Our steady mantra at the Small Business Development Center is “come up with a business plan” before acting on your business ideas. A business plan is a map and a map is useful in getting you to where you want to go. You need to know where the obstacles lie in your path, and what is the shortest, or maybe the most scenic, route to your destination.
But you can have the best and most well-thought out idea for a business, have that projected cash flow looking brilliant, and still not be able to make it work. Usually, that comes down to money. You just can’t persuade a lending institution to finance your dream or muster up the personal cash you need to put into a business. And that’s all because “life happens.”
What I mean, is that if you’ve lived for any stretch of time at all you’ve experienced a few missteps along the way. No one is perfect and no life proceeds on a flat line; there are ups and there are most certainly downs. And business or life plan missteps that are clear now, but unavoidable or hidden then, can cause financial repercussions that continue to ripple through your financial picture.
Maybe there is a credit card problem in your financial history or a bankruptcy, or you got underwater on your mortgage or went through a divorce or an illness that drained you financially. These kinds of things can show up for a long time on your credit history and that record is the one financial institutions are looking at to get an idea of what kind of risk you are.
Any of these things can put the brakes on your ideas for a business despite the world’s best business plan. What is brought to the business financing table is not only the great idea, and all the thoughtfulness you can put into a business plan, but you as a person with a history. And it’s that history of life happening, along with the financial artifacts of those experiences that, maybe not frequently, but all too often, I see tripping up a would-be business owner.
That’s the most heart-wrenching thing for me to watch in my job as I see great ideas developed by great people go nowhere because they can’t get that third party financial backing they need to make them happen. I can work with them until I’m blue in the face, but I can’t change the past. And neither can they. What they can do is work to fix whatever items in their financial histories are coming up as barriers toward a successful future.
What that means most often is that they need time. Time to create a history of on-time bill payments, or time to develop more sources of credit they can point to and essentially say “see, those people lent me money and I didn’t let them down,” or time to save up some money. Because that’s what financial institutions need. They need to see that other people haven’t gotten burned, or that the discipline to create savings is there. Commercial financial institutions are the ultimate conservatives and want to see proof that an applicant is a good credit risk before they get in the water with them. They’re not about to take that first plunge themselves.
The problem with this is that you’ve got that momentum going right now and having to backtrack to take the time to cure the issues that are not letting you act on that momentum takes the wind out of your sails and is flat out depressing. What if that business opportunity staring you in the face goes away and never comes back, and how will you keep your eyes on the prize during what looks like a long haul toward building up your financial profile. There are no easy solutions to those concerns.
Take comfort in the fact that just as life happens, situations happen, and opportunities arise all the time. The one you have to pass by right now most probably won’t be the only one you’ll encounter, there will be others. And if you really want to grow your idea and be in business for yourself, take a financing setback as a life lesson, just another one of those bruises that will heal over time and that you can learn from going forward. At least you know what you need to fix.
You can also use the time you’re forced to wait on the sidelines to take some business classes, develop your networks, undergo financial counseling, restructure or consolidate your debt, or learn how financing and credit recovery works (nav.com is a great resource for business and personal debt education and remediation). Work on these things to get yourself into better position for eventual business success, but relax, too. Breathe. Life happens.
Dennis Boyd is director of the West Hawaii Small Business Development Center. Hawaii SBDC Network is funded in part with the U.S. Small Business Administration and the University of Hawaii at Hilo.