News Photo by Steve Schulwitz Haborside Cycle and Sport owner Tom Dowd browses over his inventory of bikes on Aug.10. Dowd prepared his own business plan and then utilized the Alpena Small Business Development Center, Alpena Area Chamber of Commerce, and Target Alpena Economic Development Corp.

ALPENA — Opening a small business requires a lot of planning and red-tape to wade through, but few entrepreneurs also understand the risks and potential for personal fallout should things go sour, local economic development officials say.

To help navigate people through the process of trying to establish a small business, several state and local organizations help entrepreneurs develop business plans, locate property, and acquire the capital they need to open their doors.

Such organizations have been busy of late as a number of new shops have opened recently in downtown Alpena and elsewhere in Northeast Michigan, where small businesses drive the local economy. The county had 797 businesses with fewer than 250 employees in 2019, 97% of which had fewer than 50 employees, according to U.S. Census data.

People new to the small business sector need all the help they can get to give their upstart business a fighter’s chance to survive, local economic development officials say. Business experts say it takes about five years for an established business to move beyond the hazards that typically lead to closure.

Carl Bourdelais, the senior business consultant at Alpena’s Small Business Development Center, said the center offers assistance to up-and-coming entrepreneurs. He said people who want to enter the business sector need to determine what product or service they wish to sell and make sure the community wants or needs that product or service.

He said a lot of good business ideas could work in other places, but not in Alpena. He said researching the market and the competition helps potential entrepreneurs decide if a proposed business fits the local economy.

“There may be someone who makes nice surfboards, and it might be a great plan somewhere else, but this is probably not the place to do it, because there’s not much demand here and not a smart opportunity,” he said. “We have to separate the idea from the true opportunity. There has to be a real need and there needs to be a lot of research done to see if there is.”

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‘A GREAT RESOURCE’

Bourdelais said preparing a detailed business plan and financial analysis outlining operations, expenses, and projected revenues helps lenders determine the viability of a proposed business. He said the issuance of loans or grants often depend on the data the bank receives.

“We need to break down, what the person is trying to do,” he said. “What is the business going to be, and how is it going to operate? Who is going to run it, and what skills and expertise do they bring to the table? If someone wants to open a restaurant and has never cooked a day in their lives, they are going to fail miserably. There are a lot of factors to be considered.”

Mike Mahler, the economic development director for the Alpena Area Chamber of Commerce and Target Alpena Economic Development Corp., said banks, credit unions, and groups like Target depend on such data to determine the feasibility of a proposed business. Rarely do loans cover enough to pay for all startup costs, and banks expect the borrower to provide a cash investment and collateral before cutting a check.

“You’re going to need outside capital, and most aren’t going to fund the project 100% unless there is some inside capital,” Mahler said. “They want you to have some skin in the game.”

Mahler, who was executive vice president of mBank in Alpena before taking the job at the Chamber, said banks also want to know more about the proposed business’s marketing plan and projected revenues for several years. Most often, banks or credit unions will commit to a portion of the amount needed.

Then, he said, Target can help work out loans to cover part of the balance if the person applying meets certain criteria, he said.

The business plan will help financial institutions determine if the business can earn enough money to ensure loan payments, and a person’s credit score also determines how much money a bank will loan someone. The amount of collateral the borrower puts up also figures into a bank’s decision to loan money or not.

Neither Mahler or Bourdelais could offer data on what percentage of people who request small business loans receive them.

Tom Dowd owns Harborside Cycle and Sport in downtown Alpena.

He utilized Target Alpena’s loan program to help get the needed funds to open his store, which was originally in Harborside Mall but now resides on 2nd Avenue. Dowd said he never intended to borrow money to open his business, but Target’s loan program allowed him to buy more inventory without spending his entire savings.

Dowd, who opened the store in 2014, said he had the capital to open his business, but worked with both Target Alpena and Bourdelais to round out his business plan.

“Carl was definitely a great resource for me and helped me tweak my business plan and (was) someone I could bounce ideas off of,” Dowd said. “He also helped connect me to other people who helped me with my bookkeeping and who knew Quickbooks inside and out, and helped me down the path to learn retail, and it was great because it was a free service.”

Many businesses use Quickbooks software to keep track of finances.

THEN THE HARD WORK

Once a new business opens, Bourdelais said, the hard work begins.

He said many people who plan to open businesses don’t realize the long hours they have to work while earning a small amount of money.

After payroll, loan payments, and other costs come out of the new business’s income, proprietors often have little left over for themselves. He said that could continue for years until the business establishes itself and turns more profit.

Bourdelais said he also has serious discussions with his clients about the potential impacts should the business fail and they still have to pay off loans and other debt, such as bills owed to vendors.

Failing to pay that debt could lead to legal issues, Bourdelais said. The stress could even hurt the proprietor’s personal relationships, he said.

“We have to talk about worst-case scenarios and, if the business fails, what it could do to them,” he said. “Can they find a way to pay the loan back, or is it going to take your house? Will it break up your family? What will it cost you if it fails? Everyone has a different risk level, but I just want them to be aware of the amount of risk and potential impacts should things not work out as planned.”

Steve Schulwitz can be reached at 989-358-5689 at sschulwitz@thealpenanews.com. Follow him on Twitter @ss_alpenanews.com.