Do you need venture capital? And can you get it if you try? Here are some broad strokes about venture capital resources for those looking to grow and expand your business. This is based on my personal opinions based on 30 years in the cleaning business. Here’s what I say stay away from.
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Hey there, I’m Angela Brown, and this is Ask a House Cleaner. This is a show where you get to ask a house cleaning question, and I get to help you find an answer. You can find this and 400 other answered questions in this series on our YouTube channel.
Venture Capital Funding
Venture capital funding. Is it for you and your cleaning business? Now, somebody wrote in to the show and they wanted to know if I had personally used venture capital funding to start and grow my cleaning empire and then they wanted to know if it was right for them.
Okay, so let’s stop for just a second and go back over the broad strokes of venture capital financing real quick to see if it’s right for us. The answer really broad is no because venture capital funding comes from large institutions like banks and insurance companies and pension funds.
They take part of their portfolio money and they invest in companies in exchange for ownership in your company.
Most Cleaners Want to Be Their Own Boss
Now, most house cleaners got involved in the cleaning business because they wanted to be their own boss. They didn’t want to have a board of directors and they didn’t want somebody else to tell them how to run their company, or vote them out of office, right? So you give up part of your personal rights when you take money from venture capitalists.
Their design is to help you grow and expand your business so you can turn around and sell your business to a corporation. So if you want to keep your business and you want to hang on to it and you want control of your business, I recommend that you not even go down that path.
Venture Capitalists Invest in Good Track Records
You may not even be eligible for that path because venture capitalists invest in people who have a master’s in business administration, okay? So typically you have a business degree, you have business experience, you have a proven track record, and that’s what they’re investing in.
Venture capitalists don’t invest in good people and good ideas. They invest in good track records. So if you already have a good track record and you have a business degree, chances are in the cleaning business, you don’t need a venture capitalist, okay?
So now that we’ve got that out of the way, and you can do more research on that later, most house cleaning companies start out as solo operators and they start out with a cleaning caddy and a vacuum and a couple of accounts.
Most House Cleaning Companies Start Small
Then as they grow their accounts, they hire a couple more people, they buy another company car, they buy a few more cleaning caddies, and they kind of grow as they expand. That’s the natural evolution of a cleaning company. Now, if you were to get business funding from a venture capitalist, they don’t even invest in startup cleaning companies or invest in startup businesses.
If your business was like a bell curve and it’s growing, they would invest in you in that middle stage, not baby stage or adult stage, but an adolescent phase, okay?
So you already have to have the business up and running and off the ground and you’re making money and your business is growing and you’re getting ready to sell it before they would even look at you. Okay, if you have all that in place, you don’t need a venture capitalist.
Use Venture Capital When You Need Extra Money
You might need some money along the way and that’s where I would recommend using other money. So the other money comes from, as you start your business, I do recommend that you get a business bank account. I recommend that you start business credit and don’t use it. Start business credit and don’t use it.
I know that sounds counterintuitive, but if you don’t use the business credit and you build it and let it grow, and I mean, you get a business credit card, buy your cleaning supplies with the business credit card, pay it off at the end of the month. Don’t run a balance.
Show every month that you are willing to pay it off and you are able to pay it off and the banks will keep upping your limit. In the event that you ever have to use that, use that as a life or death situation. It’s a last-minute excuse for saving your business, right?
Pay Off Your Debt as Soon as Possible
Then you use the business credit. If you can’t pay it off at the end of 30 days, maybe you make it 60 days, but you pay it off as soon as possible and do not carry a balance, okay?
There are two times in my business that I got into a tight bind, and again, it was not startup funds that were the issue. It was those growth funds where I probably could have used a venture capitalist, but as I said, they don’t invest in ideas and people.
They invest in a proven track record. It’s usually something to sell, not a service business where it’s accounts that you have, right?
You Can Use Title Loans for Your Business
So I went to my husband and I said, “I need a business loan to make payroll this week and I’m really tight on cash and I’ve got the receivables coming in, so I’m going to be able to pay it off. I just don’t have the money this week for payroll and I don’t want to tell the employees that I don’t have money this week because they’re not going to show up next week. I got to pay them.”
He said, “But you have a car that’s already paid off that’s sitting in the garage. You can take that down and sell that car back to the bank and they will give you what’s called a title loan.” Now, I had good business credit, but a title loan was even less percentage. It was like two and a half percent and they would buy my car from me. Instead of my car is paid off, I would then have car payments every month.
So I said, “Wait a second. That’s a great idea, at that kind of an interest rate for me to get some cash right now so that I can float that until a couple of weeks when I get the receivables back and I can pay my payroll for my employees this week.” So there’s creative financing that you can stop and try to figure out how to make this work. I encourage you to try to find your own solutions before you go outside.
People Who Invest in You Want Something in Return
When I say go outside, anytime someone else loans you money, whether it’s an institution or it’s a friend or a family member or somebody that you know. They want something in return, they want a piece of your company. They want interest when you pay it back. There’s something that they want and I don’t want to be beholden to someone else of how I’m going to run my company.
I don’t want them to make the decisions for me of how I’m going to run my company or to say, “You’re going to fire these people in your company,” and let them have those deciding rights. I don’t want to do that. So I went to the bank and I got a title loan for my car.
Now, the bank-owned my car. Ah, I had car payments again, but I was able to bridge that gap until I got the money coming back in. I could pay off the car loan. I could pay off the new employee bills that were coming in and then go ahead and get back on track with my business.
Taking a Second Mortgage is Another Option
The other situation was very similar except instead of a car loan, I ended up taking out a second mortgage on my house and it was during a really big period of time of growth. We had a mortgage on the house at the time. So again, I went to my husband and I said, “I have this proven track record and I’m super excited because our business is growing really fast, but I need about 10 grand in order to make payroll this week.”
He says, “If there’s anybody that I believe in, it’s you. Let’s take out a second mortgage on the house.” So we took out a $ 50,000-second mortgage on the house, which is like having two mortgage payments, right? You still have to pay it off, but it bridged that gap from where I was to this expansive growth mode.
With the new employees, I was able to get more done. We were able to get more accounts. There was a whole bunch of stuff that happened that we were able to pay off that second mortgage quickly, but then get back on track as if it never happened, right? You don’t want to carry those balances and you don’t want to go into debt for running your business. Your business is to make money not to cost you money.
I Don’t Recommend Venture Capitalism for Cleaners
So as far as using venture capitalism, using funding, private funding, private equity funding, using business loans, bank loans, I don’t recommend it at all. In the house cleaning business, every time we need new money, we go out and we get new accounts.
As we build our business, then we go and we get new employees and we expand that. We get more accounts, we get new employees, we expand the accounts. We get new employees. Along with that comes cleaning supplies and vehicles and stuff like that.
It helps you to grow, but you expand and you grow as you can afford it. That’s the key. You grow as you can afford it. That way, your business is always in profit mode and you’re not going into debt. I do not recommend going into debt to start a house cleaning company.
There are too many things at risk and I don’t want you to have the nightmares as a small business owner of being in so deep that you can’t sleep at night and what was supposed to save you and your family is now stealing your sleep and your peace of mind.
Resources
Venture Capital Strategy: How to Think Like a Venture Capitalist – https://amzn.to/3vspN8b
Ten Types of Innovation: The Discipline of Building Breakthroughs – https://amzn.to/3tkMKZ3
Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist – https://amzn.to/3tdlMSN
Secrets of Sand Hill Road: Venture Capital and How to Get It – https://amzn.to/3ljVqMs
Venture Capital for Dummies – https://amzn.to/38RwVkP
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