The Right Kind of Expansion

Two partners who owned a specialty retail shop in California decided to expand their operation when sales jumped 40 percent in one year. They took out a loan, rented a second location, stocked it with pricey merchandise, and eagerly awaited the boom. "It never came," according to Kent Burnes of Burnes Consulting in Grass Valley, California, who was called in to try and salvage the mess. The sales increase was an anomaly, the second location consumed the first store's earnings, and the entire operation ended up in bankruptcy.

"The fatal error was expanding without a good understanding of the business, the industry and the financial implications," says Burnes, who advises small businesses on planning and management. "What could save so many companies is having a business plan," he claims. "Most people, when they consider an expansion, don't have a 'then what?' scenario, i.e., what if we crash and burn?"

Bob Dalrymple, vice president and manager in Bank of America's Business Banking Division in Pasadena, California, says a good business plan will document that you are responsible and able to meet your financial commitments. "The problem with growth is that it takes capital, and a small firm can run into trouble quickly if things don't develop as anticipated."

Those entrepreneurs who do commit their strategies to paper sometimes encounter another pitfall - believing the plans they have, explains consultant and author Dr. James A. Tompkins. "A plan is based on a series of assumptions, some of which are true, some of which are not," he continues. The important thing is that the strategic planning process identify all the possible issues you might encounter during expansion, and then establish a framework for confronting them.

Although every business is different, here are some general guidelines for developing your strategic expansion plan.

How Much Are You Growing?

When the Tapatío Hot Sauce Company in Vernon, California, decided that it needed to expand, the process of identifying a location, designing an efficient facility, building it and moving took two years. That's a pretty typical horizon, according to Burnes.

It's crucial to plan for expansion far in advance. To do that, track your progress thoroughly and objectively, Burnes advises. His now-bankrupt retail clients ignored trends in their particular industry when they decided to expand. They also failed to analyze the source of the 40 percent sales surge. It turned out, in retrospect, that a few large one-time purchases accounted for almost all of the increase.

Every business can expect to grow, says Burnes. But that's not the same as expanding. If your company's growth is faster than the industry standard, and there are indications that this trend will be sustained, then you are a candidate for expansion.

Harry Labinger, a volunteer business counselor for the Service Corps of Retired Executives (SCORE) in Los Angeles, notes that few small businesses plan properly for growth. "To decide not to expand, period, is wrong," he emphasizes. "To decide not to expand at this exact moment might be right. You don't just decide and start doing it. You want to expand and grow, not expand and choke."

The best way to analyze your situation is to keep what amounts to a business diary, advocates Burnes. Track your financial results and compare them with overall industry figures, which you can obtain from trade associations, journals and economic reports issued by the government and universities. Over the long run, this diary will identify trends in your business and in your industry - and help you determine the extent of your growth.

Talk with Your Banker

"Bankers do not like surprises," emphasizes Peter Drake, vice president and relationship business officer for Bank of America in Los Angeles. While lending officers try to keep in touch with their clients, small business owners should take the initiative in contacting their bank branch managers or other representatives on a regular basis.

If you know, for example, that you will need extra working capital for the Christmas season, talk to your banker in July or August. Similarly, if you think you will need a new store or a larger plant two years from now, talk to your banker well in advance. This way you will get tips on the type of financial information to track and gather, and perhaps other helpful guidance as well -such as advice on the health of specific real estate markets.

Should You Move or Stay Put?

"Expansion is not at all synonymous with relocation," comments Brad Ward of Ward Systems Group, a manufacturing efficiency consultancy in Glendale, California. Often the most cost-effective way to expand an operation is by reconfiguring existing space or adding a second shift at the current location. A reconfiguration also presents an ideal time to apply a new coat of paint, make needed repairs and resurface the floors, Ward says, which will significantly improve the building's appearance.

Even a small company has a lot of leverage when deciding on a move. Just as many cities actively recruit businesses, your current city might work just as hard to keep you from moving away. "Look at expansion in the proper light - you are going to be bringing jobs into that community," notes Ward.

According to Burnes, many cities conduct extensive research as part of their efforts to recruit new companies. Ask for absorption studies (which estimate how many more businesses like yours a given area can support) or other economic data that will help you make an informed decision. "Also talk to other local firms that have done what you want to do," he urges.

Looking at industry standards also helps determine how much space you need. "I've actually expanded a lot of businesses into smaller space," says Burnes. A higher-volume location, or a system that does a better job of inventory management, can mean increased sales with less square footage. Talk to other companies in the area you are evaluating, and look at industry averages for sales or output per square foot for comparison purposes.

