07-09-08 Transcript Transcript Provided By: Caption First, Inc. >> CHRISTINE HESS: As Teri said, we are here today to talk about capitalizing your abilities, microloans and other resources that are available for entrepreneurs with disabilities. To begin our discussion, I'd like to talk a little bit about The Abilities Fund, and how we know what we know. The Abilities Fund is the first and only nationwide community developer and financial lending institution targeted exclusively to advancing entrepreneurial opportunities for Americans with disabilities. As part of our program with The Abilities Fund, we look for two separate markets. The first market of course is entrepreneurs with disabilities. We also market to organizations and agencies that serve people with disabilities. Developing and serving these markets, we offer a range of different products, including customized training and technical assistance, policy recommendations, and linkages to resources both local and national. Our focus today is on capitalization. But I also want to emphasize the importance of the foundation of key components, including an assessment when creating and launching a successful microenterprise. Today we want to understand key components for assessing entrepreneurial potential. We want to understand the fundamentals of financial feasibility and we are going to identify resources for funding. The information that is presented here today is based on work that The Abilities Fund has done through a flagship program called the Iowa Entrepreneurs With Disabilities Program. We call it EWD. It was a partnership between Iowa Voc Rehab, Department for the Blind, Iowa Department of Economic Development, and Iowa Finance Authorities. We had 13 years of management services. During those years, there were over 1,000 applicants to the program, and 336 businesses that were started as a result of the program. Businesses in 2006 was 79 percent, which is something we are proud of, business sustain ability. Entrepreneur focus was working towards economic independence that is becoming independent of any benefits they might have been on. This flagship program led us to another program, which is the Nebraska self-employment services program. As Teri said, I'm the program manager for this program. It is a partnership between Nebraska voc rehab and The Abilities Fund. We have currently started our third year of contract of comprehensive management services. As part of the services, we look at training. A big piece of the training part is a workshop that we do called exploring self- employment. This is a good launching place for entrepreneurs with disabilities who may not be sure if owning their own business is something that is right for them. The question of the day in the workshop is, is this right for me? And at the end of the day, our hope is that entrepreneurs have enough information that they can make that decision, and informed decision about whether or not to go into business. Nebraska self-employment services also provides technical assistance, and assistance with capitalization, specifically identifying resources that are available to capitalize business. Let's focus a little bit on microenterprise itself. I'd like to start that discussion by defining a few terms so we know what, we can understand each other what, we are talking about. An entrepreneur is a person who organizes, operates, and assumes the financial risk for the creation and management of an enterprise. An entrepreneur is the person not who just owns the business or runs the business, but actually has the idea for the business and takes that to fruition. A disadvantaged entrepreneur is an entrepreneur who has low income or lacks access to the adequate capital to make the business a go. Oftentimes people with disabilities fall into the disadvantaged category of entrepreneur simply because of reasons that may be associated with disability, for instance, high medical cost or hospital bills, that result in sometimes a poor credit rating. The comments that I'm going to make today are going to be focused on microenterprise as opposed to small business. When we talk about microenterprise, we are referring to a business with five or fewer employees, that takes under $35,000 to capitalize. A small business on the other hand, is a business that employs up to 500 individuals, and generates up to $3 million in revenue per year. If we take a look at self-employment as a whole and what it does to our economy, it is interesting to note that about one in three Americans are thinking about starting a business this year. And approximately one in ten or 9 percent of the population will actually act on that dream. We also note that small business failures within the first five years have declined, and that news is good. It used to be 80 percent. Now it is about at 50 percent. What we think that is, is that it represents an improvement in the way we measure business success. It also can reflect the idea that we have an increase in training and technical assistance. And especially training in technical assistance for those who are disadvantaged. Microenterprise works and when we look at the economic value of microenterprise as a whole, we can see that more and more self-employment is a viable option. People with disabilities are choosing self-employment as a vocational goal and they are being successful. Other statistics, microenterprise businesses represent over 87 percent of all businesses. They create two out of three jobs in the United States. Two out of every three jobs is created by small business. Microenterprise businesses with zero to four employees create approximately one million jobs annually. This is a giant force in our economy today. While in the United States we are heavy on training and technical assistance, we have those things available, for entrepreneurs, we still remain light on access to capital. We need access to more dollars to be able to fund our businesses. Why is microenterprise attractive to people with disabilities? We all know it offers flexibility. One of the first things you think about is you are going into business is that you can be your own boss. You can schedule your own day. You can work around any kind of issues or barriers that you have with disabilities. Microenterprise also offers a way to mitigate employment discrimination. This is not a question of whether or not to disclose a disability to an employer, because you are the employer. Microenterprise can also be the most direct route to social and economic empowerment for people with disabilities. Microenterprise fits well for people with disabilities for many reasons. Couple more statistics here. People who report a work disability are more likely to be self-employed than people who don't. This is based on a survey conducted by the Rural Institute. It is interesting to note that even though people with disabilities