Strategies for Growth: Financial Planning for the Female- and Minority-Owned Business

By G. Alfred Kennedy, Albert L. Zucca, and Michael B. Kennedy

The U.S. economy is entering its tenth year of continuous growth, the longest period of economic expansion in American history. Production of goods and services is up by more than a third and millions of new jobs and vast new wealth have been created. Some of that success can be attributed to the success of female and minority-led companies within the African American, Hispanic American, and the Asian American business communities (typically small-to-medium-sized enterprises) and the larger political and social communities they represent. Factors that have contributed to this period of economic expansion are open financial markets and a strong, widely-held belief in America's entrepreneurial culture. At the level of the first, what is needed is more flexibility if we are to encourage more female and minority entrepreneurs to remain innovative, profitable, and competitive. As Treasury Secretary Lawrence H. Summers put it, "The New Economy is built on old virtues: thrift, investment, and letting market forces operate." The minority business community in America was weaned on these virtues.

Vital to the continued success of the Small-to-Medium-Sized Enterprise (SME) and their female and minority owners is their ability to attract, to qualify for and gain access to working capital to remain competitive. As windows of business opportunity open and close constantly, one must be prepared to carry out planned expansions and acquisitions when the confluence of events would indicate that the timing is right. Oftentimes a business loan is critical to the smooth implementation of a new venture. The key to one's ability to obtain working capital loans is the development of a sound business plan. Timeliness in responding to loan applications and access to capital, apart from competitiveness issues, is the principal dilemma for most owners of SME's, but this is particularly true if they are female- and minority-owned. The ability of the female and minority investor to gain more timely access to capital will dramatically affect their ability to compete and prosper, both domestically and in international markets. Technology compounds timing because in today's integrated global market, the universal time clock is based on Internet time. Time, therefore moves as the speed of sound or the click of a mouse on a computer.

Whether you are applying for a working capital loan or seeking to form a strategic alliance with a larger US firm or a foreign partner, it is necessary to have effective business and work practices within your company. In simple terms, you must be prepared. As noted earlier, in this new millennium, it may even be necessary to change the way you make things happen in your company. Here, I am referring to a return to the basics. If the goals remain to be more productive, more profitable, and more competitive, then be able to respond in depth to the following questions raised by Paul Tulenko, a business marketing consultant in Albuquerque, New Mexico.

  1. Who are you?
  2. What do you do?
  3. Why do you do what you do?
  4. How do you do it?

Who Are You?
Here, you discuss why you are in business (the parameters of growth you allow, your relationships with employees, your business community both locally and nationally, and your commitment to ethics.) To an investor, your resume and those of your management team are important. Without the right team, nothing else matters.

What Do You Do?
Explain precisely what your company will do do for your customers and the benefits your customers will derive when they purchase your product or service. What and who stands in the way of success and, how will you respond?

Why Do You Do What You Do?
This section of your plan is of paramount importance to a lender or a potential strategic partner. Here, you show how your company under your leadership will accomplish its goals. Err on the side of offering more detail rather than less.

How Do You Do It?
Explain in detail the process, the exact steps you will insist upon to fulfill your company's mission and to achieve the goals you have set with your management team and with your employees. Your customers should be well identified and, again, the benefits your customers will receive should be delineated. This step must be totally accepted by all departments at all levels in your company because it ties results to company goals.

This management approach should reassure a lender or potential strategic partner that you understand the importance of sound management principles, that you have an effective marketing strategy and, that you know exactly who you are selling to.

We have all begun to grasp the fact that the pace of today's economy in a Fast World increasingly homogenized by technology is jarringly hectic. To grow in this kind of environment requires skill, daring, and courage...but this is the forte of successful people, especially successful female and minority business owners. Their success is real and tangible. Since 1992 female and minority entrepreneurs have created more than 300,000 businesses and have hired primarily within their own communities. They create jobs and provide social stability. The future of these SME's however, is inextricably bound to the health and longevity of this current period of economic growth. While the fast growth SME (including minority-owned businesses) is the repository of the greatest profit potential in history, due to the constraints imposed on the capital available to them, it is the entity most vulnerable.

To reduce the vulnerability when the domestic economy falters, SME's are beginning to take advantage of the markets and ventures offered abroad. During the decades of the 1970s and 1980s, those firms best organized, financed, and structured to compete in select foreign markets, were the Fortune 100 and Fortune 500 companies; not the SME's. In the 1990s, this changed as America's foreign economic rivals continued their assault on its markets and the SME's (including those female- and minority-owned) grew in number and many rose to the new global challenge. Many of these companies, weaned on their successes in the American market, began to encounter ceilings and other factors limiting their domestic growth.

The owners of these companies needed new markets and new opportunities. At that time, however, few had considered the international marketplace. Some did but were fearful of this great unknown. Constraints on working capital were a limiting factor for some bold enough to consider launching an international venture through independent travel abroad or through a trade mission sponsored by individual States or at the federal level.

To illustrate how SME experience gained from exposure to opportunities abroad and the fit for working capital is not necessarily smooth, one only need to look at the trade mission process. The contrast between trade missions of the 1970s/1980s and those of the 1990s was the size of the companies represented in the delegations. The American trade missions visiting Toronto, in the 1990s for example, were comprised largely of small-to-medium-sized firMs. By the 1990s, the executives of these firms had taken the plunge to look for markets abroad. They became aware of opportunities to joint venture. They were eager to learn the rules of international commerce and how to create opportunity. In Toronto, the Consul General's principal purpose, and that of his staff, was to assist the resident American business community and those visiting American companies in the delegations. His most valuable tools were a competent staff, a passion for building bridges between the business community and access to select markets, a reputation within that community as a problem-solver, and, an ability to persuade others of the merits of his point of view.

