Here's my dilemma... I have only been in business for 9 months. It is my life's dream. When I was 5 I knew I would be a store owner someday. And now I am and it's soooo hard. I took a leap of faith and rented a large space in an up and coming area, that's not quite there yet. I wanted to get in on this area before it filled up. With a large space, comes a large lease. Which is killing me. I took out a BLX loan for $25,000. I have about $14,000 in credit card debt from inventory. I also cashed in my 401K with the blessing of my accountant and insurance agent. I am young enough(31)that I'm ok with that. I am now down to my last bit of money. I recently applied to a "small business friendly" bank, for a $25,0000 loan for working capital and advertising and was turned down. I also work with an SBA advisor and she has assured me that this happens all the time. I look at the total business debt I have, which now is about $37,000. My advisor and the bankers tell me this is literally a drop in the bucket in small business. Yet I was not approvedfor a loan. I guess what I'm wondering is how many of you guys thought you were done for and then were able to turn it around? Because my condidence is totally shaken all of a sudden. My first 5 months I either broke even or profited. The last few months, I have come way under, which I had to dip into savings for, I thought this was normal. The bank treated me like I should be profiting straight out of the gate. I feel like a failure. I guess I'm just hoping for some words of encouragement from people who have been there. Thanks so much in advance for any comments. I'm sure I'll have more questions!

Hi KDM...

First and foremost, don't panic and don't get depressed. One causes you to do foolish things and the other causes you to do nothing.

Nearly every entrepreneur goes through what you're going through during the startup phase. You'll also hit walls even long past startup caused either by the economy in general going south, or bad business decisions you'll make.

As one who turned around other peoples companies for years and currently running several of my own I can maybe give you a few tips that will help.

First, get out from under that credit card debt ASAP. If you're paying 18% interest on it, it means you're paying 18% more for your products than your competitors are. That leaves you in an uncompetitive position to make the sale, and less profit when you do. AFTER you get out from under the credit card debt try to open limited lines of credit with your vendors. They have a vested interest in affording you credit, the banks don't.

During this period look at expenses closely and cut wherever you feel you can without hurting business. If you need an extra $2k a month to hit breakeven, you'll need to generate roughly $40k in sales to get that to your bottom line assuming you Net 5%. If you can cut expenses by $2k, the entire $2k goes right to the bottom line as there is no overhead coming out of it. That's one of the big secrets of turning business' around. It gives you the ability to do a lot with a little.

You might also try talking to your landlord and see if they will cut your rent for 12 months to help you out and add it on to successive years to get their money back. In the end, the total lease amount is the same, but it aids in your chances for success by easing cashflow and doesn't cost them a whole lot and they get to keep a tenant.

The $37k certainly seems like a hell of a lot when you owe it, but your banker and accountant are right...it really isn't much. Once you get the business whipped into shape then try opening a revolving credit line with your bank.

Don't be too angry with your bank right now for turning you down on the loan...they probably did you a favor. Remember, banks are in business to make loans, not just process checks. They want to make loans but hate any type of risk. I suspect they felt your ability to repay the loan was too iffy.

While I haven't been on here much lately anyone who recognizes me knows I'm loath on debt...I've always felt for most small businesses it's a kiss of death but I also realize everyone can't finance their businesses internally...you just have to manage it carefully. If you're on the ropes you might want to check out prosper.com. People will bid on your loans there. I've done a couple loans for people on there and so far it's worked out well...I'm not promoting it...it's just another avenue to check out. I hope this helps a bit.
Keep the ole chin up...stay your course and for heavens sake don't freak out.
Take care
Denny

Denny

Hi Denny,

Thanks so much for the advice. I truly appreciate it. I can say that I've learned more about business, and myself more in the past year than I ever thought possible.
The bank said my debt ratio was too high at the moment, which I understand. I think it tore me down that my banker acted like it was out of line that I had to dip into a savings account to pay my bills the last 4 months. The first 5 months I broke even and profited. Retail is always slow in the 1st quarter, but it definitely is different when it's all coming out of your pocket.
As cliche as it sounds, it does help tremendously to hear that most people go through this. I know I'm not the only one, but man, it sure feels lonely sometimes! Thanks again!

