Debt, Savings, and Funding a New Business: A reader question

Posted on 03. Aug, 2012 by Princess Lasertron in at the office, questions from you

I recently got a question from a reader about how to start a small business when funds are tight via e-mail and asked her for permission to share my response on my blog. I’m navigating through money management/funding/saving with my business too, and the way I handle finances depends on tons of different factors. Anyway, here’s her message and my reply, with a few edits for clarification.

Hi, Megan! I hope this message finds you and the ‘Tron family doing well. I’m writing you because I’m stuck. I’m full of dreams and ideas, but I’m weighted down by debt and fear. I’m at a point where I’ve seen numerous ideas of my own brought to life in some variation by someone else who wasn’t afraid to commit to it. I have credit card bills. I have student loans. I have no savings whatsoever. I have dreams and ideas… And they’re good ideas. Other people have proven that they are. I’m sitting on an idea right now that is risky, but it could be an amazing thing for me and my community.

Sorry to lay this all on you unsolicited, but I always appreciate how you tell it like it is. Did you have debt when you started your business? Savings? I am torn between sitting on this idea for who knows how much longer while my husband and I strive for that ever-elusive “financial stability,” and risking failure going after this dream, or even worse watching someone else be successful with my idea. If you have any thoughts or advice on this, I would greatly appreciate it.

First, we’re all doing well. My cousin’s wedding was tonight and I just got home from that. Now I’m upstairs in my home office watching some Law and Order and taking a break from sewing boutonnieres for a new customer.

Well, when you don’t have money to start up a business, it helps to have an investing partner. I’m not sure what you’re thinking about getting into, but if it’s something you think you could accept an investor for, it would be worthwhile to draw up a formal business plan and pitch deck (a set of slides that you use to present to investors). This can take a ton of time, but it can be worth it if you feel there’s no other way to get money, and if what you’re getting into is high-growth and an eventual huge payoff.

Of course, there are other ways to finance, and better ways.

I’m not sure if you work, but the most important thing to do is get rid of your debt. This will show banks, investors, partners, customers, lawyers, advisers–anyone you have to deal with as you run and grow a new business–that you can deal responsibly with money and that you have the self-discipline and “scrappiness” to succeed with a small business.

I’d love to explain my background to you because I feel like the financial side is a part that I don’t talk about much. Sorry if I get a little long-winded! When I was in high school I knew that I eventually wanted to work for myself. My family owns a fifth-generation telecommunications company, and my father started working for HIS father right after college. My brother works there too–anyway, the point is, I didn’t want to end up doing that because I had a good idea of my own and I thought it could succeed. I worked and saved money. My parents offered to pay for half of my college, but I didn’t have any money to pay for my half so I ended up going to a school that gave me a scholarship (even though it wasn’t my first choice) so I could graduate without debt. The main part of my business plan in the beginning was working WITHOUT debt. I started within my means, selling on Etsy, and I invested all of my profits back into my business. I set aside enough to live off of independently, and use most of it to keep growing Princess Lasertron (buying equipment, going to conferences and classes, and eventually hiring staff). For one year when I had an apartment, my parents helped me with things like rent and groceries for a while. I’m lucky to have a support system like that nearby.

Princess Lasertron isn’t a “high growth” company. It’s a “lifestyle business,” which is a business that typically isn’t very scalable because they owners are in it for enjoyment, personal development, to provide a good product or service, and to maintain some level of financial comfort. I had a lucrative hobby, and I just wanted to turn my hobby into a business. I wanted to reserve time for other pursuits–for example, graduate school, volunteering, travel, etc. I wanted to stay small, and I did it on purpose. So for Princess Lasertron, I didn’t start with a loan or an equity investor, or even a credit card. I just bought materials that I could afford, used what I had, spent time instead of money to build a loyal (and vocal!) client base, and reinvested the money from my sales at every turn.

I basically used all of my profits from Princess Lasertron to start and maintain CAMP Coworking, my second business. After two years of that, I realized that I wasn’t making enough time to promote and sustain CAMP, and I decided it’d be prudent to close it, which I did in May 2012.

