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Episode #2104
SCORE with Small Business
Brown: So you want to own your own business? Well increasingly more black Americans are interested in becoming entrepreneurs than their white American counterparts. But what does it take to succeed? We will answer this question and others next on Black Issues Forum.
Voiceover: Funding for this program is made possible in part by UNC-TV members.
Brown: Good day everyone and welcome to Black Issues Forum. I am Natalie Bullock Brown. According to research by the Ewing Marion Kauffman Foundation, African-Americans are twice as likely to become entrepreneurs as European-Americans. But African-Americans and Hispanics for that matter are far less likely to succeed in start-up ventures than non-ethnic minorities. Now why is this and what can be done to improve the chances of a minority-owned business enjoying a long and successful existence?
Well here to help us with these questions are our guests. I'd like to welcome Angela Wilson from Jones County, who left the banking business to become an entrepreneur and now runs three successful companies, A. Wilson Transportation Services, Dairy Blends and Eats, and A. Wilson Used Cars. Angela is also an officer with the Uptown Business Professional Association in New Bern. I'd also like to welcome Ivan Hankins, senior area manager for the Small Business Administration. And last but not least we are glad to have with us Mary Speight, assistant regional director of the North Carolina Small Business and Technology Development Center, or SBTBC. Welcome to all of you.
Now I'd like to start out first by trying to understand why is it that African-Americans are more likely to fail with their attempts to be entrepreneurs than their white counterparts, and Mary I will start with you.
Speight: Planning. Planning is a big issue. Have a concept and think they can make a business out of it is usually just instinct to get started. Particularly if they have the money, you know. And planning is not an issue for them; it is like, "I have the money, I know what I want to do and I know how to do it so I am just going to get started."
Brown: So planning needs to be, I mean the homework needs to really be done very thoroughly.
Speight: The homework, yes. Knowing and understanding the industry, the glitches in it, the trends and all of that will help to stabilize the business in those times when these things occur, then you are more apt to know what to do if you have planned some then you can adjust your plan.
Brown: And is there ever-what kind of information would, might someone come across in their planning that would say, "Okay, scrap this idea; we shouldn't go after this."
Speight: Well if you look at it in the market size, now if you've got the demographics and the demographics does not, there is not sufficient market for it-in other words if it says that it needs 25,000 persons in this age group with this income level to sustain this number of businesses, and if you look at it and you have 75,000 say and you have four establishments already, then that tells you that you are going to be competing for the business.
Brown: Right, right. Ivan what would you say?
Hankins: Well I have to agree with Mary here. I think a friend of mine with our SCORE chapter many years ago told me at one time he said, "People do not plan to fail, they fail to plan." And that has been the whole crux of small businesses all over the country, in fact all over the world. And I think one of the other main reasons too to go along with planning is knowing your resource partners, knowing who out there in the community and in your area has the ability to assist you in whether it be the financing side of it or the consulting side of it, to maybe get you to that next level to bring that up and also help with the planning issues as well. Because without those resources and so many people start off and they get so excited they will get into these things and they will forget these resources and let that pass them by and then all of a sudden it is an "oops," it may be a little too late that time so know your resources out there that can help you.
Brown: What does SCORE stand for?
Hankins: I am sorry, SCORE stands for Service Core of Retired Executives. This is one of our resource partners that has been with the SBA since 1964. We have 14 such chapters here in the State of North Carolina. And it is a free service with which clients can go to for any type of consulting or if they need business plan help or whatever. These men and women they come from all walks of life, they are retired business people, they have been bankers, they have been teachers, they have been CEOs, accountants, and they have volunteered their time free-of-charge to the SBA to help such clients in these affairs.
Brown: Sounds like a great resource.
Hankins: It is a great resource.
Brown: Yes. And Angela, were you able to avail yourself of these sorts of resources and why would you say maybe your counterparts have not been able to succeed in their attempts?
Wilson: First of all I do agree with Mary and Ivan and planning is very important. However what I teach my class, I teach how to start your own business at Craven, it is called NCREAL, North Carolina Rural Entrepreneurship through Acts and Learning. The main thing that I teach my class, if you cannot afford to cash flow your business for three to five years, don't even start. Because that, it will either succeed or fail within three to five years. If you do not have the resources to keep it going, your personal resources or a partner to keep it going, you are wasting your time and your money.
Brown: Okay so when you talk about cash flow you are speaking of?
Wilson: Financial resources, loans, the SBA, Neuse River Development Authority in New Bern, Self-Help Credit Union, there are many resources out there where you can get help with money and lending. And most banks will not do start-up loans, however if you can get a bank to play ball and let the SBA do an 85% guarantee then that is another way to get money from a bank. But most banks will not do start-ups, you usually have to do an alternative lending source in order to do a start-up business.
