Scott: [00:00:00] Dollars and Cents with HAPO Community Credit Union helps empower our listeners to achieve financial success while living for today and planning for tomorrow. This podcast focuses on financial education, community support, fraud prevention, real life stories of financial transformation, and much more.

HAPO Community Credit Union serves Washington and Oregon with over 18 locations. Bank on more when you bank with us. Hi everybody and welcome back to another episode of Dollars and Cents, HAPO Community Credit Union's financial literacy podcast. Today we are going to be talking about small businesses, startups, lending, all the things that people don't know that they need to know about getting a new business started.

In the studio today we have Anna with Craft3, she's a business liaison. We have Maria with the Small Business Development Center, a certified business advisor. And we have Karen, with us with the [00:01:00] commercial services lending department here at HAPO community credit unit. I stumbled over the one that I should absolutely know.

Welcome ladies. 

Ana: Thank you. Thank you for having us. 

Scott: So let's get started. We've got a conversation right out of the gate. We're trying to talk about Getting right out of the gate with a new business. Now I started my own business 15, 16 years ago. And so it's been a hot minute since I have actually been through this, but it's more than just coming up with a name and setting up a booth somewhere to sell whatever product you've got.

Ana: Well what's your business? 

Scott: I, I did software consulting. I was a software developer that did contract work mostly for government agencies locally. 

Ana: And what got you to start your business? 

Scott: I was basically doing a lot of the same things for somebody else, yeah. So I looked at the, the toolkit that I had available to me and what it would take me to do that on my own.

I kind of decided that I wanted to work from my living room so I could hang out with my dogs more. And sometimes, you know what, that's [00:02:00] actually a good enough reason. Having a a product or a service that you want to offer to other people, maybe something that changes your own, your own personal life.

But it was one of those things that just knowing that I had a marketable skill, I don't think was enough to, to just go and open a business. I actually had to make sure that I had some clientele first before I was willing to just make that jump. So I did a decent amount of, of research on who was out there and who I could contract with before taking the plunge.

So I did a decent amount of, of prep before doing that. So let's, let's talk, what are, what are some of the other prep type of things that a new business needs to do before they're ready? to open their doors. 

Maria: Well, I would say doing, like you said, your, your research, your market research is this product or service, something that's in demand.

Because you don't want to have something that's. No one's going to buy and not everyone's going to buy what you're [00:03:00] selling. And a lot of times I think that's where I know I have clients that think that their service or their product, everyone is going to want. And so we really have to talk about, you know, who is their ideal client and getting them to understand that everyone is buying what you're selling.

Scott: Taking a look at opportunities, targets the, the type of, of place that and this'll be probably something we talk about later, who you're going to market to. To make sure that they know that your service is available. 

Ana: You know, it is, it is possible to create a new market, but that's, you know, you also have to understand that it is going to take, it's going to take time.

So in your case, it sounds like, you know, you had the experience, which that's something that is really important when you're going to start a business. What is your experience? And then from there you look around and it's like, okay, the market, am I in the right area for that or not? So then, you know, that's kind of the first steps.

One of 

Scott: the things that we hear location, location, [00:04:00] location. If I recall correctly, and, and this, this is random info that I know from no good reason. We had a restaurant here in Richland that moved approximately a half a block. They were between Jadwin and George Washington way. And they moved just to the corner of George Washington way, same street.

And from what I recall it was a uptick in business that I think almost doubled or more of their revenue just by moving a couple hundred feet the business itself. And I, it was I think effectively that, that top of mind awareness, people driving down a major street, seeing their sign, realizing, oh yeah, this place does exist.


Karyn: I think a big piece of that is what's the dynamic of your industry, you know? So, for example, with that restaurant, there are different variables you have to look at. What kind of overhead do you have? Where's your location? What's your visibility? What's the surrounding market like? Other kinds of [00:05:00] industries that you're looking at, you might think, what's the need of your services?

Who can you market yourself to? Is it higher paying jobs or lower paying jobs? And what kind of time do you have available? If it's lower paying jobs and you don't really have that much time available, that's going to be a lot harder than if it's higher paying jobs and you don't have that much time available.

Or if it's lower paying, but you have a lot of time available so that you can get more of the jobs done, right? 

Scott: Yeah. Effectively, do you want to do two jobs for 100, 000 each, or do you want to do 200, 000 jobs for 0. 50? Right. Effectively, you're going to make the same, the same profit, it's just how many times do you do the thing?

The guy who invented the the little plastic guy that, that clips your bread closed that, that's a brilliant small device that you're not making a whole lot of profit on, but you're selling a lot of them as opposed to whoever's building a yacht. You only need to sell one and you're pretty well good to go for a while, I [00:06:00] think, with that industry.

The, the elephant hunting, as it were. 

Karyn: Yes. 

Scott: Definitely. So when we talk about these things, we're, we're, we're looking at general ideas. We know a bit of what our target is, what we're offering. We've picked out a good location. We're still not ready to open doors or even technically to find a location yet because our business doesn't actually exist.

So getting registered to actually do business, if I remember correctly I had to register at the state level. at the county level and at the city level for my business to be available to run and do business in those particular locations. Do you guys have any insight on where people would need to go to find information about that?

