How to start a small business with smarts (USA Today)

Laura Petrecca, USA TODAY

For USA TODAY's new Smart Small Business series, four expanding firms will discuss their entrepreneurial triumphs and challenges, and share their specific tactics for success.

• Nearly six in 10 small-business owners say their business will grow in the coming year
• Nine in 10 say they're happy working for themselves
• There are many ways to raise working capital and grow a business

There is no single recipe for how to create a financially sound small business.

Some founders make their money off a few big clients. Some have many customers.

There are those who use credit cards and personal savings for working capital. Others seek investor money through crowdfunding websites.

"There are lots of ways to make your business work," says William Dunkelberg, chief economist at the National Federation of Independent Business. "This is what entrepreneurs do — they find clever ways to get things done."

SMART SMALL BUSINESS PARTICIPANTS: These entrepreneurs get a taste of success

When the Giacomini family, who run Point Reyes Farmstead Cheese Co. in Point Reyes, Calif., first decided to diversify beyond milk production on their farm, they sold off half the cows in their herd and used the proceeds to build a cheese-producing creamery.

There was less milk but more money to invest in the cheese endeavor, says Jill Giacomini Basch, who handles marketing and public relations for the firm.

Sisters Janet Chung and Ann Chung Mellman, founders of We Rub You Korean barbecue sauces, recently moved into a Queens, N.Y., home together to stretch their dollars. Joining them: Ann's husband and new baby daughter, and their parents.

In addition to saving money by consolidating living costs, they can easily brainstorm ideas.

"We talk a lot of business talk," Chung says.

These family-run businesses are two of the four participants in USA TODAY's new Smart Small Business series. The others:

• Reuben Canada, founder of Philadelphia-based Canada Enterprises, which makes Jin+Ja, a drink with ingredients such as ginger, cayenne pepper and green tea.

• Brook Eddy, who brewed up Boulder-based spicy chai tea company Bhakti Chai.

Over the next six weeks, these firms will share their business challenges and achievements and offer lessons learned on their entrepreneurial journey.

They work in the food and beverage industry but deal with problems that are universal to small businesses nationwide, such as how to manage money, find reliable marketing methods and maintain some sort of work-life balance.

SMALL BUSINESS: Complete coverage of small business issues

In this first series installment, the topic is finances.

EXPANDING OPTIMISM

Small businesses across the USA had some bumpy financial years during and after the recent downturn. But with the economy looking brighter, many are optimistic about expansion.

Nearly six in 10 small-business owners say they are already growing or they expect growth opportunities in the coming year, according to the National Small Business Association's 2013 Mid-Year Economic Report.That's up from five in 10 in the previous poll six months earlier.

There are many ways to grow: Expand a customer base. Open new stores. Get more retail accounts. Create fresh products.

With the help of investor money, Eddy expanded her chai tea line beyond local cafes and into retailers in 38 states. Her products include chai tea concentrates, ready-to-drink beverages and a chai chocolate-chip ice cream.

The We Rub You founders have an eye on expansion, too, but they're not sure how to do it. "What is healthy growth?" asks Chung Mellman. "Should we look for investors as opposed to being a family-owned business?"

And if they decide to go that route, she has even more questions. "How much equity do you have to give up?" she asks. "How do you do that in a smart fashion?"

SATISFIED BUSINESS OWNERS

In addition to the big decisions (and stress) that go with running a business, there is also much satisfaction. Nine in 10 small-business owners say they are at least "somewhat happy" they went into business for themselves, according to a survey by online marketing company Yodle. Just over half of those say they're "extremely happy."

Jin+Ja founder Canada, who was a patent attorney, left a prestigious job and a stable salary to "follow my heart" into the entrepreneurial world. And he is thrilled with the decision.

Of course there have been tough times — "This is a full-contact sport called life," he says. "You're not going to come out unscathed" — but when you can pursue your dream, he says, "you're living a powerful life."

Even with all the optimism, survival rates aren't high for fledgling firms: Only about half of new establishments make it five years or more, according to the Small Business Administration's Office of Advocacy. About one-third survive 10 years or more.

Economic uncertainty tops the list of challenges that small-business owners face, according to the NSBA survey. That was followed by fears of a decline in consumer spending and worries over the cost of health insurance.

While there are no ironclad rules that can eliminate those concerns, it is possible to mitigate financial woes:

• Know what is owed to you. "Sweat your accounts receivables," says Thom Ruhe, vice president for entrepreneurship at the Ewing Marion Kauffman Foundation, which works with entrepreneurs. "How slowly or quickly are clients paying you?" he asks. "Cash flow is king — and I know that is clichéd to say — but it really is."

• Court consumers before trying to go big. If a product has a strong customer base, you'll have more leverage when negotiating with retailers to sell it, says John Mullins, an associate professor at the London Business School who is author of The New Business Road Test. "The retailers have all the power," he says. In order for an entrepreneur to build in a healthy margin, "they've got to develop consumer pull."

• Pepper peers for advice. "Meet business owners like yourself and ask tough questions," says Katie Vlietstra, director of government affairs at the National Association for the Self-Employed. "Build a support system."

Networking can bring new ideas as well as valuable business connections, says Rhue. "If you have anxieties about going to a beer-and-burger mixer on Thursday night, you just have to get over that," he says. "Go and shake a few hands."

• Think beyond investors. "Too many businesses think they need investor money," Mullins says. Entrepreneurs should first see if they can grow by reinvesting money earned. "If you can get customers to provide the initial money that you need, you're in way better shape" than giving up a stake, he says. "Wouldn't you rather own all your business than a part of your business?"

• Bring in a negotiation ace. If you do decide to take investor money, solicit expert assistance. Don't craft a deal by yourself. "Investors do this every day, but the first-time entrepreneur is doing it for the first time in his life," Mullins says. A novice negotiator could "be taken to the cleaners if he doesn't get good advice."

• Consider more than money. "Look at the investors who can bring key talent and key relationships," Rhue says. ""Before you look at the dollars, look at the Rolodex."

• Create a board. A small board of advisers — not directors, Ruhe emphasizes — can offer an objective outside perspective and help an entrepreneur to stay focused on goals. Ask a few smart contacts "to donate their time and a few of their brain cells to your adventure," he suggests.