ET28- Funding Options for Business Owners w/Tiffany Wright
Sources and Options For Business Financing Explained
Tiffany and I had a great discussion about what it takes to fund a business and what the options are that entrepreneurs can tap into.
She is an expert in the area and works with business owners to source capital for their ventures. I chimed in with my own thoughts on the matter, which I also got into in even more detail in episode 25 where I laid out my thoughts on how and where you should get funds to start.
Check them both out and learn what can work for you!
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Matt: Well, I am very pleased to announce on today’s episode I have the pleasure of talking with Tiffany C. Wright. She is the person behind theresourcefulceo.com as well as the author of the book The Funding is Out There: Access to Cash You Need to Impact Your Business. Thanks so much, Tiffany, for taking the time to chat with me. Why don’t we just kinda jump in? Give us a little bit of your background and how you got to where you are now.
Tiffany: Okay, Matt. Well, thank you for having me. Well, The Resourceful CEO was founded earlier this year actually. Previously, I owned an [inaudible 0:04:35.6] and COO Firm. We [inaudible] to small and medium businesses in the South East and Mid-Atlantic area. Then, I just decided that I did not want to personally fill those positions myself and move around every 6 months to a year for the longer term engagement. I wanted to focus on helping small and medium business owners but to do so nationally but from Atlanta, Georgia. Hence, I founded The Resourceful CEO. Before that, I was an entrepreneur. I had a real estate investment company. Then, I had purchased a small commercial construction publication. So, I create publication which I ran for several years. I did that prior [inaudible].
Matt: Okay. So, you’ve had quite a few different entrepreneurial ventures – the typical serial entrepreneur. You can’t keep a stand. We just keep starting stuff.
Tiffany: Yes. Now, I’m focused on buying another business. That’s just the beginning. I don’t have a particular business identified. I’m just in a search for a set.
Matt: Okay. Interesting. You’ve done a few different things and then I’m sure in your experience in working as a fill-in CFO, COO, you got to experience a lot of different small business situations and different problems that you were able to help resolve. Were any in particular that stood out as real challenges and solutions you came up with?
Tiffany: Yes. There’s been a number. The biggest thing that I find is the cash flow issue – the kind of beer in the headlight cash flow issue. They see that the problem is occurring but the owner kinda stick his/her head in the sand and hopes that things would get better until they are not. One big thing that I’ve seen is receivables – just a large outstanding receivable that just aren’t collected. If you are growing your business a lot and generating new receivables all the time and even those slow paying customers are eventually paying, then you can coast long with these unpaid receivables that are 120, 150, 180 days old. But, when business starts to contract, then you are in trouble with it because you don’t have any new cash coming in to cover all that uncollected cash. That’s the big one that I’ve seen and had to address. It happens many many times. They don’t have credit policy. They don’t understand cash flow is so different from profit. They don’t understand the difference or what I mean by negative cash flow or positive cash flow. They think that the financing is the answer and I explain to them that financing can help you but you have to address these operational issues or else you’d quaint to just have one more thing you need to pay back at that certain point of time and you’re not gonna have the cash to do so.
Matt: Yeah. This is a challenge I see particularly for clients that we have in the construction industry. I think part of it is the nature of the construction industry. They tend to have to front a fair amount of money to start the project so they can get paid after the fact that sometimes they have slow payers. Sometimes they’re just not good about invoicing and collecting all those invoices. But cash flow issues like you just described seemed to be almost endemic to that industry, at least from the clients that we’ve seen in my general business experience. Was that you’d seen too or did you have other industries as well?
