WEBVTT
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Aaron, thanks for joining us today.
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Introduce us to yourself and the work that you do with the
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SBDC.
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Absolutely.
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So my name is Aaron Harned.
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I'm the Center Director for the Paducah Small Business Development Center.
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So when people hear Small Business Development Center, they don't really know what that means a lot of times.
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Like our name describes us, but it's not a clear indication of what exactly it is that we do.
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So the SBA funds several different things that they call resource partners, and we are one of their resource partners.
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So that the main ones they fund are the Veterans Business Outreach Centers.
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They work primarily with the veterans, Women's Business Outreach Centers, which each state has at least one Women's Business Outreach Center.
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They fund a program called SCORE.
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That's for retired business people to want to still provide mentorship.
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But their largest program is the Small Business Development Center, which is who we are and what we do.
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So we are the largest program and mandated to serve every county in the United States.
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So all states and all U.
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S.
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territories have some small business development center service available to them.
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So entrepreneurs or business owners anywhere in the United States or U.
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S.
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territories have a counselor or business coach like me available to provide no cost, confidential business consulting services on behalf of the SBA.
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When entrepreneurs who are Starting out and they just have their idea.
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They don't know what first steps to take.
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A lot of times we send them straight to you.
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We
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work with anybody and everybody.
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So I tell folks all the time that I've got clients who woke up this morning and said, Hey, I'd like to start a business.
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And then I've got other clients who are.
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Maybe 50 years into business.
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They're looking at how to transition their business, how to improve operations, all different types of people.
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We work with a lot of entrepreneurs who are in the startup phase, but then I also have a good book of existing clients.
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I may not interact with those existing clients really regularly that they kind of reach out more when they have problems or need assistance with particular issues, but, but we do work with existing businesses and with startups.
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So what are some of the things that you help entrepreneurs or business owners work through?
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How does somebody know if they wake up this morning, they say, I have an idea, how do they know they're ready to work with you or what can they expect?
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So it's a process for, for different folks who wake up and say, Hey, I want to start a business.
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Each individual conversation is going to be a little bit different, but the primary things that we work on with a lot of people are feasibility, really figuring out what the feasibility around their idea looks like.
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And then once we've established if a project really has feasibility, working on developing it.
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business plan associated with the business plan.
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We also look at initial capital seeking, whether we've got a business owner who's looking to bootstrap their business, if we're looking to borrow or if we're looking for equity investments, we try to work through all those so we can really develop a good financial picture.
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And then once we've gone from feasibility to business plan to have a good plan for capital seeking, we can do business registration, I can help them navigate zoning issues associated with the space they're looking to occupy.
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Ordering equipment, equipment.
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Like, we can really hold their hand all the way up to the, you know, show up at the ribbon cutting.
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We bring the scissors and the ribbon.
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All they've got to do is cut it.
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So, we're there from the time, like I said, if somebody reaches out to a super early phase.
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One of the work first things that you help entrepreneurs work through.
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Tell us a little bit more about that and what are some of the kind of green lights that you're looking for that signal this idea or this business is feasible.
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So, we work with businesses to try to make sure that the idea is not only feasible in execution, like it's something that they're able to actually accomplish the operation of a business, but also that there's a feasible market to be able to purchase the product or service that they're looking to supply.
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In today's economy, there's a lot of people who can market their product or services primarily online, but just because we're going to put something online doesn't mean there's necessarily a market there to purchase whatever that product or service is.
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The same way goes for local.
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We may have a fantastic idea, but if we're offering Underwater basket weaving classes.
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We've got to make sure there's a market associated with that for people to come in and provide that.
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So one of the first things we look at is whether or not the person's able to execute the idea.
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What that looks like from, is it something they can do in singularity?
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Is it something we've got to have employees?
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How skilled do those employees have to be?
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Is there a workforce available for this business to be able to operate?
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And then once we know the execution can occur, is there a market available to be able to look and do that?
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So we've got some tools that we use for market study information where I can pull some national data.
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Sometimes Kentucky is a little bit limited due to our population.
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We don't always have the most Kentucky data available and even when we do have Kentucky data available, it's really consolidated to Louisville and Lexington.
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So I more look at national data and then focus on the rural data that's available to really determine whether or not this is some, most times I can determine whether or not there's a market associated with it.
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So we can really look at the volume and.
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of what the business owner by look like, because whenever we're talking about that execution component, we really talk about what the capacity associated with it is because if the business owners going to operate the business by themselves, there's going to be a limited capacity if we're going to bring on employees, you know, we extend that capacity, but our capacity is always going to be limited by the amount of people that we have and then our revenue is always going to be limited by capacity.
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So once we know what the execution looks like and we determine what the market looks like, it allows us to look at the financial feasibility.
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So, we know how we can operate the business.
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Business and what the capacity looks like.
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And then we determine if there's enough people to fill that capacity.
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And then based on what that execution and market looks like, will that translate into enough money to be able to sustain the business and service any debt that we take on.
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So it, it's kind of a three phased approach of can we operate, are there people, and what does, what does the cash look like?
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And then once all those green light signal go then it's time for the business plan.
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Yeah.
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It depends on what the business model looks like on how quick that feasibility looks like.
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There's some initial conversations that I can have with somebody and just based on the initial conversation, we can go through those three steps.
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There's other more specialized businesses that, you know, it could take us two to three months to figure out what the capacity looks like, what the market looks like, and then for the business owner to really determine their financial position, it makes a difference on how we pursue the capital to be able to start the business.
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And there's some businesses that are really service oriented.
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I, I work with those a lot because a lot of times you'll have folks who maybe went and um, got some kind of trade certification and uh, they had the skills to be able to execute the work, but they don't necessarily know how to operate a business.
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Well, really quickly, just based on the area that they wanted to tell me they want to operate in, we can determine that there's almost always a market right now where we're at a severe limitation for the amount of, trade based service providers.
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They're available across the board and they're available in the community.
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So I know for a fact when they come to me, if they've got their certification, we can do the execution and I know the market so we can jump straight to financial feasibility.
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Where there's some other folks who come and say, Hey, I've got this idea and I've got the training, but I don't know that we can manufacture this widget that I want to, can you help me figure that out?
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So it depends on the individual client on kind of what that process looks like.