Brown: Okay, and we are going to talk more about the resources that are available through the SBA and the SBTDC, but I want to stay with you Angela for a moment and let's just talk about how you got started, why you decided to become an entrepreneur, lessons learned?
Wilson: I started, I had a client when I was at the bank who had a transportation company in the town I was working in. I was looking to start my own business; however I didn't know what I wanted to do. I always thought I would own a bakery because I love cake decorating, I love 3-D novelty cakes. But she said that transportation was a dire need for Craven County. I said, "Well, I am looking to start my own business. I will look into it." I looked at her profit and loss, her income statement, and her tax returns for the past two years and it was profitable. So I proceeded to go and talk, speak with Craven County Department of Social Services and they said we have a dire need and if you can do this, this, and this, I am sure we would have a very wonderful relationship and we have since '98. And actually so it was more networking with my clients that started me with transportation because that is something I would have never come up with on my own because I wasn't interested.
Brown: And I apologize for interrupting you but something you said just kind of begs to be talked about a little bit more because if you weren't interested in transportation, does that mean that people should not think about what their passion is to begin a business and more look at what the needs are of the particular community they live in?
Wilson: I do stress passion. Believe it or not I started the transportation business because of the money that I could make. However but I love all of my clients and I have a database and I could probably tell you the names, addresses, and most of the time the telephone numbers of all of my clients.
Brown: So it has become a passion?
Wilson: Exactly, it has become a passion. My clients are just wonderful. And being able to help people who need help is just a blessing in itself.
Brown: Well Mary let me ask you how does someone do successfully what Angela has just detailed and figure out what is the need, but is there any sort of possibility that I will become interested in this need eventually if I pursue it?
Speight: Well I think she had the passion to start her own business. And that, and then recognize opportunity. And that is what she did. She had the passion to start her own business, she recognized the opportunity, and she had this network there, you know, which is an ingredient for success. And so then she did a little research, she talked with people, she did a little planning and if it adds up there is a bottom line when it is all said and done, "I could get to like this." So like she said, the money began to flow and then she enjoyed her customers and what she was doing, the service she provided. But number one is just having the passion for business and wanting to start a business number one. Then finding the opportunity and that is what she did. And then she did a little homework. And the homework proved that, "Wow, there is a business here and I think I can do this." I mean, particularly she probably had management abilities, she worked at the bank. You know that is an ingredient that she brought to the table. She had that experience. So now I've just got to learn the industry and understand the industry and then it is just putting that together, the marketing and the plan and working it, and implementing it.
Brown: Well Ivan, I am listening to Mary speak here and I am thinking maybe the average viewer, myself included, might say, "That is a little daunting, all of the things that you have to do. I don't know if I have that much to bring to the table." Should they still pursue opening up their own business?
Hankins: Absolutely. I am very strong with this and with these two young ladies beside me here and they talk about the patient of the business. I have seen many, many individuals that have started out what you might want to call a hobby that just really enjoyed it and actually then took it on to higher, higher heights of their business. In fact, we have a small business that got a loan from us here in Jacksonville called "Fast and Clean" that, this is a gentleman who was in the military and one of his passions was automobiles and he was a race car driver and he got into cleaning polishes and so forth for automobiles so when he retired out of the military in 2004 he came to the SBA. We were able to get him a small loan through Community Express and now he has taken this hobby into another stage and now it is a full-time business and he, from what I understand he is very excited with the way things are going and this was another way of making that dream come true, so to speak, catching the golden ring.
Brown: That is awesome. Well I want to talk about some of the myths that I guess most people tend to think are true about starting a business but that really aren't. And I am going to throw one at Angela first. I will just open my store and people will stream in off the sidewalk and buy from me and I will be successful. What is wrong with that notion?
Wilson: The biggest myth about that is a lot of people think everybody is their customer and that is not true. Every business has a target market whether they know it or not. And they have to know you are there to walk in off the street or hopefully you've got a WalMart beside you that is going to draw them in. So that is no guarantee. You might not have businesses that are pulling people to walk across your sidewalk. That is a very big myth.
Brown: Okay, and I just want to let our viewers know that these myths come from our guests Mary Speight, so I am going to give you the next one. I am a good cook so I should start a restaurant. What is wrong with that?
Speight: Well good cook and restaurant, one of the main reasons that restaurants fail is poor management and low capital, you know going in with insufficient capital. And so knowing that you have a good product that you can cook is not the recipe for success. There are other ingredients there and we look at if there are three things that the recipe for success, it is having a product that someone is willing to pay for, being able to market that product, and then having the fiscal capacity, you know the funding, and then the ability to manage, fiscal management of the operation for success. All of those are ingredients for success. So having that product or service is not the only ingredient, you need those other two.