Tiffany: Yeah. Actually, it happens across all industries. I primarily work in the B to B sector so I don’t know much about retail although I will tell you that I had a retail client with this problem. But, it has less to do with their collecting and more to do with just the business was underperforming and they weren’t managing things internally the way they should’ve. But yeah. I have seen the issue with Construction Company. I was a former CEO at a construction firm and I use to write articles about [inaudible 0:10:01.8] because they had retain age so you have to hold them back and find them or utilizing your services typically hold back until the job is completed to ensure that all the sub-contract who have been paid and signed and so forth. And then, if you are a larger entity, you have to have many set aside for funding. You have to have enough cash flow. All these niches for cash and most of the time, often they get paid 30 or 60 days. Sometimes in government entities, if you don’t have everything precisely right, you won’t get paid at all. So, you have to resubmit and resubmit until you finally get it right. And I just find that a lot of construction people are really good at the construction part of it but they are really poor in bidding the job so they don’t build an enough profit. They don’t read the blueprints correctly. They don’t just price the job. They underprice the job or they try to price it tightly in order to win the bid. So, we bring in the pricing and not looking at when they have to pay for things vs. when the money comes in – all of that. The retain age, all of that just create they cash flow nightmare if it is not managed properly.
Matt: Definitely. There’s a lot of moving parts and bidding is a tough process because you’re hoping to get the job. But I always tell, there’s no point in getting a job you’re gonna lose money on. Let somebody else have that job.
Tiffany: That’s right. I am so with you. Yes. Pricing is a very big issue because even when people thought that they were profitable, when I’ve gone back through and said, “Well, what about this? What about that? And what about this?” We find that they actually lost money.
Matt: It’s tricky for sure. It’s compounded by the fact that if you don’t keep tracking that stuff, you don’t keep good records, you don’t do good accounting, and then you really have no idea if you’re making money or losing money. You just see your bank balance keep going down all the time.
Tiffany: Right. Right. Right. That’s the biggest issue – Cash.
Matt: Cash. So, coming to the rescue, you wrote a book The Funding is Out There: Access to Cash You Need. Tell us about that. What do we learn from the book? How do we get our hands on that cash?
Tiffany: I did actually include a chapter on cash flow management because I want to people to understand that financing is just one of the three types of cash flow. They really need to focus on the operational cash flow and use the financing cash flow to just help manage the business. I talk about working capital. For instance using the construction company as example. If you are not getting paid for 30 to 60 days, then the working capital line of credit would help you cover everything until you get paid. Then, you pay back down the line of credit. I talk about short term financing, long term financing, debt equity, the different types of capital that’s blended and then alternatives sources of capital like badgering or co-marketing agreement and strategic initiatives and so on. I basically cover all. I explain what each one is. I provide I think about 35 examples for my experience and the experience of others of how companies went about getting the financing and why they went after it and what they did the whole process. People can understand that – Although it’s a book, it’s more interactive. You don’t have to read it from cover to cover. You could just pick a chapter that works for you. But then at the end, I do help you decide what is the best type of funding that will work for you. I just asked a series of questions and I say a few “Are you interested in this?” Or if your business look like that, this would be better for you. If your business is at this stage, this would be better. If your business has no cash flow, lots of cash flow, then here are the options. That kind of thing.
Matt: Okay. That’s interesting to hear that there’s that money options out there because I think a lot of people sort of go “Well, I went to a bank. I asked for a loan. They said no. so, I guess, that’s it.” But there are actually lots of other options out there, different ways to finance things.
Tiffany: There are lots of other options. When people tell me “Oh! I can’t get financing.” I say, “What did you do?” That’s where they say “I went to one bank.” Or they may have wait to as many as 3 banks. I’d say “What kind of banks did you go to?” Because honestly, the larger banks – I know Wells Fargo has a very strong initiative and Bank of America has its $30,000 – $50,000 FBA Express loans. But typically, they focus on larger businesses. When they small business, their sweet spot is really over ten million – not zero to ten million in revenue. That’s what they mean by small because it takes them just as much effort to survey larger small businesses. They’re gonna make more money on the larger business because they can generate more speed and so on and so forth. I always say “Look at the Community Banks.” They specifically have anywhere from 1 branch to 15 branches. They often have a lot of entrepreneurs that sits on their board. So, they have higher risk time for small businesses than these typical larger banks. In addition, you need to approach a business banker not just go into your branch and say “Oh, I have deposits here therefore I have a relationship.” No, you don’t. A relationship is what the business banker who has signature authority. For instance, many of the VPs that I’ve worked with have $250,000 in signature authority or they sit on the committee but they have a lot of credibility on that committee. That committee approves $250,000 or $500,000 in loan before it has to go up the food chain. Again, that’s who you approach – the business bankers. They’re in your community. They’re in your association. They’re in your church – if you go to church – or the Mosque or the temple or whatever. But, they’re all around you. You just have to reach out. That’s how you go about getting a bank loan. You don’t just walk in to the branch manager.
