Be Responsible with Investment Dollars that Come from Playing the Funding Game

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Good news for those energetic and enthusiastic dreamers looking to embark on a journey of growing an existing business or those looking to break away from the regular paycheck world. Lending institutions are approving business financing requests at a higher rate than ever before. According to the Biz2Credit Small Business Lending Index™, the June 2018 loan approval percentage rose two-tenths of a percent from May’s figure of 25.9 percent, the highest since 2015. The trend credits the continued strength of the overall economy and emerging optimism among entrepreneurs for its performance, according to a National Federation of Independent Business (NFIB) survey.

While new businesses continue to look to personal and family savings for their initial funding, a growing number of businesses are taking advantage of an expanding menu of financial sources. Angel investors, venture capitalists and online lenders are busy investing in high-growth and high-risk opportunities. A recent PricewaterhouseCoopers “MoneyTree Report” indicates that the U.S. market experienced a record second quarter in 2018 for venture capital funding activity. “Times are unusually good for Main Street businesses and their lenders now,” said William Phelan, president of PayNet, Inc. “The combination of record-high credit demand and low credit risk for main street businesses signals that higher profitability is in store for commercial lenders — especially those with technology systems currently in place that can minimize costs.”

One historic constant of business financing remains the fact that starting or growing a business requires cash; lots and lots of it.  Acquiring the necessary capital to get the shelves stocked, the doors open, and enough sales to get the revenue flowing, remains the most difficult aspect of startups and the number one reason small business startups fail. Most new businesses will remain dependent upon infusions of cash for at least 12 to 18 months until revenues from business activities catch up to startup costs. Any new or expanding venture requires funding sources significant enough to sustain the operations until revenues begin to flow.

While most organizations are applying their investors’ participation responsibly, there are reports that an increasing percentage of companies are squandering what first appears to be easy money. Some are utilizing it in bad faith and spending it like it’s their own. However, seemingly easy money comes with increased responsibility and a need for additional layers of accountability to ensure that investor capital is not squandered.

“I’ve been in or around the emerging business market for nearly 20 years and I have witnessed the good, the bad, and the ugly as it relates to funding,” comments Julie Gareleck, CEO, Junction Creative Solutions (Junction).  “My advice to those start-ups who have been successfully raising money is to treat every penny as though it was your last and focus your spending on monetizing the business first.”

“The moment when you look in your bank account and see hundreds of thousands of dollars that you are in control of is a moment you never really forget. You can’t help but think about how you haven’t been paid in years, how maxed out your credit cards are, and how the hard part is over,” says G. Krista Morgan, cofounder and CEO of P2Binvestor.“We took a little time to celebrate, then poured all our resources back into building the right infrastructure and developed technology to meet demand on our investment platform. We started building out all this infrastructure to manage the client accounts we were sure would come eventually. But they didn’t. The good news is that we learned fast and started cutting back early enough to give ourselves more time to fix the problem. We took away every luxury and focused on the core of what we needed to do, which was to figure out our target market and start selling.” Krista’s advice to others experiencing the newly found cash: “Stop—breathe—and get to revenue. Spend money once you start making money.”

“Spending responsibility, while a good rule of thumb, is oft forgotten when entrepreneurs have the funding in their hands. There is no such thing as “free money” yet I see entrepreneurs wasting dollars that could fuel the company,” comments Gareleck.  “I bootstrapped the start-up on my business nearly 10 years ago.  If others could treat this funding as if it’s their own money, I think we’d see a rise in responsibly run emerging companies.”

For help on developing a strategic approach to spending investment capital wisely, contact Junction Creative Solutions at 678-686-1125.