choose self-employment more often, when we look at voc rehab case closures for a year, we see that there is under 3 percent of those case closures are self-employment cases. We might wonder why this is. We do think that part of the reason could be is that voc rehab staff are experts at disability and how it relates to competitive employment. Microenterprise is a totally different situation. There is no degree program in this country that mandates or offers self-employment training to counselors with voc rehab. We are hoping that one day that will change. In this country as well, we have a 20-plus year history focused on policy and programming for self-employment for disadvantaged populations. That is a wonderful legacy. Policy is not the same as technical assistance. And it is not the same as access to funding. When we have good policy, it is a foundation that we can work from, and then we need the tools to make business entrepreneurships and microenterprises come to fruition. From my experience with Nebraska, and our collective experience in the abilities fund, we understand that several points need to be addressed in our keys as we look at successful self-employment because funding alone is not the answer. What are the keys to successful self-employment? We look at entrepreneurial skills. We look at valid support system, we do a separate feasibility assessment, and of course, the tool of the trade is the business plan. You will see that at the bottom of your screen, capital is in red. Everything works towards capital. But we need to do the groundwork with skills, support, assessment, and business planning in order to access the capital and use our resources well. Before we discuss capital in particular, I'd like to talk a little bit more about skills. There is a list of skills and we will go through these. Not every person, not every entrepreneur is good at every one of these skills but they are all necessary and need to be addressed as you look at business planning. Products and service development is probably the skill that is most entrepreneurs feel the most comfortable with. They also are very interested in marketing, how to communicate about their product or service, to potential customers, to vendors, to other businesses, making sales, the operations of the business. Personnel is another key skill, that sometimes people who have been in competitive employment are not very comfortable with. It goes from the idea of working for someone, to actually being the boss, hiring, firing, can be very stressful. Finances are another area. As I work with clients in Nebraska, one of the things that they often mention, one of the skills that they need to mitigate and increase is has to do with finance, whether it is accessing finances or recordkeeping, basic bookkeeping. Another skill needed to manage a successful business is a general management skills. You will see on your screen that underlying all these skills is what we call passion. Now, you may have heard of the entrepreneurial spirit and that is sort of what we mean by passion. The passion that you feel comes out in your beliefs that your product or service is valuable. We can see passion in a dedication to wanting to invest the time necessary and required to take an idea, and make it into a reality for you in business. We note that entrepreneurs who are successful have a commitment to personal investment in their business. Whether that investment is money, or assets, or equipment, sweat equity, time, we can see that that passion shows through that willingness. There is also a willingness to be trained, and understanding that you need to keep on learning as your business grows, the market changes. You need to respond to those changes, and keep learning. Recognizing your entrepreneurial traits, utilizing existing skills, and strengthening your weaknesses are all very important pieces of becoming a good and profitable entrepreneur. As we have an eye for capitalization for the business, think about an effective support system and how important that is as you launch your business. There are many areas where we find support. The number one and the first one you may think about is your family. One thing I need to stress with family is that you communicate with your family. Oftentimes, the entrepreneurs I work with come in with family members with them. Sometimes it is a spouse, other times it is children. But the communication with the family helps them to feel less left out. They can be an important asset for you as you start your business. Another effective support system is your caseworker. Be sure to contact your state voc rehab office and find out what is available. Keep records of who you talk to and when you talk to them. Another good support service is business colleagues. You may know someone already in business, someone that you can emulate, or for future, that we understand today in business, it is about networking, and about building relationships, and less the dog-eat-dog kind of economy that we used to live in. There are also other resources. Your other resources might include a banker, a lawyer, an accountant or bookkeeper or an insurance person, and all of those other resources are very important for you as you start your business. There is a plethora of online support available. There is online support available through The Abilities Fund, and as a matter of fact, we are going to start a new Website at the end of this week, so there will be many online services and tools for you to use, as you are looking at feasibility of your business and business planning. There are other online services, the SBA has a great Website, the service corps of retired executives, SCORE, has a excellent Website. Another form of support can be assistive technology. This is something that you can assess through your voc rehab counselor, and it may be something that will make your access to self-employment more open. Benefits planning is another very important support system. If you are a person with a disability right now, and you are currently on benefits, Social Security, SSI, SSDI, or private insurance, benefits planning is critical so that you can understand how any money that you make in self-employment will affect your benefits, particularly your health insurance coverage. You will see microenterprise programs there emphasized in green. There are many microenterprise programs that are available to help you at no cost, and those are both local and national. Again, if you need help finding microenterprise programs in your area, you can contact The Abilities Fund through our Website, and that Website will be on your handout today. If you look at microenterprise in general in the United States, it started in the '80s. There were three pilot peer lenders and they used a program that was established by Mohammad Unis in Bangladesh. And what they found is that our economy and