Images_Digital_Edition_July_2019 JULY 2019 images 37 KB BUSINESS DEVELOPMENT you choose, you must consult with your accountant or another qualified independent resource about any borrowing facility you’re considering. Financial institutions are the most common source of loans for small businesses. They offer financing options such as short-term debt, long- term debt, lines of credit and credit cards. Financial institutions also offer specifically tailored forms of financing, such as commercial mortgages (for acquiring buildings) and lease financing (for vehicles and equipment). A private lender is usually a wealthy individual who will lend your small business money for a higher rate of interest than he or she could expect from a lower-risk conventional investment in, say, a financial institution or blue-chip stock. Sometimes the individual will be a successful business person willing to offer advice, expertise and useful contacts, similar to a mentor. Factors can address immediate cashflow needs by providing cash in exchange for uncollected accounts. Generally, they’ll buy your accounts for about 90% of their face value and assume the risk of collecting them. Donated funds ‘Donation’ might conjure up an image of someone handing over a bag of cash to a small business with no expectation of repayment and no strings attached. This would, of course, be the ultimate in cash- raising, but it’s the stuff of fantasies. The term ‘donation’ here takes on a broader meaning to include any payment that doesn’t have to be repaid – for instance, government grants and subsidies. These are usually sums of money granted by governments for specific purposes (research and development, attendance at trade shows and conferences, marketing expenses, etc). The nature and amount of these grants will vary, but they will inevitably be conditional on compliance with government priorities, such as creating jobs or developing a particular industry. It’s a potential source of funds worth exploring. Another form of donation is crowdfunding. As the term implies, crowdfunding involves appealing to the population at large for cash. In return, participants are usually offered rewards (based on a tiered system) and the satisfaction of funding something worthwhile. These campaigns are controlled by rules and standards. Be clear on them. There’s a lot of research material on the topic. Unconventional funding sources So far, we’ve discussed conventional cash sources. But there are certainly creative, unconventional ways to finance small businesses. One of my company’s early objectives was to capture the ink business of the bigger Canadian textile printers. But there was a big stumbling block: delivering screen printing ink to all points of Canada in a timely manner. Our solution was to offer the larger printers we were targeting an Ink On Tap (IOT) programme. Essentially, we placed an inventory of ink on the customer’s floor and monitored it monthly. Most of our targeted printers bought in mainly because it solved one of their biggest headaches – anticipating ink requirements. The concept worked so well that my small business almost became a victim of its success – the IOT inventories and receivables required funding over and above our regular business. My start-up needed to raise additional cash to fund about 12 IOT programmes. The solution was an investment programme whereby investors could joint venture with my business on individual IOT programmes. The invested amount – usually about £12,000-£18,000 (CA$20-CA$30,000) and a return based on a share of the profit was repaid according to a predetermined schedule. The investors received a good rate of return and my business benefitted from capturing a share of the market it would otherwise have been hard-pressed to finance. The IOT programme is an example of the old ‘necessity is the mother of invention’ wisdom. If you’re faced with necessity, some creative thinking might turn up unconventional but feasible ways to raise cash. Sources to avoid Even when it proves difficult to raise cash, there are sources you should avoid. Some are obvious, such as Three-Toes Tony with his beige raincoat, cauliflower ears, black-and-white brogues and violin case. Some are less obvious, and may even seem like good sources, such as family and friends. No matter how tempting, don’t do it. It’s high risk and the potential victim is family peace. Few things can destroy family ties and friendships as a dispute over money, particularly if it’s been lost. This is why I believe in third-party, arm’s- length funding for small businesses. Long after a business has failed and disappeared, the family will still exist. I’ve also seen credit cards recommended as a source of borrowing for small business start- ups. I caution against this as well. Not only is it an expensive form of borrowing, but also the outstanding balance can quickly accumulate until it becomes difficult to repay. Mark Zwilling lists eight other types of investors to avoid in his Startup Professionals Musings blog; I encourage you to read it: www. Research and perseverance Small business financing is a vast topic. Research it thoroughly and never lose sight of the importance of cash in the survival of your small business. If you’re turned down, it’s normal to feel discouraged briefly. But get over it and don’t give up. Believe in your business and its prospects, keep refining your strategy and keep knocking on doors until you find the right financier for your small business. In my office is a handwritten poster of unknown origin; its wonderful message seems appropriate here: “Your value does not decrease based on someone’s inability to see your worth”. Characters Who Can Make Or Break Your Small Business is a new book from accountant and print industry veteran Michael Best that identifies the issues faced by small business owners and offers advice backed up by real life examples. It is available from and Amazon . There are sources you should avoid. Some are obvious, such as Three-Toes Tony