Starting Capital - your experiences

[Derrick]

Hello all,

I have stumbled upon this site in my desire to start another business.

First question for my research is Starting Capital. Not how much, those numbers I can figure out (I'm an accountant), but how to. I have seen posts that say you can't get financing for a club unless you have prior experience in the club business, an amazing business plan, and low risk club (is that possible) :).

While telling us what to do is great, I think sharing your experiences of how you raised capital to buy your club would be of more value to all of us. Tell us the steps you took, the hardships you've encountered, the rejection, did you go through venture capitalists or banks, etc...

Thanks,

Derrick

[Bull]

Hi Derrick.

Your recipe for success is great. The problem is that a club is seldom all those things, but unless they are, they have a problem raising the interest from investors/banks that other businesses do.

In my short and limited experience the biggest obstacle is the industry itself. Whenever I've approached anyone, whether investors, lenders, insurers, suppliers, friends or whoever, there has been one underlying attitude: "So you're opening a club, huh? Yeah, you and the last 100 guys, buddy."

One thing I have asked the skeptics is whether they would think the same thing if I was pitching an unfranchised restaurant? I think that this has much more risk than a club, but for some reason, nightclubs have more risk in the mind of investors. Probably because so many are so poorly managed.

The way that we have overcome that stigma is to sell ourselves as a competent management team, and with sound risk management. Your investors don't want to hear so much about how your plan 'just can't fail' as much as what you plan to do if it does. What are your contingencies? Are you so sold on your concept that there is no room to change if it doesn't work out like you've planned, or is there a chance to adapt to the market before you run out of money? Can you admit failure before it's too late?

Competence is half the battle. Closing the deal is the other half. Neither one is going to win the war. My advice is to involve yourself with investors already in the business, as they will not have that prejudice, and they will have some valuable input. Listen to them, because they know more than the rookie. The other benefit they offer is their endorsement to lenders. What could be a bigger selling point to the bank than someone experienced saying, "I have so much faith in his abilities that I'm investing $xx in this project."? Big hint here: if you can't sell yourself or your idea to someone experienced and successful in the industry, then you're going to fail. Save your money in this case.

[Cheek]

I just worked for years and saved money. I was smart enough not to get myself bad credit when I was young. I also made some smart financial moves when I was younger. For example I bought investment property at a very young age using FHA loans etc. Owning property and building up equity can be an extremely powerful asset down the road for collateral on loans, etc. It also shows you are responsible and make good financial decisions. Other then the property I just saved saved saved. I never bought fancy cars or expensive clothes or flashed money around at bars and restaurants. And come hell or high water I ALWAYS put a portion of my paycheck into savings. Usually a set percentage, and I would learn to live without it.

There is no overnight recipe for accumulating capitol for a business. I always knew I wanted to own a business even when I was young. So I planned for it and saved and always kept the end-goal in mind.

I always am amazed by my friends who wake up one day and decide they want to buy a house. I ask them how much they have saved up and they shrug their shoulders and say" I dunno, I could scrape together 2 or 3 thousand I guess". Then they are shocked when they go to get a mortgage and can't believe the lenders want 20% down, lol. You gotta realize these things take time. Start planning now for things you want 5-10 years from now.

[Derrick]

Bull,

Thanks for the post. You addressed exactly what I was worried about - Banks/Investors being skeptical of someone opening a bar/nightclub business. The problem why most of those people fail is because they wanted to open their clubs so they can "have fun." They don't usually have the mentality of "I want to start a successful business that will benefit my community, my employees and lastly myself."

I have three other partners that are going in on this with me - although not investors, I have a lawyer, a financial advisor and another accountant. We would like to use as little of our own money as possible, that is the best way to do business by using other people's money.

You mentioned to involve myself with investors already in the industry. How would someone go about doing this? You can probably call the bars/clubs all you want asking to speak to the owner, but will you ever get through to talk business with them, if it doesn't benefit them? - please send a reply post :)

Cheek: If you wait 5-10 years to be successful you are building cobwebs not business, while planning is the most essential and important part of running a business, 5-10 years can be a timeframe where you lost out on a big opportunity and possibly a lot of money. Take for example all of the people that started Internet sites in 1995 (which at the time was difficult and pricey) - if they waited until 2000-2005 many of them would have lost out on hundreds of thousands of dollars. They also wouldn't have the dominate market share they have by getting started 5 years before anyone else.

Thanks for the posts guys, anyone else with start up capital stories?

Derrick

[doppelganger]

Derrick, your comment "Cheek: If you wait 5-10 years to be successful you are building cobwebs not business" concerns me.

The clubs that I have seen work, actually involve about that much time. From conception to trading.

[Cheek]

lol

what I meant was when I was a young fella (18-19 yrs) I was smart enough to start socking away money. Because I knew at some point in the future I wanted to be self-employed. I had no idea at that time what that business would be and I certainly had no "golden" opportunity staring me in the face.

What I did have was a very clear understanding that being succesful and having what I want in the future was directly related to what I did at that particular time. I wasn't gonna be one of those guys that posted a forum saying "geee, I have $30,000, can I open a business!?"

You asked for stories on how people come up with capitol for their business and that was mine. I certainly didn't expect to take criticism for it :mad: However, at the age of 34, I am a very succesful (in my opinion) and debt free. Life is good, and I have no cobwebs.

Good luck with your 3 partners and taking on debt to open your business.

