Unconventional Financing
Building Assets
Building assets is your best method of financial positioning. Even if you abort your plans late in the planning stages, you can use most of these assets for other purposes.
Home Equity
Despite the current housing market, many people have considerable equity in their homes. In fact, home equity loans and lines of credit are a primary financing source for many first-time business owners. If you’re just beginning your planning, you might consider making modest upgrades to your home to increase its value.
Retirement Funds
You might be able to borrow against a 401 (k) plan, even choosing the interest rate of your loan to yourself. In any case, having a retirement plan improves your net worth, which helps when you apply for a conventional loan. If you’re still in the planning stages, adding to your retirement plan now can pay off later.
I’m mostly including a mention of retirement funds for completeness. Due to the risk involved, I like the idea of borrowing from a retirement fund even less than I like leveraging home equity. It shouldn’t be a primary source of your financing. Its primary use should be in establishing a healthy picture for your banker, so that you can invest his money instead.
Stocks & Bonds
You might not have an investment portfolio, but if your current job offers stocks, it’s time to evaluate what you have or start buying in while you’re still planning your store. Depending on how you plan to finance your store, you might want to keep the stocks or liquidate your holdings. If you do cash out, watch your timing and try to wait as long as possible; if you decide not to enter the game retail industry after all, you probably can’t buy back into those stocks.
Trade Magazines
Virtually every industry has its own trade magazines, and these trades pay good money for articles. If you can explain something in simple terms, stick to a topic, and follow a publisher’s guidelines, you might be able to crank out an article or two. With some trades paying up to $2 a word, a single article might net $500 to $6,000. You don’t have to be a professional writer, either. The most important skill is knowledge of your topic.
Coin Collecting
I used to deliver pizzas. At the end of the night, instead of turning in my coins with my other money, I threw them in a jar. Every Christmas season, my wife and I rolled that change to pay for the holidays. The last year we did that, we cashed in $1087. When I left there to buy my game store, the joke around the pizza place became that “Lloyd bought War Dogs with rolled-up coins.” While you probably can’t cover all your expenses, a couple of years’ worth of change could help you reach your break-even months sooner than expected.
Multiple Bank Accounts
It’s easy to rack up multiple bank accounts. You have your main account for your family. Then you have the old one you used when you were single. You might have a cash reserve in an investment account. There’s that account with the expensive bank that you only opened to collect the $25 signup bonus. You have some money in PayPal. Corral all of these stray dollars into one place and you might be surprised at how much it is.
Yard Sale
Turn a bunch of junk into cash. A successful yard sale might net up to $1,000, depending on how much you have to sell. Just as nice, it might clear up space in your garage where you can stockpile fixtures until you’re ready to move into your storefront.
Your Test-Market
In an earlier article, I recommended testing your local market by running a convention space, hitting trade shows, or helping an existing retailer. I’ve even seen game retailers run flea market tables. This method works best with second-hand merchandise that you can buy cheaply and sell quickly, often starting with a personal collection. Start with just $200 or so in inventory and build up from there, reinvesting your sales into more merchandise. If you’re lucky, you might start with $2,000 to $5,000 in second-hand goods that you won’t have to buy when you open your store.
Demo Materials
If you took my advice to become a demo volunteer, you might have a collection of materials to start with. If you really ran with it and become a volunteer for multiple companies, you could have more materials than some stores use. Between promo material and any unopened compensation they sent you in the form of product, you could have a few hundred dollars in assets.
Start a Fixture Collection
Retailers often end up becoming fixture junkies. You can’t help but look around any given store, not just to see what they have, but how they display it. You’ll ask yourself “Can I use something like that?” surprisingly often. Start your neurosis early by acquiring cheap and free fixtures while you’re still in the planning stage, months before you sign a lease. Picking up a usable piece each month might save hundreds or thousands off of your startup costs by the time you open.
You can find cheap fixtures in auctions and going-out-of-business sales around town. You might make an offer to a landlord who’s stuck with the property of a vanished tenant. You can find free fixtures occasionally when stores of any size—convenience to big-box—remodel. If you’re in the right place at the right time, or put yourself in the right place at the right time, you can snag very expensive fixtures that would otherwise be thrown out.
Manufacturer Charity
The manufacturers whose products you’ll sell have a vested interest in seeing you succeed. The attitude of manufacturers toward retailers runs the gamut from heavy favor to outright disdain, but asking for promotional materials and products can yield some much-needed inventory. As always, don’t ask for things you don’t need and don’t get greedy. Asking for a bonus on top of an order is better than just asking for a freebie outright, for example.
Buy Debt
While many people avoid debt, the right use of your company’s credit and your personal credit is a tool for you to use. Carpenters don’t refuse to use nails out of some crazy sense of elitism or personal acumen. Neither should you be afraid to indebt your company if it’s the best thing for your company’s overall health.
Assume the Seller’s Debt
If you plan to start by buying an existing business, then you can reduce your purchase price by acquiring debt at the same time. Suppose, for example, that a store owner wants $25,000 for his store. When you ask about his current debts, he tells you that he owes his distributors $4,000 in current and late bills. Tell him you’d be willing to take over that debt if he’ll reduce his asking price by $4,000. If he has any intention at all of paying that bill, there’s little reason to reject your offer. You can then negotiate repayment terms with the distributors to whom he owes money. Offering to repay $200 on top of each weekly order defers that final payment by 5 months.
Continue that exercise with each of the seller’s individual outstanding debts (rent, utilities, other service providers, etc.) and you might save yourself $15,000 in upfront cash. You’ll pay off most or all of it eventually, but you’ll reduce the startup funds needed by a substantial amount.
Credit Cards
No sane person would tell you to put all of your startup expenses on a credit card, but it can make sense to finance your capital reserve on personal credit of one kind or another. Notice the careful and deliberate use of the word “can.” That doesn’t mean it always makes sense. Some factors in favor of this plan include a) a low burn amount needed, b) low interest rates on the credit cards , c) a strong incentive plan with your credit card company, or d) high local commercial loans rates.
Bring on Investors
Someone investing a few thousand dollars can put you over a benchmark and turn on the light green for you to continue forward. These investments need not be large. An investment of $500 up front could be worth far more than its face value in its reduction of your primary loan repayment, depending on how you word your investor agreements (hint: defer any repayment for six months to a year after opening). Such low-dollar investments are much easier to get from friends and family than a $20,000 lump sum.
