Small Business Resource Guide
May 2007
A guide for the beginning, middle and end of your small business
Find Me the Money
Knowing how much money you really need is a good place to start
One of the first questions Jeff Cornwall, director of the Belmont University Center for Entrepreneurship, asks hopeful entrepreneurs is, “How much money do you think you need?” Often, he says, people overestimate that amount.
“They’ll say, ‘I need $100,000,’ and when I ask them what they need that $100,000 for, they say, ‘I don’t know. I just think I need $100,000,’” he explains. “But in order to successfully raise money, you have to understand what money you need to raise.”
Once that amount is determined, however, Cornwall warns that raising the money is even more difficult. He says about 85% to 90% of startup capital comes from the entrepreneur and his or her friends and family. The rest usually comes from loans. Angel investors and venture capitalists fund less than 0.5% of entrepreneurial ventures, Cornwall says.
While commercial banks are the number one lender for small businesses, most are not interested in new ventures. Banks will, however, loan money based on personal credit and assets. Before approaching a bank for a loan, Walter Williams, vice chairman of the Knoxville SCORE office, says prospective entrepreneurs should develop a personal financial evaluation and a sound business plan with three years of projected financial statements, including income, loss and cash-flow projections. Banks also consider relevant business experience.
“I might have great experience in retail sales in a coffee shop, but if I don’t have management experience, that’s a completely different subject,” Williams says.
But Cornwall says the best approach for financing a startup is to minimize the amount of outside money necessary through bootstrapping—starting and growing a business with limited resources. Typically, entrepreneurs have about $7,000 to $10,000 to finance a startup, so they become very creative about utilizing bootstrapping techniques.
“I try to teach students not how to raise money but how to create a business that doesn’t need a lot of money in the first place,” Cornwall says.
For more information on bootstrapping, see marketing guru John Jantsch’s blog, or read the Bootstapper’s Bible by Seth Godin—now available as an e-book that can be downloaded on Amazon.com
