Monthly Archives: October 2016

Affordable Cities for Startups

For the second year in a row, cities in the South give entrepreneurs the best chances to keep their startup costs low, while big cities remain among the most expensive places to start a new business, new research finds.

The study from SmartAsset revealed that nine of the 10 cheapest cities to start a new business in are in southern states, including three in Tennessee.

To find the cities with the lowest startup costs, SmartAsset collected data on the typical costs of starting and running a business in 80 of the largest cities in the United States. They calculated the total expected startup costs over the first year of operation for a company based on five factors:

  • 1,000 square feet of office space.
  • The cost of gas and electricity for a 1,000-square-foot office.
  • The average cost of filing fees for either incorporation or filing as an LLC.
  • Legal and accounting fees.
  • Payroll costs for five full-time employees, earning the city’s median annual salary.

Topping this year’s rankings of the most affordable cities for startups is Chattanooga, Tennessee. The city is attractive for entrepreneurs looking to save money because of its relatively low costs for office space and employee payroll. The research shows that it would cost $225,442 for a business owner with five employees and a 1,000-square-foot office to run a first-year startup there. That’s up about 2 percent from a year ago when the costs were $221,000.

“If you decide to start a business in the Gig City, you’ll be in good company,” the study’s authors wrote. “Many startups and accelerators operate there, including the Lamp Post Group and Gigtank 365.”

Overall, the 10 most affordable cities to launch a startup in are:

  1. Chattanooga, Tennessee: $225,442
  2. Wichita, Kansas: $232,057
  3. Greensboro, North Carolina: $232,326
  4. Columbia, South Carolina: $232,541
  5. Knoxville, Tennessee: $232,620
  6. Little Rock, Arkansas: $233,877
  7. Memphis, Tennessee: $234,524
  8. Lexington, Kentucky: $234,945
  9. Orlando, Florida: $236,513
  10. Winston-Salem, North Carolina: $237,983

Similar to a year ago, many of the 10 most expensive locations for startups are larger cities, including three in northern California: San Jose, San Francisco and Oakland.

 

Required Business Reading

It’s curious how often uncommonly clear and commonsensical thinking about management comes from long-time laborers in the field. Perhaps decades of experience enable them to distill the subject to its essence — or maybe it’s just that 40 or 50 years of hard work have earned them the right to speak plainly.Samuel B. Bacharach, organizational behavior professor at Cornell University’s Industrial and Labor Relations (ILR)  School since 1974, is one of those laborers.

“Leadership is a narrative of execution, that’s what it’s about,” says Bacharach, who is currently McKelvey-Grant Professor at Cornell. Until 2016, he served as director of the ILR’s Institute for Workplace Studies. Bacharach boils a leader’s job down to three things: working with people to generate ideas, mobilizing groups to move ideas forward, and sustaining momentum to get things done.

But just because leading is easily described, that doesn’t mean leading can be easily done. Bacharach has devoted much recent effort to bridging theory and practice to help leaders become more effective. He cofounded the Bacharach Leadership Group, a New York–based leadership development consultancy, has implemented his leadership training modules in a number of major corporations, and, with eCornell, the university’s online learning company, developed a 10-course corporate leadership training certificate for high-potential employees

A prolific author and editor of more than 20 books, including Keep Them On Your Side: Leading and Managing for Momentum (Platinum Press, 2006), Bacharach has increasingly focused his writing on practical leadership, too. His newest book, the first in a planned series, is The Agenda Mover: When Your Good Idea Is Not Enough (Cornell University Press, 2016). In it, Bacharach paraphrases Thomas Edison, reminding us that “a good idea without execution is a hallucination.”

When I asked Bacharach to share an essential reading list for leaders who are moving agendas through the maze of complex organizations, he recommended four books. “The first two books are about why ideas get stuck,” he explained, “and the second two are about the political skills you need to move ideas forward. In terms of moving strategy, these books raise essential questions that all mindful leaders should think about.”

Right for Your Business

So, your company needs money that you currently don’t have. Maybe your business is just taking flight and is still lacking the necessary funds, or perhaps you have high aspirations with low profits at the moment.

If loans are your go-to choice for financing, you’ll need to decide between a traditional bank loan and an alternative lender. For the latter, peer-to-peer (P2P) lending might be a smart option if you’re looking for a smoother, faster borrowing process.

According to Investopedia, P2P lending lets individuals borrow and lend money without an official financial institution as the intermediary. Lenders collect income from interest, usually at a higher cost than with traditional loans, while borrowers access financing they may not have been approved for elsewhere.

“P2P loans can often offer higher approval rates and competitive interest rates — a stellar combination,” said Emily Bartz, a writer at NextAdvisor.com, which provides independent research and comparison tools for financial, tech and business products. “The beauty of P2P lending is that it offers borrowers a more personal experience by avoiding big banks and financial institutions. Plus, borrowers can rest easy knowing that their lender is accredited and provides legitimate loan support.”

Another upside, according to Bartz, is that P2P lending is flexible, allowing borrowers to complete the process in pieces.

 

Perfect credit to get a small business loan

Although low credit scores might have precluded you from getting a loan in years past, today’s lending environment is more open to subpar credit ratings.

“While traditional banks may be restrictive when it comes to obtaining credit, there are alternative options,” said Michael Kevitch, president and founder of Small Business Funding.

Alternative lending sites such as Small Business Funding tend to base lending decisions on the financial realities of a business rather than the financial history of business owners. Specifically, Kevitch said, alternative lenders take a close look at business performance, industry type, time in business and cash flow before handing out a loan.

Traditional lending institutions have been a mainstay of small business funding for many decades, and still are in some industries. But they are not the only sources of financing.

For business owners looking to borrow a relatively small sum (between $5,000 and $250,000), getting a bank loan is likely to be more trouble than it’s worth, Kevitch said. However, he noted that bank loans may still be appropriate for business owners who need to borrow a large amount of cash, over a long period, and still get a low interest rate. Kevitch advised business owners to make sure they fall under those categories before applying through a bank.

Kevitch noted that alternative lending sources often provide faster approvals; sometimes, businesses can obtain access to the funds in as little as seven days, he said.

Bank loans may not be the best option for every small business, but they’re far from the worst funding option out there. In fact, for established businesses looking to grow at a moderate rate, traditional bank funding is generally a great option, Adam said. It’s when a business doesn’t fit those criteria that business owners should consider shopping around.

“If you are a younger company, pre-revenue or low revenue — but plan to grow very quickly due to the industry that you’re in (e.g., health care, IT or software consulting) — then a traditional bank loan may actually limit your growth,” Adam said.

To decide whether a bank loan is right for your business, research both traditional loans and alternative funding sources. It’s also important to know your business inside and out.

“If you anticipate steady growth over the next few years, then a traditional bank may be best,” Adam said. “If you are growing like crazy and you know you will need to keep increasing your loan size by large increments each quarter, then entertain a nonbank lending partner, as banks may not be able to keep up with your needs.”

You may find this myth floating around online forums and perhaps even hear it from well-meaning friends and family members. It’s all right to ask for money, nonexperts will tell you; just don’t ask for too much. While this might be reasonable advice in personal circumstances, there’s not much truth to it in the business world.

According to Jess Harris, content and social manager of business lender Kabbage, a working paper from Harvard Business School revealed that banks actually prefer lending larger amounts because they make more profit from large loans in the long run. In turn, banks are cutting back on smaller loans.