Sunday, May 8, 2016

Financing (Tradecraft)

Our construction project will cost us over $100,000 when it's completed, hopefully in a month. That includes all the architectural and engineering work, permits, construction, and even the tables and chairs.

I wanted to mention the variety of creative financing "instruments" we used and are still using to fund this project. We've also spent a bunch of our own money along the way, but we've paid even more dearly in opportunity costs. It's painfully clear there were directions we could have taken, growth that we gave up, to make this project happen.

I have modest goals with our expansion. If it increases our revenue by three percent, our costs are covered. Just three percent. I'm hoping for ten percent. When we went from no game space to game space, our sales soared sixty percent.

That's the economic reasoning if you were wondering why anyone would spend a hundred grand to improve someone else's property. I don't own the building, I'm just using it for another seven years, with an option for five more.

The reality is we need to serve our community better. We need to delight them and entertain them and fulfill them in a ways only other gamers understand. That is our mission. This will accomplish that.

Financing started with Kickstarter. When it failed to attract enough customer backers, I made personal appeals to everyone I knew in the game trade. It worked, but barely. I have much gratitude towards a core group of publishers and other game store owners. Paizo and Atlas Games stand out as our heroes.

From Kickstarter, we moved on to a community funding non profit, my property management company and a variety of private lenders. It did not include a bank, home equity, or credit cards, the traditional small business funding sources. Those wells have been poisoned from the Great Recession. It also didn't include all those fly by night business lending sources, which often charge between 15% and 40% interest on their money, usually sucking it out of your daily credit card receipts.

Negotiations involved some creative finance, such as liens on my cars, security agreements on inventory and fixtures, "senior" debt, lower interest in exchange for product discounts, a loan built into the rent payment, acquiring inventory on time, and a holiday balloon payment amortization table to coincide with our income stream (I'm proud of that one).

A couple of our loans are already paid off, including the one with the car liens. In fact, I've always paid off business loans early. Every one. Cash flow is king, and loans drag it down. Also, this is a lot of money for an individual, but it's a relatively small amount for a profitable business our size.

The truly amazing thing is we turned down a couple hundred thousand dollars of lender money, due to not coming to terms or the amount being too small. I just can't manage a dozen, five thousand dollar loans. I will lose track and it will keep me up at night. We also turned down several business owners and I'll explain why.

 If you own a business, and you have extra cash, you will always make more money investing in yourself. I learned this with one of our first angel investors, and then quickly walked a couple other people through it, as the reality dawned on them. Even bad inventory decisions are more profitable than me or the market. I can't match you, when it comes to profitability on your money, and I'm certainly not as secure. Invest in yourself first, then other people if you're feeling generous. Everyone else who works for the man? We're a pretty good bet compared to your options.

I also learned it's way easier dealing with experienced lenders. They know the language, a reasonable rate of return, and the difference between a loan and and an equity stake. Also, the smaller the loan, often the bigger the headache, the more questions, and the more security the lender desires. Weird that way.

All of this is banking off my personal reputation. None of this would be possible out of the gate as a new business owner. I am more astonished than anyone this was possible. We live in a crowd sourced and crowd funded world nowadays, but it doesn't mean my primitive monkey brain intuitively grasps this. In my confusion, I default to gratitude. Thank you so much for making this possible.

No comments:

Post a Comment