Stalking the Wily Dollar: 29 Creative Ways to Generate Working Capital

 

by Marilyn and Tom Ross

 

Going into publishing without adequate preparation is like trying to determine the nature of the ocean by studying a cup of water. You need "adventure" capital to make your dream come true. And cash flow to keep producing more books. There are more ways to generate cash than there are instruments in an orchestra. Some, however, are more viable than others.

Many of the most visible options—banks, government programs, and venture capitalists—may be your least likely sources to stalk for business capital. Most new firms gain financial support one of two ways: through their owners or via private investors. The role of the private investor is underestimated and undervalued because it is neither institutionalized nor documented.

How much do you really need to get started? The amount may not be as much as you thought. According to a study done by the National Federation of Independent Business, one out of three new businesses starts with $10,000 or less. The next most common capital investment amount is from $20,000 to $49,000. You'll probably fall within the $10,000 to $25,000 range. Examine the following money sources to decide which ones make sense for you. By doing everything yourself, you can get by on a shoestring. To create a professional quality book, you're looking at $10,000 to $25,000. With a good book, a solid business/marketing plan, and your strong commitment, money just may be available.

 

. If you're a home owner, an obvious money source is your home equity—four walls and a small fortune. For most of us, real estate has appreciated at a mind-boggling rate. These windfall profits can be perfect solutions for property owners in most large cities. Consider getting a second mortgage. Or, if you really intend to take publishing seriously, you may want to move to a smaller town where quality of life is better and living costs are less.

 

. Have a passbook savings account, CDs, or annuities? Most people are tempted to use these to start new businesses. Don't. Once it's gone, it's gone. On the other hand, there's an old axiom that says, "Thems that got, gets." Never was this more true than when approaching your banker for a loan. If you have $7,000 in savings, there is little hassle in borrowing another $7,000. The lending institution probably won't even require your account as collateral. Now you have $7,000 of other people's money (OPM), plus your original $7,000 (less the amount of interest on the debt, of course). If you reverse the process, though—spending the $7,000, then trying to borrow that amount—you have about as much chance for success as the guy who went bear hunting with a switch.

 

. There may be other assets you can use to capitalize your business. Do you receive rents from real estate or dividends from stock? What about royalties from a book, song, computer software, or invention? One acquaintance used her hefty divorce settlement to start a publishing company.

 

. According to the Boston Globe, baby boomers may inherit the nest egg needed to start a business. Due to previous historic gains in the stock market, high real estate prices, and the growth of millions of family-owned businesses, many baby boomers can expect generous inheritances. The bounty amounts to an estimated $8 trillion in cash and other assets over the next 10 years!

 

. In the meantime, consider your credit cards. Many a creative financier has breathed life into a small business thanks to multiple Mastercards or Visas. In fact, some folks plan years ahead to use this strategy. They amass as many cards as possible, use them regularly, and pay punctually. As a reward, the card companies keep raising their limit. We know of one person who borrowed almost $30,000 on his credit cards. The downside is interest rates for this money are exorbitant.

 

. Building a good personal credit history will go a long way toward helping you in business. Borrowing increasingly larger amounts from your bank, S&L, or credit union—and repaying promptly—is a good start. Business start-ups usually can't get unsecured loans. Typically the business owner must put up collateral—his or her home, plus other personal resources. And most banks require your personal guarantee, sometimes even that of your spouse if the collateral assets are jointly owned. Often your individual financial statement becomes the basis for the loan.

Be aware there are different levels of bank officers. While a regular loan officer at a branch may have a limit of $10,000, a senior loan officer at the main location can go much higher without requiring committee approval. Usually the higher you begin, the better your chances. If you dead-end at the local level, ask how to contact a regional investment bank specializing in financing small companies. There you'll gain access to a wide range of lenders and investors, including pension funds and insurance companies.

Money is expensive any way you look at it. There would be no problem if you were a Fortune 500 company and could borrow at the prime rate. But you're not. So the banker will expect to get several percent above prime as a precautionary way to hedge his or her bet and protect the bank's investors.