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But sometimes it's a real quick conversation.
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Other times it really extends out.
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And then the next phase is That you mentioned, financial feasibility.
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There's this misconception that if you have a business idea, it's relatively easy to find funding to make it happen or that someone is going to, you'll just be able to get a loan.
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And I'm sure you've come across that everywhere.
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Every day.
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All the time.
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What are some of the financial misconceptions that you come across, and then what are some of the realistic funding options that you help lead people to?
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So the biggest misconception that I talk about almost every day, I mean, I guarantee I get, if not every day, every other day is that there's going to be a grant available to help you start your business.
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It's very rarely the case that a for profit public facing business is I'm not going to tell you that there are not business grants out there because that's not true.
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But let's talk about what those business grants are.
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So the first thing I said was for profit.
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Almost all grant funds are related to nonprofit organizations.
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So we shrink the pool of grants available just immediately when we're operating a for profit entity.
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And then the second thing that's really a key is public facing.
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So if you're operating a business that's doing, you know, the majority of their sales with the general public.
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The grant funds are going to be really limited where there are grant funds available for businesses who are more of a startup phase or whenever your primary customer is going to be the federal government.
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So the federal government, especially businesses associated with the Department of Defense can be incentivized to continue research and development of new technologies that the federal government is interested in purchasing through some grant funds that are called SBIR and STTR.
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specific opportunities that are available.
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Now once we get into operating businesses, there are some grants available out there, but they're going to be limited and they're going to be small and they're almost always reimbursement grants where the business owner has to spend the funds and then they could apply for reimbursement.
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So the city of Paducah is a great example of that.
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There's a specialized area in downtown Paducah where there's some downtown development programs associated with roof stabilization, facade improvement.
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That's There's even a new business grant for businesses that have been in operation for less than twelve months, but you already have to be in operation before you can apply and it's only a 2, 500 grant.
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You have to spend the funds and then you can be reimbursed for them.
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So the idea that people come to me and say, Hey, I, you know, I need 100, 000 grant to start the business.
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That's almost never going to be the situation that occurs.
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We're almost always going to see some debt financing associated with that unless there's an equity opportunity.
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So some kind of work.
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What that brings me to is debt and equity are the two biggest components of how the majority of businesses get started.
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And when I say equity.
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Business owners and entrepreneurs have to understand that there's almost always going to be an expectation that they have at least some skin in the game.
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And, whenever we look at a project budget, one of the very first things I do after a client works with me on filling out a startup cost worksheet, and then we look at what the total capital need is for a project, an absolute minimum that they're going to need to inject is 10%.
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So if you've got a 100, 000 project, you need to bring at least 10, 000 cash to the table.
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And if you don't have 10, 000 in cash, then you've got to have about 10, 000 in assets that we could pledge to be able to secure any debt finance.
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But the main things that I work on, especially start up businesses on, is there's an SBA program called micro loans that go up to 50, 000.
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So there are loans that can be as small as 500 but as great as 50, 000, and they're really flexible on the collateral terms and the equity investment.
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So, like I said, 10 percent is usually the minimum expectation that they're going to have, but They can get really flexible with if the business owner doesn't have cash, how they explore collateral options from the business owner, and that can stand as the equity investment if they can get enough collateral.
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But usually if we can keep the startup budget lean in that zero to 50, 000 range, that's our best chance for success.
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Now, kind of a caveat to that and what I'm experiencing a lot of right now is people who are buying existing businesses.
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So the, the business ownership population in the United States is really aging.
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We see the average age of most small business owners that it's taking up in the early sixties and mid seventies kind of range.
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So we've got a ton of business owners, especially small business owners and community who are nearing that retirement age and really don't have a plan of transition.
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The national statistic is that about 98 percent of small businesses that get listed for sale never sale.
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The assets are just taken to auction and they're liquidated.
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That's almost always the situation.
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What I would like to try to do, and what we've been fairly successful with in the West Kentucky region, is try to help those business owners transition either to a key employee ownership or to, Transition the business to a new sale completely at, you know, a new ownership in those situations, even though a lender would view that as a start of the business, we've got some real tangible records that the lending can occur on.
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So while there's still an expectation of some equity injection from the new owner, there's a lot more funding opportunities associated with that.
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So, there, there's a program called the 7A program.
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It's the SBA's flagship program that helps to overcome situations of undercollateralization.
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That's what you end up with most times in a business purchase because there's going to be some goodwill and some blue sky associated with that purchase that's not going to be collateralized.
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So, the 7A program can help to overcome those situations of collateralize, undercollateralization.
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There's another SBA program called the 504 program that's specifically for real estate and long term.
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That's a really advantageous program because it allows for long term loans with fixed interest rates for the business owner that are a little bit lower.
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That can be an advantage too, and we can use those in combination.
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It's very rare for me to see one business startup, business purchase, existing business borrowing, any of those situations where we just have one loan.
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One loan does it all.
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That's almost never the situation.
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We're almost always going to use a combination of different types of funding to be able to do that.
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To fund an entire project, when we look outside the federal programs, Kentucky has a Kentucky Small Business Credit Initiative program that can help to overcome situations of under collateralization, I've got several banks in the region that utilize that, we also work with folks who want to do equity injections.
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So if they've got a business partner or maybe an investor who wants to make a private investment.
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Whether that's a private loan where that person just want to access the bank, I can help to figure out what that situation looks like and help them develop a contract between those two individuals.
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We deal with people who want to make equity injections and then have a portion of ownership.
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we can talk about those situations too and how to make it advantageous for the business owner and for that contributor.
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You know, there's really no situation that I'm not able to help with and try to figure out what's best for the business owner.
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And then for those funders who are going to be involved.
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It's crazy to think that all your guidance is free to the public.
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Yeah,
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absolutely.
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Nobody ever, you know, I don't ever have to be paid anything.
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Um, you know, there's going to be some times where I'm going to recommend some services.
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We're not able to give direct referrals, but like I can't provide appraisals.
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I'm not going to be able to file your taxes for you.
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I can't give legal advice.
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Like I can help you develop a contract, but I'm always going to recommend that you have it reviewed by an attorney before.
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You know, anything gets signed, those types of things.
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But yeah, all the work that we do is completely no cost to the client.
