What do Trader Joe’s, Hewlett-Packard, Microsoft, Disney and 16 of the 30 companies that make up the Dow Industrial Average all have in common? They were all started during a recession or depression.
Every week, I am asked, “should I be opening a Medical Spa now, in the middle of this recession?” From doing my research for this post, it looks as if as many businesses launch during recessions as during stable economic times. In addition, there maybe some advantages that include getting better pricing on goods and services, weakened competitors and a frugal mindset (something everyone in a start-up mode should have). Plus, let’s hope, that by the time you open your doors, the recession is nearing a close.
The biggest hurdle right now is getting financing. Not only are we in a recession but we are also in a terrible credit crunch. Though many of the stable, financially sound local and regional banks are still lending.
So what does it take to get financed in times like these? I call it the four C’s. Concept, Credibility, Credit and Collateral:
Concept: You need a solid business plan that clearly communicates your concept including your vision and mission. In addition, it needs to identify your target market and competition. Then your concept has to be translated into a financial plan that is plausible based on historical or bench marked information. It needs to illustrate the upfront capital investment along with a minimum of 3 years of top and bottom line projections. And don’t forget, no business opens its doors and is profitable day one, you need to identify the working capital necessary to bring your business to profitability.
Credibility: In order to finance a Concept you have to illustrate that you, your team and/or your consultants have the experience and knowledge to implement the concept spelled out in your business plan. Remember, banks don’t finance businesses, they finance people.
Credit: Your track record in paying your bills in a timely fashion is critical to your ability to secure financing. Lending institutions utilize your credit scores as a barometer of your ability to repay a loan. There are three large credit agencies that track credit and provide scores: Equifax, Transunion and Experian. In today’s credit environment it is almost essential to have a score of 700 or better in order to secure a bank loan with attractive terms. Many lease financing companies will finance equipment for individuals with lower scores but the rates tend to be high.
Collateral: Most lending institutions are seeking close to 100% collateral for business loans. Thus your personal and business assets will be needed to secure the loan. Banks are seeking very tangible collateral such as securities, home equity, etc.
Please join me on Tuesday, February 24 at 1:00 p.m. EST as I discuss these topics and many others concerning Opening a Successful MedSpa on our weekly Acara Webinars Series.