Obviously, we're talking multiple different cities are going to have different requirements and registrations. 

Ana: And I think this is where SBDC is very helpful and, you know, that 

Maria: Well, we, working with clients DOR, Department of Revenue, has a business [00:07:00] license wizard, actually, that can walk you through the steps, whether it's, if you're going to hire employees, it will also generate a section on hiring employees if you decide you want to be like an LLC, it will tell you where to go to go get your LLC, which is something that you should Decide right away before you go register for the state.

You know, what type of business structure are you going to form? 

Scott: Okay. So this actually leads me to another point. We've already jumped the gun in our virtual conversation about starting our business. We haven't even looked at what type of business we feel like forming LLC, sole proprietor, corporation, S corp, LLP.

How many other acronyms can we throw at this? 


Karyn: think mostly it boils down to sole proprietor, limited liability company. Corporation and a partnership. Those are the base ones. Any other entity structure is going to be some kind of stem from one of those. 

Scott: Okay. And, and just to lay this out here for everybody that's [00:08:00] listening we are going to be talking about a number of legal and tax related things.

This is not officially legal or tax advice. Talk to a certified professional, talk to your, your lawyer, your CPA your accountant, your tax advisor to make a an actual decision that, that works for your scenario. But we're going to talk about a lot of things that are going to kind of touch on, on those those areas.

So while while all of us have a decent idea of what we're talking about, it has no bearing on the listeners actual scenario. So we've decided that we're going to go this on our own. We don't, we don't want to talk about employees yet. So we're probably looking at, since it's just a single person, a sole proprietor, LLC and LLC for those people that aren't listening is a limited liability.

company, corporation, company, company, limited liability company. And that's going to be a designation that I believe helps protect your personal assets as opposed to the the company assets if there were to [00:09:00] be some sort of legal issue that came down to it. So hopefully that doesn't become an issue as we're selling grilled cheese sandwiches to, to folks down on the corner.

But if it were for whatever reason, we are, our personal stuff is kind of protected under that. But being sole proprietor, we were also a single individual going out there to, to file paperwork with the state department of revenue, et cetera, et cetera, which by the way, we're going to go ahead and, and add probably a blog post with links out to some of these resources that we talk about today so that people can go out and get quick access to them.

And, and see what we've, what they've got, if they really want to go, go start up their own company here. We did mention employees, sole proprietor. If you are going to have employees what additional wrinkles do you have in starting a business with that? 

Maria: Well, first of all, you need your EIN, your Employer Identification Number.

Scott: I was going to say, yeah, that comes down with the tax forms. And I believe you get that EIN from registering [00:10:00] with the state, correct? IRS. So, even higher up, we've gone beyond state, now we're at federal level. of making sure that our business is registered so that we can, we can file our, our taxes and whatnot appropriately.

And then again, probably provide the appropriate forms to those employees. 

Karyn: Correct. For tax purposes too, you can file, if you're a sole proprietor, you can file under your social security number. But when you have employees, you don't want to put your social security number on their W 2 and they need to have an EIN or some kind of tax number to put on there for when they filed their taxes.

And so. A sole proprietor, you don't always have to have an EIN, correct me if I'm wrong, if you don't have W 2 forms that you're going to be filling out but if you do, You'll want to have the EIN for all other entities. You need to have an EIN. 

Scott: Okay. Yep. So, and that of course, again, is to help protect the individual's personal information.

You don't want to be handing out your social security number to just any random person, even if they are, [00:11:00] you know, high school kid that you hired as part time work or something, handing out your, your social security number is typically not a good idea. So the EIN is going to be that publicly accessible, the one that you're gonna hand out to people to associate to your business.


Karyn: And to Maria's point of like, the first thing you want to do is determine what entity structure you're going to have, because you're going to build from that. And you don't want to get your building, your, you know, business hypothetical type building halfway built, and then determine that you want to change your entity structure And then you're going to have to start all over.

So for example, a lot of times by the time I get a loan, there may be a sole proprietor, but they're saying to me, you know, I'm going to get up and going and then I'm going to switch to an LLC. No, you don't want to do that. You want to switch to an LLC before I do a loan because otherwise you're going to have to redo everything in six months.

You know, 

Scott: now the other part of that, though, is that we could, if this business takes off and we start franchising grilled cheese sandwich stands across the [00:12:00] nation, we are probably going to want to reincorporate or, or redo these things. So having a growth strategy realizing that you may have to change that you're not pigeonholed into this.

Like you don't have to go start a corporation right out of the gate just because you hope that you might get that big. 

Karyn: Right. But you want to maybe consider what your growth strategy is. Yeah. 

Scott: We're not expecting to need that within the first probably couple years of our, our new grilled cheese sandwich franchise.

Karyn: Right. And maybe by the time you're franchising, you start a different entity for the franchise piece of it than what you started with your grilled cheese restaurant, you 

Scott: know again, other things that we haven't done yet that I'm pretty sure we need by the time we're registering with people. We don't even have a business name yet.