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It's already been paid for by the funding for our program that comes from the SBA and the University of Kentucky.
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And then we have additional economic partners throughout the state that help to fund our program like chambers, educational institutions, banks, city and county government.
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So we've really built up a consortium of folks who are interested in providing these services to entrepreneurs and business owners so that they can get a city.
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It's a lot of time small business owners don't have the space in their budget for the types of services that we provide.
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So you've worked with probably hundreds, if not more, entrepreneurs, business owners.
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You've seen people who have ideas succeed.
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A lot of people who just come to bounce their ideas off and then realize I'm not in it.
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And they, I'm sure a lot more, head out the door than see their business to fruition, which is fine.
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And that's what, as far as I'm concerned.
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The process.
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Absolutely.
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What are some of the biggest, not either hurdles or obstacles or sticking points you see that kind of start weeding people out?
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What are some things that people can expect some challenges on this journey that might make or break them?
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So the number one is usually the equity injection.
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So a lot of people have an idea that they're going to be able to just be given the money to start a business.
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And when we started talking about the fact that they've gotten to supply some of the funds themselves, that wins a And then the second thing is people a lot of times feel like the business idea that they have is going to be very passive and they're not going to be able to be involved in operations.
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And then we start to talk more about what the human and employee element of the business looks like.
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And you know, yes, you may need 10 employees to operate this business, but what happens when four of those employees quit and we're down to six employees?
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Are you going to be able to pick up the slack and be able to operate that business?
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Well, they may say, no, I want to keep my full time job this way.
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This is supposed to be a business that I'm just going to own, but maybe not operate.
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So the, the two biggest things that, that usually weed people out are the cash associated with operating the business and then the time associated with it.
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Um, whenever we start really talking about what operations look like, a lot of people have this idea that small business ownership is glamorous and you know, I get to set my own hours and be my own boss.
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And while those things are true, there's also the element of it, of your customers are going to kind of set your hours for you and your customers are It's a lot of when you're off and when you're working, because at the end of the day, the name of the game for a small business is going to be cash flow.
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We don't have the luxury of really large entities of having a large cash reserve, especially at startup.
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So we have to capture the revenue whenever it's available.
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And a lot of times that creates situations where small business owners work a lot more than maybe they plan to, or they don't work exactly the hours that they plan to, especially during those early phase of, of startup.
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And some people just aren't willing to make that commitment.
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And that's absolutely fine.
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And that's fine because small business ownership is not for everybody.
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But the folks who are cut out for small business ownership, who have that desire to operate their small business, it's my goal to try to get those people kind of to that space.
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Um, you're talking about weeding out people.
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I would say that probably every one out of 15 new clients that I meet with is somebody I actually get to a business start.
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Wow.
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So, so we lose about 14 out of 15 on the way.
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And that's completely fine because I feel like a big portion of my job is also trying to convince people who might not be cut out.
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Up for small business ownership, not to go into it.
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'cause I don't ever wanna put somebody in a bad situation.
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You know, if somebody comes to me and says, Hey, I'm gonna start this business and, and we start looking at feasibility and maybe the execution's there, but the market's not there.
00:18:44.130 --> 00:18:53.339
I don't wanna put them in a position where they, you know, stake their personal savings or the collateral associated with their primary residence, uh, for a business that I don't think is successful.
00:18:53.339 --> 00:18:58.109
So I talk just as many people how to starting businesses as I, as I help get'em started.
00:18:58.109 --> 00:18:58.319
So
00:18:58.920 --> 00:19:01.050
along those lines, what are some things that you wish p.
00:19:01.279 --> 00:19:03.740
How many people knew before they walk in your door?
00:19:04.220 --> 00:19:05.809
There's never enough cash.
00:19:06.369 --> 00:19:09.150
There's never ever going to be enough cash.
00:19:09.390 --> 00:19:13.200
That is the, national statistics about how many small businesses fail.
00:19:13.509 --> 00:19:17.549
And the number one reason small businesses fail is a lack of cash flow management.
00:19:17.690 --> 00:19:28.069
If they don't have the cash associated with operations, maybe for six months, three months, even a year sometimes, that's why they're going to fail.
00:19:28.140 --> 00:19:30.299
They've got to have the cash associated with it.
00:19:30.349 --> 00:19:52.750
So while we look at Lean Startup and how to reduce our total borrowing, we don't ever want to tap out and say, you know, if we're talking about an SBA microloan, if somebody comes to me and says, Hey, you know, I've got 15, 000 cash that I can invest and I need to borrow 50 and that we're going to spend that full 65, 000 on all startup costs and they're going to start with, maybe a hundred or a thousand dollars in the bank.
00:19:52.789 --> 00:19:54.910
That's a terrible situation to be in.
00:19:55.269 --> 00:19:59.839
Out of that 65, 000, like we need to try to save, half of that or.
00:20:00.049 --> 00:20:04.200
At least 25 percent minimum to be able to set aside for some work and capital.
00:20:04.200 --> 00:20:17.500
So that way when things don't go exactly like we projected, when you know, a pipe bust because it's winter time or, or, somebody hits our sign and we've got to have it fixed or the insurance premium comes due and they want the whole year instead of three months.
00:20:17.589 --> 00:20:28.500
We've got some cash associated with those things to be able to navigate those situations because while small business ownership can be really special in some situations, it's also almost completely unpredictable.
00:20:28.930 --> 00:20:33.259
We can do our best to try to project revenues and figure out what the operation of the business is going to look like.
00:20:33.299 --> 00:20:52.150
But once you actually open the doors, especially if you're public facing, if you're not working off a contract basis, uh, you know, if you're just opening your doors and allowing the general public to come in and operate, purchase from your business and you're trying to operate, it's a completely unpredictable situation, but we want people to try to be as best prepared as they can for that situation.
00:20:52.970 --> 00:20:53.980
So what's the good news?
00:20:54.049 --> 00:20:55.349
There's not enough cash.
00:20:55.380 --> 00:20:56.700
It's unpredictable.
00:20:56.750 --> 00:20:57.849
You got to tough it out.
00:20:57.859 --> 00:20:58.480
Pipes are breaking.
00:20:59.460 --> 00:21:00.605
But what's the good news?