Matt: So, you gotta find the right bank and then find the right person in the bank. What else do you need to bring in? What do you do to make your case so that you have a decent shot at getting the funds that you are hoping for?
Tiffany: Well, you need good financials. You need to have your income statement and your balance sheet. If you have a cash flow statement, my gosh, the banker would be really impressed. But if you just have an income statement and a balance sheet, that’s good. Not your tax returns, just your current income statement and balance sheet. What else? Executive Summary – 3 to 5 pages that just gives an overview of your business, where you’ve been, where you’re going, who are the owners, what you are doing and briefly, what’s your strategy to grow and then how much money you’re asking for and why, meaning what would you gonna do with it. If you have that, you have so far ahead of everybody. You’re like in the top 5% because very few business owners ever walk in the door with that kind of information. If you can’t distinctly describe what your business is does and why it’s great, then why would you think someone would lend money to you?
Tiffany: [Inaudible 0:18:51.5] I need a loan from you. If this is a good family or friend, you might say okay if it’s a few bucks. But they come to you and say “Hey! I need $10,000 and I have this business.” “Well, what does it do? How many customers?” Why do I have to pull all this information from you? You should just be telling me. If you can provide this to me in a document, I’m impressed.
Matt: Yeah. I always tell clients that the bank is not in the business of lending money. The bank is in the business of getting paid back. So, if they are worried about getting paid back, they’re not gonna loan you anything.
Tiffany: That is right. Right! So, you set them ease. You make them comfortable. Until then, if you don’t get the loan immediately, you will be positioned to get the loan in the future because often the business banker will be impressed that they say “Well, it’s a little shaky right now or you don’t have enough history. Or you grew so rapidly. Now you’re at a million but you only have a year of financials [inaudible 0:20:06.1] $300,000. I can’t give you a loan. They might give you a loan against the $300,000 in revenue or based on that where they’ll need another quarter or two before they could ramp it up. But again, if you go in and you approach them and you build this relationship, you can grow. You’ll be able to get the loan that you want [inaudible 0:20:32.1] other things that you can do or maybe if you’re growing so rapidly alone might not be the best for you. In that case, you would look at investors or other sources of financing including strategic investors and some of the other things that I’ve mentioned.
Matt: Well, I agree too. I think it’s best to establish that relationship early and even more so when you don’t necessarily need it. You are in a much stronger position to borrow money if you don’t desperately need it than if you’re in a bad position and you try to borrow to keep the doors open. You’ll look like a lot bigger risk. And again, you have more equity than you know.
Tiffany: Yeah. You are so correct. I have a friend who owns an architecture firm. I remember I told them “Get a line of credit!” She said that they were doing well and they were being approached by all these things where lines of credit. And I said, “Take it! Take it right now. Take the one that makes the most sense. Because it’s a line of credit, you can keep it zero. You only have to pay the very small annual fee. Its only when you use it that you incur interest that you have to pay back and then of course, pay back the principal.” But anyways, I said “What if a recession hits or your business goes down? Then, you’ll need cash to cover the gaps then you won’t have any. You’ll go to the bank and they’ll say “What? You don’t have enough cash!”” They are not gonna give you loan. Or they’ll give you a much lower loan than you would’ve been qualified for. She just told me last year that that was the best advice that she had had because obviously, during the commercial construction down turn, during the great recession, their billings dropped. The line of credit that they had really helps them with that down turn.