In his discussions with the executives of these female- and minority-led companies, they were receptive to going global, to adapting to change. Each of them, however, made the point that the principal limiting factor for them was the ability to secure operating capital. In this new millennium, with its increased emphasis on timing, e-commerce, and information technology, that daunting challenge may remain. At the end of the day, however, the onus will still be on these executives to go out, seek sources of capital, and compete.

SME's seeking to enter foreign markets, or expand their existing share of markets abroad, would be well advised to check closely the programs of organizations such as the Small Business Administration (SBA) and the Export Import Bank (EXIMBANK) in Washington, D.C. for export financing. They have a mandate to help American businesses. The SBA, for example, is also a conduit to small-scale venture capital supplied by high-net worth individuals prepared to make equity investments but do not want to be besieged with requests. In May 1997, the SBA's Office of Advocacy launched the Angel Capital Electronic Network (ACE-Net). This is an internet service that connec ts potential investors with small businesses seeking $250,000 to $5 million in equity financing. Some of these investors have expressed specific interest in helping women- or minority-owned businesses. Detailed information on these programs and assistance in applying for them can be readily obtained at the nearest US Commerce Department Field Office. Many banks, particularly in larger US cities, also use the rediscounting and credit facilities for their customers that are supported by the EXIMBANK. So, in addition to the resources available through the EXIMBANK and the SBA, what other options are there for owners of these enterprises?

Once you have start-up capital, have begun operations, but continue to need substantially more capital than is available from traditional sources (,i.e., banks, investment houses, family,), one of several viable alternatives these days is through an initial public offering (IPO). This process allows SME's to tap into the capital resources of the financial markets, particularly the NASDAQ. Established microenterprises and small firms with no experience in tapping into the financial markets will require specialty brokers in this field to guide them through what to an outsider would appear to be a daunting process. While the process may appear daunting, however, professional help is available. Key to success is assistance in preparing a marketable prospectus; this may take weeks, indeed months, and will require very intensive coordination with your legal advisers and bankers. A good beginning is to build from the early prospectus, and that you used to obtain working capital. One also assumes you have gone through the basis process of strengthening your management potentials, mentioned above. It is also well to bear in mind that some IPO brokers and underwriters will have reservations working with smaller firms not involved in higher technology, which is the cutting-edge sector today in the financial markets. The closer your firm is to that edge, the more attractive the prospectus will be. Initial start-up capital will be essential; a minimum would be in the low six figure range.

Seekers of capital for operating needs and longer-term development should also consider contracting IPO intermediaries that also specialize in securing operating capital or joint venture marriages. Examples of the former type of capital include programs to finance long term notes (five years) secured by a company's accounts receivable, and programs that finance dealer inventories over a five-year period. Current rates from intermediaries range from 14 percent to 18 percent annually, which is considerably less than the 36 percent average cost for the inability to take advantage of trade discounts. Examples of joint venture programs include those offered by finders that identify economic development subsidies, and/or venture capital loans of between $50,000 - $1.5 million to match commitments of equal amounts from other investors. Finder's fees can be high in these cases, but can be reduced by willingness to offer a negotiated equity in the firm.

The competitiveness of the marketplace creates strange, but necessary, bedfellows. It may be true that larger business entities are less hesitant to form strategic alliances with minority- and female-owned enterprises. For example, there is the possibility that large firms with capital reserves for expansion would joint venture with female- and minority-owned firms that are developing "niche" markets among minority consumers, providing equity and working capital for expansion. This leads to the economies of scale for the joint venture that are prerequisites to greater profitability. Survival, growth, and profitability are still the name of the game.

Some would argue that partnerships with a larger, majority firm carry inherent risks: loss of capital and/or your business. What you must guard against is absorbing a disproportionate share of the risks. After carefully assessing the risks of partnering with a larger business, also weigh the advantages that can be gained from a carefully structured partnership. It is still true that nothing ventured, nothing gained. A healthy variation of this alliance is the co-venture with a foreign partner in a target market overseas. Good, experienced counsel would be invaluable in both situations.

Our purpose, among others, was to describe, in brief, what alternatives are available to the female and minority investor in the event that his/her application for working capital is denied or that a response was not forthcoming within the time frame your proposal required. A refusal, however, should not deter you from applying for future loans. The key is to be prepared, lending constraints notwithstanding.

Develop a formal and professional proposal supported by credible, dynamic sales or marketing strategy. Know everything there is to know about your market (domestic and foreign), both from a historical and a potential perspective as well. Be familiar with the laws and regulations that affect your business. Develop a complete, repeat, complete business plan. Do not rush it! Do the due diligence. The odds favor a higher probability of success the second time around.

Keep positive and stay focused. There are always solutions.

G. Alfred Kennedy is an international consultant and retired senior Foreign Service officer with the U.S. Information Agency and the U.S. Department of State. He was the U.S. Consul General in Toronto, Canada (1993-1996), a Senior Advisor to former Commerce Secretary Ronald H. Brown, and a Deputy Assistant Secretary of State with the U.S. Department of State in Washington, D.C. Mr. Kennedy has lived and worked in Europe, North and Southeast Asia, and Canada specializing in trade promotion, communications and public affairs. Currently, he is a partner and owner of Source International, Inc., an international consulting firm in the Washington, D.C. area.
Web site:
He is a contributing editor of The Black Business Journal.

Albert L. Zucca is a retired U.S. Foreign Service officer and international consultant, currently Vice President of Patuxent International Corporation in Maryland. He has lived and worked in Europe, Southeast Asia, Africa, and Latin America for extended periods, specializing in investments and trade promotion.

Michael B. Kennedy is Director of Human Resources for a large non-profit organization in Southern California. He has lived and worked in Japan and the Pacific Rim for extended periods and has an extensive background in human resource managment, financial analysis, and business development.