To continue April’s thread of topics around improving financial literacy, I had the pleasure of speaking with Levi King, Co-founder & CEO of Nav, (a site that helps business owners manage their business credit and get streamlined access to financing) earlier this week. As a small business advocate, I’m always talking with successful entrepreneurs on the hunt for real, useful, inspirational thoughts I can pass on. Sometimes, business owners are not as forthcoming with the sage advice I’m looking for, but the 30 minutes I spent listening to Levi King talk about his path starting and selling multiple successful businesses was not one of those times. I hope that you enjoy his words of wisdom as much as I did.
So who is Levi King and how did he get started as a business owner?
Levi King started his first business while still in college designing and manufacturing electric and neon signs. It was a challenging, but a great experience as a first business because the operations were so complex. There were many layers to the company, including manufacturing, design, and customer service. He learned about credit and cash flow management since he operated on a 50% upfront deposit and had to put up 80-90% of the total cost, so they were a creditor of the job for 30-40% for usually 3-6 month (or more) until the final payment was due.
Cash flow was always tight, and this was a time before alternative financing options were available for small business lines of credit and loans. This issue was how he learned about why business credit matters because he needed it to work with his suppliers. At the time, King had no business credit profile or history, which can be as bad as having bad business credit. So, he worked hard and slowly built up his business credit with his suppliers starting with net 30-day terms, net 60 and built up to net 90 and eventually net 120.
King eventually built his business to $3 million in revenue and 15 employees. He recalled a low point, one Friday when he didn’t have enough cash in the bank, and it was payroll day. He put on a nice suit and drove from customer to customer asking for payment. He finally collected what he needed to meet payroll and ran to the bank where begged them to process the deposit and payroll on the same day and luckily he was able to pay his employees.
That was only the first of his string of successful businesses. King’s founded businesses in several industries, from a hotel and financial services to a string of restaurant franchises. These experiences, in vastly different industries, gave him the ammunition he needed to understand the intricacies of business from many different perspectives. “Cash flow works differently in all of these businesses, and I’ve had over 30 different types of financing” over the years including lines of credit and term loans. The problem he encountered is that every lender has different requirements and it’s hard to know who your business will qualify with before you apply. These experiences are what led him to found Nav and help business owners understand more about how business financing works.
Now that you know a little about where Levi King came from, here’s the rest of my Q&A with him:
How should a business owner approach their business finances?
A person should never start a business unless you are irrationally optimistic. To a business owner, the need for their services/products is crystal clear, and they always see the best in their business. But this can lead people down a dangerous path of over forecasting their revenues. You should never trust your revenue forecast. Instead, operate on the assumption that you’ll only bring in 50% of your forecasted revenue. That way you’ll never overspend on operating costs and keep your business out of bad situations.
You should also never spend the forecasted expenses until forecasted revenue comes in. Meaning, don’t hire two new employees because you forecast you’ll have several big jobs coming in. If those big jobs do come in, hire the employees. If the cash doesn’t come in, you can avoid paying more employees than you need to and avoid potentially having to let an employee go.
What’s the number one mistake business owners make with their finances and how can they avoid it?
The biggest mistake I see business owners make is going to sound a little cliche, but it’s when they put all their eggs in one basket. As a business owner, you may have a great idea, but it’s not so simple to predict what your customers will respond to. It’s better to take a lot of small bets, not one big one. You may be doing five activities to grow your business, and only one is working. Start small and do testing so that you don’t waste resources on pursuits that are great in theory, but don’t work in practice.
What is the best tool to keep on top on your company’s finances?
More and more tools are developed for business owners every day and each industry has its specialized resources, but the best tool a business owner has to keep on top of their finances is their business checking account. Every success business owner I know is in their checking account watching money come in, and money go out more than once a day. It’s the simplest tool, but it has accurate numbers to give you a true reading of your business finances, past and current.
What’s the difference between a business credit profile and personal credit score?
There are a few differences between personal and business credit. The first big difference is what the scores are measuring. Your personal credit score predicts the likelihood of a 90 day late or missed payment sometime in the next two years. Your business credit is evaluated differently by different credit bureaus. Dun & Bradstreet predicts how timely your payments will be in general. Experian is a little more encompassing than that, and is looking at the likelihood of payback over a set period.
The second big difference between the two is what they can use to measure your creditworthiness. It’s illegal for personal credit bureaus to use your age or race to determine your credit score. But it’s ok for business credit bureaus to use that kind of data to affect your score. For example, the business credit bureaus can use your time in business (a possible substitute for age) and industry (a possible substitute for race) to help determine your creditworthiness.
In some cases, a business doesn’t start reporting revenue until year three and to a lender, that is considered risky.
The third difference between the two comes with disputing an error on your credit report. The Fair Credit Reporting Act does not apply to business credit. What that means is, if you notice an error on your personal credit score and report it to the bureau, it’s up to the credit bureau to prove you wrong, and they must respond to you within 30 days. For your business credit, it’s the opposite. You will need to show proof that you are correct and that the credit bureau made a mistake. Also, they have no obligation to get back to you within a certain period of time.
How to establish/improve your business credit?
Some business owners will choose their suppliers based on if they report repayment to the major business credit bureaus. If you use a supplier that does not report your payments to the business credit bureaus, you may consider switching to one that does, or you’re wasting your valuable credit history. If your supplier or vendor, such as your landlord, doesn’t report to the credit bureaus Dun & Bradstreet allows you to self-report. You can pay them to verify your creditors manually, and they’ll add it to your credit report. While this may be a significant upfront cost, it can vastly improve your business credit profile giving you the opportunity to get better financing options.
What’s the best piece of advice you have for business owners?
Ask people who are not emotionally invested in your business to review your business plans. It doesn’t mean they will always be right, but it will force you to think about how you can move your business forward in a different way. You can’t trust people who love you, or even like you, to give honest feedback about your business.
To get help with your personal and business credit visit Nav.com
Levi King Bio:
Levi King is the co-founder and CEO of Nav, the only site giving business owners to their personal and business credit scores, along with streamlined access to financing options. Levi is a serial entrepreneur and has started several successful companies. Prior to Nav, he co-founded Lendio, a business financing marketplace. While at Lendio, Levi saw too many applicants get denied for financing or only get approved for offers they couldn’t afford. He made it his mission to help business owners become better-qualified applicants, which led him to start Nav.
