Start Building Business Credit Early

While it is common to see advice to separate your personal credit from your business credit, it is even more common to see advice saying that you need to self-fund your venture, even if it means using credit cards to get off the ground. It can work, and we did it once, but it is extremely risky. More importantly however is the fact that telling someone to separate their personal credit from their company credit while not explaining how to do it and how to avoid personal guarantees in relation to the company is incomplete information. You need to get a D-U-N-S number from Dun and Bradstreet as soon as you setup your business and then work with a reputable service to secure credit with vendors in the business name. This builds your Pay-dex score and makes it easier to apply for loans and lines of credit. A PD score of 80 is like a personal credit score of 700. Contrary to popular belief, you CAN get business credit cards WITHOUT using your social security number.

I recommend: D&B at www.dnb.com and consider some of the following business credit building companies: Corporate Credit Concepts, B2BCredit.

Focus On Growing Revenue Instead Of Wooing Investors

The dot com era has made it seem commonplace to chase investors and venture capital firms as soon as you have some traction. In our experience, we spent the money to get the traction and then shifted our focus to networking and trying to secure meetings and introductions to raise money. I believe that we have developed a dangerous culture of focusing on raising outside capital to succeed rather than growing revenues and profits. A profitable company would more attractive to investors than just a venture with some traction in the marketplace.

I recommend: Built To Last, Good To Great, The Art of the Start and Small Giants.

Buy An Aged/Shelf Company Instead Of Registering A New One

While many people told us that in order to secure a loan from the bank, you often need to have 2 years of operating history, no one told us that we could buy an aged company that already had that history and thereby dramatically increase our chances of securing capital without giving up equity.

I recommend: B2B Credit,CompaniesIncorporated, and Laughlin Associates.

Register Two Companies And Keep The Second Alive On Paper

If you are hesitant about buying an aged/shelf corporation, consider this option. Our research on aged companies allowed us to better understand the benefit of operating history and so we registered a second LLC a few years ago and kept it active. When we wanted to consolidate some higher interest loans and lines of credit to free up capital, we applied for a line of credit with our second company and had a family member provide the personal guarantee in exchange for a small equity stake in the primary venture. That line allowed us to shift thousands of dollars of debt at rates 10% and above, to a consolidated loan at 0% for 6 months and then 5% thereafter. Cash is the life of all companies but especially small companies, and saving 5% of more in interest on thousands of dollars adds up over time. We used the concept to reduce our cost of debt but the exact same concept could be used to secure new capital.

I recommend: Register your company easily with BizFilings.com. Please make sure to do proper accounting and consult a tax professional to avoid issues down the line.

Hire Outside Consultants Early To Be Introduced To Investors

The "To Do" lists for startups always say that an introduction to potential investors or a venture capital firm is the way to go, not submitting your business plan via their website. These lists however provide "networking at events" as the main suggestion on how to actually get those introductions (startups cannot afford well-connected lawyers). I agree with the events, I have actually had success with them, but the easier option is to hire a reputable consulting firm to help you develop a quality business plan and then shop your venture to potential investors. It will cost money but you get a top quality business plan, a better understanding of the potential for your venture and how to scale it, plus great introductions. There are few better ways to spend $10,000 and the potential return on investment is more than worth it.

I recommend: Growthink after having spoken with them at length. You can also try Cayenne Consulting.

Leverage Unique Traits Of Founders

Our main advisor constantly touts the benefits of such things as "minority-owned enterprise" and "woman-owned enterprise" but it seems that few companies realize the benefits that can be derived if you qualify (people with disabilities also have their own category). There are many large companies and government entities that set aside a percentage of their spending budgets or require some contracts to be sub-contracted for minority businesses and other special ventures. If you qualify for one of these classes and you are not taking advantage of them, you are leaving real revenue opportunities on the table. Research your State's information and how to go about applying.

I recommend: Here in Florida it is called Minority Business Enterprise Certification and information is provided here. Get in touch with a representative for your State or do a search on the web for "minority business certification your state".

Buy An Existing Business Instead

My God-brother and main advisor, Richard Powell Jr. runs a private equity firm and he has conditioned us to always look at opportunities to buy existing profitable companies that fit within our plans. If I was starting out a new venture today and had access to some capital (line of credit from an aged corporation perhaps?), I would first search for existing companies for sale that would be a good fit for my goals. If your venture already has traction, you should consider acquiring a profitable business that is a strategic fit. Many people start their ventures with home equity loans and if you take that route, the best way to reduce the risk of failure is to buy something that is already proven and keep the original owner on board as a consultant. Buying small businesses are not as hard as most people think, especially when you use 20-20-60 leverage to buy - 20% down, 20% owner-financed and 60% from the bank.

I recommend: BizBuySell.com and also subscribe to a list from Transworld Business Brokers and find the listings to be high quality. Also consider BizTrader and VR Business Brokers. Richard also recommended that we buy a copy of Buyout: The Insider's Guide to Buying Your Own Company by Rick Rickersten and I second that recommendation. Richard is also co-author of a forthcoming book on the subject called The Buyout Game.