Cities around the country are eager to assist growing businesses in job training, zoning, construction and permits. Make a priority list and negotiate with local officials to see how much support you can obtain. But at the same time be wary: Perks aren't free, and the commitments you make to a community could limit your flexibility or mobility in the future.

A location decision is based, in varying degrees, on convenience, accessibility, transportation costs and access to raw materials. According to Ward, "Most companies don't know the strategic advantages they can get from a thorough analysis of logistical costs." This, however, is one matter in which the numbers don't tell the whole story. For example, even if you can operate more economically in a tiny town in the desert, you might have a difficult time convincing your key professionals to move there.

Not Overlooking Important Issues

Consultants identify the following issues as some of the most often overlooked when a company is contemplating a move or expansion. Be sure to pay special attention to them.

- Technology. How much of a competitive edge can be realized from upgrading systems? How much, if at all, will costs be reduced?

- Personnel and Compensation. Does adequate management and line staffing exist for the new size of the operation? How much of management should be groomed from within, and how much recruited from the outside? Is the current compensation package sufficient to attract and retain quality people?

- MIS Improvements and Integration. A more powerful computer system can often improve efficiency throughout the company.

- Energy Costs. Most small businesses don't get adequate help in evaluating their energy options, yet a few prudent decisions and investments can save hundreds or even thousands of dollars annually. The owner of your building may have energy audit information. If not, it is possible the local utility company will perform an audit at little or no cost.

- Lighting. The right lighting can improve both productivity and safety. Contact the local utility company, a consultant or the American Lighting Association for information on efficient equipment that will suit your specific needs.

- Long-Term vs. Short-Term Commitments. Should you sign a long-term lease, locking in a rate for years to come? Or would it be better to stay flexible, able to respond to changes in business or the job market? A similar question is whether to buy your facility, and the answer depends partially on the kinds of improvements the building needs. If you must make extensive investment in fixtures that won't come with you when it's time to leave, for example, buying might be more economical in the long run.

Making Psychological Adjustments

Successfully growing even the most promising company involves making potentially jarring psychological adjustments. Most important - and ironic - as the company's founder, you'll have to suppress some of the entrepreneurial instincts that got you this far, and become comfortable delegating and managing instead of doing everything yourself. And the bigger your company gets, the more you'll have to let go.

Making solid hiring decisions will help you feel better about delegating major responsibilities to others. You also need to recognize that your current staff may be somewhat apprehensive about your expansion plans in that they might feel uncertain about job security or simply feel left out.

To offset this uneasiness, communicate your growth strategy to employees, keep them informed throughout the process, and encourage them to give you feedback along the way. Involving staff in the expansion should foster a strong sense of commitment to the company.

The Hottest Factory on the Block

The Tapatío Hot Sauce Company wanted two things above all else when preparing to move to a larger facility: easily accessible loading docks and enough floor space to house more than a day's worth of inventory.

What it got after a year of work was a custom-built plant that quickly began contributing to better productivity, according to Jose Luis Saavedra Sr., who founded the company in 1971.

During its first 14 years, Tapatío occupied only 450 square feet for manufacturing and distribution, says Saavedra. The company subsequently moved to Vernon, California, just east of Los Angeles, where its 7,800-square-foot location had only one loading dock and very little storage space. Trucks were forced to wait in long lines on the street to make pickups or deliveries, and production workers had to frequently retool the line to meet the daily demand for three sizes of bottles.

When it was time to expand again, Saavedra decided to look for 30,000 square feet, enough to meet the company's needs for several years of anticipated growth. "We only wanted to do it once," notes Jose Luis Saavedra Jr., a physician who gave up medicine to help his father manage the business.

Just two miles from their Vernon plant, they found a site where the developer would build to suit. "We were terrified," admits Dr. Saavedra, "as we had never built a building before. But we knew we were surrounded by good people and decided to make the leap."

With professional help from the developer and consultants, the initial design went through several revisions before the Saavedras were happy. For example, they wanted loading docks in front and insisted on a wide parking lot where trucks could maneuver easily. Mr. Saavedra got a mezzanine-level office with windows overlooking both the production floor and the docks. Dr. Saavedra got a bathroom with shower so he could get the pepper smell out of his hair before going home to his family. Two Saavedra daughters also got offices, production workers got lockers and a lunch area, and the floor beneath the vats where spices are mixed was sloped down toward drains for easy cleanup.

