I have a cautionary tale regarding start up capital.
I started a business 3 years ago with a fellow who feared bank loans like the plague. We grew rapidly and enjoyed tremendous success in building a client base. But we were never properly capitalized or financed. We became a 3 million per year company that lived payment to payment. It was a horrible way to run a company. I finally got fed up and went out and met with 5 banks regarding loans, got some encouraging advice, and got the paperwork in order. But when I went to my partner, he said no because he was planning on buying a house in the next 6 months and didn't want his name on anything.
Well, this fellow began wearing on my nerves. He came to work less and less (while still taking the same salary as me), and fell back onto some personal demons that I had hoped he had conquered years ago. In the end, I had to get him removed from the board of his own company (with his name on the marquis), and then I had to fire him for violations of the company substance abuse policy. He will be losing his license, his wife and son (she's leaving him), his business partner, and his company (because it won't survive without me).
So I have decided to leave him. Funny, it sounds like a divorce, but it is. I found two other like-minded professionals, and after multiple meetings with several law firms to cover our butts, we open our doors in three weeks. We will start out life with four months of operating capital already in the bank, and a full schedule of work. We obtained 20% of capital from personal funds, and the rest from a combination of credit lines and loans that the bank was kind enough to suggest.
I'm young (under 40), and I've been given a gift that few people get: I had a thriving business that failed because of poor financial decisions, but I get to start over. My warning is this: do not start a company without financing. Starting out behind the eight ball is a recipe for disaster under most conditions. Banks usually look for 2 or 3 years of operations before they call you a success. There's a reason for that: you won't make it past 2 or 3 years if you don't manage the financial picture properly. So if you can't find a way to float 2 or 3 months of operations, you will end up in trouble.
And always default to the truth, even if it means telling yourself "This isn't going to work this way."
