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Ecommerce Forum

Getting working capital when you don't own a brick and mortar store

 1:31 pm on Dec 6, 2005 (gmt 0)

As I was reading through this thread [webmasterworld.com] on what to do when you're CC payments are being held up, I began to wonder how people get their startup capital. Traditional business models usually depend upon some amount of startup cash. Both to get the business up and running with products, tools, supplies etc. as well as to pay staff (and the owner) some compensation until the business takes off on it's own.

If you go to a bank you need to have a good business plan and then they have to see potential in ROI. If you're in a major city that might not be an issue to sell an ecommerce business plan nowadays but in smaller cities it may be. Some folks here have noted they had the $$ on hand or were able to borrow from friends and family. I think it would be enlightening to learn where your startup capital came from, what hassles you had to go through to sell the concept, and if you didn't have a big chunk of cash, how long it took you to build it up. OR did you even need it - if not - why not?



 1:51 pm on Dec 6, 2005 (gmt 0)

Hi lorax. I started my dot com with just 500 bucks, a BSc Computer Science, and Webmasterworld. Although my business is no where near the size of amazon, it is now generating a 6 digits figure profit annually. It took 3 years of very hard work, and many embarassing moments from relative and friends asking "You're still working on that Dot.Com?"

Webmasterworld really helped me.


 2:08 pm on Dec 6, 2005 (gmt 0)

you don't need to hire loads of people...

you don't need premises, setup at home...

you don't need mountains of stock...

one of the blessings and curses of ecommerce is that you can startup with virtually nothing.


 4:36 pm on Dec 6, 2005 (gmt 0)

Like many we financed rapid growth through credit cards.

When our sales hit 7 figures our local bank was happy to set up an sba loan to consolidate the credit cards into a lower payment.

When we paid that off we kept the sba and accepted a couple of lines of credits that were offered unsolicited to us. We try to keep about 100k available (and unused) for emergencies and opportunities.


 4:55 pm on Dec 6, 2005 (gmt 0)

I have a credit card that I use for start ups and nothing else, I need maybe 1000 as a minimum still way below the cost having a shop.


 5:11 pm on Dec 6, 2005 (gmt 0)

I am currently my own e-biz and my start up costs are the domain name + monthly hosting + shopping cart + blood, sweat, tears, swear words, migraines, and several do-overs. *grins*

Money for my shopping cart is coming from profit off of a autosurf site that I get paid from regularly.

Thanks to my ex-husband, there is no way I can get a loan from anyone any time soon.


 8:31 pm on Dec 6, 2005 (gmt 0)

BARB: You Uk based? If so try Provident APR at around 177% but they lend to ANYONE.

Max loan of 500.


 9:06 pm on Dec 6, 2005 (gmt 0)

<soapbox rant>
If you go to a bank you need to have a good business plan and then they have to see potential in ROI.

Anyone who loans money without rigorous testing of the presented business plan is soon out of the VC/loan market.

Anyone who just jumps in and starts rolling out a site usually gets:
+ blood, sweat, tears, swear words, migraines, and several do-overs.

and is the source of the WebmasterWorld repeat 'why' questions.

Yes I know I climb upon my 'business plan' and 'contract' soapboxes frequently; I wonder why?

Take the time up front and detail the time and costs. As Essex_boy points out the start-up and operation costs are a fraction of a brick-and-mortor but ... how can you budget for yourself or convince others to invest/loan without nailing down the particulars?

It is a business. Treat it like one.
<rant over, soapbox put away for another day>

The most common sources of capital I see are:
* personal credit cards.
* loan from family and friends.
* personal savings.
* re-mortgage home.
* personal bank loan or personal line of credit.

The least common are:
* government backed (i.e. SBA (US), BDB (Canada) small business loans.
* conventional commercial bank loan.
* venture capital investment.

The reason the latter are rare is because they require, as a first step, that you take the time to detail your business. From WebmasterWorld threads and my personal experience very few bother.

Traditional business models usually depend upon some amount of startup cash. Both to get the business up and running with products, tools, supplies etc. as well as to pay staff (and the owner) some compensation until the business takes off on it's own.

The web is being approached as a gold rush not as a business. The sad fact is that only a few find gold and long term it is the businesses supplying the gold seekers that keep it.


 10:07 pm on Dec 6, 2005 (gmt 0)

>> Yes I know I climb upon my 'business plan' and 'contract' soapboxes frequently

LOL! I haven't had the pleasure of hearing your rhetoric but will keep an "ear" open for it! ;)

I totally agree with your view that a business plan is a must. Even if it's short one.

>> Like many we financed rapid growth through credit cards.

That just scares the living bejeezum out of me. High interest rates that come with high penalties if you miss a payment or are late.


 10:29 pm on Dec 6, 2005 (gmt 0)

That just scares the living bejeezum out of me. High interest rates that come with high penalties if you miss a payment or are late.

Takes guts... more than I have.

I have a brother with a brick and mortar doing well over 7 figures a year that he started with two credit cards. All of his personal assets were transferred to his wife (non-community property State), as protection against bankruptcy. When hard pressed he would draw on one card to pay the minimum payment on the other, and vice versa.

Took him about three years of living on the edge.

