11 Sep Your Own Business
How You Approach Finance is the Key
The purest form of the American Dream, some say, is to own your own business. Liberty, self-reliance, and independence are all embodied in the outlook of the entrepreneur. A classic American business life might once have consisted of climbing the ranks of a major corporation, gaining all the exposure, experience, and perspective that path can offer, and then bursting out to begin a business of one’s own. Driven people still run this course sometimes, and in fact the founders of REI Commercial Capital are living examples of it.
Yet more and more, in an economy that fosters knowledge-based businesses, or ventures that capitalize on talent and sheer enterprise, the route to a business of one’s own, often skips the Fortune 500 chapter. Occasionally even heavy industry, manufacturing, assembly, or logistics businesses are founded by entrepreneurs right out of the box, without the years of apprenticeship in a large corporation.
Another way people come to head their own business is by acquisition. To buy an existing business can often make great sense when, for example, the life cycle of family ownership runs its course and puts a business on the block at terms that might be inviting despite strong fundamentals.
Whether the entrepreneur’s approach is through the corporate world or directly into the marketplace, whether the plan is to start a business or buy one, the fact is that the arena is unforgiving. The commonplace chatter is that half of new businesses fail, but the truth is more complex – and more interesting. The Small Business Association (SBA) reports that 30% of businesses fail in the first two years; 50% in the first five years, and 66% in the first 10 years in business. So, it can be expected that about one in three new businesses will still be around ten years later.
The Biggest Reason People Fall Short
Finance appears in the top ten reasons businesses fail whenever the causes are studied. Another factor that appears consistently is a failure of planning. Since planning is the key to lining up and managing finance, we see these factors as intimately related. Finance and planning. REI Commercial Capital is set up to offer you answers that turn these two hazards into assets and put them on your side.
There’s a lot more to the dynamics of money than just arithmetic. Money moves at different speeds. Accounts receivable stumble and stroll along while accounts payable march steadily forward, coming due like clockwork. Money comes at different costs, too. Banks charge less but demand more. Credit cards are quick, but they charge rates of interest that it’s best to avoid. Risk and cost dance like Uma Thurman and John Travolta.
The place where experience, perspective, and talent pay off in finance is in knowing the sources of money, the ways to get that money at the lowest cost, and what role outside finance plays on your business’s balance sheet.
The Complexity of Things to Know
The business plan is where finance and planning come together. “It’s not the plan, it’s the planning,” that makes the difference, they say. In other words, you can pick a planning format right off the internet, but the numbers you plug into that plan will determine your future, whether it’s the destiny of your dreams, or the fate too ugly to contemplate.
Our experience at REI Commercial Capital shows clearly that projecting revenue is much harder than projecting costs. It takes diligence and care to think through all the costs of doing business and write them down with insight into the sequence and timing of those costs. Revenue, on the other hand, is much more difficult to project with accuracy. The fundamental difference is that human behavior beyond the business owner’s control is the source of revenue. We seek to influence that behavior through communication and marketing techniques, but it always falls short of exact science.
Beyond the projections of a business plan, effective management calls for knowing how to manage the “capital stack,” the collection of assets on your balance sheet. It can be a solid foundation, or it can be like walking on stilts, depending on the knowledge with which those assets are assembled and maneuvered. On the other side of the balance sheet, the difference between expenses and overhead includes knowing how to deploy those expenses and carry that overhead. Lease or buy? The pros and cons of depreciation in various circumstances.
Knowing your aim is the key to how these complexities are navigated, but piloting through the questions of finance is no place for a well-meaning newcomer.
The Importance of Focus on Operations
Meanwhile, back in the business you thought you were in, your full-time attention on operations is vital. You’ve got to get it right from the beginning, because those revenue projections are based on your customers’ experience. They say a satisfied customer tells someone else, and a dissatisfied customer tells six. This was never truer than now, when social media and business review sites are a way of life.
The passion, talent, and know-how that prompted you to start or buy a business in the first place are needed every day to make that business a success. Where do you find time to master finance too?
The Answers We Offer
We can help. The financial contacts and expertise you can count on, and the experience we logged ourselves as business owners and entrepreneurs, mean you can count on REI Commercial Capital for a lot more than cash. From budgeting to projections, from evaluating sources of money to discovering options for minimizing the cost of it, we’ve got you.
The Advantages on the 21st Floor
In fact, clients find that REI can provide the advantage that most businesses lack, the ability to concentrate on the business you set out to run. Our own experience in finance, purchasing, and management at Fortune 500 companies taught us what that whole floor of specialists they have can add to a company – the ability to tend to what it does best.
Let’s talk about the difference this could mean for you, whether you’re starting a business, buying a business, or running a business, getting acquainted with REI Commercial Capital is a step you’ll be glad you took. Let’s talk.
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