then the other one that I think makes it more emotional for these clients that I'm uses. My example is that they always air looking for that end all solution. And what I do is I stay. Is this going to be a good solution for the next 12 months or two years? And can I see you implementing it in that time frame? And I'm never looking for the solution that's going to solve everything forever. And I think that's what they get hung up on is that they're They're trying to see how this fits in forever, when a lot of times thes thes solutions, air financing decisions are really only short term solutions to get you to the next lab, right? Right. I think that's really smart to to not right. Nothing should be the thing that kind of makes or breaks your business, because the reality is that not one thing never does right. Awesome. So you wrote a block post that I love on the top five ways that entrepreneurs waste money, which is so I mean, I'm certainly guilty of a few of them as well or have been in the past. So in the Post, you talk about the importance of privilege, privileging, client acquisition and revenue generation. That is a mouthful over everything else, right? And you just kind of mentioned it, and it's so central to what we're talking about in this session, and it's something that I've been talking about with our group to. But I sometimes feel like, you know, when Mom's delivering the message, they might not listen. So I want you to talk about it again. Just why it is so important to focus on getting clients and getting revenue when you're looking for funding for your business. Yeah, well, I think part of this and the reason I wrote that post is that I think people, when they become entrepreneurs, don't realize how nervous they're gonna be with putting themselves out there in the world. And it really is this thing that you don't have anything to hide behind once you start really showing your work. And so what happens is that it's not that people don't want to prioritise acquiring clients or producing revenue. It's that maybe the steps that they need to take to prioritize that are a little bit more scary than working on their often or playing with the copy on their website. And so I always say that, you know, a lot of times there's distractions. There's maybe that that course that they think is going to solve everything. Or maybe they're looking for perfection. And so when I talk about that revenue production idea, it's like working when you step into your business every day, ready to work. Are you looking at your task lists and are the top three things always about producing more revenue or getting more clients? And if they're not, then you're not being as effective in your businesses. You potentially could be. And that post really talks about the reasons why. OK, why are we forgetting about these things? But yes, I and you know it's funny because I just doing my own program. Where I was helping reminds a month nerves of this and and there are so many things to pay attention to in your business that it's very easy to really to not realize that Oh, my gosh, this isn't really about producing lines at all, right? Yeah, I remember. So terror. Gentilly was actually the one who introduced me to you and in the early stages of both of our businesses. I know there were days where I'd call terror. Terror would call me, and we'd be like, I don't suppose to be doing today. And the other one was just like, What can you do to make money today? Yes, that was always, like our bottom line question to each other. And it's a really smart way to keep you on track when you kind of have have that as your bottom line instead of right hiding behind all the other tasks that kind of stop you from putting yourself out there. But I agreed. Is it is a little more scary as well. So you are such an awesome expert that I want to actually open it up to our in studio audience and see if they have any questions for you, cause financing is such a big topic. So while we've got Mindy here, you guys have any questions for her, and they could be specific right, they might. They might have been pretty sure go for it. So when you say you're talking about, like, peer to peer lending or borrowing from your friends, either one of those you're talking about having a really structured win win situation. Can you give an example of, like, some structure options? And how would you set that up for a win win? So what I would do? Well, I'll just give you the example of this client who borrowed 50,000 which is a lot. Uh uh. I don't know if you've noticed, but probably your savings accounts right now are any interest because interest rates are still low. Uh, on a credit card, though you're probably paying nine point something percent interest to finance that funny. So when he went to his parents and said, I'd like to borrow $50,000 and I can't calculate the pavement in my head. Basically, he said, This is 60 payments of principal and interest payments over five years with a 4% interest rate. And he said, if I could pay you off sooner, of course I will. But at minimum you will get five years payments by the fifth of every single month, and you will learn 4% interest on your 1000. So in that example, he was very specific about the interest rate, the time frame, what the payment waas. And exactly what could they could expect? And, you know, he didn't really talk to me about contingency planning, but easily within his second year of business, where he was doing his checking, his business checking, he was showing in a cash flow that they offered him a line of credit and so he could have very easily in the second year shifted over to the line of credit. But you know, he, his parents actually felt really good about the arrangement at that point there in, you know, he paid them off early, but they still got their 4% interest