And I know that is a major deal for a lot of people. I I, my company was fearless leader studios. Everybody thought that I did video production, which was bad choice on my part for naming. And I didn't realize it until later on, but it didn't really matter because I was [00:13:00] mostly selling myself as opposed to a company named.

However, if we are going to build this grilled cheese stand, we're probably not going to call it hot dogs. We want to come up with a good name that's relevant to what we're doing. And we're going to need that when we go to register all of this documentation. So let's say we've got a good name for our business.

We figured out we're going to be a LLC. We've filed our, our, our paperwork. We've got our EIN. Now we need to get ourselves some equipment. Are we to the point where we need to do that? Or are we already missing out on another step here? Because I think that We don't have a plan in place at all.

Maria: Yeah, that's what I was going to say. I think you're right. You need to back it up a little bit. Okay. In your planning stage, because you should have figured out, you know, what are, what your startup costs are going to be and what it's going to take you to operate this business for at least the first three months.

And do you have sufficient funds to do that? 

Scott: Okay. So we're probably talking at this point about documenting certain items, coming up with an actual [00:14:00] business plan. And there's much more in that than just. looking at startup costs and three months. We're looking 

Maria: projections for several years. If you're looking at getting some financing.

Scott: Okay. So with our grilled cheese Stan, we're expecting to make six figures in the first three months. It's obvious. Everybody loves grilled cheese sandwiches. This thing's going to go worldwide. We're making millions within probably four months. I'm guessing My guess is that these are bad projections.

And we want to be more realistic with these things as far as bringing our business plan to anybody who's going to help us out with this, because eventually we're going to have to talk about funding these things. But there's more to it again. Like I'm trying my best to jump the gun at every possible step here, because I know that there's a lot of stuff that we haven't considered yet.

Part of a business plan from what I recall is also an exit strategy. Because obviously I was looking at by far the best case scenario. We also want to have a plan for the worst case scenario. [00:15:00] What do we have as far as things that people need to consider if the business doesn't go the way they want?

Maria: Plan B and C. 

Scott: True. So grilled cheese isn't cutting it. We want to shift our game to macaroni and cheese. Because it's got to be cheese. Thanks. personal preference. But we need an exit strategy to how are we going to get out of this? Obviously, this isn't something that we want to have to discuss, but it's something that we should planning ahead, right?

Ana: Yes, but I probably that's something that you don't you are jumping the gun again. Okay. When do you want to start planning for an exit strategy? When? First, you know, as we've, you've mentioned, you have an idea, you look at what are your, what, what do you bring, what knowledge do you bring to the table?

And you're really good at what you're doing and making in this, in this scenario, the grilled cheese sandwiches. And there's, [00:16:00] there's different tools that you're going to need to go look into. You know, fortunately you have, again, you know, SBDC and one of the reasons why a business is not successful. One of the many reasons is they don't their finances.

So making sure that you understand that very well, it's, it's key. Okay. We see many businesses not succeeding, not because they are not good at making sandwiches, but because they're not good at planning and managing and being proficient at their accounting and their financing and their financials. So that's one of the things and also the, the legal part of it is very important.

You know, you, you want to plan for success, but you also want to plan in case things don't go well. So, you know, just going to the professionals for that is, it's something that is also going to be very important before you even open your doors. 

Scott: Okay. So we've talked, we, we know our strengths. We're great in the kitchen.

Now we're talking, no, our weaknesses I don't have a good grasp of finance or maybe I don't have a good grasp of inventory. I'm going to [00:17:00] buy 8, 000 loaves of bread and like 5, 000 of them are going to go moldy before I get a chance to use them. The, the planning aspect. So say this is one of my weaknesses here.

Taking a look at things the legal side. As a good grilled cheese sandwich maker, that does not mean that I have a good handle of the legal aspects of what's going on. or possibly the finance, the accounting side of things making sure that everything is, is in place there. So finding resources to handle these sides of business that are more than just the product.

Ana: Correct. And the marketing, you know, marketing is is, is an important piece when when we see, when we see request or a business loan, you know, they sometimes they just, it's just a line item for marketing. 5, 000. What does that mean? So understanding what that means and being able to to speak to what exactly how you're going to use those, you know, marketing dollars is very important.

Scott: Okay. So [00:18:00] strategizing and being more than just, here's a big bucket of money. I'm just going to go pull dollar bills out of this thing whenever I need to having more of a plan in place. 

Karyn: Yeah. I was just going to add to that is that Going back to the understanding the financial piece of it, sometimes we have business owners who, you know, they, when do you take your payment?

Do you take it up front? Is it point of sale? Do you send out invoices? Do you have a dedicated person to send out your invoices or is that all on you? Are you in your slow season or your busy season? Are you going to forget to send out those invoices? Are you going to do half a year's worth of work without any expectation of receiving payment?

We do sometimes see that. People don't have a bookkeeper or they don't have a CPA or whatever, somebody to do their billing and receive their payments. And then that's what happens is they end up not getting paid for their jobs. 

Scott: So they spend all their time doing the work and they forget to do the admin side [00:19:00] of following up on those.

