Financial Issues in Business Startup

A primary inhibitor of business start-up is that few people have the financial cushion to give up a job for the uncertain income of a start-up venture. In a recent survey, about 30% of new business founders identified inadequate funding as their biggest hurdle, and a similar amount said lenders were too conservative. About 15% reported being unable to find investors, and a similar amount claimed a lack of collateral.

The prospective new business owner approaching a lending institution should keep in mind the "five c's of credit:" character, cash flow, capital, collateral, and (economic) conditions. Character consists of the borrower's integrity, experience, and ability; particularly close attention is paid to a borrower's credit history, which is a matter of record. Should you decide to try to fund a startup through a commercial lender, the remaining criteria are addressed in the loan request.

The loan request should include a credit application, financial information such as tax returns and personal financial statements, and a brief business plan emphasizing projected financial performance of the new venture. The plan should demonstrate how the business will generate sufficient cash flow to repay the loan, specify collateral, and show the borrower's personal investment.

In addition to servicing the loan, cash flow should also cover operating expenses, and provide for some re-investment for the increasing financial demands of a start-up venture. As collateral, banks will often lend up to 80% of the market value of real estate, and up to 50% on business assets such as equipment, inventory, and current accounts receivable. Lenders and investors often require that the bulk of start-up monies be provided by the business owner. This assures these stakeholders that the owner is committed, and has confidence in the financial projections.

When the entrepreneur can not meet the requirements of commercial lenders, and does not have a favorable arrangement with partners or other investors, the remaining options are difficult and expensive. These options include public-sector guarantees, finance companies, and the venture capital market.

Even where the start-up investment consists largely of other people's money, the amount of financial risk for the entrepreneur is beyond what most can responsibly handle. For many with the financial means, the stress of bearing complete responsibility for the company's direction and performance is the discouraging factor.

Once the venture is off the ground, a new set of challenges faces the entrepreneur. A recent survey showed their major concerns, named by more than half of respondents, were: "getting new business/clients;" "managing my time;" and, "promoting my business." Another interesting question was what they missed about the corporate world. The top three responses were "company-paid health insurance," "a regular paycheck," and "retirement plans."

Various estimates have been made for the failure rate of business start-ups, based on various concepts of failure and of appropriate survey methods. The consensus seems to be that less than half of new businesses survive the start-up "trauma."

Perhaps, a major reason for what seems to be a high failure rate is that it is so easy to start a business. There is no institutionalized check of qualifications in the U.S.; on the contrary, our tax dollars fund the Small Business Administration and other agencies and programs that encourage business formation.

Another survey showed that over 80% of entrepreneurs would take a pay cut if that is what it took to keep the business going. Just over a third would sell the business, even if a good price were offered.

John B. Vinturella, Ph.D. has almost 40 years experience as a management and strategic consultant, entrepreneur, author, and college professor. For 20 of those years, Dr. Vinturella was owner/president of a distribution company that he founded. He is a principal in business opportunity sites jbv.com and muddledconcept.com, and maintains business and political blogs.

---

If It Was Easy Everybody Would Do It

Q: I started my business about a year ago and... Read More

... in Pursuing the American Dream

This morning I woke up at 4:30 in the morning,... Read More

Great Tips Of Choosing An Office

You have decided to strike it out on your own... Read More

10 Secrets of Successful Entrepreneurs

Running a one-person business is a creative, flexible and challenging... Read More

Entrepreneurs - Your Well Being Should Come Before Profits

I believe the spiritual aspect of life, especially to entrepreneurs,... Read More

The Ideal Length of Your Business Plan

How long should a business plan be? A business plan... Read More

Achievements Outweigh Education and Experience

Q: When it comes to succeeding in business, which do... Read More

Financial Strategies for Transitioning from Salaried to Solo

7 Financial Strategies for Transitioning from Salaried to SoloA 40's... Read More

Be an Entrepreneur

The Department of Labor predicts that the #1 employer in... Read More

How to Become a Successful Entrepreneur on the Web

Becoming a successful entrepreneur in the online world is no... Read More

Go Slow to Go Fast - Why Over 80% Of High Tech Startups Fail And What To Do About It

With billions of dollars of venture capital residing down the... Read More

Increase Profits with No Pain, No Change Approach

Implementing changes, even when they're good for your business, can... Read More

Confidence = Preparation + Courage

It always amazes me when I see someone on television... Read More

Do You Have What It Takes?

I think it's fair to say that not everyone is... Read More

Do You Have What It Takes To Be An Entrepreneur?

Q: I am interested in starting my own business. I... Read More

Success Secret - How To Find Million Dollar Opportunities

They're really are powerful million dollar opportunites everywhere.Ok, let me... Read More

Business Name - How to Choose One

It's very important to get your business name right. You... Read More

Are You An Entrepreneur?

With all the buzz about everybody being an entrepreneur these... Read More

Answering Why You, Why Now Critical in a Winning Business Plan

Business plans continue to be an essential element of the... Read More

Why Most CEOs & Entrepreneurs Fail?

Times are tough. The economy is in a constant state... Read More

Isnt it Time You Started to Fly?

I am going to begin this article by sharing a... Read More

Creativity & Entrepreneurship - Key Questions From My Students

Hello Creative Entrepreneurs!Thought for the day:"It is not easy being... Read More

Entrepreneurial Business Plan The Down And Dirty Way

Does the idea of running your own business sound exciting?... Read More

The Secrets to Becoming a Successful Creative Entrepreneur: JJK Secrets #19-21

Hello Creative Entrepreneurs!Welcome to the e-class on Creativity & Entrepreneurship:... Read More

The Heroic Entrepreneur: Profiting from Your Brilliance

If you look up the definition of hero in Webster's,... Read More

Rambling Confessions of a Recovering Entrepreneur

I told my family that I finally accepted that my... Read More

Herb Filled Pillows Make Over a Million Dollars

Lauren Rosenstadt was a single mom working at a herbcompany... Read More

Profile of Women Leaders

Leadership is based on two words, "pressure and support"and that... Read More

Meet Success: Business Profile of Sylvia Acevedo, Communicard Owner

Sylvia Acevedo needed a break from her technology job so... Read More

Starting Up and Keeping Going

So you had that fantastic business idea, the one that's... Read More

PTO; Justification of the Means and the Ends

Some would say about certain issues that the means do... Read More

Leadership Attributes for Business Success

Business success is essentially the result of successful leadership. Contrary... Read More

Opportunity Does Not Knock

Q: I'm graduating this year with a degree in business... Read More