Brown: Well tell me this, if you think that you are a good cook and you do want to open a restaurant and people have maybe even said, "You know girl, you need to open a restaurant because your food is delicious." Then what do you do to equip yourself with the people or the resources that are necessary for you to be able to start a business?
Speight: Well it is equipping yourself with the people. People meaning the resources that are out there.
Brown: Well I am thinking, do you need to go out and find someone that is good in management, someone that is good in accounting, someone that is good in banking. I mean do you need to surround yourself with the people that have the skills that you don't?
Speight: Yes. When you are thinking about starting a business you need to think about who are going to be these key players. In other words these three are the main ingredients so if I am the one that is going to be producing the service or product and doing the cooking, who is it that I know that can market my business? Is it going to be, you know, what is my marketing plan? Who is it that can help me to market this business if it is intense marketing that it needs, someone that needs to develop brochures and all of that. Who can identify that person? You know the fiscal management and accounting, I tell people when they are getting started is your, can your spouse, is there someone that can help you with the bookkeeping and accounting initially? You know go and take this course at the community college or something for QuickBooks or something? Is there someone that can help you with that? But more important we tell them in addition to getting general business counseling say from the SBTDC, SCORE, and a lot of others that are out there, we tell them to hire their professionals. Make sure that they have a relationship with a CPA, with a lawyer, and a banker. Not that you have to retain the lawyer, but have that relationship there. To develop those relationships with those professionals, you know your management team so to speak, you can't afford to have it on-site if you are a small business but certainly you can engage them and know when you need to engage them. You need to have that relationship with that CPA or accountant ongoing. You may do your internal bookkeeping but have that relationship where you can talk to them about challenges and tax-related issues that they have the expertise in. So we tell them to develop those relationships with those professionals and the banker.
Brown: Perfect segue way because the next myth is, "I will use the bank's money to get started" or grants. Ivan, what is wrong with that?
Hankins: Well first of all statistics will show that anyone going in 100% through debt financing, their odds of survival are very, very small if at all.
Brown: Why is that?
Hankins: It is because not everybody, not even the professionals, can predict downturns in the economy and in your business. You could be the wisest small business person in the world and still there may be a glitch in the economy that might pull your industry down. You have to have your own money at that stage with which to work off of. So what you are doing is hopefully the best mix is being able to utilize in some cases debt financing along with your own funding going into that particular type of business so that you yourself have something at stake and in working this out in the long-term hopefully that is going to build and make you a nice net worth end of the business.
Brown: And if you are willing to invest in your own business is that going to make you more attractive to a bank or anyone who might want to invest in your business?
Hankins: Oh absolutely. Because the first thing that any type of a lender or accountant or even myself and we can take a look at financial statements is well first of all we want to make sure is it, does it repay? Does it cash flow, as we retorted this morning. And then we are going to look to see the strength of the business, and the strength of the business is in your net worth. In other words, just how much of your retained earnings and how much of the net worth is into the business that will eventually the ideal situation is to never have any debt at all, and that would be the ideal scenario of course.
Brown: Ideally, right.
Hankins: Ideal.
Brown: Angela, another myth, "Failure in business is bad." Why is that a myth?
Wilson: That is a myth. The main reason that I teach the entrepreneurship course is because I love to teach it but I explain to my students if you come out of this class and decide not to start a business, you have made more progress than the person who decides to start a business and fails because they didn't properly plan. So failure to start may, in a lot of instances, is a good thing because you don't lose your life savings and waste your time.
Brown: But failure if you've begun and you fail, is that bad?
Wilson: No, not necessarily. Let's hope you fail early and learn from that mistake where you've not used up a lot of resources.
Brown: Mary, I saw you shaking your head. Would you agree with that?
Speight: Oh yes, yes. I mean failing and understanding why you've failed, you know, has ingredients for what I do the next time; I'd do things differently the next time. So failure and understanding why you've failed and what not to do the next time, that is, many people have failed numerous times but when you reach that success, that ultimate success, then you oftentimes you've really kind of made a homerun so to speak. And that passion and what you can feel from that, from making that business work and having it be successful. There is nothing match, no job can match that, the euphoria that you get from that. I have heard entrepreneurs say that time and time again. And that is a true entrepreneur, too.
Brown: Well let's get people ready for whatever they are trying to start by letting them know what sort of resources are available. Ivan, tell me what sort of resources are available for the person who is just now beginning to think about starting a business, has not begun to do a business plan or anything? Where can they go to get help with those initial items that they need?