I know one of the things that I ran into because I was the only person in my business when I was doing this was handling the invoicing. And the time I, I ran my business as a time material with sending invoices after the work was done and receiving payment from them within a set amount of time based on the contract that I signed with them as well as the late fees associated with them not getting payment to me in time.

And there were a couple of clients that I had to chase down pretty regularly. And there were others that were right out of the gate. If I sent them an invoice, the money was in, in my hands within a week. And so, yeah, you're, you're, you're absolutely not wrong. I've lived that one where it is remembering to send those invoices and then also remembering to follow up.

With people to make sure that you are getting those payments because there's nothing like everybody would love to receive an invoice and then just have the person that invoiced them forget about it is like, Yay, it was free, but we know that that's generally [00:20:00] not how good businesses run. If they run like that, they're probably not staying in business very long.

So we've got our admin side, we're sending our invoices, we figured out kind of these things, grilled cheese sandwiches, they're paying up front we're gonna, we're talking restaurant style here ring you up at the register, you pay us, we make the sandwich, we give you the sandwich, you enjoy the sandwich and then you tell all of your friends, that's our marketing budget word of mouth, just that not likely going to be the case.

My guess is we're going to be doing more than that which is where that 5, 000 is going to come in. 

Maria: Can we go back to absolutely. So as you're doing your financial projections, you need to know how many sandwiches you need to sell to cover all your expenses 

Scott: and how 

Maria: many sandwiches can you physically produce in a day, you know, in a week, in a month.

So you have to be realistic about your sales and your revenue forecasts. 

Scott: Okay. So we're looking at, at like, what is our throughput of our product? How many of these things do we need to sell, which [00:21:00] is probably going to be a good method of figuring out our price point for our sandwiches. I know my sandwiches are going to be fantastic and therefore we can charge top dollar for them.

So 3 a sandwich, which is still way too low. But again, we're like when, as we talk about these things, it kind of comes down to that idea of what is my product worth? What is my market worth? and what can they afford? And then based on that, how far can I go? Do we, do we have to downgrade the it's not going to be a five cheese grilled cheese sandwich anymore.

It's only going to be a four cheese because we don't think we can sell it at a price point that would help cover that. There's a lot of planning that we've done and we have not even gotten to the point of getting our grill for our grilled cheese sandwiches yet. What other pieces of this puzzle are we missing?

Ana: What are your expenses? Fixed expenses. So that's something that you have to be very and many, many times when you're starting a business, that's something that we [00:22:00] overlooked. What are your fixed expenses by the day, by the week, by the month, by the year? It's very important. 

Scott: So like, we have to pay rent.

We're not allowed to just go find an empty storefront and just like crack the lock open and walk in and, and open up our business. We probably need to take a look at, at utilities, rent costs. If we have fixed costs, such as hiring a an employee or paying for our legal services, we're not going to have them as an employee, but we're going to have potentially a retainer with a a lawyer or an accountant.

I'm assuming I'm missing a lot of fixed costs that we could be assessing here. 

Ana: There is, you know, fixed expenses, variable expenses, kind of like, you know, what you're talking about with your attorney, something that you might have every quarter or, you know, every once a month or, you know, different kinds.

So you have your fixed expenses, your your variable expenses, and also how much it's going to cost you to produce. the sandwiches, right? So also what [00:23:00] you have on your fixed expenses, you have your labor costs. 

Scott: Okay. 

Ana: So that's something that you need to take into account. 

Scott: Even if it's just me, I should take into account the cost of my own time and effort going into this business.

Ana: Absolutely. 

Scott: Okay. 

Karyn: I mean, a big question is how much money do you need to make, right? To live? Well, you can't work for free or you will be, homeless. 

Scott: I was going to say that is that does come down to one of those things. Oftentimes I've run into a number of different business owners that are like, no, no, I don't charge for my time.

I'm like, you should absolutely be factoring that in. to everything that you're doing, or I knew one or two people that didn't really keep track of the hours they put in. They're like, it's a fixed con, it's a fixed price contract. So I have to put in all this time one way or the other. I was like, well, you should probably be keeping track of those things so that you can adjust your, your prices on these as, as you can, you know, see fit.

Like if you spend 100 hours on this [00:24:00] project and it in your estimate it only covered for 50. Sounds like you need to make some adjustments. 

Karyn: It's important to know too because if you are like a self owned sandwich shop grilled cheese sandwiches and you're making X amount of dollars and it's taking you X amount of time but let's say the cost of that time is the cost of the time is like five dollars an hour 

Scott: you 

Karyn: But you want to be making 30 an hour, but you could hire somebody else that you would pay 15 an hour.

So, is it going to be more cost effective for you to be running your own shop, or would it be more cost effective for you to hire somebody to do it at half the cost that you want to be making? And then you can Spend your time at home or whatever, you know, 

Scott: or running around doing other things, R and D lab coming up with new cheeses to melt on bread.

Karyn: Definitely. 

Scott: Yeah, I'm 

Maria: coming back for a second. You said, Okay, so now you have your location and you're you go in and you start. [00:25:00] Making your sandwiches. You know, I do see sometimes clients think it's that simple, you know, with a new location and they don't stop to think about permitting or what needs to take place with the location before they, especially like a food service or a food establishment.

