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The 7 capital offenses for small-business owners
By Jenny
C. McCune Bankrate.com
 No
matter how much an entrepreneur wants to do the right thing, mistakes
made while trying to raise capital tend to repeat themselves at
small companies, says business consultant Larry London, managing
director of Entrepreneurs Re$ource Group in Dunedin, Fla.
Here's London's list of what can go wrong despite
the best of intentions:
1. Fails to borrow funds
Fearful of rejection or losing control, a small-business owner will
do anything to avoid getting a bank loan or lining up investors.
"They'll try to do it all out of cash flow or use credit cards,"
London says. It's better to be realistic and borrow money when necessary
than to try to stick it out alone or go the expensive route of cash
advances against personal credit cards, he says.
2. Overlooks obvious
financial resources
A small-business owner, particularly someone starting a new venture,
needs to be creative about getting funding. New owners often ignore
capital sources such as suppliers, customers or friends and family,
London says.
3. Neglects lender or
investors
A small business needs to keep its banker or private investors apprised
of what's going on. Managing the lending relationship will pay off,
particularly if things start to go wrong. "Keep them informed about
how your company is doing," London says. That means letting them
know when financial projections are met -- and, when they're not.
4. Downplays financial
risks
A small-business owner often will be overly optimistic about the
firm's ability to repay a loan. "He won't leave money to operate
the business," London says. The company that is too busy paying
back loans using cash flow will probably never have enough money
to grow and prosper.
5. Ignores the disadvantages
of having investors
Investors are necessary, but many small-business owners in need
of cash fail to realize the payoff. "It's a matter of control and
pressure -- an investor in a small business is looking for a big
return in two to three years," London says. "If that doesn't happen,
the investor will put pressure on the small business." The investor
wants a return, not necessarily what's best in the long term for
your business. For example, the investor might try to get your company
to cut costs when trying to raise sales might be a better solution.
6. Prepares a loan under
pressure
Small companies that wait until backed into a financial corner will
do a hasty, poor job of applying for a loan just when they need
it most. Entrepreneurs need to take time to gather and present financial
information to ensure they'll land a loan, London says.
7. Expects to borrow
too much
"They always think that they can get more money than they can,"
London says. "You have to be able to repay the loan and small businesses
often forget that."
Jenny C.
McCune is a contributing editor based in Montana
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