1. 39 20 ^ SECRETS TO ACHIEVING FINANCIAL SELF SUFFICIENCY 39 20 ^ SECRETS TO ACHIEVING FINANCIAL SELF SUFFICIENCY 15th International Conference on Business Incubation Business Incubation San Jose, CA May 21, 2001 Jim Greenwood, President Greenwood Consulting Group, Inc. 1150 Junonia, Sanibel, FL 33957 941-395-9446 / g-jgreenwood@att.net http://home.att.net/~g-jgreenwood Copyright © 2001 by Greenwood Consulting Group, Inc.

2. ABOUT MY PRESENTATION... n Purpose –Define the issue –Suggest creative approaches to self sufficiency in three stages of an incubator’s life n Design n Construction n Operations n My Background –11 years manager of 2 mixed use incubators –Consultant on almost 30 incubator projects from Alaska to Florida –NBIA board member (former), contributing author, instructor

3. THE SELF SUFFICIENCY ISSUE n Alternative definitions –Incubator requires no subsidy to cover operating expenses –Incubator requires no subsidy to cover operating expenses and build up contingency fund –Incubator depends on no “unreliable” sources of subsidy n Importance –If your incubator is not self sufficient, it may fail if source(s) of subsidy disappears n Why disappear? Politics, politics, politics

4. SELF SUFFICIENCY AT THE DESIGN STAGE 1. Set it as a goal from the start 2. Don’t start the incubator if don’t have reasonable chance of achieving it 3. Don’t expect it right away –Secure sources to cover early deficits before you start 4. Keep common areas to <25% of bldg sf 5. Make the building big enough –30,000 sf is rule of thumb –other factors play a role (shared jobs, anchor tenants, etc)

5. SELF SUFFICIENCY AT THE DESIGN STAGE 6. Don’t plan to take equity in lieu of rent, at least in the early years 7. Charge market rate rents 8. Avoid leased buildings & debt service to extent possible 9. If borrowing, trade longer term for higher interest rate 10. Do 5 year cash flow projections, and redo them over and over

6. SELF SUFFICIENCY AT THE DESIGN STAGE 11. Seek property tax exemption 12. Become a 501(c)(3) non profit if possible 13. Avoid shared services & facilities that are potential cash hogs 14. Consider including a sizable anchor tenant

7. SELF SUFFICIENCY AT THE CONSTRUCTION STAGE 1. If construction budget allows, use low maintenance/ durable construction materials & energy saving equipment 2. Don’t rely on the honor system 3. Don’t finance unfinished areas out of operations 4. Collect enough development $$ to cover anticipated early operating deficits 5. Automate to reduce labor costs

8. SELF SUFFICIENCY AT THE CONSTRUCTION STAGE 6. Put escalation clauses into leases & rental rate structures 7. Prelease as much space as possible 8. Do cash flow forecasts and updates weekly 9. Include set back thermostats, in painted locked boxes

9. SELF SUFFICIENCY AT THE OPERATIONS STAGE 1. Don’t hire more people than you need 2. Consider contracting out work 3. Include lease clauses re: utilities –Increase for utility hogs –Increase for rapidly escalating energy costs 4. Don’t add new services/programs unless they pay for themselves or can be covered out of other profits 5. Collect A/R like a “real” landlord 6. Self insure/insure for catastrophes only 7. Practice cost effective begging

10. SELF SUFFICIENCY AT THE OPERATIONS STAGE 8. Distinguish tenant needs from wants 9. Let tenants help you make tradeoffs –e.g., “We need to either increase the air conditioning temperature to 78 degrees or raise your rent by 5%--which would you prefer?” 10. Look for opportunities to leverage resources –e.g., add SBDC to tenant counseling function 11. Avoid mandatory graduation dates 12. 75% leased at $8/sf beats 25% leased at $12/sf 25% leased at $12/sf

11. SELF SUFFICIENCY AT THE OPERATIONS STAGE 13. Build up a cash reserve –Roof repair, HVAC replacement –Major tenant or subsidizer disappears (or you want them to disappear) 14. Don’t be the cheap alternative –You ought to be offering enough that cheap rent isn’t what tenants are looking for 15. Don’t add services or programs or facilities without a financial analysis 16. Don’t be a Kimmi

12. ONE CLOSING THOUGHT Give an incubator a fish, and it’ll eat once. Teach it to fish, and it will eat forever Translation: Strive to create long term revenue streams rather than one time sources of funding (unless it’s a big fish and you can store part of it in your freezer)