Equally important, the site provided enough room to store both ingredients and finished products for the first time. And Tapatío can now gear its bottling line for one size for the entire day without stopping to change bottles, caps and packing boxes, and consequently produce several days' worth of inventory.

Although Mr. Saavedra originally thought he would lease new space, the company was able to purchase its new facility through a commercial real estate loan financed by Bank of America.

"You need four things to build your own building," Mr. Saavedra says in retrospect. "A loan, a real estate lawyer, a construction consultant and lots of determination."

Capital Rose: A Woman Helping Women to Expand

After Rebecca Maddox spent 16 years in the corporate world, she decided to form Capital Rose, Inc. with the express purpose of offering financing and resource information to women business owners. She felt that her experience in a number of executive positions had provided her with insight into identifying and reaching this largely ignored market, and she has tapped it with enthusiasm.

When Maddox initially shifted her focus to women in business, she expected that their requests for financing would average around $50,000 - to her surprise, many women were looking for closer to $1 million. Another startling set of numbers revealed that women were projected to own half the nation's businesses by the year 2,000 - many of them more successful than those owned by their male counterparts.

Having worked closely with female entrepreneurs for six years, Maddox is now acutely aware of the realities of starting and expanding a business. "Many women business owners mistakenly believe they can obtain financing more readily just because they are women. That simply isn't the case," she emphasizes. "Men and women alike have to be prepared to knock on many doors and get turned down."

Maddox suggests that anyone interested in expanding her business keep the following pointers in mind:

The Customer Is Boss at Premier Medical

"The boss is the customer, and we do whatever it takes to please the boss," prefaces David Maestas of Premier Medical, an Albuquerque, New Mexico-based company that provides hospitals with medical equipment and offers supplies and home care for patients (especially the elderly). And the axiom has served the business well as it has grown from $1.3 million to $2.1 million in annual sales in its first 18 months of operation. In addition, the employee base has expanded from four to eight employees, with six agents around the state also offering service on a local basis.

Maestas and his wife Barbara, who previously worked for a similar medical equipment supply and service company, spent two years in pre-planning before starting their own business. "We wanted to know all the stones that needed to be overturned, and had everything covered the day we opened our front doors," he recalls, "from setting up phone and computer systems to designing our logo and having shelving in place."

Another integral consideration for this family-owned-and-operated firm was location. "We were very conservative in our thinking, and wanted to make sure the business would take off before investing in a large space," says Maestas. "So until we could ascertain the degree of support from our suppliers and customers, we chose a small 2,000-square-foot site."

Given the subsequent success of Premier Medical (which was recently recognized for business excellence by the Albuquerque Hispanic Chamber of Commerce), Maestas is now seriously considering purchasing property and constructing his own premises on it. "We've outgrown our location and the time is right," he comments. The envisioned building, 5,000 to 6,000 square feet in size, will consist of 30 percent office and administrative space and 70 percent warehousing.

When asked to define what differentiates Premier Medical from the competition, Maestas doesn't hesitate. "Customer service," he emphasizes. "If a hospital calls us, we'll have someone out there in an hour, not a half-day or a day later. And when you call us, you get a real person, not an answering machine. We are emphatic about picking up the phone right away. And we don't put people on hold."

In addition to the "customer is boss" axiom that governs the operations, Maestas has several other principles that underlie its growth and success. "We all take pride in what we do, and are willing to put forth the energy required on a daily basis - whether that means coming in at 6:30 in the morning or staying until midnight," he says. "I'm looking for people who want to work, not people who want a job."

Also, according to Maestas, "we want to make a reasonable profit, and these profits are reinvested in the company - which means reinvesting in our employees. While corporate America treats people as numbers, we treat them as I would want to be treated myself. I talk to the accountant quarterly to see if the company is in a position to give merit raises and bonuses to the people who deserve them.

"Finally," he says, "we try to create an atmosphere where employees have fun, and enjoy walking in the front door every day."

Professionalism Pays Off for Bradford & Byrd

When thinking of entrepreneurial success stories, several classic examples always emerge - including Apple Computer (started by two young men in a garage) and Federal Express (whose founder was told his revolutionary concept would never work when submitting it initially for a college thesis). These industry giants may well have found a kindred spirit in a New Jersey-based company, Bradford & Byrd Associates, Inc., that has grown in annual revenues from $4,000 to $1.6 million in just six years - with 1997 revenues projected to top $2 million.