Matt: Yeah. I’m sure it did. It was a great advice. I’m glad she took it and it worked out for. It’s very challenging to be able to borrow money when you really need it. Because if you really need it, there’s a chance even if they give you the money, you’re not gonna make it. You’re not gonna be able to pay it back so you’ll look like a much riskier prospect. If you don’t need money at all, that’s the best time to ask for it.
Tiffany: Yes. It is. When you say that you really need it, you’re talking about being a bit desperate basically when your cash is drying up. Now, if you really need it for acquisition or something like that, that’s a different story. Banks are often interested in. they are interested in acquisition especially if what you’re acquiring has a lot of collateral or a lot of cash flow or something like that. I just want to clarify by really needing it means that you’ve kind of desperate.
Matt: Right. I would say really need it in terms of trying to remain solvent vs. really need it because a great opportunity came up. That’s another I thing I generally advice clients. Why do you want to borrow money? If you want to borrow money to buy equipment or buy inventory or buy things where even if you don’t get the exact expected outcome, there’s still a chance to liquidate what you’ve bought and repay the loan and still be okay. That’s something to consider. If you want to borrow money to put into say a billboard or an advertising campaign or something where the second you spent the money it’s a 100% gone and non-recoverable, that’s a much riskier reason to borrow the money because if the advertising campaign doesn’t work out, or the billboard doesn’t produce new clients, you still have to pay the loan back but you have no way of selling the assets or selling the inventory even in the loss or lower than you thought margins to pay the loan back. You’re just 100% money is gone and you have this great hole to fill from where you borrow the money with nothing to offset it.
Tiffany: That’s actually right. For things like that and marketing, if your budget is high, then that’s where things like licensing or co-branding or co-marketing initiatives can come into play. I like to give this example. I had a client and I didn’t have to do their list directly. The company was a Twitter-ing Application which they sold into middle schools. But, it was a small startup with 6 people in the US and a team of development engineers and [inaudible 0:25:34.7] I think.
Matt: Yeah. I know what you mean. However you say that.
Tiffany: It’s India. Yes. Anyways, he managed to get – not just managed – but he pursued the conversation. Somehow, he got into a radar of a tech entity – textbook distributor. What the textbook company did was in addition to a $3 million 0% interest loan, this is what I mean by partnering. That was a 0% interest loan because it was a strategic investor. They were interested. They thought that they can benefit from this tutoring. But it wasn’t even an investment. It wasn’t actually an equity investment. It was a zero interest loan. But in addition to that, the textbook company tells people, sold the software application to the schools bundled-in with their textbooks. So, it was an addition add-on service for the text book company which helps them differentiate themselves from other textbook company. Because it added value to their services and offering, they were willing to do that. Meanwhile, this small startup which wouldn’t require millions of dollars to have this national support. They were basically able to sell nationally with 2 sales people. So, this is what I mean by co-marketing, strategic investment and so on. Just be creative and be open and focus on what you need the money for and you’ll start to identify opportunity or they’ll just kinda drop into your lap and you’ll be able to recognize them.
Matt: That makes sense. The Resourceful CEO.com, what is your kind of plans? How do you work with people? How do people find you? What do they get from that experience?
Tiffany: Well, we focus on helping small business owners, position their companies for sale. We help them drive high value and high cash flow. We do that by helping companies put in infrastructure and increase both their operational cash flow and their financing cash flow as necessary. The vast majority of our customers or clients aren’t going to sell their companies in the next 6 months but they are really tired of their business. They are struggling or they’re just worn out. They know that they want to retire in the future and they don’t know how to get there. By doing this, we help people be able to do whatever it is that they want. They can step away and go on vacation. They can pursue other investments or whatever. Basically, if you want to engage with us, the best way is to either call our 1-800 line of just go through the website and fill out a content form.
