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Last Update: Wednesday June 23, 2021

Key Idea: Learn How Money Works

Blue Whale Moving attracted the attention of a customer who was also an attorney looking for a business to invest in. More...

Key Question:

A: 

Many small business owners start their companies with their personal savings. The next money source for most of us is our family. My father loaned me the money I needed to start my business. This was in 1979 and he was getting 18% interest on his money market funds so he charged me 18%. He was surprised when I paid him back in the first year of my operations, but I wasn't. I was motivated to get rid of the debt at that high rate! Most often, small business owners use retained earnings (profits) to grow. This is called organic growth. Equity financing is when you take money in exchange for stock in your company which means that money is an investment. Debt financing is when you borrow money, like I did from my father, or many do from banks. This means you pay the money back with the interest and the lender has no other involvement in your business.

Q: Why do owners choose organic growth rather than consider equity financing?

A:
Because we are rugged individualists who don't want to be accountable to anyone. If we take an investor's money, we are required to tell that investor what we're doing. The Japanese call this, "opening the Kimono." You must stand naked before the people who put money into your business. You cannot hide bad business practices or deceive in any way. Your financials must be truthful and reflect the reality of what you do day-to-day. Another reason we tend to avoid investors is we left our jobs in a big company so we don't have to explain our actions. We often move on hunches and intuition which means to others our behavior may seem bizarre. Also, we think our idea is small and no one would want to invest in us. And we are uninformed.

Think about it

Could you grow your business faster with equity investment? Would you be willing to open your Kimono?

Clip from: Small Corporate Offering Registration (SCOR)

Austin, Texas:  The Securities Exchange Commission (SEC) instrument known as Small Corporate Offering Registration (SCOR), sometimes referred to as Reg D Rule 504, is a little-known, but important tool for small businesses.

Mandated by Congress, every year since 1982 the SEC has held an annual meeting for small business investors and owners called "Small Business Capital Formation Conference."   The first result of that conference was the Reg D Rule 504.

In 1992, ten years later, Deborah Bortner, the Securities Administrator for the State of Washington, led the way to simplify the registration by developing the SCOR document.

At that time Congress wanted to help small business owner who have a difficult time finding money.  Another aspect of the SCOR is use it as a liquidity model that forces a business valuation. It could also be used as an exit strategy.  The majority of small business owners do not have a succession plan and a SCOR would necessitate that such a plan be implemented.

Historically, out of every $100 in banks loan, small business gets about $7. Though contributing over 50% of the Gross National Product,  working capital is often difficult to obtain.

The SCOR has not caught on. There is very little publicity about it and just a few educational resources. It does require three years of audited financials. It does involve your CPA and a good securities lawyer. 

The SCOR could be used in the following ways:  (1)  A cornerstone of a succession plan and liquidity model for mature small businesses, (2) An alternative to an employee-stock ownership program, (3) A means for all those who already want to buy into a business to do so without going through an IPO and without necessarily being a qualified investor, and (3) An instrument to provide a conservative diversification strategy for pension funds, mutual funds, and private investors.

Because of the ubiquity of the web, Small Business School will promote any and all attempts to develop  mechanisms so the best small businesses are indexed against one another and the best among the best rise to the top and are immediately qualified to be selected by any investor to receive equity capital.

It will change business in America forever.  Small business can share equity,  learn about liquidity models,  understand our financials and key critical ratios, and then participate in the market just like any big business.

Go to all the key ideas and videos of this episode...

Blue Whale Moving Company, Inc.

Brad Armstrong, CEO

8291 Springdale Road
Suite 100
Austin, TX 78724
512-328-6688

Visit our web site: http://www.bluewhale.com/meet-our-crew.php

Office: 512-328-6688

Business Classification:
Moving/Storage/Relocation

Year Founded:

Learn How Money Works

HATTIE: Hi. I'm Hattie Bryant. Most of us who start a business do it to fulfill a dream, but in the back of our mind is the thought that we just might become a multi-millionaire along the way. This episode is to help all of us learn how to achieve big financial goals. We're going to learn from a few small business owners who are using a little known Securities and Exchange Commission -- the SEC -- financial instrument to raise capital and implement a succession plan without doing an IPO. It's called the Small Corporate Offering Registration, SCOR for short, Reg D Rule 504 for the technical among us.