00:21:00.605 --> 00:21:01.049
The good
00:21:01.049 --> 00:21:13.410
news is that the, the economy that we have, especially in Western Kentucky, but I really feel like our national economy is moving towards a position where people want to spend their money with small business.
00:21:13.710 --> 00:21:28.549
And if we can position ourselves correctly in a feasible situation with enough cash to get started, that we can build really successful small businesses that not only are really successful for the business owners, but then also can provide quality jobs.
00:21:29.920 --> 00:21:32.190
help to improve the quality of life in our communities.
00:21:32.190 --> 00:21:39.150
And, and you're creating situations to really have generational wealth for the business owners family.
00:21:39.259 --> 00:21:58.569
Because, you know, if we transition that business to another generation of the business, or if we look to sell that business and some point down the road, if we start kind of with the end in mind, especially people who start now, if they kind of start with the end in mind, if I want to pass this on to my kids or I want to be able to position this for sale, then we can be really successful down the road and help to create jobs.
00:21:58.829 --> 00:22:07.279
It's a way to generate generational wealth in our communities where the disadvantages happen is that people who have businesses now haven't started with that end in mind.
00:22:07.279 --> 00:22:14.569
So it's really important that even when you get started, we start to think down the road about what things look like and what our longterm vision is.
00:22:14.569 --> 00:22:28.650
But small business ownership can be incredibly rewarding because of the relationships that you get to build with your customers because of the intimate quality associated with the product or services that you get to sell that you're not going to find when you work with a larger business owner.
00:22:29.599 --> 00:22:35.390
And then also because it can be a really positive experience for the workforce associated with our communities.
00:22:35.769 --> 00:22:38.670
And then you just help to improve the overall quality of life.
00:22:39.950 --> 00:22:43.549
So for someone who is listening to this and they think, okay, this is my next step.
00:22:43.559 --> 00:22:44.849
I've got to meet with Aaron.
00:22:45.069 --> 00:22:50.240
What's some homework they can start to work on to be prepared when they walk in your door?
00:22:50.299 --> 00:22:51.900
So they don't have to do anything.
00:22:51.900 --> 00:22:58.119
I've got some folks who just walk in completely blind and you know, I'm willing to give anybody 30 minutes to an hour.
00:23:02.160 --> 00:23:04.670
And I can give them some homework associated with that conversation.
00:23:05.430 --> 00:23:18.789
The best thing that I would say people can do to have a real honest conversation about what the feasibility of their project looks like is they need to come to me with a good understanding of their personal financial situation.
00:23:19.279 --> 00:23:23.839
So before you come talk to me, I need to know what the cash you have available is.
00:23:23.839 --> 00:23:27.650
And if you don't have cash available, I need to know what the assets that you have.
00:23:27.650 --> 00:23:28.250
So if people.
00:23:28.319 --> 00:23:37.200
You know, I've never filled out a personal financial statement before, that's a good first place to start and to take an introspective look at these are the assets that I have.
00:23:37.200 --> 00:23:38.910
This is the cash that I have available.
00:23:39.160 --> 00:23:42.359
These are the liabilities and debt that I have associated with it.
00:23:42.769 --> 00:23:47.259
So that way we can have an honest conversation about what your position looks like from a funding standpoint.
00:23:47.609 --> 00:23:54.720
Because like I said, even if we can do the execution, if the market's available, if we can't make the money make sense, then usually the project doesn't make sense.
00:23:55.369 --> 00:23:57.269
So how can people get in touch with you?
00:23:57.329 --> 00:23:58.190
Yeah, absolutely.
00:23:58.190 --> 00:23:58.299
So.
00:23:58.480 --> 00:24:02.450
So the best way to reach us is go on our website, kentuckysbdc.
00:24:02.450 --> 00:24:05.900
com and once you get there, there's a button at the top that says become a client.
00:24:06.069 --> 00:24:07.619
So all you've got to do is click that button.
00:24:07.619 --> 00:24:10.250
It'll take you to a short, like one page registration.
00:24:10.529 --> 00:24:18.269
And then based on the zip code that you enter, if you're in one of the 13 most Western counties in Kentucky, it will direct you directly to my calendar.
00:24:18.269 --> 00:24:21.599
So you'll be able to grab a spot on my calendar for a phone call or a zoom meeting.
00:24:21.599 --> 00:24:25.920
That's how I meet with most people initially, just to kind of get an idea of what they've got going on.
00:24:25.920 --> 00:24:32.369
And then I schedule in person or longer zoom meetings for them but that's the easiest way for folks to find us is by visiting KentuckySBDC.
00:24:32.369 --> 00:24:32.670
com.
00:24:33.450 --> 00:24:49.130
I would suggest developing a relationship with the small business development center so that way we can kind of point out these other relationships and other connections that you can make strategically and then also to help us, let us help you navigate issues that you may not see coming.
00:24:50.849 --> 00:25:03.470
Starting small businesses is really important and I work a lot on that, but it's a, it's much more impactful for me to help the existing small businesses that we already have remain in the community and remain successful.
00:25:03.710 --> 00:25:12.279
Aaron, thank you so much for joining us today and sharing and introducing us to the work that you do and how you help entrepreneurs and small businesses in our region.
00:25:12.279 --> 00:25:15.039
The work you do is so needed and so valuable.
00:25:15.109 --> 00:25:16.180
Well, I appreciate it.
00:25:16.180 --> 00:25:18.930
And like I said, folks can find me at Kentucky SPDC.
00:25:19.390 --> 00:25:22.009
com, and become a client and I'll be glad to meet with them.
00:25:22.309 --> 00:25:23.140
Thank you so much.
00:00:00.000 --> 00:00:02.240
Aaron, thanks for joining us today.
00:00:02.830 --> 00:00:05.809
Introduce us to yourself and the work that you do with the
00:00:06.540 --> 00:00:06.700
SBDC.
00:00:06.700 --> 00:00:07.259
Absolutely.
00:00:07.259 --> 00:00:08.509
So my name is Aaron Harned.
00:00:08.529 --> 00:00:12.150
I'm the Center Director for the Paducah Small Business Development Center.
00:00:12.519 --> 00:00:16.000
So when people hear Small Business Development Center, they don't really know what that means a lot of times.
00:00:16.000 --> 00:00:20.820
Like our name describes us, but it's not a clear indication of what exactly it is that we do.