A full-service janitorial maintenance firm whose clients include the New York/New Jersey Port Authority, the U.S. Army Corps of Engineers, Bell Atlantic and the Statue of Liberty/Department of Interior, B&B was started on a part-time basis by the husband-wife team of Avery and Trina Byrd in the bedroom of their one bedroom apartment in 1989. The minority-owned company now occupies three office spaces and employs 75 people.

The Byrds, both of whom were working on Wall Street in corporate jobs when they met, attribute the firm's success in large degree to tenacious direct marketing efforts. As Avery Byrd describes, these efforts run the full gamut from "cold calling to asking for an appointment, making a formal presentation, follow up and closing the sale. It has taken as long as four years to penetrate some of our larger corporate accounts," he admits, "but we've been persistent and eventually won out over the competition. Then our responsibility is to provide high quality service and establish a good working relationship so we retain the business."

Professionalism is an adjective that aptly describes the couple's modus operandi. "When we visit clients," continues Byrd, "we are dressed as if going to our bank jobs. We stay abreast of industry developments to better understand their concerns, and position our role as one of joining their team - and managing it effectively so no maintenance problems get back to the clients. We even distribute feedback sheets regularly that measure the type of service we are providing."

The Byrds believe in growing their operation "prudently and in a well-thought-out and focused fashion," Byrd says. "That way we'll be able to weather the inevitable up-and-down cycles. After all, storms are out there as well as beautiful days, and as an entrepreneur you have to expect more rejections than successes."

Toward that end, the couple eventually plans to diversify into other industries, and always keeps their business plan close at hand - which details specific goals and procedures for meeting these objectives. "Diversification is always safer," he advises, "and based on past experience we'd greatly prefer 20 to 30 smaller clients to a single giant one."

The Byrds admit that 20-hour workdays are standard. "Sometimes if it's too late, we'll just stay overnight at the office in sleeping bags," says Trina Byrd. "When employees come in the next morning, the giveaway is that we have on the same clothes as the day before."

These self-proclaimed workaholics, parents of a baby daughter, also recognize that their expansion and diversification plans necessitate hiring and training a junior level of management. "We've brought some people on board with good potential," Avery Byrd notes. "And I'm purposefully putting them through their paces, such as paging them at 2:00 and 3:00 in the morning, to test their long-term commitment to the business and ability to address the challenges it presents."

If Avery Byrd is the visionary of this indefatigable husband-wife team, Trina Byrd is the micro-manager. Her responsibilities include performing bidding and estimating functions, as well as managing the firm's administrative and financial duties. She has also developed standard operating procedures in areas such as quality control, marketing and hiring that are being used as training guides for new employees. In her words, "as you grow, customer service is key."

Avery Byrd, who also strongly believes in diversifying supplier relationships, having back-up employees on hand to perform a job if necessary, and networking, offers this final piece of advice to would-be entrepreneurs. "Find a successful and visible corporation to model yourself after," he says. "You don't have to invent to grow and prosper; rather you can diligently duplicate the success of others." Based on the track record of Bradford & Byrd, the example of this committed and far-sighted couple is well worth emulating.

Women Entrepreneurs Face Their Own Challenges

More women than men are starting businesses these days - a response to the so-called glass ceiling that keeps them from rising to the top of many large corporations, the need for a second family income, a desire to spend more time with their children or work flexible hours, and the pursuit of a dream of becoming an entrepreneur.

Like all entrepreneurs, women are unlikely to find start-up capital from traditional sources. To get their operations up and running, many women load up on credit card debt, take out a second mortgage, or borrow from friends and relatives. And when it comes time to expand, women still might have trouble getting the money they need, claims Janet Harris-Lange, former president of the National Association of Women Business Owners.

Sexism continues to be a problem in the business world, adds Harris-Lange, who owns a meeting planning firm in West Palm Beach, Florida, and co-owns a property development company with her brother. Some bankers are reluctant to lend to women on their own. "I even heard of one case where a 16-year-old stepson had to co-sign for his mother's loan," she says.

Another handicap is that many women-owned businesses provide a service rather than manufacturing or selling products. Banks have a harder time understanding service businesses, and there are fewer tangible assets to lend against, Harris-Lange continues. "I've been a bank director and I am a small business owner as well, so I've seen both sides of it."

Women who have succeeded in building their operations also need a resource that enables them to reach for bigger dreams, says Lindsey Johnson, chief executive for Women Incorporated, a national organization designed to aggregate the economic power of women entrepreneurs.