 

. There are techniques for talking your way into money. Practice giving a 20-minute presentation. Ideally, rehearse with a camcorder. Short of that, stand in front of a mirror and use an audio cassette recorder. Monitor your eye contact, comfort level, and voice projection. Dress conservatively for your interview. Bankers are known to be a restrained group. Don't inflate your numbers, it smacks of amateurism. Be sure to prepare an impressive "dummy" of your book. It's hard for investors to picture an intangible object. And have your marketing plan well thought out and on paper so the banker can see how the money will be repaid.

Put together the best possible sales pitch for your book. What makes it special? Why will people buy it? If you are not clear on these issues, you shouldn't be approaching a lender. Use third-party support (what someone else says about it). If the book is nonfiction, what problem does it solve? Don't overlook the approach of having your banker read it. If he or she thinks it's great, you're on your way.

 

. An acquaintance of ours discovered another approach. We don't recommend it, but you be the judge. Mike told his banker he wanted a loan to go into business. The bank refused him. Later Mike learned if he'd asked for a "home improvement" loan or a "vacation" loan, he would have achieved his aim.

 

. Perhaps you have a vested interest in a retirement fund or pension plan. They often make loans at reasonable rates. Consider this as a revenue source.

 

. At one of the National Speakers Association workshops we attended, a woman told of getting an unusual birthday present. Her dad wrote her friends and family telling them about her upcoming birthday and that she wanted to do a book. Would they make a pledge? Indeed so. She received enough money to self-publish her book!

 

. If you're a mature person, lump-sum retirement benefits may well pave the way to an exciting new enterprise. There are all sorts of annuities: 401(k)s, IRAs, Keogh Plans, plus a myriad of private and government pension plans.

 

. Ex-executives laid off as a result of mergers and downsizing sometimes receive a cash settlement called a golden parachute. It is meant to ease the bumpy ride back to employment. Instead, a golden parachute can lead to the leap to freedom.

 

. Life insurance is another funding option. Possibly a sizable chunk is lying there in cash value. Presto, magic! Such loans require no qualification and carry attractive interest rates. If you took out a policy before 1965, for instance, you can typically borrow an amount equal to the policy's cash value for about 6% interest.

 

. But what if you've got lousy credit? One nontraditional answer for a small loan might be a pawn shop. Yes, you read right. You won't get big bucks here and the neighborhood may make you feel about as welcome as a furrier at an animal rights convention. Yet if you need a thousand or so to bootstrap an idea, it's a possibility. Such items as stereo systems, expensive watches, diamond rings, sterling silver tea sets, musical instruments, guns, golf clubs, and family heirlooms are most likely to turn the most cash.

 

. Some people get others to participate in their book, both literally and financially. They offer to include a chapter from other writers—for a fee, of course. Several folks have raised enough revenue from this anthology approach to fund the whole project.

 

. There are those who modify their W-4 Forms to get the IRS to "lend" them withholding taxes. This can work if you make out a new form for your employer early in the year. But understand the piper must be paid. If you underpay too much you run the risk of healthy fines and penalties.

 

. Another unorthodox seed money source is unemployment insurance. In Washington awhile back they started a pilot program with 500 unemployed applicants. Called the Self-Employment Demonstration Project, it let jobless workers use their unemployment checks to start their own businesses—up to a maximum of $7,000. The aim was to reduce unemploy­ment and boost small business development. Put out feelers to see if any such program exists in your area.

 

. In these days of troubled S&Ls, many author/publishers turn to F&Fs: Family and Friends. In 65% of the cases, the start-up capital needed for a new business is obtained from personal savings, relatives, and friends. Yet many people shun approaching their relatives and friends. If you believe in your book enough to put yourself on the line, is it fair to prevent your loved ones from participating? Try to find family, neighbors, colleagues, and buddies who seem to be on your same wave length. Sure some will give you a chilly reception. But you'll never know unless you ask.