And they run into delays that eat up, you know, all these, you know, costs, you know, because they have a lease. And they have no revenue coming in, so it's very important for them to talk to the city, the local city, and figure out, you know, is, is there going to be a change of use for this building, for this location, and what's that going to mean for them.

All of the different 

Scott: permitting, do I need banquet permit, do I need alcohol permit, do I need fire safety, do I need, fire suppression, yes, and, 

Maria: and, 

Ana: Is this building zoned for that? Yes. Exactly. Yes. 

Scott: Well, and I'm sure we've all seen it before where you've got a, a new place that's opening up and [00:26:00] they said that they're expecting to be open in, say, April and May rolls around and they're not open yet.

And the story is like, well, well, they're, they're waiting on this permit or they're waiting on this thing where they jumped the gun and they're basically saying we're going to be open on this day. And typically what you find is that they'll throw the, the permitting groups under the bus for why they weren't open in time, but it's probably mostly their planning.

Maria: Correct. And, and I used to work with city government for 25 years, so I understand that people just, you don't know what you don't know, and you think it's, oh, I'm just going to go fill out an application, and there's actually a process, there's different, you know, inspections that need to take place, and along the way, and maybe even public hearings, or, you, you don't know, and so you really need to stop and, and go get that done.

checked out before you sign a lease. 

Scott: Well, and beyond that, you're also working with other people's schedules. So I may be the 47th person today to request this permit and it requires [00:27:00] somebody to come do an inspection and there's 46 other businesses ahead of me. They're not showing up that afternoon.

Ana: Those are, those are key things to consider way before you even, you know, That's part of the planning process before you even open a business. So you have the permitting the permitting times and process and also if you're gonna do any tenant improvements Those can eat up a lot of time 

Scott: Well and potentially cost so we're talking about building a a grill cheese factory.

We're gonna get our location We've got our permitting We're, we're now starting to talk about some of our improvements. We're going to need to get probably a hood and a grill and a counter maybe some refrigerators and not maybe definitely some refrigerators 

Ana: Make sure that the bathroom is compliance.

It is. 

Scott: Oh, yeah. All sorts of factors that we haven't really thought about. Like at the beginning of this entire thing, I was a guy that made a [00:28:00] really good grilled cheese sandwich. I was going to make hundreds of thousands of dollars within three months. There's a lot going into this. That's more than just the product or the service that we're offering.

Realize how expensive commercial ranges and refrigerators and all of this equipment is. I'm not personally independently wealthy. So probably unless this is a passion project of somebody that has a bunch of money in the bank, they're going to be needing to find some sort of funding to help get them up and off the ground on this.

Ana: So when, you know, in the scenario where you have the grilled cheese sandwiches, you see there's a lot of overhead cost. So there's maybe, you know, once you're doing that, you might want to consider what are the other options that I can have. And in that scenario, there is like specialty kitchens, commercial kitchens that you can use.

So, you know, there is this, that, that would help you increase your your revenue and your, [00:29:00] and lower your cost. Okay. So those are some other options that you can use. If you are talking about you could use like also a co working space where you don't have to go rent an office. And you know, those are some options that people that, you know, a business owner could have as well.

So just seeing what are the, what options you have that so that you can mitigate some of your expenses and your cost. 

Scott: So instead of trying to go to GoFundMe or Kickstarter and crowdfund this entire thing on the concept that everybody's going to get a free sandwich if they pay me a thousand dollars which is going to be probably the worst campaign I've ever seen on, on a crowdfunding site.

Other than the fact that grilled cheese sandwiches are delicious. I don't know why anybody wouldn't pay a thousand dollars for one. Finding a way to mitigate those costs to lessen the the barrier to entry effectively to get in. 

Ana: It will prove your concept as well. 

Scott: Okay. 

Ana: You know, it takes you, it might take one or two years for you to prove that these are, you know, And not only you [00:30:00] liked it, or your friends like it and your family, but so the market, so that those are, those are really good options that a business owner would have.

Prove your concept as you are, you are growing the business and that's when you grow more sustainable. 

Scott: So I've, I've proved that everybody loves my grilled cheese sandwiches. Now I have enough evidence to bring to get a loan to buy my own stuff. 

Ana: Are you talking about you prove your concept for long? Yeah, we 

Scott: took two months.

Double, double your expectation there. No. So how long would it take in a lending scenario for somebody to show proof that, that this is actually a venture that, that's worth lending money to? 

Karyn: So typically with a loan. Most lenders will want to see three years of profitability in your tax returns.

Okay. So startup lending is really difficult to get. 

Scott: Now, [00:31:00] so at this point, we're talking about then at three years expanding, getting new, new gear to expand our franchise. 

Maria: Well, but that goes back to when you first initially set up your, your business as a sole proprietor. And then you're thinking three years down the road and now you want to do an LLC.

It's a new business and they're going to see it as a new business. So even though you just had three years, you need to be careful with that. You're starting 

Karyn: over. 

Scott: So again, we're talking about having a plan, a vision that goes out a little bit further and making the right choices early on based on things that we don't know we're going to want or need later.