Did you get the personal message I sent?

Denny

Yes, thank you so much for taking the time out to talk to me. The Riverfestival was happening outside my front door all last week, so I just now got a chance to sit down and get on the computer. Unfortunately it didn't bring in the business I'd hoped for. but I'm not surprised, festivals tend to bring out all sorts-There was a carnival and enormous smoked turkey legs involved. Enough said right?

I spoke with my business advisor today and she mirrored what you said. She felt like the easiest way to free up money is to speak with my landlord and see if he'll cut my rent and add it on to the end of the lease. I'm not looking forward to it, but at this point the main issue is my rent. That's almost my only issue, that and exposure. Because I'm in an area that's yet to get constant foot traffic, I need more advertising. She said that a loan would be a quick fix, but they want to keep me from adding on to my debt, which I know is the right thing to do. But when I see my account dwindling down to nothing at the end of every month, it's hard.

If you don't mind here's a little of my story...Every job I've ever had has been in retail. I think there are 2 types of people in retail. The type that don't know really have focus in their life, because it's decent money and let's face it, not hard. Then there are the people that actually like it. I happen to like it. I always started with a company I liked, learned everything about the products I was selling, became lower management, but never wanted to move into upper management, although at every job I've had it was offered to me. The last 7 years I worked as a visual & merchandising specialist for a large department store.

My plan was pretty consistent all my life...own a boutique. When I was a child it was clothing, I always dreamed of being a clothing designer. But the opportunity wasn't there for me to leave home for college, so I stayed home to attend and study Fine Art and business. My love of clothes and textiles turned into a love of developing bath products & home decor. So that's what my store is. I carry high end products, that are found no where else in the city. I produce my own line of apothecary products, in addition to gourmet dog products. I also carry home decor and do interior consulting on the side. Here's the thing...In this market, my industry is limited, but desperately desired. So I KNOW my concept is destined to be successful, it's a beautiful space, with beautiful things. Other than making money, customer service is my top priority. I love creating and developing and branding, I love educating people about products. I love being able to show people how to love the space and body they live in . All that being said, and the main point of even talking about it this is...I have a deep love for this industry, and I know I have good insticts about what people like and how much they're willing to spend-My issue is the financial part, and it's so much of an issue that it's making me doubt all my other abilities. It sounds like you've struggled to get where you are now, was there ever a time that you questioned, really questioned what the hell you were doing?
Or did you always have your eye on the prize? Somedays-I only admit this because you're a total stranger-I would give anything to wake up and have this all go away. It's become very love/hate. But that's the passion part right?

Is there a working title for the book you're working on? I would be interested to read it when it comes out...Thanks again!

I don't think your experience is all that unusual. When we started up our business, there were times when I made the payroll out of my personal checking account.

Your store sounds like it would sell things I would buy. I can't speak for others, but I would say at 'high-end' your customers have more money than time. Is your location near where those high-end shoppers live or work?

Even if it is, are they aware you exist? There was a nice store in my neighborhood but it was a little off the main streets where most of the shops are. I just happened to pass it on a walk one day and bought a few things. The next time I went by, they had closed.

The third question is, if you are conveniently located for your customers and they know you exist, are your hours convenient? I am always astounded by the store owners who seem to think that I should take time out of my work day so I can go to their store.

Maybe you could define high-end more specifically. Is it people who are employed at demanding jobs and don't have time to learn about these products but would like a nice home? Or people like housewives and retirees who have a lot of time to fix up their home and shop?

If you say, "both", then I think you probably need different marketing campaigns for each.

Do you have a website where people can order on line?

My advice is to keep working on your business. Every day we work on making our website better, improving our response time to clients, creating code libraries - I know this is not very similar to what you do, but I think the key to success is the same, continually working on every aspect of your business - the marketing as well as the costs and product.

AnnMaria DeMars, Ph.D., Vice-president
(310) 717-9089 FAX (310) 496-2068
www.spiritlakeconsulting.com

"I cannot believe that the purpose of life is to be happy. I think the purpose of life is to be useful, to be responsible, to be compassionate. It is,above all to matter, to count, to stand for something, to have made some difference that you lived at all. "