on the 50,000. Yeah, that's a great And I also think, too, you know, another example could be if you have friends or family who typically invest in the stock market. If you can come to them right with a good plan and say, take some of that investment that you might put in stocks and invest in my business, that could be another really great potential Win win. Yeah. Other questions. Yucky phone. Yeah, I have another one. So when you talk about, I've had all my personal and business separated for a long time since the beginning. And my question is, now that I want to start establishing business credit, what do you recommend is the first best step for that? So I have Teoh clarify where business should have. It's, um e I am or employer identification number. Okay, so it sounds like it does so what you should be able to do at this point is apply for credit in your business name under that E I n. And what will happen initially is that they will still ask for your personal information. But like in my example, I haven't l o t. I have any I n And so at this point, I have no credit card and a line of credit associated with he checking and say that my bank and that's usually the first best place to go is where you have your business checking accounts. That's usually they have a history of you as a business owner, and so that's usually the best place to kind of look for that initial, but it right off that just a credit card, her line and credit. Do you have a preference? I like a credit card reward. I mild out those rewards. Exactly. I cash back on my s. So I basically put all of my business expenses on the credit card every month, and I get cash back there, but to help go towards those expenses or I could save it up. And something special with that cash back? Yeah. Yeah, I'm all about that, too. For me, it's all about the hotel rewards and I a lot of free nights. And that's how the business pays for my personal vacations with the rewards off my credit card. So you can. There's a lot of ways you can swing that right. The cash back is probably the smarter financial move, but I like to stay in this hotel. So, other questions for many here, Monica. So once you get to a more impressive place in your business, what are your thoughts on bringing on an investor and giving up equity? Like for the even larger purchases? If you're afraid of doing something with alone, that's two large. Or maybe you can't even get along that large, right? I I think this is partners are good ideas again. Boundaries on So everything. I'm talking about your specifically delineating what the rights you have and what the rights of business partner has. And I have had business partners in the past and 10 years ago in my old life, and that's actually why I sold my first business, too. Is is my old business partner. But really, the best thing about that whole situation was clearly delineated, but it would like separated. And that's gonna be the key to any business partnership arrangement, just like good arrangement. It's not about when everything's rosy and happy and working its about how, what is what is the best way to disentangle from each other and make that clear case. Everything isn't working. Thank you. Any last questions for many got Holly. Be too big. But what if you're still in student loan? Hell and you want to start a business? That's a I already like. I don't know. That's a great question. I think there's probably a lot of people watching, and in that situation of having student loans, what about that money. Every single person I have worked with starting a business with that student loan. And let me tell you about Dr an attorney student loan. Biggest I've seen and when I am computing is the financial dinner is. I end up focusing on the possible future for that. And so it's what is the minimum viable cash flow now to get user startup? And then how does that kind of progress into you being able accelerate look payments 2 to 3 years from now? So I never sees. Didn't loan in terms of cash flow was being an obstacle. And most the time. What I see with my clients that have a lot of it's not preventing them from getting mortgages and other things. So I don't think that the as long as you're making regular student loan payments according to whatever repayment agreement you have, it's not really negatively affecting people's credit in terms of getting more credit, like credit cards or holds, or things like that. Awesome, that is, that's good news. There's lots of people, a lot of student loan debt, So thank you so much for joining us. Where can we find you? online, Mundy. Well, I am at creative money dot biz is probably the best place to find E. And of course I'm on Twitter A lot at Mindy Crary and also in Facebook is Mindy Crary. Awesome. Well, thank you so much for joining us and answering all of our questions today. My pleasure. All right, everyone. So, what were some key? We learned a lot, right? That was amazing. We learned so much there. So what were some key takeaways that you got from Mindy? Maybe it's a financing option you weren't considering or or some of the things you got captured appear London. I had no idea that existed. Yeah, that was something that I was new to me when she brought that up. You know, as I was talking to her beforehand. I think that's a pretty cool possibility. Especially as we're going to talk about crowdfunding in the next lesson. But that peer to peer lending is a different model because you're not forced to produce crazy product. If it sells, it gets just simple. You get it done, you get the money you paid off, you move on, which is super awesome, right? What else a lot of times we get fixated on a lot of details that we think that the business needs and the priority really needs to be. Is this gonna generate money for me? Right. And that's why that was one of the things