So doing all that, that footwork to, to really get an idea of what your plan is, not just I'm going to open up a, you know, grilled cheese sandwich stand on the corner and all of a sudden I'm going to be franchising this across the entire Pacific Northwest. We've got to have an idea of what's happening.

We've got to be realistic about it. But [00:32:00] also be aware that, you know, it's not going to be like, like most things, it's not going to be an overnight success. This isn't some video on social media going viral. And all of a sudden we're making those sweet internet dollars. 

Ana: And preparing yourself financially for that, because at the beginning you, you might not bring some.

So you're going to be reinvesting some of those dollars back into the business. So how do you prepare yourself and your family for that? You know, how many hours are you going to be investing in this of your own hours into the business? 

Scott: Sweat equity. 

Ana: Sweat, you know, you might have your full time job and you might know in that.

realizing, okay, this is going to be part time and slowly I'm going to transition on this. And, you know, if you are, if you have a family, it might, you know, you might prepare your family, your spouse to be the person that is going to be providing for the family so that you are not relying on that. Or so those kinds of things are very important to take into account when you are going to start your business.

Scott: Okay. [00:33:00] So let's get out of our grilled cheese scenario. I'm going to bring it back later. I promise. But let's talk about some of the lending options that are out there then. So we, we talked about kind of, we're getting started. We, we know we talked about some ability to do like a co working space.

There's still going to be rent affiliated with that and some other items. Are there resources and tools out there for these startups to help pay for those things, loans that, that you can get without having say three years worth of. this profitability that we can get into to help get that three year that three year mark?

Karyn: Yeah. So I can do loans that are a hundred thousand and less. 

Scott: Okay. 

Karyn: And typically the kind of loans that I do are all tied to equipment. There are other loan programs out there that you can get where you're borrowing against your accounts receivable. Maybe depending on what kind of inventory you have as a company, [00:34:00] you could borrow against your inventory.

If you have any kind of real estate, that's pretty easy to borrow against. Sometimes if you have like, there's a UCC filing, so it could be like restaurant equipment for example. It's not titled, you're, you're not going to take, do one loan for each piece of equipment. You're going to take all the equipment.

and do one big loan for the aggregate amount at a certain percentage of loan to value. Okay. If you're a startup, then, you know, depending on your business structure, it's going to be really helpful if there's one or two business owners who have just W 2 income. So you're currently employed, you have wages, that's a reliable source of repayment.

Scott: Possibly if you're willing to put up personal collateral, 

Karyn: if you're willing to put up personal collateral, people will borrow against their house sometimes. Mm-Hmm. as a second mortgage. So there's a lot of different ways that you can do it. And with business [00:35:00] lending especially, you have kind of the liberty and the flexibility to be a lot more creative in what that might look like.

Okay. For me, the things that I do are mostly tied to equipment. I know that there are other people in our department who will do real estate. If it's commercial real estate or not always, will they do a second mortgage on a house? If we have a first mortgage, we'll take a look at it. 

Scott: Okay. So there's some options out there to help us get equipment, to get some other items that we may or may not need.

What other type of lending is available to small businesses to help either a expand or be get started. 

Ana: And I think this is where this is where CDFIs come in. We are in this space where we land when banks cannot, you know, you might be a borrower or a business owner that you have a lot of experience, but your credit might not be the best.

And that's where we come in. You know, things that if you [00:36:00] are looking at doing a business, things that are a full stop for any lender would be if you are behind your tax. If you have anything, it started in collections. So if you have anything like that, you need to take care of those things before you even consider any, any lending.

Because that would be, you know, something that we cannot do. We can work, if your, if your credit is not the best, we can work with you. So those are, those are one of the things, you know, if you're, Like if you don't have collateral, if it's under, again, if you have experience in the industry your credit is not the best.

You don't have collateral. We can work with you, but also, you know, we have to understand that we have to know that you have a very, very clear business plan and projections and your your startup costs that you really know what you're doing, because it's a, you know, it's a risk. A startup on its own is a high risk.

Okay. And then a startup that has that meeting, we mitigate that by, you know, are you going to be employing people or how, what is the impact of your business? [00:37:00] Where are you going to be located? So those are things that we also take into consideration. So there are options, you know, again, don't, don't get discouraged.

If like my, my credit is not the best, there are options. You can come to a CDFI. There's, there's different CDFIs CDFI stands for Citify. Community Development Financial Institution. So, you know, the, the banks and credit unions, they lend to us because by by your your statutes, you cannot take that much risk.

You are regulated to the amount of risk that you take, but you also want to reinvest in your communities that you serve. So you lend to us and we take higher risk. And that's how, but we also. And mitigate that again by the impact and that we, of the loans that we, that we do in the communities we serve.

So those are some of this, there are options. And then we help our loans are five year term loans because by the, you know, in the year three to five, then the business established and we [00:38:00] want to graduate these businesses into work regular lending that we, we consider that a success. We want to give, to give these this business owners back to back to you guys and we, they're graduated and we, you know, that means they're going to be expanding.