culture in the United States is very much different from what it was for Mohammad Unis, and we developed in the United States our own program that we call microlending. Today, microlending is done mostly by stand alone, nonprofits that are housed within a nonprofit that serves a low or moderately income population. They offer a variety of services, depending upon the needs of the community. Right now, in the United States, there are around 700 microlending organizations. The types of services offered by microenterprise services organizations-there are business planning classes, technical assistance, there are mentoring, peer support, financial literacy, and there are microloans. Again, those are generally from 500 to $35,000. From my work with Nebraska self-employment services, I know that assessing individual potential is critical to business success. When we look at assessing potential, we look at client preparedness. Work history. Even if a work history is skimpy or there are many jobs with short duration, it doesn't mean that that client will not be a good candidate for self- employment. But it does mean that we need to look at work history, and figure out what that tells us, and it may be that self-employment is an excellent choice for that person. We also look at technical soundness of the individual and what we mean by that is, does the person have the education, the skills, the training that they need, in order to produce the product or supply the service to the community? Not only do we look at technical soundness, and your education, but we also look at competitive edge. What will your business provide to potential customers, to make you stand out? What will be your edge-your niche in the business world? We also look at a financial track record. We know that your financial situation, your personal financial situation, is directly linked to your access to capital for your business. Sometimes, training and financial literacy is where we need to start. And we need to work on improving personal financial situations before we launch a business. There are also disability related issues in self-employment. For instance, the assistive technology needs that can help you to run your business and other technical assistance. As I work with clients, one of the most important issues that comes up is financial. Personal financial issues are something that we mitigate on a consistent level. One way that we have at The Abilities Fund to assess your individual potential is a data collection tool and intake. It is designed specifically for people with disabilities interested in self-employment. Informed choices is available online and in alternative formats. It focuses your personal readiness, financial situation, motives, expectations, and business concepts. Informed choices is online; it is about 200 questions, and at the end of the questions, you are also given a printout. It is a review of what you have done. It lays the foundation for a feasibility study and a business plan. It is a great preparatory exercise to think about how ready you are to start business. Informed choices will be available online on our Website in August for individuals to use. I encourage you to check the Website. The next couple slides you are going to see show a page from informed choices. You can see it is simple. It is point and click. There are also areas where you will be able to type in. For instance, the slide you see now says benefits in health insurance, there is another one with earnings information. But informed choices also asks you questions about your business concepts, your business idea, and your previous experience running a business or managing people. Let's talk a little bit more about assessing your business idea. At the Abilities Funds we have separated feasibility from business planning. We test the feasibility of the idea first and continue with business planning. All the research we do in feasibility ends up in a business plan. We have broken feasibility into three different areas. One is concept feasibility. What we mean by that is, what is the business idea? Is it clear? Do you have a description of the product or service? What about the overview of the industry in general and how does it relate to this business idea? We also look at market feasibility. We look at a market analysis. What is going on in the market? What will be the geographical area that the business will serve? What is happening with competition? We also look at financial feasibility. We look at a client's current financial position. We look at a credit report, if we think that a loan might be something that the client will be interested in. We do a benefits analysis. I want to add that a benefits analysis in Nebraska is done before a referral for self- employment. As soon as we know that a client is interested, in self- employment, we do a benefit analysis, so that the client can have the information about how any sort of income from self-employment will affect their benefits and again especially health insurance. As part of financial feasibility, we also look at start-up costs. And we identify where the resources will be that will capitalize the business sufficiently. We look at all forms of funding. At feasibility, we have done our research; we have statistics to show that our business idea is feasible. Then we go on to business planning. Again, we are talking about capitalization with the understanding that when we assess and look at our personal skills, and we look at feasibility of our business idea, and we go into business planning, we are preparing ourselves and our business to find the sources. We need to understand what we need money for, and where we can find it and how we qualify for that. At the abilities fund and in Nebraska self-employment services it is very critical that the entrepreneur actually writes the business plan. We do that with help from business consultants, but if the entrepreneur themselves write the business plan, it gives them an opportunity to better define their goals. They plan a start-up strategy, and they have this in writing. It is in electronic format so as the business grows and the business plan is reviewed, it can also be changed. The entrepreneur identifies a support network and this is the part of the business plan, where the attorney, the accountant or CPA, the insurance person, the banker, their contact information may be right in the business plan. We also provide entrepreneur a menu to allocate resources. In our business plans, we do a table, called a sources and uses of funds table. So it will show and list the equipment and the value, if money is there, and who provides those resources. For instance, the business owner provides a certain amount, and then voc rehab may provide a certain amount. There may be a certain amount that comes from loans. The business plan also helps the entrepreneur prepare to