African-Americans are starting new businesses in record numbers.
If you’re planning to launch a new business, here are seven do’s and don’ts to help ensure your entrepreneurial success.
1. Do plan to start with your own money, not someone else’s
“Unless you win a business plan contest or inventors’ competition, for the most part there’s no such thing as finding a grant to start a business,” says Melinda Emerson, author of “Become Your Own Boss in 12 Months: A Month-by-Month Guide to a Business That Works.”
“The money to start your business will come from your right or left pocket. In fact, there are three pools of money you should have before your start a business: an emergency savings account, enough budget to go from 12 to 24 months without a paycheck, and the first year of operating capital to run your business.”
Thinking of buying a franchise? “There are some franchises that provide funding,” Emerson notes. “But 20 percent to 30 percent of the loan must come from your resources.” A business attorney can help you with everything you need to start a business and keep moving it forward.
Do request major funding long before you need it
Maybe you recently saw “The Social Network,” the movie about the launch of Facebook, and thought that you could score big dollars fast from venture capitalists? Think again.
Realize that getting money from “VCs” and “angel” investors can be a longer-than-expected process, sometimes more like 6 to 12 months to secure.
Plus, if you’re seeking money from more traditional sources, like a bank, “You need to be in business for two to three years to qualify for even a line of credit,” Emerson says.
3. Do seek “trade credit” from vendors and suppliers
Too many entrepreneurs dream of going to a bank and getting a business loan or line of credit for their enterprise. But maybe you don’t need a traditional bank loan at all to launch or grow your business. If you can get your vendors and suppliers to agree to provide you with trade credit — i.e. the ability to pay for goods and services over time — you can creatively and more frugally run your operations.
4. Do get “buy in” from your spouse/partner
Many new (and veteran) entrepreneurs will tell you one of the biggest dream killers they’ve encountered is an un-supportive spouse. Make sure your partner is on board with your entrepreneurial ambitions. If not, you’ll face a host of financial arguments and money-battles that will be counter-productive to you building a business.
5. Don’t feel compelled to buy everything
Ask yourself: Do I really need to purchase equipment, furniture, computers, etc? You may be able to get by, temporarily, by bartering, or even by renting and leasing equipment. And that’s OK!
6. Don’t let your personal credit rating lapse
Amid the current environment, your credit standing is more important than ever. Guard it jealously. Pay all bills on time. Only take out loans/credit when you truly need it. The higher your FICO credit scores, the better loan rates and terms you’ll get when it is time to do business with a bank — or even just getting a corporate credit card. To check your credit report at no charge, go to AnnualCreditReport.com. If you haven’t seen your credit scores lately, read this article on how to get your FICO credit score free.
7. Don’t “bet the farm”
Smart entrepreneurs don’t “roll the dice” and risk everything. They take risks — but they’re calculated risks. Don’t gamble everything: 100 percent of your savings, your credit, putting your home up, etc. in the hopes that you’ll create a successful business. Be willing to invest in your business of course, but not foolishly, and not at the expense of everything else.
Making the leap from employee to entrepreneur is a challenging feat. But you can make your transition a lot less financially stressful and a lot more realistic by following these tips and preparing yourself for economic success.