By Karen E. Klein Q: I opened a mortgage broker's office late last year but didn't realize until too late that I was undercapitalized. I own the building my office is in, and receive enough income from it to carry on, but I do not have the funds to continue education, renew affiliate memberships and licenses, purchase supplies, attend trade functions, advertise, etc. I fear that my business is going to go under before I get started. Can you help?
---- M.D., Monroe County, PA.
A: It sounds as if you are caught in the classic downward spiral that traps many small business owners: Without an ample financial cushion, you cannot grow your company -- or even get it off the ground. That's why meticulous planning, realistic financial projections, and accumulating extra capital -- and doing so well before you open your doors -- is so important for any startup. As the experts will tell you, it always takes more money than you think to get a business established.
Unlike many faltering entrepreneurs, however, you are fortunate to have a tangible asset: the building you own. Depending on the market you are in, that property should be able to provide a source of capital for your company. Can you get a bank loan using the property as collateral? Lease space in the building to additional tenants? Get a second mortgage or refinance your existing loan? "If there is equity [in the building] in which the business operates, perhaps a mortgage could be taken out that would provide for needed working capital," says David Flamer, a CPA based in Woodland Hills, Calif.
BASIC FIXES. The money you borrow -- hopefully at the current low rates -- could be put back into your mortgage-broking business for things like marketing and promotion, Flamer suggests. Borrowing against your building would bring an added benefit: Interest on the loan would be a tax deduction.
Consult a CPA or attorney familiar with small-business structures to ensure that you are making maximum use of the existing tax laws while reducing your personal exposure as a result of expanding your business. Setting up the mortgage business as a separate entity, such as an S-Corporation, may help separate it from your personal financial undertakings and considerably reduce your tax burden, Flamer notes.
Once you have upped your cash flow, you need to find ways to do more than "carry on" with your business. Rohit Shukla, CEO of the Los Angeles Regional Technology Alliance, recommends Web-based marketing. "Establish what your specific competitive advantage is: Why would I use your company? You would have to be more specific than, say, the fact that you provide good service. Often, decisions to use your service may have to do with such things as your experience, your knowledge of the marketplace, the creative deals you have done in the past," Shukla says. "These are the elements you would organize on your Web site."
DON'T BE MODEST. Creating a Web site is easier and cheaper than ever before. Look for point-and-click software that makes construction simple, or give a computer-sciences student an internship to develop the site with you. Make sure your site is well-positioned with search engines, so that your name pops up first when people go looking for a mortgage broker in your area. Your site should include both background and information on yourself and your business, a list of the clients you have served, and some examples that illustrate your ability to broker simple and complex mortgages. "The record may actually be more impressive than you think," Shukla says.
Another tool to include on your site would be a simple newsletter that is posted regularly and sent free to those who register. Not only will the newsletter be a promotional tool, it will help build an e-mail database of potential customers. Make sure you also send it to your existing client list, so they know what you are doing these days. Include information and little nuggets of advice relating to the mortgage industry in general, Shukla recommends. This will help establish your reputation as a "knowledge agent" in an economy that increasingly demands expertise that is both broad and deep. Have a question about running your business? Ask our small-business experts. Send us an e-mail at firstname.lastname@example.org, or write to Smart Answers, BW Online, 6th Floor, 2 Penn Plaza, New York, NY 10121. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.