The 2nd 2011 Sichuan SMEs Financing Summit will be held in Chengdu this Friday. As Chairman of the advisory committee of Huaxi Business Mentor Group, standing committee member of the CPPCC, board chairman of Tongwei group Liu Hanyuan received an interview from Huaxi News in respect of business financing, failure, team and development.

About financing
　　Excessive financing may crush you down

Q: For SMEs, how many steps are appropriate to take during its financing?

A: Equity financing might be the very problem that SMEs are most likely to face. I have 1 million. I’m preparing to do something. Then maybe I can find Tom, Dick and Harry to reach consensus to each invest 500,000. This opportunity of sharing is at the same time a process of risk diversification. Generally speaking, at this point we suggest having 51% equities or above, which can enable the company to start investment under the guidance of a dominance power.

Q: How much financing is appropriate?

A: If your project is able to convince the bank with its reasonable expectation, risk control, as well as advanced and competitive technology, and market potential, then you can introduce capital from banks. For instance, we can use 50%-70% equity capital, matching 30% -50% banking facilities to adequately enlarge the capital scale. Have this in mind, what I emphasized was ‘adequately enlarge’. If you are going too big, the overall management risk will be too high, which will cause to fall and break.

Q: What suggestions do you have for investors?

A: My suggestion is that the capital fund cannot be less than 50%, which will bring you lower risk and higher credibility for bank evaluation. Many of us only think big, regardless of the fact of insufficient capital fund, and limited management capability. Either you cannot find a bank that will do investment, either the burden from investment bank makes you gasp for breath.

About Failure
　　Facing failure, sometimes giving up is an option

Q: Have you ever encountered difficulties in financing at business inception?

A: That is for sure. Where did I find the 500-yuan financing? I went to many departments. On hearing raising fish in river streams, people gave me headshakes. Some people even said, raising fish in river stream - that is casting beyond the moon. I’ve been to many places and bumped against the wall everywhere without raising money. So I totally know how it feels.

Q: There is a case of business start-up, whose interior decoration company ran out of business after 1 year’s operation. Then he sold construction materials for 5 years, but lost money. Recently, he finds the catering business is very profitable, and wants to open a restaurant. What suggestions do you have for him?

A: If this is really the case, I suggest him to give up. Interior decoration is a big market with fast development. People are trying to improve their own living standards every day. If you do it with heart and stick to it, you are bound to make money. Then why you cannot do it well?
Why do you still lose money when turning to construction material business, which is also a big industry? If you have failed in both, do not invest in catering business either, even if it makes money. Don’t waste your money and other people’s money. Don’t waste social resources. Whatever reason it is, market does not believe in tears.

What is the real reason for failures in both booming industries? Therefore, the start-ups and SMEs should think twice: Should I really keep adhering to the motto of failure is the mother of success, or should I self-examine that if I am suitable to do business.

About Team
　　Teamwork is not advocated at business inception

Q：Many business starters have several partners. This might also lead to project abortion because of internal strife. How do you look at that?

A: In terms of Chinese people’s cultural background, I do not advocate teamwork at business inception. The ideal status goes: each person has his own strength. We set up a team which is excellent in every aspect. As a matter of fact, however, an effective team can hardly be formed at the business inception, due to differences in age, experience and level. It is not impossible, but difficult. Without the formation of a team core, consensus cannot be reached, nor effective decision. This may eventually do more harm than good. At some point, it may either lead to splitting up or a broken team. So at this time, the preference would be starting business by individual or family according to Chinese culture. This way, the trust cost and management cost can be the lowest. It instead better suits the growth and development of SMEs.

About development
　　Blindly keeping up with Top 500 companies is not the way for making money

Q: Some enterprises want to spend the least money for big development expansion. How to achieve that?

A: For SMEs, after evaluating family member status, non-family management team status, and market completion, if doing big business is not the best option for the moment, then it is necessary to choose development with moderate scale and differentiation conditions. Most of us may often hear different opinions: we need to learn from the Top 500 companies and keep up with them. But whether we have noticed the fact that, in 10 years’ time, how many Top 500 companies have gone out of business? We advocate taking the initiate in learning from the Top 500. But you need to realize how to create a complimentary opportunity with the Top 500, who have brands, technology, market, and business scale. Some companies have already a history of several decades or several centuries. How long is our establishment? Something simply cannot be learned. We need to calm down and do services for Top 500, even make screw nails for them as hidden champions. Maybe this is where your real value and significance lies.