Small-business owners will all hit a point when they need to consider financing their operation with debt. Adam Cole and his partners at Grant Park Academy of the Arts faced that challenge early on, leveraging debt almost from the start. They recognized an opportunity, wanted to move as fast as possible to seize it, and didn’t want to be held back by the lack of funding.
We spoke to Adam about his experience taking on debt and how his business used it most effectively, and we also got his insight on advice he has for other small-business owners.
This interview has been condensed and edited for clarity. If you're a small-business owner interested in sharing your funding story, tweet us at @ValuePenguin.
Adam, first, do you mind describing your business a little bit more in detail?
Not at all. We are a music instruction academy. We offer music instruction for everyone, but focus on our neighborhood in particular, the Grant Park area of Atlanta. We also offer home-school hybrid activities, tutoring and supplemental activities for home-schooling parents that are looking for things they can’t do themselves. We’ll also be offering lecture opportunities and some gathering opportunities for parents in the neighborhood.
What was the thought process in launching a business like this?
I already had a school—a very small piano school. A friend of mine who I had invited to join me—she’s a voice teacher—she suggested that instead of just coming on as a voice teacher that we expand the school. We took a look at the neighborhood and saw that there really wasn’t much in the way of competition; there wasn’t a lot of instruction here in Grant Park. We took a look at the demographics of Grant Park. It’s rapidly expanding; lots of money coming into the area. That’s a good combination for a potentially successful business: not a lot of competition, and lots of people coming in. So we thought, clearly there’s going to be competition soon; nobody’s going to let this sit. … We thought, the best thing we can do is get to the punch first, to have something set up and be as established as possible when things change here.
What kind of debt did you go into? Was it loans, credit cards, lines of credit…?
Almost entirely credit card debt. Our expenses are relatively low; we managed to get the business launched without much in the way of investment. That was by design. We did that as well as we could to try to keep our initial costs very low. We knew we were going to have to spend some money, and we have done that by using some savings and by using a credit card.
Do you mind mentioning how deep into debt you went?
Less than $30,000 debt, roughly. A small amount.
What kind of assessment did you guys do to determine whether you’d be able to bounce back?
We just made some projections based on comparable businesses. We took a careful look at the neighborhood to see what else was being offered here, to see if we could succeed. We tried to set our prices accordingly to the things that are here. We made some cost-benefit analyses to see where the break-even points would be. And then we just took a chance.
That makes sense. What resources did you primarily use when you were researching your financial options?
They were just credit cards, so there was no research to do. We used what we had available to do it: We didn’t have to look into any small-business loans, at least not yet.
I know that credit cards are sometimes the simplest option, but was there a major reason as to why you did continue down the credit card path and didn’t really look at anything else?
Sure. I think it was just a question of not knowing exactly how much we were going to have to spend on our business. I think we have spent a little more than we thought we would have to spend on it, just because things are unexpected; You don’t know if you’re going to need this, if you’re going to need that. We expected our investment would be a little smaller. We do have access to some small-business loans, but it is a little tricky to get into those. It takes a lot of time and effort. I think our time and effort we felt would be better-spent building the business. Both of us have families, and we both have jobs outside of our current business. If we could make it as easy as possible, that was probably our priority.
Looking back on this whole process, is there anything that you’d do differently?
No, not at all. We’ve had some experience and know that business take a while to grow, and there’s inherent risks involved. We have been strategic about our development. We have diversity in mind and we’re not going to put all our eggs in one basket. All we can do is be as smart as we can be and work as hard as we can work. And that’s what we do. Really planning ahead of time was essential. We have a summer camp going, and we started advertising and working on that camp in January. We went to an expo in February to try to get in front of all the other summer camps that are doing very well; we didn’t wait until May to advertise our camp. We expect it’s going to take a while for people to find us, but we wanted to make sure that our website looks great when they did, and people had heard of us, and were talking about us. The idea is to just be constantly manifesting as strong and as confident a business model as we can, all the time, so that we are the choice people make when they are looking for what we have.
Do you have any general tips for our readers?
Even a strong business model has no guarantees of success. There are all kinds of things that can go wrong, so you have to be as smart as possible from the get-go. We have a good accountant and we have a good lawyer. We’ve really, from the beginning, been very smart and strategic, and I think it’s going to pay off.