Smart planning for the start-up years
Tom S. Gillis is a successful Houston entrepreneur who has been starting and selling businesses for more than 50 years. His book, Guts & Borrowed Money (Bard Press), is used by the University of Houston's Center for Entrepreneurship and Innovation and covers the critical stages of running a business.
Entrepreneur asked Gillis for his thoughts on money management in the start-up stage:
Entrepreneur:How do you determine how much money you need to start your company?
Tom S. Gillis: You need enough capital to cover all expenses until you reach the break-even point. You break even when the revenues from customers pay all the expenses, including your salary, with a little bit left over for repayment of debt. But all businesses don't have the same capital requirements.
Entrepreneur:How does an entrepreneur determine his salary?
Gillis: The entrepreneur ought to receive a paycheck only after employees and bills are paid.
Entrepreneur:What kind of bank is more likely to loan money to a start-up company?
Gillis: The key to opening the door to bank funding is a proven record of loan repayments. If you don't have that, the next best things are collateral and a profitable operation.
Still, all banks are not the same. Some specialize in small businesses, while others concentrate on midsized and large businesses. Talk to as many bankers as you can, and establish banking relationships as soonas you start your business. It's best to have a relationship with a bank before you actually need money.