I was so happy to bring many on and have her talk about, because I think the more people you guys can hear that from the better. And that's really that needs to be the focus. Otherwise, you're not running a business, right? Any other key takeaways? Um, no, not to touch your for a one k. Yeah. Yeah, right. That is a really important one. Let that money go on. I think especially, you didn't see this, right? It's not here. I think the other thing is to when you are running your own business and you're struggling with cash flow. One of the first things that tends to drop rate is putting money into a retirement account, right? It's really easy to get super lazy. I'm guilty of it, too. And so you certainly don't want to touch the money that you already have invested into your retirement when you're probably not putting any more in as well. So yeah, I think that's such a good take away. So having just kind of looked at all of these options that we just talked about with Mindy, where do you see the best opportunity for financing your business? Remember I talked to you guys beginning. Our goal was to find you $1000 or 300 or 500 or 10,000 or whatever that number looks like for you. So just based on all of the options we talked about today, where do you see your rest opportunity for financing your business, Monica selling my husband way. Talked about today. What do you mean? You ask that question about bringing someone else into the business? Is that something you guys are really considering? It is something that we're considering. Awesome. I think that you guys have a very different business structure, and I think it could be something that makes sense for you in the long run, shall I could totally have a d sti stash sale and get some cash. But the, um, idea of borrowing money from my parents and then paying them interest that you know they're going to be making a tiny bit of interest on their savings, and I could kind of it is right, and it is something else. It's really nice to do, too. If you're looking at maybe ways, you know, to help your parents generate their own income a little bit, that really can't be that off. Some win win Christine, I would say Credit card credit card. Yeah, I want the rewards. It's good words are good, and it's nice to know that if you have to spend a couple grand one month over what you're bringing in because it's a slow cash for a month, it can work. It's simple, it's easy and write those rewards really good credit cards. Awesome. And I think for you you are also gonna have to look at a bigger funding option. You look at a trade show as well, but for kind of that day today, cash flow you really can't be. The credit card is definitely a bigger funding option. I think just based on what we talked about right now, a combination of things right and they are inching right, and you're in a good position that you very smartly you set up your business. You got everything set up. And so you can You can do that option where you maybe go to the bank. And don't forget that that's what the bank is. Four. Right? Go to the bank. Talk to the people that you work with. Make friend. I'm friends with the people, and I think it helps. It actually really helps. Right? So you make friends, you go to the bank, you talk to them and you find out what your options are based on the equity and the credit. You've already got so awesome. Well, I don't need much, so I'm thinking probably just a little bit of peer to peer lending for equipment. Perfect. Yeah, I think that's a great option. I'm probably still the aluminum citing, tearing, weighing that little bit, extra cash, more power. Teoh peer to peer would be interesting. Yeah, for me. Yeah. I think that would be really a good option for you as well. Awesome. So now that we've talked about some really great ways to potentially generate a little bit of extra cash register, kickstart your business as we move on, I'm gonna talk about what we're gonna do in the next lesson, which is we're going to find out if crowdfunding is right for you. So we actually have some fantastic, um, guests coming on in our next lesson, we'll be joined by Bridget Lions, who is a PR genius on and coaches clients through successful Kickstarter campaigns. And we're gonna be joined by Shannon Girl who's Kickstarter campaign for her company, Caravan Pacific, raised over $50,000. So that's gonna happen in our next lesson. I know. Very exciting. But before that, let's look at your lesson 12 homework. So I want you to determine how much money you need to take advantage of how much money you need to take advantage of an opportunity to grow your business. So you know how much do you need for that? Better equipment? How much do you need for that trade show? Figure out what that amount of money is, and then I want you to identify three different sources for that money and determine how they suit your personal and business financial situation. So maybe that you decide. You know, my best option is peer to peer lending, but for some reason that doesn't work out for you. Give yourself a backup option or two. Figure out what that is. The other nice thing to think about is, you know, getting some things before you're in financial trouble. So you may apply for the credit card now, even if you don't need it, because it's easier to apply for some of these things. You know, the credit card, the business line of credit or the any kind of line of credit. It's easier to apply before you get into financial trouble. In a lot of these cases, just toe have some of that in your back pocket, and then your extra credit for today is I want you to tweet at Mindy Crary and tell her one key. Take away from today's lesson something awesome that you learned by listening to her interview and make sure you use our hash tag. Make live cell on. I will see you guys in the next lesson