Back to the topic at hand - I find having a day job helps a lot :o



 11:41 pm on Dec 6, 2005 (gmt 0)

There is an interesting article in nov's inc magazine

The Psychology of Success

It talks about the different ways that business owners view risk.

I was suprised to find out (like was mentioned above) that folks would be hesitant to use credit cards or 2nd mortgages for their business. I had never even given it a second thought.

One day I am absolutely going to follow the sound advice of having a formal business plan and have all the i's dotted and t's crossed before starting a new venture. I am sure that provides a much higher % of success.
I keep thinking when I decide to launch the "big one" that is what I will do.

On the other hand, with an idea diagrammed out on the whiteboard and a maxed out credit card or two for a container of hot products etc....

I have always had pretty good success in "getting in while the getting was good" before the market was saturated when everyone got all their paperwork finished and joined the party.


 2:32 am on Dec 7, 2005 (gmt 0)

well, this isn't helpful at the start-up stage, but 1 great thing about the ecommerce business is that it generates cash as it grows. because the transactions are all credit card, we get paid way ahead of the 30 day terms on which we have to pay our vendors. most businesses, with receivables, don't have this luxury...


 5:31 am on Dec 7, 2005 (gmt 0)

When I first started my business I became an llc.
Then I established two years of positive finacial history on a shoe string.
After that I was able to establish a line of credit at one bank. Afer three years of positive cash flow that credit line grew.
Now in my seventh year, I am close to paying off the full line of credit.
It has been an up hill battle, but 06 should put me into 6 figure a year income.
It don't come easy Ringo


 5:51 am on Dec 7, 2005 (gmt 0)

I started with $100k cash of my personal savings in 1998 and have never used any other financing. We are, and always have been, 100% current (with terms) with all vendors. 9-11 was a tough time for us but we managed to stay current (barely) and survive. Besides our regular net 30 terms, we have zero outstanding dept. And, we keep roughly a six month operating cash reserve in the bank for opportunities and emergencies.


 7:10 am on Dec 7, 2005 (gmt 0)

We had some backingas we evolved from a rapidly declining brick and mortar wholesale operation to 100% ecomm...
There was not much profit left in wholesale distribution and we launched our ecomm site on a whim..
Year one was pretty much non existant, but we reallystarted lookingat it in year 2 ....now its 3 years later andecomm has eclipsed anythingwe Ever did volume/and profit margin in wholesale..

As for financing...we do whatever needs to be done to maintain our business..mortgages, credit cards, family loans, bullshi**ing,etc....
you need to be very creative when it comes to finance!


 10:16 am on Dec 7, 2005 (gmt 0)

I used my day job as funding, but starting up was pretty cheap anyhow: domain name, hosting, wysiwyg editor (which was the most expensive thing--$70), and stock (I started with $35 worth of stock and didn't even have a shopping cart at first--it was mailorder online). Every single bit of profit the online shop produced, I plowed back into the biz. I had to keep that day job for 3 years before the web biz got to the point where I felt I could keep some of the profits to use as income.

I don't believe in borrowing money. It's not about principles for me--it's about getting into debt and refusing to pay interest. But also, if I had had a wad of money to use starting out, I don't think I would have remained in business, because I did make a number of errors in terms of product choice. Because I was always paying for those products out of the profits of the biz or the day job, my mistakes couldn't be too large. This saved me from my own inexperience a number of times.

I don't believe a business plan would have helped me starting out. I didn't have a very good idea of exactly how my business was going to pan out or even what I wanted it to become. It morphed quite a bit on the way and is still morphing, although I do have a "plan" written in a notebook now.

IMO, the beauty of ecommerce is that you don't need to borrow money to start it up, the way you do with a brick-and-mortar. The startup money you use is mostly sweat equity.


 12:21 pm on Dec 7, 2005 (gmt 0)

I've read all your posting and am trying hard to learn the lesson. I have been trying the oscom and am quite confident to setup my first online shop with all the back-end support (domain reg, hosting and SSL etc.) by myself.

However, I've always had doubt how one, like all of you, manage to get paid without being "cheated" by buyers saying not receiving the goods or the conditions are bad and request for refund?

What will be the best channels you use for promoting your products...? Is yahoo shop good?


 2:51 am on Dec 8, 2005 (gmt 0)

For financing a couple things I've learned.

AMEX is my best friend. I can put 3/4 of my monthly expenses and inventory on the card and get an instant net 15-45. And all the points don't hurt. I've got 100k on it right now and it definatly helps with cash flow, not having to worry about paying today. While it took 6 months of spending as much as I could and paying my balance 3-4 times a month to get my limit up it has really paid off.

The best advice I've got in the last 2 years was from a commercial real estate agent who said, there are 2 bankers out there. The banker with your business and the one who wants it. Since that time I've constantly shopped around for banks. I'll meet a banker, tell him what xx bank is doing for me and ask him if he can do better. RIght now I've got a great relationship with 2 banks and bankers who both want my business and are willing to push their underwriters to get me what I need. 12 months ago, no bank wanted to do anything for me.


 7:10 am on Dec 8, 2005 (gmt 0)

essex-boy - I am in the US, not the UK.

iamlost - I do have a biz plan (all printed and bound) and have not just jumped on in in rolling out a site. Please do not assume.

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