Hankins: Absolutely. The people, and I do these SBA days throughout my territory with the local chambers where I get this type of person every day coming to me with this wonderful idea, they've thought about it, they've planned, but they just don't know, "Where do I go next?" And I think in a lot of cases they will come to me and they will think, "Well maybe I will put a bag of money on the table, go out, be fruitful, and multiply." But what I will do is stop them in their tracks immediately and say, "Well, you have the ideas now let's get it on paper. Let's get it on what we call a business plan." I can't use the word "business plan" enough because that is your road map to success basically. Without it, I just don't think you are going to go very far at all without that.
We would take that individual probably send them to their local SCORE chapter, the Service Corp of Retired Executives. We have 14 chapters here in North Carolina. The constituents can look on our web site at www.SBA.gov and under SCORE and look up where their local SCORE chapter is and make that appointment, go down, see that individual or individuals, and in a lot of cases we can try and pair them up with somebody that has maybe been down that road before in that type of industry and use that expertise along with their ideas and putting that on paper and then at that stage, at that point in time, then they are pretty much ready at that point. They will know. In many cases I've had individuals that have done that business plan, they have looked at me and said, "I don't think so." You know it has been an eye opener. "Well that is too much money" or "I don't think I want to go that far with that." And they might go back-they might not go into business at all. Or they might just do the opposite, they say, "Gee, I can actually do this."
And if that is the case, as Mary here had mentioned and that is basically the case with most lenders, to go into a bank to get that particular financing as a new start-up, banks lend on risk and naturally a business without any type of a track record is a high risk. So what you generally might get is, "Come back in two to three years and we can talk." Well all of a sudden that great idea just goes up in smoke.
Brown: Let me insert here, what sort of creative strategies might there be to finance something that is not going to be financed by a traditional lending institution? And I am going to move on to Angela real quick and see what you have to say since you have opened three businesses.
Wilson: Incidentally one of my, my restaurant Dairy Blends and Eats, is financed non-traditional, a lending source, Neuse River Development Authority in New Bern, simply because all restaurants are high risk, no matter what type of restaurant it is. And the reason I went, the reason that I went into the restaurant business is like I said initially, my passion was baking cakes. And I said, "If I buy an ice cream shop I will be able to decorate cakes, which I can and eventually expand it to a bakery." But with money, of course you always go to your bank first because that is where you are going to get your best rate. Always go to your bank first. Then when your bank says no, then you look for alternative lending sources and hopefully you look for alternative lending sources with the lowest rates first. A standard right now is about 8%, 8% to 9% standard business loan rate. And the alternative lending source, what they allow you to do is have a few blemishes on your record or allow you to be high risk, i.e. a restaurant, and you don't have the majority of the capital for your restaurant.
Brown: Mary, is there ever a time where it is prudent to go to people you know or maybe a capital, a venture capitalist? Are those viable resources for someone trying to begin a business?
Wilson: It is a viable source and usually we tell people there are angel investors out there. And usually these angel investors are someone who has a passion for what it is that you might be doing and they for some reason may not want to go into business but they will invest money in it. And we tell them to start looking at maybe family and friends initially and then maybe touch base with their bankers or CPAs some times. People may come to the banker and say, you know, "If you have somebody that may have a good idea and you think is worth some equity, I might want to invest in it." And usually they can give you names of people as well. But start with your close network of family and friends. We call them angel investors.
Brown: Okay. Ivan, I am going to give you the last word. What is the best friend, or what organization or resource might be the best friend for someone who has begun a business, may be struggling, wants to continue?
Hankins: Well somebody that is wanting to start a business in that position, quite frankly I'd be derelict by not saying come see the U.S. Small Business Administration because we are the federal government's backing of that guarantee of the loan which they would be getting through that particular lender. What it does, not only does it assist a new business to get a loan where maybe they couldn't traditionally, it also gives them better terms. It gives them a longer time with which to pay it off. It does control the interest rate with which they are charged. And the best part about it is now they have linked up with a bank with which later on they will probably go back to that very bank for other loans and their employees will probably bank at that particular lender so it is a nice circle. And they pay the taxes into the community and away we go.
Brown: Absolutely. I appreciate all of the information you guys have shared, great information. Our thanks to Angela Wilson, Ivan Hankins, and Mary Speight for sharing their knowledge and expertise with us today. And if you would like to learn more about the work of our guests or more about how to become an entrepreneur, please visit the Black Issues Forum website at www.unctv.org/bif. We would also like to hear your feedback and suggestions so send us an email or you can call the BIF line at 919-549-7167. Be sure to meet us back here each Sunday afternoon at 4:30. For Black Issues Forum, I am Natalie Bullock Brown reminding you to be encouraged no matter what. Have a good one.
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