In most cases we're able to help them locate the funding they need. So...question answered.
The problem is, they're asking the wrong question and getting an incomplete answer.
Better Question: Why do I need working capital?
Business owners often ignore the underlying question when the new funds arrive. Sounds foolish, but it happens every day. Moving from crisis to crisis is no way to operate your business. You may feel compelled to douse the next fire rather than take a hard look at the more difficult strategic questions, but that merely masks long-term (more expensive) problems.
I have these conversations almost every day and notice 1) Not much has changed when I get the call looking for the next round of funding, and 2) most cash needs stem from one of the following issues just below the surface.
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1) Initially under-capitalized
I spoke with the owner of a fruit bouquet franchise this morning who was searching for capital and admitted he was under-capitalized from the outset. High on expectation and optimism, he launched ahead regardless.
In 16 months of business, his credit score has dropped 140 points, which makes most traditional funding impossible. Plus he’s already sold away 25% of his future credit card sales to help make ends meet.
His business is in a death spiral that he hasn't yet admitted to himself. He’s too wrapped up in the-day-to-day details, and it will likely cost him whatever other money he commits to this business.
2) Slowing sales
The impact of 2008’s fourth quarter has slowed sales almost everywhere. So, what have you done about it? What changes have you made to cut costs, reduce inventory and pick up market share? Recessions always provide opportunities; they are just not as obvious as the downfalls. Additional capital and the impact on cash flow will not magically improve sales; that is up to you.
New capital will either reduce your equity or be a drag on what is already lower revenue. More debt without a plan to improve sales is not much of a plan.
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3) Poor planning
Many national franchises require their owners to remodel their location every 5-7 years, yet this seems to “surprise” even longtime owners who scramble for the necessary funds.
A friend of mine owns several limited-service hotels, and his franchise company requires that they set aside a percentage of revenues each year for capital improvements. The reinvestment into his properties is significant, but already budgeted for in a planned, considered manner.
What are you preparing for? Whether required or not, advance planning makes you a better and more profitable business owner. “Unexpected” events are part of business and part of life — start preparing for them now.
4) Unplanned opportunity
We’re an optimistic bunch, which is probably why we’re in business for ourselves. Every time I get a call for capital because of an opportunity, I inquire if the excitement is because it offers something better or just something different.
I just spoke with a restaurant owner who has a great opportunity to take over a vacated Bennigans restaurant location at about 20% lower rent than the past tenant. So I wondered: Why did that location go out of business (the chain filed bankruptcy), what is the traffic flow to that location, and if their new concept could fill a location twice their current size, what would be the impact to their first location?
It was the first time he’d pulled his attention from the lower rent and “free equipment” to consider these issues that could put his entire company at risk. Not to mention the impact to his current cash flow and lifestyle.
Getting additional capital is never the complete solution to what ails your business. Look deeper and ask more focused, pointed questions to yield better results.
Here's a look inside Mastering Business Presentations:
Chapter 1: Map Your Best Route
Chapter 2: Build Your Confidence
Chapter 3: Warm Up for a Cool Presentation
Chapter 4: Care for Your Voice
Chapter 5: Make It Snappy for Bigwigs
Chapter 6: Charm a Small Group
Chapter 7: Win Over Large Audiences
Click here to learn more about Mastering Business Presentations
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