We went to the state capitol building in Austin, Texas, to learn more, because Texas is the one of the friendliest states to the SEC's Small Corporate Offering Registration. In most states there is a $1 million cap per year; in Texas it's unlimited.

(Voiceover) When he was Governor, President Bush was big on small business in Texas, and so is the state Legislature. It has made it relatively easy to raise capital in the state.

President GEORGE W. BUSH (Republican, Texas): Small business is the basis -- the backbone of the free-enterprise system. Most of the jobs in Texas, most of the new jobs, are created by small business. Secondly, part of the Texas dream is for someone to own their business.

HATTIE: (Voiceover) That attitude has helped businesses like this one, the people of Blue Whale movers really move on the job, and that's one of the reasons this Austin, Texas, company has been so successful. When the owners wanted to grow the business, they needed additional money, and they raised it through a Small Corporate Offering Registration.

BRAD: I was practicing law here in Austin, Texas, in 1987, and we moved our home, my wife and I, and we called a local moving company and we had two young men come out. And I was really expecting two old guys to take all day to break all my furniture, and two young, 6'3", good-looking guys showed up and they moved us in about two and a half hours. I mean, my entire household.

(Voiceover) It was extraordinary, because they would take a load down to the trailer and literally run back for another load. And I was totally dazzled and stunned by their work ethic. They didn't stop for breaks, they didn't stop for lunch, they just worked and worked and worked and worked and got it all done. And at the end of the day, their attitude, if anything, was more up and positive than it was when they started at the beginning of the day.

HATTIE: They were saying, `Yes! We finished! We did it!'

BRAD: They were extraordinary. And it was a work ethic that I had not seen demonstrated in a very long time. So we knew we wanted to build a company that might one day have greater than just an Austin presence, and we knew the power of a trademark. So Blake and I spent three days pouring over names, looking for a trademark that was fanciful, that was unique and that was non-descriptive, which are the requirements for a national trademark. And it was as if a lightbulb went off over our heads, we could see the blue whale as people now see them on our trailers going down the highways, and we knew that that was the definitive mark for a moving company.

HATTIE: Some lightbulb went on, `We've got to have some money.'

BRAD: That's correct.

HATTIE: And is that when David Porter came into your life?

BRAD: Yes.

DAVID PORTER: I'm a stockbroker, and one of my clients was unwilling to make an investment in a stock that I had suggested to him because he told me how much more money he could make by putting it into his own business.

HATTIE: So the lightbulb goes off for you.

DAVID: That's correct, the lightbulb went off for me, and I said... `If I can't get this guy to invest in the 3M Corporation because he's making more money in his own business, something's here.'

BRAD: And he really is extraordinary. He's gotten more SCORs through the State Securities Board of Texas than any other person in the world. So he is the expert on at least Texas SCORs, and perhaps more SCORs than anybody else. I don't know. So we're really fortunate to have him as a member of the team. But David approached to us and--approached us and explained SCORs to us. We really were not good candidates, at least we thought at the time, for venture money, and we were not very good candidates for bank financing. And Dave explained to us the power of the SCOR and we had seen what Gary Hoover had done with TravelFest. So we had some understanding of what was possible.

HATTIE: All right. So what did you-all have to do to make it happen? You just turned it over to David and the team and said, `David, go for it'?

BRAD: I would say it was very much a team effort. As you know from the SCOR, it's a 50-question or so questionnaire that is answered and then basically reprinted in the form of a prospectus. There's audited financials, which is an additional expenditure.

HATTIE: Why a SCOR?

BRAD: Well, we looked at the venture capital route a little bit, and they were willing to do it, but they wanted total control of the company. They--and we weren't willing to give up our vision. We weren't willing to give up control of us accomplishing the vision that I told you earlier. So the SCOR made sense. We were able to maintain control of the company and still have the opportunity to raise the money that we needed to grow.

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