No profits, no loans: How to survive
Finding alternative revenue streams is a necessity for business owners trying to weather the recession.
Kyle, Sarasota, Fla.
We’ve run a dinner theater for three decades, and make most of our money during the tourist season between Thanksgiving and Easter. The rest of the year our audience is local residents. We’ve been operating at a loss for the last couple of years, and are unable to get a bank loan. We own the land and the theater building, and have put them up for sale with no success. We even closed the theater for two months this summer to save money. We don’t know what to do.
By Coeli Carr, CNNMoney.com contributing writer
You're in a tough spot. A traditional lender won’t provide a loan to help you keep your business, and you can’t find a buyer to take it off your hands.
But there are upsides to your situation.
You own both the property and the building on it. Edward Indvik, a vice chairman in the investment services group of Lee & Associates in Los Angeles, suggests heading to your city’s planning department to find out the allowable uses of the building and property. Then look for ways to generate supplemental revenues from the space, especially during the non-peak season.
Some possibilities, says Indvik, are reaching out to companies that might be interested in using your space as a site for seminars or conferences. People might also consider getting married at the theater and hiring you to do the catering. Let the community know your site is open for other business, such as providing recital or practice space for other budding artists.
Joel Shulman, assistant professor of entrepreneurship at Babson College and an entrepreneurial finance expert, concedes that such measures will probably take you out of your comfort zone. But injecting fresh blood and ideas into your operation is essential. Invite local business leaders you respect in for a brainstorming session, enlist their expertise and partner up, he advises. “An alternative business model is something you must consider given the current economic market,” he says.
A partner who creates a complementary business on the premises could pay rent and give you a percentage of the take, says Shulman. Such a person could also act as agent and bring you clients who could use the space during non-peak season or during the day.
Another approach, says Shulman, is to do simple market research by asking local residents on your subscriber list what would inspire them to attend performances more frequently. Perhaps, he says, patrons would prefer to see only the show and would rather dine elsewhere. “It’s easy to lose money on a food business,” says Shulman, who cites spoilage, theft and labor costs as problematic issues.
If you eliminate the dinner, you might be able to raise the price of the theater ticket. By no longer serving a full dinner, you might attract a partner who’d want to set up a cafe or other type of eatery on your premises.
Increasing revenues in whatever way you can will make your business, even in a sluggish economy, attractive to potential buyers or lenders. With recent losses, your negative trend line is the worst thing to bring to a bank, says Shulman. However, non-traditional sources of loans are still available.
For instance, businesses that can't find bank loans can still apply online for loans from microfinance institutions like Accion USA. Premal Shah, president of Kiva, a global organization that helps people make loans to individuals in developing countries, also suggests visiting Prosper.com, a person-to-person lending site.
“It’s the eBay for loans,” he says. But first, try to boost your sales, he recommends. “It’s very attractive to a lender [if] you’ve found alternative revenue streams. It shows you’re a good entrepreneur.”
Give us your advice: Check out recent “Ask & Answer” questions.
From Dave – Grand Rapids You state that no banks will help you. I'd be curious if you had approached SBA lenders in your area. Also, many smaller banks, who might be interested, may not be comfortable with SBA's programs, and therefore not offer them. With current 90% guarantees on the bank's loss and a thriving secondary market, there is almost no risk of loss for lenders selling an SBA loan. If your local lender needs help with SBA lending, there are folks around (like myself) who assist banks and credit unions with this process, allowing many more smaller lenders take advantage of the program. Suggest SBA to your lenders and then let them know there's folks out there who can help them get through the process for free. Maybe that will get you a few more bites.
Secondarily, strongly consider having one partner go get a full time job elsewhere, providing a secondary source of repayment. This will also help bankers feel more comfortable with your request. Hope that helps.
From BETTY NEWBOLD, COLUMBUS, OHIO Small business needs to do what 'big' business is doing now – change the way you do business for 'customer acquisition'. How would you feel if in 48 hrs, you had increased your customer base by MORE than 100,000 customers? That's exactly what happened to Allstate with their roadside assistance product when they signed on and became a part of my company. The same thing happened with DuPont with their water filtration system. Their sales of that prod. actually DOUBLED in less than 3 days. It is the business model of today and the future. I wish I could show you how it works.
From Gavin Tonks Johannesburg Gauteng Hi what I would suggest is to change your business model
Can you not outsource the kitchen and find a restaurant that will take over and pay rent
The same with the shows find companies that will hire the venue out
Look to functions many corporates functions are not the boring old stuff we did one 2 years ago for a company and turned it into a stage production and even made music videos for the show
You need to say to people we have the venue for hire you partner us to make it happen
From Bill Hi Shaun, do you think that your lending resources would be interested in investing business in China? I am a Chinese Canadian. I have a couple of restaurants in China and I am planning to expand.
From Dieter Diaz, Los Angeles, Ca. In a market like this, with limited or nonexistent funding your options aside from the ones listed above are limited and will lead you to private financing. It is an ancient form of providing the liquidity that your business requires to continue to operate. Do keep in mind that when seeking private funds, you will pay a higher cost as they are coming from a limited source with more lenient underwriting guidelines.
From Larry Fontaine, Grand Rapids, MI – The Home of 15%+ Unemployment Increasing sales is a must. Whether through current strategies or new means of revenue. Borrowing and hoping isn't going to move the company forward…that being said, there are funding options that are alternatives to the traditional banks. Realizing that the way businesses used to borrow is gone, at least for a few years, we offer cash flow loans that are unsecured and approved using the cash in, cash out over a 3-6 month period. If your sales are created during a specific timeframe…pre-plan and apply while sales are hot. Cash in hand will allow you to manage the slow periods more effectively.
From Jessica Lynn, Milwaukee,WI Maybe you should see if you can book comedy acts or something during the off season. Think outside of the box. People are always looking for something to do on a Sat. Night. Or maybe for your dinner theater offer "groups" that can run the show. Perhaps.. offer advertising to local businesses in your area. I am sure they would love to see your shows sponsored by them!! GOOD LUCK
From Shaun Smith, Wilmington, North Carolina For businesses that are unable to acquire traditional bank loans consider working with a private lender. I work as a commercial finance consultant acquiring loans via a variety of lending resources from national lenders, private equity, portfolio lenders, institutional investors, etc.. These lenders are open to loans that banks won't fund.
Shaun.Smith@wfginc.net
Commercial Finance Consultant
Wilmington Financial Group
From Jason, Aurora, IL If you are in business or employed and you find you or yourself standing or sitting around not doing anything at certain times, then there is plenty of opportunity to learn new things, or put forth additional effort in creative ways. If you do not, in this environment, your chances are slim.
In other words your talking about a promoter, yes which, is a great idea! But it only depends on the experience of the promotor! If they can paid, and don't take advantage of the people he's bring out! -Rod