00:00:21.210 --> 00:00:29.149
So the SBA funds several different things that they call resource partners, and we are one of their resource partners.
00:00:29.730 --> 00:00:33.789
So that the main ones they fund are the Veterans Business Outreach Centers.
00:00:33.789 --> 00:00:40.310
They work primarily with the veterans, Women's Business Outreach Centers, which each state has at least one Women's Business Outreach Center.
00:00:40.750 --> 00:00:42.670
They fund a program called SCORE.
00:00:42.719 --> 00:00:47.219
That's for retired business people to want to still provide mentorship.
00:00:48.070 --> 00:00:53.210
But their largest program is the Small Business Development Center, which is who we are and what we do.
00:00:53.530 --> 00:00:58.899
So we are the largest program and mandated to serve every county in the United States.
00:00:59.350 --> 00:01:00.880
So all states and all U.
00:01:00.880 --> 00:01:01.009
S.
00:01:01.030 --> 00:01:06.439
territories have some small business development center service available to them.
00:01:06.849 --> 00:01:10.209
So entrepreneurs or business owners anywhere in the United States or U.
00:01:10.209 --> 00:01:10.329
S.
00:01:10.349 --> 00:01:20.590
territories have a counselor or business coach like me available to provide no cost, confidential business consulting services on behalf of the SBA.
00:01:21.280 --> 00:01:24.930
When entrepreneurs who are Starting out and they just have their idea.
00:01:24.930 --> 00:01:26.930
They don't know what first steps to take.
00:01:27.239 --> 00:01:29.129
A lot of times we send them straight to you.
00:01:29.129 --> 00:01:30.209
We
00:01:30.209 --> 00:01:31.510
work with anybody and everybody.
00:01:31.510 --> 00:01:36.950
So I tell folks all the time that I've got clients who woke up this morning and said, Hey, I'd like to start a business.
00:01:37.260 --> 00:01:39.370
And then I've got other clients who are.
00:01:39.545 --> 00:01:41.215
Maybe 50 years into business.
00:01:41.254 --> 00:01:46.545
They're looking at how to transition their business, how to improve operations, all different types of people.
00:01:46.555 --> 00:01:52.064
We work with a lot of entrepreneurs who are in the startup phase, but then I also have a good book of existing clients.
00:01:52.114 --> 00:02:03.025
I may not interact with those existing clients really regularly that they kind of reach out more when they have problems or need assistance with particular issues, but, but we do work with existing businesses and with startups.
00:02:03.545 --> 00:02:07.515
So what are some of the things that you help entrepreneurs or business owners work through?
00:02:08.134 --> 00:02:16.194
How does somebody know if they wake up this morning, they say, I have an idea, how do they know they're ready to work with you or what can they expect?
00:02:16.414 --> 00:02:21.145
So it's a process for, for different folks who wake up and say, Hey, I want to start a business.
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Each individual conversation is going to be a little bit different, but the primary things that we work on with a lot of people are feasibility, really figuring out what the feasibility around their idea looks like.
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And then once we've established if a project really has feasibility, working on developing it.
00:02:36.694 --> 00:02:39.115
business plan associated with the business plan.
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We also look at initial capital seeking, whether we've got a business owner who's looking to bootstrap their business, if we're looking to borrow or if we're looking for equity investments, we try to work through all those so we can really develop a good financial picture.
00:02:51.865 --> 00:03:03.335
And then once we've gone from feasibility to business plan to have a good plan for capital seeking, we can do business registration, I can help them navigate zoning issues associated with the space they're looking to occupy.
00:03:03.664 --> 00:03:04.905
Ordering equipment, equipment.
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Like, we can really hold their hand all the way up to the, you know, show up at the ribbon cutting.
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We bring the scissors and the ribbon.
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All they've got to do is cut it.
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So, we're there from the time, like I said, if somebody reaches out to a super early phase.
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One of the work first things that you help entrepreneurs work through.
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Tell us a little bit more about that and what are some of the kind of green lights that you're looking for that signal this idea or this business is feasible.
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So, we work with businesses to try to make sure that the idea is not only feasible in execution, like it's something that they're able to actually accomplish the operation of a business, but also that there's a feasible market to be able to purchase the product or service that they're looking to supply.
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In today's economy, there's a lot of people who can market their product or services primarily online, but just because we're going to put something online doesn't mean there's necessarily a market there to purchase whatever that product or service is.
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The same way goes for local.
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We may have a fantastic idea, but if we're offering Underwater basket weaving classes.
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We've got to make sure there's a market associated with that for people to come in and provide that.
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So one of the first things we look at is whether or not the person's able to execute the idea.
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What that looks like from, is it something they can do in singularity?
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Is it something we've got to have employees?
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How skilled do those employees have to be?
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Is there a workforce available for this business to be able to operate?
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And then once we know the execution can occur, is there a market available to be able to look and do that?
00:04:31.504 --> 00:04:36.165
So we've got some tools that we use for market study information where I can pull some national data.
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Sometimes Kentucky is a little bit limited due to our population.
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We don't always have the most Kentucky data available and even when we do have Kentucky data available, it's really consolidated to Louisville and Lexington.
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So I more look at national data and then focus on the rural data that's available to really determine whether or not this is some, most times I can determine whether or not there's a market associated with it.
00:04:59.394 --> 00:05:00.834
So we can really look at the volume and.
00:05:01.875 --> 00:05:22.524
of what the business owner by look like, because whenever we're talking about that execution component, we really talk about what the capacity associated with it is because if the business owners going to operate the business by themselves, there's going to be a limited capacity if we're going to bring on employees, you know, we extend that capacity, but our capacity is always going to be limited by the amount of people that we have and then our revenue is always going to be limited by capacity.
00:05:22.935 --> 00:05:29.014
So once we know what the execution looks like and we determine what the market looks like, it allows us to look at the financial feasibility.
00:05:29.285 --> 00:05:30.855
So, we know how we can operate the business.
00:05:30.855 --> 00:05:32.384
Business and what the capacity looks like.
00:05:32.384 --> 00:05:35.115
And then we determine if there's enough people to fill that capacity.
00:05:35.115 --> 00:05:44.535
And then based on what that execution and market looks like, will that translate into enough money to be able to sustain the business and service any debt that we take on.
