Most businesses don’t fail because of bad ideas or poor marketing, they fail because of a weak financial foundation. Without a properly structured business entity, it becomes nearly impossible to build credit, secure funding, or protect your assets. If you’re not careful, this mistake can cost you everything.
In this post, we’ll cover the #1 business destroyer and how to avoid it. You’ll learn how to structure your business correctly, build strong business credit, and position yourself for long-term financial success. Whether you’re launching a startup or scaling your company, these five expert tips will keep your business on solid ground.
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It’s no big secret the vast majority of businesses go out of business within the first few years. More times than not, it boiled down to one issue. This is unfortunate because, with proper planning and knowledge of finance, this could have been avoided for many of these businesses. Most entrepreneurs are stubborn, which is usually OK, it’s what keeps us going when others tell us we’re crazy for thinking an idea will work. However, the smart ones realize and understand that it is normal to ask for help and they build networks to strategize with people who have different knowledge bases than they do. One issue for many entrepreneurs, especially new ones, is a lack of understanding of how important having a proper legal entity is. Not only from a protection standpoint, but from a capitalization standpoint.
Do you know what the #1 reason is for a business to fail? If you said a lack of capital, you’d be correct. The problem is most entrepreneurs have no idea how powerful establishing and maintaining a business credit profile that is separate from their personal credit. As a result, many use their own money to bootstrap their projects and unfortunately run out of cash before the business takes off. There’s a common myth that you can’t get business funding without revenue and without the business being established. This is total BS! There are lots of options out there for new businesses as long as you have a proper corporate structure and you are in what banks consider a low-risk business, such as business consulting or management.
Here are 5 tips that can help you avoid the pitfalls of running out of capital:
- Create the Proper Corporate Structure: Whether you go with an LLC, an S-Corp, or another type of entity be sure to select an industry that is deemed low-risk. This part is just as important as the type of entity you choose, maybe more so. By putting your business in the right category you open up your opportunities for funding right out of the gate.
- Have a Solid Business Plan: Clearly outline your business’s goals, financial projections, and how you plan to use the funds. Investors and lenders want to see a well-thought-out strategy. Most of the time you can get funding based on projections, as long as you can show a solid plan on how to pay back the loan.
- Understand Your Numbers: Make sure you can speak to your cash flow, profit margins, and financial forecasts. The more data-driven and realistic your financials are, the more credible you’ll be. Again, use the numbers to show how the money would be beneficial to growing the business and ultimately a plan for repaying the loan.
- Know Your Options: Different funding sources work for different business types in different stages. Understanding your own business needs is key to selecting the right option. You preferably want financing tied to your company’s EIN and not your SSN. Some options other than traditional loans are Trade Lines of Credit, Credit Cards, or loans specifically to buy equipment. The ones I would avoid are Merchant Cash Advance Loans or Invoice Financing since they both are typically rather costly. I have an established relationship with a lending group that specializes in loans for entrepreneurs, there are options for personal loans, too. Contact me and I can go through their guidelines with you to see if I can pre-qualify you.
- Pitch Effectively: Whether you’re speaking to a bank, angel investor, or venture capitalist, your pitch should be concise, clear, and focused on what sets your business apart and how it will generate returns. After all, that is really what it comes down to, showing that your business has a plan to grow and generate ROI for the entity loaning you money. They are in the business of making money by lending it out, so they want to create new loans so long as they are reasonably assured of getting their ROI. It has a lot to do with how you present yourself and your perceived trustworthiness.
- BONUS TIP Network: Attend industry events, join startup accelerators, or use platforms like LinkedIn to meet potential investors. Establish relationships with people at your local banks, or even better, credit unions. Credit unions are often overlooked. Since they are owned by their members, you as a depositor, they generally have simpler underwriting guidelines and are more apt to give you a loan as a member. Also, talk with other business owners to see what they have used for financing. Lastly, grants are another good option and you don’t have to pay the money back, they do require work to get and can be competitive.
All in all, there are a lot of misconceptions out there in regard to business funding. I promise you it is a lot easier than you have been led to believe. Armed with the right knowledge, you can get the funds your business needs to grow and succeed! For a crash course in business financing created from my decade-plus of entrepreneurship, read my book titled The #1 Business Destroyer: 5 Tips to Avoid Disaster. It’s filled with practical ideas that myself, my mentors, and countless others have used to fund and grow their businesses.
Email me or send me a DM on Instagram if you would like to setup a quick consultation to see if you or your business may be a good fit for my funding partners, personal loans are also available. If you have a MINIMUM credit score of 720 you MAY be qualified APPLY HERE (paid ad) if interested. SERIOUS APPLICANTS ONLY PLEASE!!! See other basic requirements below. Meeting the guidelines as stated on this page does not guarantee funding. Applicants must go through the underwriting process.
- For Personal Funding:
- Credit Score: 720+
- No Derogatory Marks: Including collections, charge-offs, or late payments.
- Primary Personal Credit Card Limit: At least $5-10k.
- Personal Utilization: 30% or lower.
- Account Ownership: 3-5 accounts under the client’s name (not just as authorized users).
For Business Funding: - Business Duration: Minimum of 1 year – (2+ yrs Ideal)
- Credit Score: 720+
- Primary Personal Credit Card Limit: $5-10k or higher.
- Personal Utilization: 30% or lower.
- Business Utilization: 30% or lower.
- No Derogatory Marks: As detailed above.
- U.S. Business Registration: The client’s business must be registered within the U.S.