Matt: Yeah. That’s an interesting issue because I know when I was doing business brokering for years, a lot of times, when you first talk to the owner; they give you a certain story. But after you get to know them a little better, you kinda break down and break through some of the barriers which you come to find out as a lot of them are thinking about selling or want to sell because they just want to break – not because they don’t ever want the business, they don’t want it anymore or they have a real solid plan for what they’re gonna do afterwards or even if they’re gonna have enough money from the sales to be able to permanently retire, they just want some time off. Really what it is is they need systems in place. They need to be able to delegate. They need to have at least the management like team so they can some of the burden off themselves and be able to have some time away and have a more profitable, better functioning business but they don’t know how to do any of that so they just say “Just sell it.” It’s a bad decision all the way around. It’s a much better decision to position the business differently so that they can take some time away without having to sell the whole thing.
Tiffany: Right. Because that’s really what they want. I mean, when at the business, whatever the vision of what, but the average business owner just wants to make a contribution to their community, have enough money to have a nice life, be able to do what they want to do and be able to retire. The average entrepreneur business owner is not a serial entrepreneur. They have their business for 20 or 30 years or longer and they are all ready to let it go but they don’t know or like you said, they are just tired or worn out and they don’t know how to get to that original dream of being able to do what it is, being able to have the life that they want. Now, it’s like a vice around them. If this is a vice, then it’s no longer fun. So yeah, we help business owners transition out of that.
Matt: Yeah. That’s a critical thing, especially the entrepreneurs who became entrepreneurs by accident. They were good at cabinet making. They were chefs or whatever so they just kinda back into what they’re doing but they never really got into with the idea of I want to own by own business and then they find themselves working 70 hours a week and really kinda hating the whole thing. They are the ones that need the help the most to figure out how to systematize the business so that they can step back somewhat and enjoy the part that they like and not have to do everything and feel like the whole thing is gonna cave in if they take 5 minutes off.
Tiffany: Yes. What I also noticed is that no everyone who started a business like that is meant to be the President or CEO. Maybe they are better positioned as the sales person or whatever it is, VP of sales, or whatever depending on the size of the company. I’m just throwing the titles out by really the titles don’t mean anything. They are in charge of sales or they are in charge of production, as you said the cabinet maker. That’s what they really enjoy. Well, if you can hire a part-time or full-time senior management, that senior management can be one person as a general manager or if you’re larger, it could be a team with training crews like the part-time CFO or whatever. But, that allows you then to concentrate on which you do best. But your business have to be strong enough to be able to generate the money to have that person company and let you do what it is what you want to do. If someone asks me do we do the coaching, I said no. we help people make their businesses, their business dreams come true but we don’t coach. We advise and we provide you with the tools to help other people on your team do what needs to be done. If you need a coach, there are other people out there.
Matt: Yeah. There’s no shortage of business coaches available for that.
Tiffany: Right. We help you position your business so you could do what you want to do. You go to the coach to figure out what it is you want to do.
Matt: Definitely 2 different things, for sure, Alright! Well, I appreciate you taking the time today, Tiffany, to chat with us. As you mentioned, the best place for people to find you is theresourcefulceo.com?
Tiffany: Yeah. That is actually correct.
Matt: Excellent! Well, I definitely encourage people to check that out and the book as well. The funding is out there because truly it is but only if you know where to look and if you are kind of aware of all the different options. As we said earlier, if you just go to the first bank you ran across, you ask them for a loan and they said no, that is definitely the end of the line.
Tiffany: That’s absolutely correct. Giving myself a little push their on the book, that’s available on Amazon, The Funding Is Out There: Access to Cash You Need to Impact Your Business.
Matt: Excellent. I will have links to all that in the show notes. Thanks again, so much, for sharing your time and expertise with us today. I really enjoyed our conversation.
Tiffany: Thank you, Matt! So did i.