Planning vital for entrepreneurs

By Catherine E. Toth
Advertiser Staff Writer

Losing their jobs turned out to be the best thing for roommates Rona Awber and Lan Chung.

Designers Lan Chung, left, and Rona Awber travel often to California to have their clothing line made for sale in local retail stores. They're working on a business plan to apply for a commercial loan. Deborah Booker • The Honolulu Advertiser

With about $15,000 in savings — and no business experience — they starting designing clothes and cutting fabric in their living room in Pauoa. Two months later, they landed their first account and Fighting Eel, their clothing company, was born.

Four retail shops now carry their line locally, with interest growing on the Mainland for their stylish casual wear.

The problem now? Money.

"You need money to make money," said Awber, 30. "There's all these things we didn't know about. You think it's easy — you make it and people buy it — but it's not."

Their situation is familiar to many entrepreneurs who are trying to find the money to start a business or raise enough capital to expand an existing one.

Right now Awber and Chung need about $20,000 to grow their company, which would include hiring a sales representative on the Mainland and manufacturing more clothing to meet a growing demand. But getting the money hasn't been easy.

They don't qualify for a line of credit with their bank because they haven't been in business for two years, Awber said. And though it's been a hassle, they're getting a business plan together — something they're learning to do — to apply for a commercial loan.

"Everything's going well, but it could go a little faster," Awber said. "There's always a hurdle to get over. You're never really there."

There are various financing options for business owners, such as venture capital or loans from family members. Some have even racked up credit card debt or dipped into their retirement plans to finance their companies, which isn't recommended.

Traditionally, banks have been the major source of small business funding, according to SBA. They serve as short-term lenders offering demand loans, seasonal lines of credit and single-purpose loans for machinery and equipment. Banks typically are reluctant to offer long-term loans to small, untested companies.

Getting loans

Lori Komer didn't know what she wanted to do after graduation with a sociology degree from the University of Hawai'i-Manoa. Until her then-boyfriend, now-husband, convinced her to do what she loved and not worry about the money.

So they started Leahi Swim School in the pool at La Pietra Hawai'i School for Girls, which Komer had attended. The tuition from her 40 students that summer went directly to pay the rent. Since she was the school's sole teacher, she didn't have any other startup costs.

Now, 30 years later, thousands of students participate in the year-round program taught by 50 part-time instructors.

"When the business starting growing, you learn how to be a business owner," said Komer, 53.

Once her business grew, so did her financial investments.

Two years after opening her school, the pool closed. They had to invest $5,000 — a gift from her father — in a portable, 20-by-40-foot pool, which they used for eight years. When they moved to their current location at St. Francis School in Manoa, they footed a portion of the cost to build a second pool on the campus. By 2006, they hope to open another school on the west side of O'ahu, which will have to be financed, in part, by a commercial loan.

"We put the money right back into our business," Komer said.

Examine expenses

According to an SBA study, the median price for a solo start-up is $6,000 and $20,000 for a team-based venture. The nature of the business will, of course, impact cost. A restaurant will cost a lot more than a greeting card company, which could be run out of a spare bedroom.

That's where business plans are important, Jane Sawyer, spokeswoman for the Hawai'i district office of the Small Business Administration.

"In a business plan, you really examine what expenses you need and what's necessary," she said. "It's worth doing that homework."

Not knowing what you need — as opposed to what you want — and how to realistically grow your business are pitfalls for any entrepreneur.

"Creativity may set you apart from your competition, but you always need to be very, very practical," Sawyer said. "If the numbers don't work, you can't be creative. And that's where people get into a lot of trouble. They have these great dreams about making a million bucks. But they've never owned a business or can't design the product they've dreamt up. You can have a unique idea, but the rest has to work."

And putting this down on paper in the form of a business plan is a must if you're trying to get a bank loan, especially ones backed by SBA.

The agency helps entrepreneurs, in particular first-time and minority business owners, get loans. The local office made a record 518 loans worth more than $63.6 million for the year that ended in September.

Getting traditional bank loans can be more difficult for first-time business owners or those who want to venture into a high-risk industry, said John Dickinson, business banking officer with American Savings Bank.

To get an SBA loan, however, you have to provide a solid business plan that outlines growth, projected sales, strengths and weaknesses, and potential competition. And people should prepare one whether or not they're applying for a loan.

"It forces you to focus your energy, to analyze the business," Dickinson said. "It provides the details for any potentials. It clarifies things for you. When you write it down on paper, you can see your goals and objectives."

Despite the challenges, the longer work weeks, the monthly traveling, Awber and Chung say it's been worth it to run their own business.

"No regrets," Chung said.

Added Awber: "I'm so much happier now, even though I have no money."

Reach Catherine E. Toth at 535-8103 or ctoth@honoluluadvertiser.com.