Women Incorporated hosts a program called the Women Presidents' Organization [(212) 479-2366] in which established business owners meet regularly and get expert advice on growing their companies. "Some firms are utilizing less traditional paths for growth, such as partnering or affiliating rather than hiring or acquiring," Johnson notes.

According to Johnson, the best advice applies regardless of gender. Find a banker you trust, discuss your needs thoroughly, and get coaching before submitting your loan application. Be sure all your paperwork is in order, and give the bank solid reasons to be confident that you are a worthy risk. Read brochures and attend any seminars your bank may offer on successful financing relationships.

Also think about your ultimate goals for the business before obtaining funding, Johnson recommends. If you eventually plan to take the company public, for example, you might approach financing differently than if you hope to expand the operation and then sell out.

Some banks are now offering special loan programs for small and women- owned businesses. Wells Fargo has announced plans to lend $10 billion to women entrepreneurs over the next decade. And Bank of America is loaning $10.6 billion between 1995 and 1998 to small businesses - including those owned by women - in 10 western states.

In addition, the U.S. Small Business Administration conducted a pilot program that prequalifies women-owned businesses for Section 7(A) loans of up to $250,000, which can provide working capital for up to 10 years or real estate financing for up to 25 years. The program, which was operating in 16 cities in 1996, will be expanded to all 50 states, says Gloria Minarik, assistant district director for business development in the SBA's San Francisco office.

As she explains, in the Women's Prequalification Loan Program, a female entrepreneur works with a Small Business Development Center (SBDC) or other designated nonprofit entity to prepare an application for the SBA. If SBA approves the request, it issues a prequalification letter that the applicant can use when shopping for a loan. Authorized SBA lenders can make their funding decisions knowing that the SBA will provide backing on the credit.

Minarik notes that as the number of women-owned U.S. firms has mushroomed, female business owners have steadily strengthened their relationships with lenders. "Today only 23 percent of women-owned companies rely on credit cards to help finance their business, compared to 52 percent four years ago," she says. "And female entrepreneurs are now nearly as likely as their male counterparts to have bank credit (46 percent to 49 percent).

"Bankers have begun to realize that nearly eight million women-owned businesses in this country are a great, untapped market," concludes Minarik.

When Is It Time to Leave Home?

Many entrepreneurs begin their business from home out of necessity. With no revenue stream yet and no desire to tie up the family's savings in office furniture and a voice mail system, they carve out some space in the house and get to work.

Many entrepreneurs continue working at home because it's comfortable, convenient and productive. "There are a lot of multimillion-dollar home businesses," contends Sarah Edwards, co-author (with her husband, Paul) of the book Working From Home. But as companies grow, owners may begin to wonder about the right time to move out.

"The right time to move is when you feel like you are living in your office rather than working in your home," says Paul Edwards. "After awhile, an expanding business can take up too much space and intrude into family life."

Some other indicators:

If your business is more than a one-person operation, be sure to check local regulations. Many cities limit the number of people who can work in a home, or tie the figure to zoning restrictions. Some communities restrict the storage of inventory or materials.

Paul and Sarah Edwards estimate that roughly 80 percent of businesses that start out in homes stay there, generally by choice. Sometimes, in fact, an entrepreneur's answer to a venture that is outgrowing the house is simply to buy a larger house.

For the 20 percent of businesses that do move out, the real estate market can be accommodating. Corporate downsizings and hotels offering business services to travelers have left office space plentiful. "These days you can readily make a deal," claims Paul Edwards.

Is the Time Right for Expansion?

Many entrepreneurs either expand their businesses before they're ready or grow too quickly. Donald Reimer, president of The Small Business Strategy Group in Southfield, Michigan, recommends asking yourself the following questions before proceeding with expansion plans.

- Have you built a strong management team?

- Have you developed a strategic plan, and does the proposed expansion mesh with your overall goals?

- Have you or a consultant conducted a strategic audit or assessment to evaluate your company's strengths and weaknesses, which is essential to planning healthy growth?

- Have you discussed the expansion with your board of directors, employees and/or an outside consultant, and do they support it?

- Do you have the necessary financial and human resources to handle an expansion?

- Have you examined the external factors affecting your business (such as industry trends and the economy) to gauge if the timing seems right?

- Have you compared your company's performance with other companies of similar size, and is your company performing well by comparison?