apply for a loan. Or any work incentive like a PASS plan. If you are familiar with PASS, it is where you use part of your disability income goes into a savings account that can be used for self-employment. Most of all, what the business plan does, is it supports a case for capitalization. When you have written your business plan, you have been very involved in it, and you are sitting with the banker, you will be able to answer the tough questions that the banker has from you about where your cash is coming from and why you think you are going to make that amount of revenue in that amount of time. There are many resources out there to help with business planning. I encourage you to look for one-on-one help whenever you can. You can look to The Abilities Fund or any other microenterprise development organization. As soon as informed choices is launched on our abilities fund Website there will be a suite of tools that will be available specifically for people with disabilities to help with business planning including feasibility and skills assessment. Another piece in the business plan that is very important to think about, we have talked a lot about how to get a business going, but business plans also include contingency plans, and ways to exit in a business. It is important for you to prepare for the what-ifs that sometimes would happen. For instance, the price of gas has gone up. Will that affect your business? What would you do if that happens? Let's talk about start-up versus operating capital. We know that you will need a certain amount of money, and from the work that we have done to start your business, we know what amount of money you will need to start up. We also know that during the first month and sometimes the first year of a business you will need additional capital to continue operating while your sales increase. Because we all know that the day you open your business, you are not going to be at maximum sales. Where can that money come from? Savings. The number one source of funding for microbusinesses in the United States is friends and family. There are also abilities fund loan guarantees, other microloan programs, like SBA in rural areas, in Nebraska through the center for rural affairs we have a program called REAP, rural enterprise assistance program that provides technical assistance and loans. Thirty-three states have Telework programs. In Nebraska we have a Telework program that can provide loan funding at very low interest to people with disabilities for equipment to run a home- based business. Credit unions are another good source of capital. Credit unions are really starting to look at what kind of financial services they need to assist people with disabilities. There is a new program, a national program called real solutions. That credit unions are using, in order to learn how to outreach to people who are disadvantaged especially related to microenterprise. It is the importance and I can't stress enough, importance of knowing how much is needed to start your business and run your business, possible sources, and what you need to do to be eligible for some of the programs. Let's look at some examples of start-up funding. The risk here is calculated as individual risk related to the entrepreneur. If we look at a fully capitalized at start-up business and say this business cost $10,000 to start, and this individual is going to get a $5,000 grant from a state or federal organization like their state voc rehab office, and they are also going to get a loan for $4,000, and that could come from the abilities fund or SBA or another microloan program. And they are also going to get a family loan of $1,000. We say that this is a 50 percent risk to the entrepreneur, because five of the $10,000 is grant dollars that won't be repaid. There is also a mitigated risk situation. Again, a business that costs $10,000 to start up, $5,000 woo would come from a loan and $5,000 would come from a state or federal organization. We have injected a PASS plan that would put $500 a month towards the business. Actually, what you do with that PASS plan dollars is you pay the payment on your loan. So the risk is mitigated because the PASS plan funds are used to pay the loan. Another option is a zero percent risk. This is a good situation for a person who has poor or no credit. Say $5,000 comes from a grant from a state or federal organization and $250 each month is injected from a PASS plan. I wanted to talk a little bit about the services that are available through The Abilities Fund. Online training comes in the form of Informed Choices that we talked about. There is financial education, online courses, business feasibility help, help with business plan development, access to capital. We have an online loan guarantee program. Again, it is 500 to $5,000 in loans. If individuals need more than $5,000 to open their business, we would be able to look for resources that could find that additional funding. Another important piece of abilities fund work is the referral to local microenterprise service providers when that is available in your area. We do that so that we can find you access to technical assistance and access to capital. So, if we were going to kind of wrap things up, we talked about how important it is to assess your personal situation. We talked about feasibility, and to determine whether or not your idea is feasible to do some good research in that area and to document that research. We talked about that we take that feasibility work, and we put it into a business plan. Then we look for funding and where does the person look for funding? We talked about agencies. Voc rehab should be one of the first places that you look to get information. It is not the only place. There are other resources, you can contact local colleges and universities, they often have business development centers. There is a women's business development center. The center for rural affairs in areas, especially in Nebraska we have the REAP program. There are loans, guaranteed through Abilities Fund, through SBA. There is places like Service Corps of Retired Executives where you can find technical assistance, mentoring. Again, remember family and friends, are the number one source for funds for microbusinesses in the United States. There is savings, where you can look at your PASS plan or your personal savings. And banks and credit unions are another place that you can look for funding. Although, I would make sure that you knew and that you shopped around for interest rates. I know of interest rates as low as 3 percent, specific loans for people with disabilities, to as high as at a regular bank of 18 percent. It is great to be here and have the opportunity to talk with you about capitalization of microenterprise, for people with disabilities. I look forward to addressing any questions that you have, in the chat room later. Thank you very much.