00:05:44.915 --> 00:05:51.964
So it, it's kind of a three phased approach of can we operate, are there people, and what does, what does the cash look like?
00:05:52.415 --> 00:05:58.165
And then once all those green light signal go then it's time for the business plan.
00:05:58.225 --> 00:05:58.495
Yeah.
00:05:58.545 --> 00:06:02.685
It depends on what the business model looks like on how quick that feasibility looks like.
00:06:02.685 --> 00:06:10.324
There's some initial conversations that I can have with somebody and just based on the initial conversation, we can go through those three steps.
00:06:10.625 --> 00:06:27.665
There's other more specialized businesses that, you know, it could take us two to three months to figure out what the capacity looks like, what the market looks like, and then for the business owner to really determine their financial position, it makes a difference on how we pursue the capital to be able to start the business.
00:06:27.985 --> 00:06:30.495
And there's some businesses that are really service oriented.
00:06:30.495 --> 00:06:42.555
I, I work with those a lot because a lot of times you'll have folks who maybe went and um, got some kind of trade certification and uh, they had the skills to be able to execute the work, but they don't necessarily know how to operate a business.
00:06:42.865 --> 00:06:54.564
Well, really quickly, just based on the area that they wanted to tell me they want to operate in, we can determine that there's almost always a market right now where we're at a severe limitation for the amount of, trade based service providers.
00:06:54.625 --> 00:06:56.175
They're available across the board and they're available in the community.
00:06:56.524 --> 00:07:04.295
So I know for a fact when they come to me, if they've got their certification, we can do the execution and I know the market so we can jump straight to financial feasibility.
00:07:04.524 --> 00:07:13.375
Where there's some other folks who come and say, Hey, I've got this idea and I've got the training, but I don't know that we can manufacture this widget that I want to, can you help me figure that out?
00:07:13.375 --> 00:07:17.295
So it depends on the individual client on kind of what that process looks like.
00:07:17.634 --> 00:07:19.644
But sometimes it's a real quick conversation.
00:07:19.685 --> 00:07:21.274
Other times it really extends out.
00:07:21.884 --> 00:07:25.654
And then the next phase is That you mentioned, financial feasibility.
00:07:25.975 --> 00:07:35.944
There's this misconception that if you have a business idea, it's relatively easy to find funding to make it happen or that someone is going to, you'll just be able to get a loan.
00:07:36.865 --> 00:07:38.225
And I'm sure you've come across that everywhere.
00:07:38.365 --> 00:07:38.735
Every day.
00:07:38.764 --> 00:07:39.185
All the time.
00:07:39.444 --> 00:07:50.524
What are some of the financial misconceptions that you come across, and then what are some of the realistic funding options that you help lead people to?
00:07:50.595 --> 00:08:02.834
So the biggest misconception that I talk about almost every day, I mean, I guarantee I get, if not every day, every other day is that there's going to be a grant available to help you start your business.
00:08:02.845 --> 00:08:14.714
It's very rarely the case that a for profit public facing business is I'm not going to tell you that there are not business grants out there because that's not true.
00:08:14.745 --> 00:08:17.285
But let's talk about what those business grants are.
00:08:17.584 --> 00:08:19.555
So the first thing I said was for profit.
00:08:20.095 --> 00:08:23.444
Almost all grant funds are related to nonprofit organizations.
00:08:23.454 --> 00:08:29.035
So we shrink the pool of grants available just immediately when we're operating a for profit entity.
00:08:29.295 --> 00:08:32.595
And then the second thing that's really a key is public facing.
00:08:33.164 --> 00:08:38.384
So if you're operating a business that's doing, you know, the majority of their sales with the general public.
00:08:38.455 --> 00:08:47.644
The grant funds are going to be really limited where there are grant funds available for businesses who are more of a startup phase or whenever your primary customer is going to be the federal government.
00:08:48.384 --> 00:09:02.875
So the federal government, especially businesses associated with the Department of Defense can be incentivized to continue research and development of new technologies that the federal government is interested in purchasing through some grant funds that are called SBIR and STTR.
00:09:06.264 --> 00:09:08.465
specific opportunities that are available.
00:09:09.034 --> 00:09:22.825
Now once we get into operating businesses, there are some grants available out there, but they're going to be limited and they're going to be small and they're almost always reimbursement grants where the business owner has to spend the funds and then they could apply for reimbursement.
00:09:23.225 --> 00:09:25.625
So the city of Paducah is a great example of that.
00:09:25.884 --> 00:09:34.595
There's a specialized area in downtown Paducah where there's some downtown development programs associated with roof stabilization, facade improvement.
00:09:34.595 --> 00:09:45.764
That's There's even a new business grant for businesses that have been in operation for less than twelve months, but you already have to be in operation before you can apply and it's only a 2, 500 grant.
00:09:46.134 --> 00:09:49.254
You have to spend the funds and then you can be reimbursed for them.
00:09:49.815 --> 00:09:54.504
So the idea that people come to me and say, Hey, I, you know, I need 100, 000 grant to start the business.
00:09:54.884 --> 00:09:57.664
That's almost never going to be the situation that occurs.
00:09:57.664 --> 00:10:04.215
We're almost always going to see some debt financing associated with that unless there's an equity opportunity.
00:10:04.774 --> 00:10:05.565
So some kind of work.
00:10:05.715 --> 00:10:12.134
What that brings me to is debt and equity are the two biggest components of how the majority of businesses get started.
00:10:12.524 --> 00:10:13.434
And when I say equity.
00:10:14.220 --> 00:10:21.470
Business owners and entrepreneurs have to understand that there's almost always going to be an expectation that they have at least some skin in the game.
00:10:21.950 --> 00:10:35.970
And, whenever we look at a project budget, one of the very first things I do after a client works with me on filling out a startup cost worksheet, and then we look at what the total capital need is for a project, an absolute minimum that they're going to need to inject is 10%.
00:10:36.240 --> 00:10:41.080
So if you've got a 100, 000 project, you need to bring at least 10, 000 cash to the table.
00:10:41.289 --> 00:10:48.850
And if you don't have 10, 000 in cash, then you've got to have about 10, 000 in assets that we could pledge to be able to secure any debt finance.
