The Prevent Defense

Show Me The Money!

Money makes the world go round, especially in business. One of the hard things to grapple with is that gross billings don’t mean diddly-squat if the receivables aren’t keeping up with the bills due.

Having a financial plan is an essential part of the playbook. Determining how much money you need to keep your business in good running order and knowing where the tipping point is – where you can begin to support yourself and then others – is the way you stay in the game.

Sure, you did some of this analysis in your business plan. But financial planning isn’t a one-time thing. It needs to be done continually if you plan to end up in the business hall of fame someday.

Here are just a few of the things that can affect your financial health. Make sure you incorporate these into any financial planning you do for your business as you move forward. Otherwise, you may find yourself being nickel and dimed out of business.

Think long and hard about how much money you will need to get your business to the point where you can open your doors and start making sales. Costs can include facilities, equipment, furnishing, payroll, signage, supplies, licenses, permits, taxes, fees, advertising, etc. Leave some room for expansion. More than one business has failed because they grew more quickly than anticipated and didn’t have the financial health needed to expand.

Cash Flow
Think in terms of monthly cash flow. You want to go at least 24 months into the future and provide as much detail as you can, showing the anticipated amount of cash coming into the business as well as going out of it. This, along with your startup costs, will give you the total amount of money you will need to reach the point where you can probably achieve sustainability.

Profit & Loss
This is your projected profit & loss statement, which should cover the first two years. These income statements are expressed as follows: Revenue – Expenses = Profit or (Loss).

Balance Sheets
These should cover Year 1 and Year 2. A balance sheet shows you the big picture of your business’ financial health and is expressed like this: Assets – Liabilities = Net Worth or (Equity).

Now, to answer the big question: Where do you get the money to either open a business or expand it? Here are some options:

Before you ever open a business, be sure you save up as much money as possible. Sure, you can try to get a business loan, borrow from family or friends (not recommended), or bankroll your entire business on a credit card or two (again, not recommended), but these strategies put you in the hole from the get-go. Being deep in debt right from the start will put you in a defensive posture and you won’t be able to make the critical decisions you need to break out into the open because you’re always worried about how much money you owe, not how much money you should be making. Also, there are a lot of upfront costs such as computers, office furniture, marketing materials and advertising. Be conservative; think about every expense carefully before you approve it.

O.K., so we said this wasn’t a good option just a moment ago. If you want to hit mom and dad up for an advance on their life insurance to fund your dream, it’s still not the way to go. That said, you can consider what entrepreneurs call the Friends & Family Plan, which is the first stage of funding. In contrast to getting someone to cash out their life savings or get a second mortgage on their home, this strategy asks friends and family members to become investors in your company. The idea is quite simple. If you need $12,000, ask a dozen folks in your circle to kick in $1,000 as an investor. If you know two dozen well, then $500 each and so on. This doesn’t mean the money comes free to you. You need to be ready to offer something in return, such as equity in your business, an additional percentage in the form of cash at a particular point down the road, or some other juicy carrot that makes it worth their while to part with their hard-earned dough. You will also need to make a killer pitch, since you want them to invest in your idea, not you. This will keep relationships on an even keel, even if your business founders.

Don’t waste your time going after grants. It’s not a sound or sustainable financial strategy. Grants to incubate new businesses are few and far between and some may even be scams. Instead, spend your time and energy exploring financing options that may actually result in money arriving in your pocket, hopefully with as few strings attached as possible.

One of the new ways to secure funding, particularly for a product or service, is to crowd-fund your business. Sites like and allow you to seek funding from others who want to invest in new ideas, products or enterprises. Some huge success stories have been funded this way, but it’s up to you to do all the marketing and promotion in order to hit your goal within the desired time frame. If you don’t reach your goal, most sites refund the money to the investors and you walk away with nothing.

If you’re considering applying for a business loan remember the 5 Cs of Credit:

  • CAPITAL/CASH. This is your investment. Owners usually pony up 25 to 30% of the funds needed to start a new business.
  • CAPACITY/CASH FLOW. The object is to show that you have the experience, passion and desire to make the business successful. This may include your own business training and management experience, your business plan and cash flow projections — information that shows you have the ability to meet your obligations, including paying back the loan.
  • COLLATERAL. This can include business property, furnishings, fixtures, equipment and inventory as well as the owner’s own assets such as stocks, real estate, etc.).
  • CHARACTER. You’ll want to show that you take this whole thing very seriously and that you are a responsible person, which may be evidenced through your personal credit history.
  • CONDITIONS. Factors such as the overall health of the economy and your particular sector, industry trends, market forces, etc. and how these will affect your chances of success.

Commerce is rolling out five new programs that offer small businesses, even startups, low barrier, low interest loans to help your business have the capital if needs to grow, create jobs, renovate real estate, invest in inventory and equipment and more. Check them out!


Before you seek investors or private lenders, find out what the securities laws are. The investing arena is tightly regulated and you don’t want to get into hot water with regulators. Venture capitalists rarely provide funding to startups as it’s just too risky. Angel investors, on the other hand, love to provide seed money to startups and are willing to take a risk on a new firm or idea. That’s not to say that venture capitalists won’t get involved, but they tend to take an interest in a business a little farther down the road.

Angels use their own money to fund ventures and get involved because they are interested in the business, product or service. In an angel, you may not only find a financial resource but a mentor. If you’re a seasoned pro, a venture capitalist may be what you need. These investors are willing to invest more money than a typical angel, but only when the company has proven itself. In contrast to an angel investor, venture capitalists aren’t usually interested in the day-to-day operations of your enterprise but may want or require a seat on the board instead. Both offer an entrepreneur excellent opportunities to secure additional financing, but both rightfully expect a solid return on their investment.

Before you ever approach an angel or venture capitalist, do your homework first. Learn more about the investor, the types of things they invest in and the process they use. You never want to alienate an investor or be seen as a pest. This is a long-term relationship, not a short-term sale.

There are lots of other ways to fund a business or expansion. To guide you, the Washington State Department of Commerce has created a great online resource guide, Startup Wisdom: 27 Strategies for Raising Capital.

Access to capital and various financial strategies are also covered in Lesson 4 of the Entrepreneur Academy.