They're going to be the request, you know, their other products, but they would have also that history, you know, of lending with us. 

Scott: Yeah, a good, a good loan like that. When you talk about them graduating, that's a win, win. For one, the business has managed to accomplish what they wanted to accomplish with this.

And of course, the lending, giving back to the community and then being able to move them up to, to contribute further to the community and everything else. Yeah, that's exactly what we're, what we're wanting to accomplish with things like CDFI funding. 

Ana: And we work, you know, we work very closely to with credit unions and CDFIs and others.

We're trying, you know, if we know, okay, these, I know these businesses ready to graduate and they're going to need you. Okay. So preparing them for, for that step is also important as you, [00:39:00] again, you're growing, you're expanding. But if you are a a startup that, Potentially like you don't have collateral.

What do you do? 

Karyn: Yeah, 

Ana: I can't manage your expectations You don't want to you don't want to ask for a three hundred thousand dollar loan and no collateral So then you know, you need to take a look at what what am I asking? What is realistic? you know, you might not have collateral and if you You know, if you come to us, if you're asking for like 75, 000 or something like that, and if you don't have collateral, we can, we can take, we can take a look at something like that.

But again, mitigating those risks by your being very clear, having a very, very clear business plan, having experience in the industry and where you're going to be locating. It's something that is very important. 

Scott: It's gonna say finding a way to step up to that. We need to Way too much to open up a entire grilled cheese manufacturing facility where we're just running grilled cheese sandwiches off of this and then shipping them out to different [00:40:00] businesses.

So we're going to step up slowly. We're going to get ourselves a shared kitchen space where we don't have to pay for all of that equipment right out of the gate and scale. As we as we move up and and build into this realistically is slowly and prove that we are by far the best grilled cheese sandwich.

Karyn: Yeah, I would say from a financial aspect, it's not as much about saving money or making money it as it is about your margin, right? So if if you're spending all this money, you just want to make sure that you're making a lot of money right to compensate for that. And vice versa, if you're not making as much money, which a lot of new businesses are not making as much money until they have a reputation, then you want to try to get your overhead costs as low as you can.

So that, that margin is where you're living. You know a lot of times, if you're not as financially successful as you want to be, sometimes it might just be tweaking one of those numbers [00:41:00] strategically It's not as much the price point of the sandwiches that you're making as it is your overhead costs.

If you can shave off some of your overhead costs or even increase the cost of your, the sales price of your product and then that would give you a wider margin and a little more flexibility and space to live. From a lending perspective, one of the things that I see on, and I'm sure you see it too, is that people will, they have all their income, but then they write it all off, you know, and then they don't show that they have any income.

And then that's a, becomes a difficulty in getting financing down the road, 

Scott: a balancing point of taxation, limiting your tax liability, as well as making sure that you're showing profit so that you. appear as a, as a good target for lending. 

Ana: Yes. It might be very tempting at the beginning to do that because yes, you are, you know, a business owner, this is your income.

So it might [00:42:00] be tempting, but then when, when a business owner is doing that, then that's hindering their ability to grow. Mm hmm. And you know, it sets you back two, three years because we want to see, you know, we want to see that you're profitable and how are you doing? And if you are showing if you're, you're, you are not showing any any net gains, then you are going to have, that's going to, you, you are shooting yourself in the foot.

Yeah. So when you are, again, it's really, really important when you are a small business or you're, when you are starting is to have, you know, what is the ecosystem that you have around? What are those advisors that you have around you? Because. You know, there's, there's those things in there, and again, SPDC has, and maybe you want to talk about what the, or the library of resources that you guys have.

Maria: Yes. So, SPDC We offer assistance to people who are wanting to start a business, expand a business, or just take a look at their business and see how they can make it more profitable, see if there's an area where they need to cut back expenses, and also [00:43:00] assisting them when they want to transition out of the business.

So basically we're here from the start to, to the finish. And we are our services are there's no cost for our services are confidential. It's free. And I spend a lot of time working with with lenders like craft three because they we do get a lot of startups and they need to work on their financials.

That's that's their big thing is they they have an idea in mind. And, but they don't know how to get that onto paper or how to get their financials to paint that picture on paper. They have a lot of it up in their mind, but they just don't know how to get it out. And so then I, I get referrals from Ana and I refer people to Ana, but it's, it's we're here.

We're doing it. just to provide our services to try to get them from point A to point B. And then we, and then we're with them if they want us to, to keep, continue to watch them grow, expand, and then eventually, you know, maybe if they want to transition out of the [00:44:00] business. 

Scott: All right. So as we're kind of wrapping up here at this point, Do you guys have anything else that you want to discuss as final thoughts as far as people that want to get started running their own small business some quick bullet points or other resources that they can reach out for?

Ana: I think something that it is a really good opportunity for anybody that wants to have a business or start a business is right now there's, there's a lot of business owners that are retiring and there's an opportunity for business acquisition. So keep your eye out there for that. There's a lot of opportunities coming up right now.