 

. Another popular source of start-up money is to find an angel. This term refers to a private venture capitalist not affiliated with any institution. Often these people are successful entrepreneurs who yearn to re-live the thrill of the chase. Usually an angel won't require you to put up any collateral; rather he or she will want a piece of the action. In his book Finding Private Venture Capital for Your Firm, Robert Gaston estimates there are some 720,000 angels committing somewhere in the range of $56 billion annually.

So where do you find these heavenly investment cherubs? Go through your Rolodex. Ask around your professional community. Talk with lawyers, bankers, and CPAs. Search out people in your industry who have made money. Or visit one of the hundred or so venture capital clubs around the nation. Venture Associates posts a state-by-state listing online at www.venturea.com/clubs2.htm, or call 303-758-8710. These groups hold regular informal meetings. Here guest speakers give presentations, angels hear your proposition, and lots of networking goes on. Some folks even find their angel by advertising in the "Business Opportunities" classified section in newspapers and business magazines. How much do they invest in a single deal? Twenty-one percent of them put in less than $10,000, 43% less than $25,000, and 64% less than $50,000.

Angels usually want returns of three to five times their investment in about five years. (They are not just financing your operation in return for a simple payback on the loan.) Angels are investors. They expect substan­tial ownership in a company and strong growth potential. That can present a problem. Some start-ups give away too large a slice of the pie and ultimately harm themselves.

 

. What about using sympathetic suppliers as a form of short-term financing? A major vendor that will wait 90 days for payment may be just what you need. You might even entice a local printer into becoming your financier. In this case, the printer absorbs the printing costs in exchange for 15 to 20% of the sales.

 

. If you're a super salesperson, you may be able to convince a banker to finance purchase orders for your product. (They sometimes do this on receivables for established customers.) Here's how it worked for one person: When he got a purchase order, it went to his accountant, who verified that the order was accurate and the purchaser was credit worthy. Then the bank advanced him 40% of the value of the order. This equaled his production cost. When he billed the customer, he faxed a copy to the bank, which then sent another 40%. Finally, when the customer paid, the bank took its 80% of the bill, plus interest, and sent him the rest—which was his profit. In effect, he pledged the purchase orders as collateral to gain short-term financing.

 

. The Small Business Administration has a micro-loan program designed especially to help part-time or home-based businesses. These SBA loans can run from a few hundred to several thousand dollars. Call 800-827-5722 to locate the nearest SBA office and get more details or go online to www.sba.gov/financing/. After all, seed capital from Uncle Sam has financed many a fledgling business.

 

. The U.S. Department of Agriculture (USDA) oversees about 29 money programs. For example, the Business and Industrial Loan Program can help start almost any kind of business as long as it is in a town of fewer than 50,000 people. The USDA wants to foster economic growth in rural areas. It guarantees loans up to 90% of the principal advanced, which local banks find very attractive. For more information, call 202-720-4323 or check them out at www.usda.gov/.

 

. You might also form a strategic partnership. That's what Bill and Sue Truax did for their book, The Blitz Call: A System for Fear-Free Prospecting and Making Cold Calls. One of their existing training/consulting clients, Petro Canada Products, underwrote all the publication costs. The print run was 6,000 and the company took 1,000. The two parties split the net proceeds 50/50 until the company is fully reimbursed for their costs for the first printing. Thereafter, Petro Canada Products gets only 10%.

 

. Does the idea of having bucks in advance reassure you? Perhaps selling advertising in your book should be considered. This works especially well for regional books and directories. You can sell the inside front cover, inside back cover, plus quarter, half, or full interior pages. If you decide to run with this idea, put together an advertising rate sheet and realistic figures on how many books you expect to sell. You must be a good salesperson and have reassuring information if you want potential advertisers to part with their cash. (We go into detail on how to do this in our How to Make Big Profits Publishing City and Regional Books. Check it out at http://www.CommunicationCreativity.com.) This works ideally for certain kinds of books where commercial product or service tie-ins coincide with the subject matter.

