A note from Julia:
This month marks the 4-year anniversary of my consulting practice. I carved my niche by mixing together my passions for business, food, agriculture and helping people. Out of that evolved a practice to help entrepreneurs articulate their business and vision to grow their business.
A big part in growing businesses is seeking capital (i.e. money) to expedite growth. Many businesses prefer to grow organically, only buying new equipment when they have saved enough money. But waiting until you can save the money also means missing out on bigger opportunities. Think about it: how long would it take you to save $300,000 to buy a new house, versus saving $20,000 and financing the rest?
By nature, the entrepreneurs I’m working with have less access to growth capital. Food and farms tend to be higher risk propositions. And with higher risk comes higher interest rates for borrowing money. Unfortunately, food and small agriculture businesses also tend to succeed on small margins, meaning they can less afford the higher interest rates.
As the Slow Money movement grows, so do the opportunities for financing. Investors are realizing that net dollars are not the sole metric by which to measure an investment return. Aligning the investment with your values has increased importance as we work towards preserving our food system.
Slow Money Boston (I co-lead the Boston chapter) has the mission of catalyzing the flow of capital to mission-aligned entrepreneurs in the food systems space. As I talk with investors seeking investment opportunities and entrepreneurs seeking capital, I see 3 hurdles to overcome to facilitate “deal-flow”:
- Entrepreneurs and investors don’t speak the same language. Investors want to hear about ROI, debt-service coverage ratio and cash flow. They want monthly reports of key metrics. Despite a deep understanding of how to run their businesses profitably, entrepreneurs don’t always know how to translate their knowledge into “business-speak.” This doesn’t mean that the entrepreneur is a flawed business person, it just means they haven’t hired a CFO or other “business type” to translate for them.
- Along those lines, entrepreneurs still need to provide some basic information to the investors. This includes financial projections for cash flow, income and balance sheet. There are many resources available to help the entrepreneur (including us).
- Entrepreneurs don’t understand the breadth of capital available, and so they will not grow their business as fast as they’d like. Beyond basic bank loans and equity, there are peer-to-peer loans, investment clubs, royalty financing and CDFIs. Equal Exchange, very creatively, offered a CD through Wainwright Bank. The bank administered the CD, while Equal Exchange customers bore all the risk. With this CD, Equal Exchange was able to tap into their expansive customer base to finance their line of operating credit.
This month’s article features one way to grow your business that no doubt requires a capital investment.
If you want to learn more about financing or funding, I’ll be leading a panel discussion with investors across the “Capital Continuum” at the SBN local Leadership summit this Friday. I hope to see you there!
Julia Shanks Food Consulting Services include:
- Seven-Point Restaurant Health Check
- Recipe and Menu Development
- Financial Accounting Software Setup and Training (QuickBooks)
- Financial Analysis
- Small Farm Business Development
- Green Your Business