lessons learned the hard way microenterprise in murfreesboro
TRANSCRIPT
Lessons Learned the Hard Way
Microenterprise in Murfreesboro
Lessons Learned the Hard Way
A very good start –
Lessons Learned the Hard Way
Remember, you don’t have to re-invent the wheel.
Lessons Learned the Hard Way
POLICY DECISIONS
Lessons Learned the Hard Way
Lessons Learned the Hard Way
Two months after opening its doors for business, Recess Playroom has a list of over 100 clients, recently had 28 children on a Saturday, more than 20 on a Tuesday – usually a slow day – and Jennifer has had to hire two employees with a third expected to be needed within 60 days …
Lessons Learned the Hard Way
… and she has been making her loan payments on time.
Lessons Learned the Hard Way
Whoops!!!!
Lessons Learned the Hard Way
Five loans in first full year of program
Within 18 months only one of the microenterprises was still in
business.
Lessons Learned the Hard Way
What happened?
Lessons Learned the Hard Way
Lessons Learned the Hard Way
The Issue: Administrative Buy-In
Small businesses fail more often than they succeed. Loans will stop performing.
Lessons Learned the Hard Way
The Lesson –
You must have the Risk Conversation with Administration early and there must be agreement on the front end about what happens on the back end.
Lessons Learned the Hard Way
The Issue: Collateral
“… do your due diligence on the front end and if the loan goes south, it goes south.”
Lessons Learned the Hard Way
The Lesson –
Everyone concerned must be on board with how much risk you are willing to accept and how you handle the downside of risk.
Lessons Learned the Hard Way
The Issue: Partners
You and your partner may have different agendas. What does each expect from the other?
Lessons Learned the Hard Way
The Lesson –
Make sure you and your partner have the same expectations going in and get them in writing.
Lessons Learned the Hard Way
The Issue: Zoning
Does the client understand that what the business does may restrict where the business can be?
Lessons Learned the Hard Way
The Lesson –
Require a visit to the Planning Department before leases are signed and loans closed.
Lessons Learned the Hard Way
The Issue: Codes
Does the client understand that a leased space that meets codes for one use may not meet codes for their use and they will probably be responsible for any expenses incurred in meeting codes?
Lessons Learned the Hard Way
The Lesson –
Require the client to engage with codes and fire departments before leases are signed and loans closed.
Lessons Learned the Hard Way
The Issue: Leases
Leases are complex contracts but apparently none of our clients had their leases reviewed by legal counsel or our partner.
Lessons Learned the Hard Way
The Lesson –
Someone knowledgeable must review every lease before the client signs to avoid expensive mistakes.
Lessons Learned the Hard Way
The Issue: Location, Location, Location
It’s only natural to want your business in a new building in a high traffic location. But can a new business operating on a shoestring afford it?
Lessons Learned the Hard Way
The Lesson –
Picking a sustainable location must be a point of emphasis in putting together the business plan.
Lessons Learned the Hard Way
The Issue: Accounting
Inattention to accounting and tax matters is a recipe for failure. No charge access to accounting services was part of the program. Only one business chose to use it.
Lessons Learned the Hard Way
The Issue: Accounting
The plan was for our partner to arrange for these services with a third-party vendor with the bill to be sent to Community Development. In only one case did that happen.
Lessons Learned the Hard Way
The Lesson –
Don’t depend on others to do what needs to be done. Do an RFP for accounting services and make participation a contractual requirement.
Lessons Learned the Hard Way
If we had it to do over:
Lessons Learned the Hard Way
Engage Administration in the Risk Conversation early on. There is risk, small businesses fail, loans go south. When the inevitable happens, do we forge ahead because of the successes or pull the plug because of the failures?
Lessons Learned the Hard Way
Do a better job of working with our partner to define its role in the program with emphasis on post-loan expectations.
Lessons Learned the Hard Way
Do an RFP for accounting services and make participation for at least the first year a contractual obligation.
Lessons Learned the Hard Way
Establish a one-stop shop point of contact at City Hall to help prospective clients navigate through planning, codes, the fire marshal and the legal department.
Lessons Learned the Hard Way
Have the City’s Legal Department review all leases for potentially onerous consequences. We can’t tell anyone not to sign a lease, but we can decline to do a loan if we see red flags.
Lessons Learned the Hard Way
Don’t reinvent the wheel. Microenterprise can be an important part of your program. Learn from the people who are doing it well – and learn from the mistakes of those who didn’t.