00:10:49.480 --> 00:10:58.559
But the main things that I work on, especially start up businesses on, is there's an SBA program called micro loans that go up to 50, 000.
00:10:58.559 --> 00:11:07.809
So there are loans that can be as small as 500 but as great as 50, 000, and they're really flexible on the collateral terms and the equity investment.
00:11:08.399 --> 00:11:23.360
So, like I said, 10 percent is usually the minimum expectation that they're going to have, but They can get really flexible with if the business owner doesn't have cash, how they explore collateral options from the business owner, and that can stand as the equity investment if they can get enough collateral.
00:11:23.669 --> 00:11:30.740
But usually if we can keep the startup budget lean in that zero to 50, 000 range, that's our best chance for success.
00:11:31.284 --> 00:11:36.575
Now, kind of a caveat to that and what I'm experiencing a lot of right now is people who are buying existing businesses.
00:11:37.504 --> 00:11:41.975
So the, the business ownership population in the United States is really aging.
00:11:42.014 --> 00:11:49.144
We see the average age of most small business owners that it's taking up in the early sixties and mid seventies kind of range.
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So we've got a ton of business owners, especially small business owners and community who are nearing that retirement age and really don't have a plan of transition.
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The national statistic is that about 98 percent of small businesses that get listed for sale never sale.
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The assets are just taken to auction and they're liquidated.
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That's almost always the situation.
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What I would like to try to do, and what we've been fairly successful with in the West Kentucky region, is try to help those business owners transition either to a key employee ownership or to, Transition the business to a new sale completely at, you know, a new ownership in those situations, even though a lender would view that as a start of the business, we've got some real tangible records that the lending can occur on.
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So while there's still an expectation of some equity injection from the new owner, there's a lot more funding opportunities associated with that.
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So, there, there's a program called the 7A program.
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It's the SBA's flagship program that helps to overcome situations of undercollateralization.
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That's what you end up with most times in a business purchase because there's going to be some goodwill and some blue sky associated with that purchase that's not going to be collateralized.
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So, the 7A program can help to overcome those situations of collateralize, undercollateralization.
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There's another SBA program called the 504 program that's specifically for real estate and long term.
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That's a really advantageous program because it allows for long term loans with fixed interest rates for the business owner that are a little bit lower.
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That can be an advantage too, and we can use those in combination.
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It's very rare for me to see one business startup, business purchase, existing business borrowing, any of those situations where we just have one loan.
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One loan does it all.
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That's almost never the situation.
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We're almost always going to use a combination of different types of funding to be able to do that.
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To fund an entire project, when we look outside the federal programs, Kentucky has a Kentucky Small Business Credit Initiative program that can help to overcome situations of under collateralization, I've got several banks in the region that utilize that, we also work with folks who want to do equity injections.
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So if they've got a business partner or maybe an investor who wants to make a private investment.
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Whether that's a private loan where that person just want to access the bank, I can help to figure out what that situation looks like and help them develop a contract between those two individuals.
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We deal with people who want to make equity injections and then have a portion of ownership.
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we can talk about those situations too and how to make it advantageous for the business owner and for that contributor.
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You know, there's really no situation that I'm not able to help with and try to figure out what's best for the business owner.
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And then for those funders who are going to be involved.
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It's crazy to think that all your guidance is free to the public.
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Yeah,
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absolutely.
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Nobody ever, you know, I don't ever have to be paid anything.
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Um, you know, there's going to be some times where I'm going to recommend some services.
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We're not able to give direct referrals, but like I can't provide appraisals.
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I'm not going to be able to file your taxes for you.
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I can't give legal advice.
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Like I can help you develop a contract, but I'm always going to recommend that you have it reviewed by an attorney before.
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You know, anything gets signed, those types of things.
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But yeah, all the work that we do is completely no cost to the client.
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It's already been paid for by the funding for our program that comes from the SBA and the University of Kentucky.
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And then we have additional economic partners throughout the state that help to fund our program like chambers, educational institutions, banks, city and county government.
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So we've really built up a consortium of folks who are interested in providing these services to entrepreneurs and business owners so that they can get a city.
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It's a lot of time small business owners don't have the space in their budget for the types of services that we provide.
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So you've worked with probably hundreds, if not more, entrepreneurs, business owners.
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You've seen people who have ideas succeed.
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A lot of people who just come to bounce their ideas off and then realize I'm not in it.
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And they, I'm sure a lot more, head out the door than see their business to fruition, which is fine.
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And that's what, as far as I'm concerned.
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The process.
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Absolutely.
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What are some of the biggest, not either hurdles or obstacles or sticking points you see that kind of start weeding people out?
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What are some things that people can expect some challenges on this journey that might make or break them?
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So the number one is usually the equity injection.
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So a lot of people have an idea that they're going to be able to just be given the money to start a business.
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And when we started talking about the fact that they've gotten to supply some of the funds themselves, that wins a And then the second thing is people a lot of times feel like the business idea that they have is going to be very passive and they're not going to be able to be involved in operations.
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And then we start to talk more about what the human and employee element of the business looks like.
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And you know, yes, you may need 10 employees to operate this business, but what happens when four of those employees quit and we're down to six employees?
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Are you going to be able to pick up the slack and be able to operate that business?
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Well, they may say, no, I want to keep my full time job this way.
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This is supposed to be a business that I'm just going to own, but maybe not operate.
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So the, the two biggest things that, that usually weed people out are the cash associated with operating the business and then the time associated with it.
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Um, whenever we start really talking about what operations look like, a lot of people have this idea that small business ownership is glamorous and you know, I get to set my own hours and be my own boss.
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And while those things are true, there's also the element of it, of your customers are going to kind of set your hours for you and your customers are It's a lot of when you're off and when you're working, because at the end of the day, the name of the game for a small business is going to be cash flow.
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We don't have the luxury of really large entities of having a large cash reserve, especially at startup.
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So we have to capture the revenue whenever it's available.
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And a lot of times that creates situations where small business owners work a lot more than maybe they plan to, or they don't work exactly the hours that they plan to, especially during those early phase of, of startup.
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And some people just aren't willing to make that commitment.
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And that's absolutely fine.
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And that's fine because small business ownership is not for everybody.
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But the folks who are cut out for small business ownership, who have that desire to operate their small business, it's my goal to try to get those people kind of to that space.