Hello Holiday, on the other hand, is a business that requires a lot more start-up capital for things like ecommerce development, INVENTORY INVENTORY INVENTORY, packaging, advertising, on and on and on. It’s the first company that I started with debt (specifically bank loans and a bank line of credit), and it’s also the first company I started with a co-founder who is shouldering an equal amount of debt. It’s scary and new but I’m absolutely not worried because for a risk, starting Hello Holiday is pretty conservative. We aren’t VC-backed yet, but we do like talking to investors to get on their radar and hear their initial impressions of our plan. (Hello, investors who are reading. How are you?) For now, my partner and I are happier to work together as a team with our own little piles of bank debt to pay off without the pressure to show high returns. A high-growth phase will happen, and we’ll hit that down the line after we reach some sales milestones, and then we’ll be interested in pursuing some investor capital more seriously.

I also want to make a very, very important point that I don’t think enough “do-ers” talk about: It’s okay to work for other people to make money to follow your dream. It’s okay to have another job. At one time I would have called this “soul-crushing,” but now I think it’s not so black-and-white. My business partner put in her two weeks at her day job–her former career–today (really! today!), and she’s scared and it’s emotional, but she also works part-time as a promoter. On the other hand, I have done almost any side-job I can get (like letting med students practice examinations on me in class) and I’m applying for a few part-time things now in my field. I don’t know if I’ll get hired, but the point is that I’m applying. There IS soul-crushing work–I worked at a restaurant several years ago and cried every day. But when I pick up an odd job on Craigslist, it’s just some extra money in the bank. With my income from Princess Lasertron, I’m fine financially. But when I added a new business, Hello Holiday, I felt like it’d be silly not to take advantage of opportunities to fund my goals with some extra work. Doing other work is not selling out. It doesn’t have to crush your soul. If you’re saving money to start a new business, you have to get money somehow! And if you already run your own business, there’s absolutely no shame in getting some extra income on the side when you need it. If chances come up to get some work, take them. Look at Craigslist. There’s a cool app called Zaarly that you can use to find odd jobs in your city. If you live near a teaching college, ask if they need models for any classes or research. Just make the money you need to get the firm financial base to make that dream happen.

Without knowing what kind of company you want to start, what kind of debt you have, and what kind of income sources you have now, it’s hard to offer specific advice other than to just tell you my own experience. But I can direct you to some links that might give you more insight either way:

And Then She Saved – My friend Anna Newell Jones writes here about how she started a spending fast and successfully got out of tons of credit card debt. She’s since turned her blog into a business and offers level-headed advice that I learn a lot from. Her website is actually my browser homepage and reading it every morning helps me remember to prioritize my spending so I can use my money to buy the things I really want instead of wasting it or spending it thoughtlessly.

Quora – This site is a favorite standby for when you need advice about business. Startups, lifestyle, financials, employment, trends, back-end, whatever. You can follow your Twitter and Facebook friends, search topics and threads, and post your own questions for people to weigh in on. Although you can find answers about ANYTHING on Quora–it’s easy to get lost in new and exciting discussions when you’re browsing around–I’ve found it particularly valuable for business dilemmas.

Also, there are lots of google groups, tech news sites, and blogs that give advice for entrepreneurs, and I read and contribute to them as much as I can. Commenting on blogs and news sites can help you build an online network full of people with lots to teach you.

Finally, no matter what stage of business you are in, I hope that you reach out in your community to meet with influencers, leaders, people who are doing what you want to do, people who might have ideas or suggestions, and people who are stuck too. Anyone. Over the last few years of being part of the small business landscape in the Omaha area, I’ve learned that helping others is the best way to help yourself–it sounds beyond corny, but I really mean it. If someone needs something and you can help, offer it. It’s the best way to challenge yourself, learn about what other people are working on and accomplishing, and honestly it’s a great way to get noticed which is invaluable when you’re starting a business.

Bottom line: Money sucks, relationships rule. I felt a lot better taking the financial risk on Hello Holiday after reaching out for the support and confidence and advice and constructive criticism from other businessowners and investors I know and respect. Polish up the idea, make sure it will work, make sure there’s someone smarter than you who you can call at 3am when everything is wrong, keep working and stashing cash. I’m rooting for you!!

xx
meg

Tags: money