[Derrick]

Cheek,
I didn't mean to make it sound like critisism sorry if thats how it came out. I just wanted to clear up that not everyone needs to wait 5-10 years to start a business - some people do but it shouldn't be a blanket statement for all.

I admire that at the age of 18 you were thinking the way you were. If only we all started that young. Also at the age of 34 and you own a bar/club - that is impressive as well. I also appreciate that you were the one person that shared their story.

Speaking of which does your club have a website at all? It would be interesting to see what everyone's club looks like in this forum.

Thanks Cheek,

Anyone else out there with a club have a story of how you raised capital (money) to open up?

[BigC]

Man, my advice to you. If its your dream to open your own club, then do it. Dont listen to anybody that is negative about it. I am in the same boat as you. I am tired of all the negativity. I say inform yourself as much as possible and make it happen. I think a lot of information here contradicts what they say and what I see. They always talk about how difficult the business is, and then they go on about the drunk and lazy club/bar owner that makes a killing. Then I personally go out and see some of the bar/club owners in my area, and trust me they are in no way any more intelligent then you or I. The way I see it. There is no perfect plan, no one way to do things. So you're damned if you do, and you're damned if you dont. Derrick to me sounds like an intelligent person. Just answer his questions and provide him with the info he seeks. Dont insult his intelligence by telling him what he cant do. How bout telling him what he can do, and how to go about it.

[Andrew]

BIGC says "Then I personally go out and see some of the bar/club owners in my area, and trust me they are in no way any more intelligent then you or I"

This is true. What they do have is DRIVE and a CAN-DO attitude. They are driven people -that's why they succeed. So much so, that they can't stop buklding empires, actually

That is what it takes. I should know because I am a bit lacking in that department. Drive and enthusiasm is infectious.

[Shock G]

Good point Andrew.... tenacity and drive are very important components of this and any small business! Lost of people posting on this site, including myself have been very quick to jump on someone and 'deflate thier baloon'. I guess what we don't want to see is someone make the same fundamental mistakes that others (including myself) have made. The Nightclub Business is much more complex than a decade ago and young entrepenuers need to know up front what they have in store for them!

Again, having the motivaton to get a business started is more than half the battle...... its just important to have explored the other half and have no suprises! :)

[Cheek]

I don't see any of the negativity that Bigc is talking about. We do tell people about the realities of the business. Is it rocket science? No. Does it take an Einstein to run one? No. Can they make a lot of money? Yes. Could you end up being a flash in the pan from poor planning and execution? Yes.

With that you have to realize some basic facts about this business - You are in the business of sin. Every time you see a drunk driving accident on the news, who do they focus on? The "evil" barowners that are out to make a buck at the communities expense. You WILL be sued by someone, probably several people during your course of ownership. You WILL have liquor violations and be drawn into court to defend yourself and your policies. It's not all fun and glory and money-raking. If you can tolerate the negative aspects, then you will be able to handle it.

however, where there is a will there is a way. If you plan and execute properly, you will have a long-lasting and succesfull business.

[Shock G]

Cheek,

Good points and all so true...........

[Derrick]

Thanks BigC. After reading nearly all the posts in this forum I see a trend. People like to answer questions but they do it in a way that belittles the person asking the question.

Sometimes there is never a straight answer to the question being asked. All I did was ask for club owners to share their experiences about getting the money to fund their club and out of 11 posts to this thread only one person did just that.

So let's try this for the third time, can any/all of the club owners in this forum share your experiences on getting money to start your club? Also, if you can, post the website of your club (like ShockG - good website by the way) so we can see what type of club you started with the money you raised.

Thanks,
Derrick

[Shock G]

We did neglect to answer the question.......

I began my involvement in the nightclub business as an employee for several years.

I was able to save money and had the opportunity to buy in at the ground floor of a club called Bullwinkles 11 years ago. The club grew and produced plenty of revenue over 8 years. Enough to do a major renovation and reconcept in 2001.

A suggestion would be to start small if you want to go it alone. If you can buy in to some type of partnership in a bigger club, thats fine too, but it comes with a fair amount of headaches. (partnership that is)

Banks are very reluctant to supply capital to anyone just starting in this business even though you may have collateral.....just because of the high failure rate.


If you have very little cash and you're looking to get involved with a big club, look for partners with experience.

[Bull]

Hey Derrick.

You know, I'm not sure that there is much that you can do about other people's skepticism other than those things I've already mentioned. In the end and above all else, basic business principles prevail. This industry, like all others, attracts investors/financiers because there is a promise of a return on their investment. That means only one thing-- money. If you're presenting yourself as a higher risk, then you have to promise more money (to a point). The way you make yourself a lower risk is to secure your investor's money, usually with assets. Beware of one thing though: If your promise of a return is too much, then the alarm bells will start to sound. Risk/reward should be mutually proportional in a legitimate business investment.

Using other people's money (OPM) to start your business is the same with any other industry. That is: Nothing comes for free. If I were an investor looking at your business plan, I would be impressed by your well-rounded ownership structure, but you would lose me when I learned that you had little of your own intrests on the line. Investors are looking for someone who needs that last little bit to make it go, rather than the someone who needs the big push to get it started. Your ass has to be on the line before anyone else will put theirs there.

As for finding other people in the industry, simply go to another city and introduce yourself to the owner. Make sure it is the owner, because a manager is way too busy to talk to you. As with any business, club owners love to talk about their business and will offer you tons of free information with little prompting. Just present yourself as someone looking for advice/help rather than someone looking for investor/help.