August 2, 2017

Tips from the Pros: Top six myths about MBEs

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National Minority Supplier Development Council

Joset Wright-Lacy

Joset Wright-Lacy is president of the National Minority Supplier Development Council.

Myths persist in the public’s perception despite their obvious misinformation. This is true in the minority business arena as well as in other facets of life.

These myths have a negative impact on MBE [minority business enterprise] success because legends can reinforce or encourage bad decisions by aspiring entrepreneurs and MBEs — decisions that can be critical and sometimes fatal to the establishment or growth of the businesses.

The myth list is a long list, but these are the most common.

Myth #1: “I don’t need a written business plan — I have everything in my head.”

Reality check:  For any new business to enter the marketplace, the owners need a detailed business plan which lays out their target market, funding, organization and anticipated revenue flow.

A sound business plan is mandatory if the business is seeking a business loan or status as an 8(a) socially or economically disadvantaged company. In addition, it prevents MBEs from failing to accurately predict revenue, cash flow and other critical items needed to survive. One of the benefits of being a certified MBE is the access to an experienced network of 12,000 business owners and 1,400 of America’s top corporations who can help guide you in the right direction.

Myth #2: “I’m a Veteran/Service Disabled Veteran—the VA will give me a business loan.”

Reality check:  Unlike the Veterans Administration Home Loan Guarantee Program, the VA does not provide loan guarantees for veterans to start a business. There is, however, a loan program targeted to veterans at the U.S. Small Business Administration called “Patriot Express” — if you are a veteran looking to start a business, the SBA (or their resource partners such as SCORE) can provide you with more information. Many of NMSDC’s veteran MBEs advocate for each other, and know of every VA-related capital resources available in the United States.

Myth #3: “I can start a business and get a loan with no money down.”

Reality check:  Lending institutions will require that you have some of your own capital “in the game.” The percentage varies, but 25 percent-plus is near the norm.  When a MBE has significant personal investment in their business, they naturally take greater care in the finances and success of operations, and generally have lower default rates on business loans.

Myth #4: “I need to buy a building to house my business.”

Reality check: If there is one item which will doom a business, it is excessive fixed overhead costs. The last thing a new business needs is to take on a heavy overhead burden which will drive up costs and lower profits. If the business absolutely needs production, commercial or office space, find the best lease terms available at the shortest timeframe. If possible, work the business out of a home office or other low-cost option until the business can support a better facility.

Myth #5: “I can immediately draw a salary from my new business.”

Reality check:  Don’t quit your day job! Any new business requires time to be successful — in addition, invoices due to you may not be paid for 60 days or more, so you must be prepared to operate with limited cash flow. The last person to be paid in any company is the owner — employees always come first. Ensure that you can personally survive for up to a year without drawing a salary before thinking about starting a new business.

Myth #6: “I’m an 8(a)/Woman Owned/Service Disabled Veteran Owned/HUB Zone business, by law the government has to provide me with contracts.”

Reality check: Welcome to Federal Contracting! Yes, the federal government has goals to provide a certain percentage of commercial contracts/subcontracts to specific categories of MBEs as listed above. But that doesn’t mean your business will be awarded one. Even if you fit the specific category for the procurement, you still must compete with other similar companies for the contracts.

To win, you must provide the best value to the government — in these days of reduced budgets, the lowest cost proposal which meets the technical acceptability of the procurement has a great chance to win. You must also show that you are completely capable of performing the contract — past performance documentation on similar contracts is usually required. No designation or certification guarantees that you will be awarded federal contracts — you must, with a few rare exceptions, compete to win.

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With the right advice, your business dreams stand a much better chance of succeeding.  A great resource for any entrepreneur or business owner is the U.S. Small Business Administration — call the local office in your area for information on what products/services may be right for you.

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