 

. Another innovative way to generate working capital is to presell your book. Briefly, you can do a prepublication special mailing to your personal mailing list—you know: friends and acquaintances, colleagues, people who've given you their business cards, your holiday card list, fellow alumni, and any other similar groups whose snail mail or e-mail addresses you have. To special sales outlets or wholesalers, offer a generous discount for cash-in-advance early orders or run small mail-order ads that collect money for future book fulfillment. By using such tactics, some self-publishers earn enough to pay their printing bill before a single book has rolled off the press.

 

. Subscribers could also be your answer. Years ago in England poets used this approach to cover the costs of printing books of their poems. More recently, it was employed by David McCann, an assistant director of foundation relations at Cornell University. McCann put together a collection of his poems, titled it Keeping Time, then put out a classy announcement offering subscriptions. Many of his family, friends, and colleagues were delighted to participate. For a nominal sum, their names were listed in the back of the book and they received an autographed copy upon publication. By using this patron approach, McCann was able to cover the majority of his self-publishing expenses. You might have three levels of participation: Platinum ($500), Gold ($250), and Silver ($100).

 

. Attending a writers' colony or retreat may also be helpful. While it will not likely provide you with working capital, it may help get your book written. They offer free room and board to budding authors and artists, and sometimes a fellowship which can help with book publishing expenses. Stays range from as short as a week to several months. Such places provide unencumbered time and valuable association with talented people in the same field. Writer's Digest magazine publishes lists of such retreats from time to time.

 

. Grants can offer small presses (not necessarily self-publishers) another money source. As a rule, they are designed either to support a general work-in-progress or to fund a particular literary-oriented or social consciousness project. In most cases the small press must either have nonprofit incorporated status and an IRS tax exemption, or find a sponsoring organization to provide such a conduit. Grants, like ice cream, come in three main flavors: the national government, state governments, and private foundations and corporations.

The vanilla of grants is represented by The National Endowment for the Arts, the largest single resource of federal funding available. While past emphasis has been to support poetry projects, today there is a more balanced program. The NEA has been the road to print for poetry, fiction, creative prose, and contemporary creative literature. If your book has more literary merit than commercial appeal, this is a particularly intriguing funding source. To get more information, go online to www.arts.gov/ or call 202-682-5400. They will send you a booklet containing guidelines, instructions, and an application form.

State funding is next in volume, the chocolate of grants. It is given via state arts councils. To get information on what is available and how to apply, contact the state arts council in your state capital.

Foundation and corporate fund-raising is the strawberry flavor of grants. It is extremely difficult, however, to determine who might have money available for your book. If you decide to pursue this course, talk to your librarian about listings of foundations and other private organizations that have grant money available for research. Sometimes you can be lucky and dovetail with a specific program that one of these foundations is concentrating on, such as an educational or ethnic-oriented project.

Another source of information is the Grantsmanship Center in Los Angeles. It conducts workshops, employs a research staff, maintains a library, and publishes a magazine. The Center's article "Program Planning and Proposal Writing," gives clear, explicit guidance for the novice grant hunter. Creating a good proposal is over half the battle. This is one place where good writing skills pay off royally.

Going after grants is time-consuming hard work. But when you click, the rewards—like a big bowl of ice cream on a hot day—make it all worthwhile.

There is money available for a good investment. Your role is to ferret it out. The job of finding the right means to supply your working capital is challenging, yet you may find one of the above ideas your perfect solution for stalking the wily dollar. Good luck!

 

© Copyright 2005  Marilyn Ross

 

Marilyn and Tom Ross are the coauthors of 13 books including the best-selling Complete Guide to Self-Publishing and the award-winning Jump Start Your Book Sales. Through phone consultations and ongoing coaching/mentoring, Marilyn empowers authors and self-publishers to realize their dreams. She can be reached at 720-344-4388 or Sue@SelfPublishingResources.com. Visit http://www.SelfPublishingResources.com and sign up for their FREE monthly ezine on how to make more money selling books—plus get your FREE downloadable copy of "15 Smart Strategies for Self-Publishing Success." Order books by calling 800-331-8355.

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