There's a lot of baby boomers that are business owners are and their kids don't want to, you know, get the business. So, you know, keep your eye on that. You know, it's a business that established that has that has a record. So 

Maria: and and have somebody help you assess that business to make sure that what they're asking for isn't yes You know, it's gonna it's something that's doable because we we have that [00:45:00] too You know your your sandwich your grilled cheese sandwich to you is worth a ton of money But on paper when a bank is gonna come in to lend somebody, you know to be able to start up that business It might not be worth it worth as worth most much.

So do have somebody that helps, you know, assist you in that department as well. 

Scott: Okay, so 

Ana: that's an upward, that's a business opportunity. 

Scott: Yeah, taking a look at what's out there that's available to acquire, that might be doing pretty much what you're interested in, that is looking to transition out and then evaluate whether or not that is a good opportunity to jump in and take over.

So we're talking about acquiring, which is a thing that we hadn't discussed so far. We had talked mostly about just starting up your own, but acquiring a business that does the same type of stuff that you want to do would be a great way of kind of coming into something that's already set up. Are there resources [00:46:00] out there that would help you find a type of business that might be available?

Ana: There are business brokers that that's what they do. They specialize in, you, you can either, if you're a business owner that is looking to sell your business, you contact them, or if you are a a buyer, then you can, you contact them and they keep an eye on you on the market for an opportunity like that.

So those are, those are very good options. 

Scott: Okay. And you mentioned earlier helping people throughout the entire lifespan of their business. Say I've, I've built my grilled cheese business up quite a ways and I'm ready to transition out. What sort of services do you, do you guys offer as far as assisting me and maybe finding somebody to take over?

Maria: Well, first we want to evaluate your business and see what it's worth. So you have an idea of what, what the business is, the value of the business as you're transitioning out. But then we also look, take a look at, you know, what options are there. Do you want to sell maybe to an employee or a group of employees and take a [00:47:00] look at, you know, that's an option because sometimes that's better for you.

sell to somebody that, you know, and still be involved in the business and have that kind of transitioning plan to transition out and transition in the new, the new owners who were previous employees. And I see that quite a bit. I have a lot of clients that come to me because the owner is ready to retire, but they've been with this business business for X amount of time.

They know how to operate it. They, you know, they, they have that experience and they're just, they're going to take over the business. 

Scott: I've seen that locally a number of times where the business got transitioned to employees and it continues to run. Maybe they renamed the business or they keep it exactly the same way and it continues on.

I know there's a, a number of local businesses that have, that have done that where the employees take over. And it, it's a, I think much like acquiring a business from somebody. completely different, a great way to keep that business running and to get a foot in the door. [00:48:00] Ladies is there any other resources or tools that you guys want to throw out for our listeners before we sign off for today?

Maria: Well, just don't do it alone. I mean, there's here locally. I know there's score as well as the SPDC. Your lenders, you know, go talk to your own, even your own banking institution right now. You can go talk to them, ask them, do they do business loans, but just don't do it alone because there's so much that you could miss that could get you into trouble.

Scott: I mean, we saw, I missed a good dozen or more things during just this conversation. As far as just jumping the gun over and over and over again, finding people that have been through it already, and that can help point those things out. You'd be like, whoa, whoa, whoa, slow down. What about these things? Yeah, that's, I believe, an invaluable resource.

Maria: Your chambers. A lot of people don't understand what is it that the chambers do. It's like, you know, they're, should I be a member of a chamber? Well, look, look into the chambers and see what services your chambers [00:49:00] offer. And here in the Tri Cities, there's several different chambers. So I always recommend to my clients to sign up for everybody's newsletter, see which one you like the best, and then start attending some other luncheons and being involved with the chambers.

Ana: You know, investing in your business is really important before the, you know, the, the, the research a portion of it. And then as you are operating, it's also, you have to reinvest in your business, not only financially, but also knowledge wise, you know, as you were saying, you know, being your network that you're going to be doing is important.

And it's also part of your, you know, your marketing strategy and getting your name out there. So just being knowledgeable and in the business and the area, what's happening, how is the area going to grow? Is there an opportunity, you know, if I'm thinking of growing, I need to know how this area is going to grow.

So you need to invest time in getting to know those, those things. So getting involved and in those pieces, it's, it's important. So that's an advice. [00:50:00] 

Karyn: You know, I think just going back to know your resources and use your resources, starting a business can be very overwhelming. There's so many different variables to factor in and the more conversations that you have with the more resources that are available to you, It's going to kind of all tie it together you might find some gaps that were overlooked and something you didn't think about or maybe it was a fleeting thought, it fell off your radar and it just kind of circles back.

Give yourself time, don't be in a hurry, make sure that you're well prepared and ready before you go. Go out to the masses. 

Scott: All right. So we talk about resources. I mentioned it earlier. We will have a blog post up, which is going to have a links to a bunch of these resources that we have discussed today.

Probably ones that we didn't mention by name, but we're going to have some, some links out to all these different groups. If you are considering going out and starting up your own business, do yourself a favor, use the resources, plan [00:51:00] ahead, plan way more than you think you need to and don't steal my grilled cheese sandwich idea.

Ladies. Thank you very much for joining us on the podcast. Very informative. And until next time, this has been dollars and cents. HAPO community credit unions, financial literacy podcast.