Where to Find Money for Expansion

If your business has a track record of several profitable years and you have concluded after careful thought that it's time to expand, you possess some of the necessary ingredients for getting a loan. But not all of them.

"Bankers almost universally avoid start-ups, and they're still cautious of the prospects for businesses even after two to three years," prefaces Bob Dalrymple, vice president and manager at Bank of America in Pasadena, California.

"Banks will look at your overall debt picture, your ability to repay, and your credit history when considering a loan," he continues. "So if you started your business by loading up personal credit cards, get that debt paid off before seeking a traditional loan. Also be prepared to document secondary and even tertiary resources for paying back the loan if things don't work out the way you anticipate."

Even your personal credit history is important. And while an occasional missed department store credit card payment won't hurt you, a pattern of debt problems will definitely scare lenders away. "People who pay their bills pay their bills," claims Dalrymple. "You can just see the patterns."

In addition, be sure you understand precisely what kind of credit you need. Working capital loans, usually made as a revolving line of credit with a one-year term, should be used for periodic or seasonal operating capital needs and for bridging the gap between expenses and receipts on your sales. Equipment financing is a better way to fund the acquisition of capital assets you need for your business; the financing term is usually matched to the equipment's useful life and depreciation schedule - typically three to five years. Many forms of real estate financing are also available.

One of the most difficult forms of financing to understand involves international trade. Work with a bank, a customs broker, a freight forwarder, and possibly trade associations or government agencies to structure those complex transactions, Dalrymple advises.

If traditional avenues of funding aren't feasible, consider these options:

Family, Friends and Relatives - If a bank will not provide funding for your business, the "FFR Network" is a good fallback. However, it is important even when borrowing from a friend or relative that the loan be considered a business transaction. The lender must dispassionately look upon the loan as an investment, and an attorney should always draw up the necessary documentation. Certified Development Companies (CDCs) n A CDC is a company that makes government-insured loans to businesses. These loans generally finance such assets as real estate, renovations and expansion.

Small Business Investment Companies (SBICs) - An SBIC makes equity investments and sometimes loans to small businesses. And although SBICs tend to keep their money invested locally, several hundred are located throughout the United States.

Small Business Administration (SBA) - SBA loan guarantee programs can help entrepreneurs obtain financing from commercial lenders. Over the years, these programs have helped launch some of the nation's most stellar success stories - companies such as Apple Computer, Federal Express and Intel - that had no place else to go for financing when getting started. In 1995 alone, the SBA approved 55,000 business loans.

Leasing - If you need money for equipment, consider leasing. Dalrymple of Bank of America explains that leases generally require a smaller down payment and lower monthly payments. However, some items are better suited for purchase. "If the item has a relatively short useful life (such as a computer, which becomes obsolete quickly), leasing might be the best choice," he advises. "It makes more sense to purchase a capital item with a long life (such as a printing press). Also, don't overlook used equipment - it can be a bargain."

Venture Capital Markets - For a high technology company, venture capital can be a financing option. However, keep in mind that although venture capital can provide a large amount of funding, often the venture capitalist will want to maintain a relatively large degree of control over the company.

Initial Public Offering (IPO) - An Initial Public Offering or IPO can provide a significant amount of cash for a larger company, although some control over the business will be lost to shareholders and significant administrative costs will result. Because public stock offerings involve complex and costly steps for complying with federal Securities and Exchange Commission (SEC) regulations, it is important to seek the counsel of investment bankers and lawyers before deciding on the viability of this particular option.

Small Corporate Offering Registration (SCOR) - Another kind of equity financing, Small Corporate Offering Registration (SCOR), allows a company to raise up to $1 million by selling common stock directly to the public for a price no less than $5 per share. The idea, which was initiated by the U.S. Department of Commerce in 1990, does not necessitate filing an application with the Securities and Exchange Commission.

With SCOR financing, friends and family can be brought into the deal for $1,000 apiece - a typical minimum investment - or even less. In addition, it becomes possible to seek financial backing from suppliers and clients. SCOR is currently available in 46 states (Alabama, Delaware, Florida and Hawaii are excluded).

According to Tom Stewart-Gordon, publisher of The SCOR Report, a Dallas-based newsletter that tracks SCOR deals, "SCORs are a tremendous opportunity for small companies. I only wish more people knew about them."

Excerpted with permission from Small Business Success magazine, Volume X, produced by Pacific Bell Directory in partnership with the U.S. Small Business Administration and the Partners for Small Business Excellence.