Obtaining capital, creating and managing an operating plan, identifying key advisors, selecting the appropriate structure for the business, dealing with government agencies and taxation, and providing benefits are all complicated tasks that take time away from servicing clients and developing new business. You may have the best offering in the world, but your survival depends largely on how well you are able to meet these needs on a daily basis.
Capital
's view of capital is distinctly different from that of the lifetime employee. Capital is the fuel that drives a business's income producing activities. Portable executives, who buy products for resale, take continuing education courses to enhance their skills, hire a marketing consultant, or grant credit to a customer are making use of investments to drive their business forward. This broadened view of capital is in stark contrast to the somewhat more passive approach followed by long term employees, whose focus is to save money for such things as their children's education, buying a house, retirement or illness. To truly become portable, you must adjust your mind set concerning capital from a savings view to an investment orientation.
Sources of Capital
Severance Packages
In the present era of down sizings, "early retirement incentives" or "severance packages" often constitute the largest source of business capital a portable executive has at hand. Severance money is intended to cushion the blow until the executive finds his or her next position, so in a very real sense, it should be viewed as capital to fund's business. It is a good idea to keep these funds in a separate bank account earmarked as business capital. Even when you have sufficient income and do not need to touch your severance money, learning to think of it as capital for building your business will help you set parameters around the amount of capital investment you are willing to make.
Savings
The use of savings as a source of business capital should be approached with a good deal more caution. Savings serve a very different purpose in an individual's overall financial planning, so you should only tap savings after thoroughly analyzing what your savings are for and how you will replace the money you've withdrawn. To the extent that uses savings in his or her business, a formal transfer of money should be made to the business account and interest should be charged in order to make the difference between savings and business capital clear.
Vested Pensions
For many no fault terminated executives, the value of their pension plans is a significant asset. Depending on the particulars of the plan provided by their former employers, pension funds are available at the time of termination as a lump sum pay out or are deferred to be tapped at normal retirement age. Since these monies are specifically designed to provide a level of support when an executive can no longer work or elects to retire, they should be safeguarded for that purpose and used only in dire emergencies.
In addition, one should not lose sight of the fact that a "qualified" pension program is a unique form of savings since contributions to it and earnings from it are tax deferred until retirement. To the extent that it is possible, should try to keep his or her pension "portable" as well by rolling it over into a private program such as a 401 (k) or an IRA SEP and continue to channel savings into it on a tax deferred basis.
Home Equity
Very often, the largest investment an executive has is in his or her home. Since one's home is fixed in nature and often represents relatively stable value, banks are usually comfortable lending money on a portion of the equity over the mortgage debt. Home equity borrowing may be a way for to obtain cash relatively inexpensively. There is a catch 22 involved in using your home equity, however, because banks not only consider the equity in the home but also the income of the borrower, so it is important to secure these loans during those times when has a job or a steady flow of income.
More than a few portable executives make the decision to sell their existing homes, use a portion of the income from the sale as business capital, and move to another location where the cost of living is lower. After portable executive Dick Swank was down sized out of Dun & Bradstreet, he looked at his home and decided:
I've got a big asset here, and I really don't want to incur that long term expense of maintaining a big home. We sold our house and went up to the country where we built a house that is absolutely spectacular-for half of what we got for the other house.
Other Personal Credit Vehicles
Using credit cards, overdraft privileges, automobile financing, and other forms of consumer credit are additional ways to maintain liquidity. While these vehicles are not designed to be used to finance a business, they can be called upon to bridge short term needs. It is important in exercising these options, however, not to lose sight of the fact that most carry an exorbitant interest rate.
Outside Sources Of Capital
There are a number of outside sources of business capital that may be available to you, and while many of them are only available to those whose businesses are already up and running, these sources should be included in your business plan. Types of outside capital include bank loans, SBIC (Small Business Investment Company) loans, and venture capital. You must recognize, though, that most of these capital sources are very expensive and hard to come by, despite what you may hear about them. All want a high rate of return and all expect the loans they offer to be fully collateralized and personally guaranteed. While it is hard to attract venture money for a personal service business, it can be done if you have a well developed business plan and can show that returns are generated.