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Um, you're talking about weeding out people.
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I would say that probably every one out of 15 new clients that I meet with is somebody I actually get to a business start.
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Wow.
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So, so we lose about 14 out of 15 on the way.
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And that's completely fine because I feel like a big portion of my job is also trying to convince people who might not be cut out.
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Up for small business ownership, not to go into it.
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'cause I don't ever wanna put somebody in a bad situation.
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You know, if somebody comes to me and says, Hey, I'm gonna start this business and, and we start looking at feasibility and maybe the execution's there, but the market's not there.
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I don't wanna put them in a position where they, you know, stake their personal savings or the collateral associated with their primary residence, uh, for a business that I don't think is successful.
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So I talk just as many people how to starting businesses as I, as I help get'em started.
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So
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along those lines, what are some things that you wish p.
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How many people knew before they walk in your door?
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There's never enough cash.
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There's never ever going to be enough cash.
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That is the, national statistics about how many small businesses fail.
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And the number one reason small businesses fail is a lack of cash flow management.
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If they don't have the cash associated with operations, maybe for six months, three months, even a year sometimes, that's why they're going to fail.
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They've got to have the cash associated with it.
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So while we look at Lean Startup and how to reduce our total borrowing, we don't ever want to tap out and say, you know, if we're talking about an SBA microloan, if somebody comes to me and says, Hey, you know, I've got 15, 000 cash that I can invest and I need to borrow 50 and that we're going to spend that full 65, 000 on all startup costs and they're going to start with, maybe a hundred or a thousand dollars in the bank.
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That's a terrible situation to be in.
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Out of that 65, 000, like we need to try to save, half of that or.
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At least 25 percent minimum to be able to set aside for some work and capital.
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So that way when things don't go exactly like we projected, when you know, a pipe bust because it's winter time or, or, somebody hits our sign and we've got to have it fixed or the insurance premium comes due and they want the whole year instead of three months.
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We've got some cash associated with those things to be able to navigate those situations because while small business ownership can be really special in some situations, it's also almost completely unpredictable.
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We can do our best to try to project revenues and figure out what the operation of the business is going to look like.
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But once you actually open the doors, especially if you're public facing, if you're not working off a contract basis, uh, you know, if you're just opening your doors and allowing the general public to come in and operate, purchase from your business and you're trying to operate, it's a completely unpredictable situation, but we want people to try to be as best prepared as they can for that situation.
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So what's the good news?
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There's not enough cash.
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It's unpredictable.
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You got to tough it out.
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Pipes are breaking.
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But what's the good news?
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The good
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news is that the, the economy that we have, especially in Western Kentucky, but I really feel like our national economy is moving towards a position where people want to spend their money with small business.
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And if we can position ourselves correctly in a feasible situation with enough cash to get started, that we can build really successful small businesses that not only are really successful for the business owners, but then also can provide quality jobs.
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help to improve the quality of life in our communities.
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And, and you're creating situations to really have generational wealth for the business owners family.
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Because, you know, if we transition that business to another generation of the business, or if we look to sell that business and some point down the road, if we start kind of with the end in mind, especially people who start now, if they kind of start with the end in mind, if I want to pass this on to my kids or I want to be able to position this for sale, then we can be really successful down the road and help to create jobs.
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It's a way to generate generational wealth in our communities where the disadvantages happen is that people who have businesses now haven't started with that end in mind.
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So it's really important that even when you get started, we start to think down the road about what things look like and what our longterm vision is.
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But small business ownership can be incredibly rewarding because of the relationships that you get to build with your customers because of the intimate quality associated with the product or services that you get to sell that you're not going to find when you work with a larger business owner.
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And then also because it can be a really positive experience for the workforce associated with our communities.
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And then you just help to improve the overall quality of life.
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So for someone who is listening to this and they think, okay, this is my next step.
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I've got to meet with Aaron.
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What's some homework they can start to work on to be prepared when they walk in your door?
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So they don't have to do anything.
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I've got some folks who just walk in completely blind and you know, I'm willing to give anybody 30 minutes to an hour.
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And I can give them some homework associated with that conversation.
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The best thing that I would say people can do to have a real honest conversation about what the feasibility of their project looks like is they need to come to me with a good understanding of their personal financial situation.
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So before you come talk to me, I need to know what the cash you have available is.
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And if you don't have cash available, I need to know what the assets that you have.
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So if people.
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You know, I've never filled out a personal financial statement before, that's a good first place to start and to take an introspective look at these are the assets that I have.
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This is the cash that I have available.
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These are the liabilities and debt that I have associated with it.
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So that way we can have an honest conversation about what your position looks like from a funding standpoint.
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Because like I said, even if we can do the execution, if the market's available, if we can't make the money make sense, then usually the project doesn't make sense.
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So how can people get in touch with you?
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Yeah, absolutely.
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So.
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So the best way to reach us is go on our website, kentuckysbdc.
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com and once you get there, there's a button at the top that says become a client.
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So all you've got to do is click that button.
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It'll take you to a short, like one page registration.
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And then based on the zip code that you enter, if you're in one of the 13 most Western counties in Kentucky, it will direct you directly to my calendar.
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So you'll be able to grab a spot on my calendar for a phone call or a zoom meeting.
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That's how I meet with most people initially, just to kind of get an idea of what they've got going on.
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And then I schedule in person or longer zoom meetings for them but that's the easiest way for folks to find us is by visiting KentuckySBDC.
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com.
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I would suggest developing a relationship with the small business development center so that way we can kind of point out these other relationships and other connections that you can make strategically and then also to help us, let us help you navigate issues that you may not see coming.
00:24:50.849 --> 00:25:03.470
Starting small businesses is really important and I work a lot on that, but it's a, it's much more impactful for me to help the existing small businesses that we already have remain in the community and remain successful.
00:25:03.710 --> 00:25:12.279
Aaron, thank you so much for joining us today and sharing and introducing us to the work that you do and how you help entrepreneurs and small businesses in our region.
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The work you do is so needed and so valuable.
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Well, I appreciate it.
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And like I said, folks can find me at Kentucky SPDC.
00:25:19.390 --> 00:25:22.009
com, and become a client and I'll be glad to meet with them.
00:25:22.309 --> 00:25:23.140
Thank you so much.
