The Vest Pocket Consultant:

When it comes to raising capital, I’ve always followed bank robber Willie Sutton’s sage advice. I go where the money is.

That’s why, when I met with one of my clients at his Brooklyn restaurant last week, I was thrilled to hear that, after months of trying, he had finally found an investor to back the restaurant that he’s opening up the street from his existing location.

And just who was this mysterious investor who seemingly popped up out of nowhere to write that big check? Well, it wasn’t a hedge fund manager, a private-equity tycoon or a dot.com millionaire. It was a local restaurateur who’d known my client for years and wanted to get in on the ground floor of his new concept. After a brief negotiation, my client told his new partner how much money he needed, and they shook hands on the deal.

Funny, isn’t it? Just a few weeks before, my client had told me that he was going to walk away from the bargain-basement lease the landlord had offered him on his new space because he couldn’t find an investor to commit. Now, all of a sudden, he was flush with cash–and confidence.

Clearly, there are some lessons to be learned here. First and most important, don’t assume that, because big spenders have money, they’re going to invest it in your business–especially not these days. Second, pitch investors who know you and your business, and who share your vision of the marketplace. While a Wall Street guy might take a flyer on a new restaurant if he gets a big bonus, a successful restaurateur who knows the neighborhood and the cuisine is more likely to double down on an already successful bet.

The bottom line: Apart from friends and family, the investors most likely to say “yes” to backing your company are entrepreneurs who know your business and understand the risk. Like my client, you’ll never know until you ask.

True confession: My favorite sport is haggling.

Let me explain. When you go to the Gap to buy a sweater, you walk through the store, pick out what you like, try it on and bring it to the cash register to check out. The salesclerk wraps up your purchase, runs your credit card and sends you on your way. No challenge there.

Compare that to the thrill of haggling. Whether you’re in a Moroccan bazaar or a jewelry store in Shanghai, paying retail is not an option. First you pick out a leather handbag or a necklace that you like. Then you ask how much it costs. The shopkeeper quotes you a price that’s five to 10 times what you know the product is worth. You turn around and walk out in disgust. The shopkeeper chases after you. You tell him you’ll be back after lunch, that you need to look around. He offers you a deep discount if you’ll come back to his shop right now. This time, he offers you a much better price. Two hours later, you stagger out of his store with your trophy, congratulating yourself on bagging the steal of the century.

Here in New York, I don’t get to haggle on a daily basis–for bags and jewelry, that is. But as an entrepreneur and real estate investor, I deal with a lot of lawyers, contractors, plumbers and electricians who give me bids that I consider more of a starting point for negotiation than an actual price.

That’s where my haggling skills come in handy.

For example,

1. I tell the vendor that I’d love to hire him immediately but that I need to get some competitive bids. There’s nothing that makes a service provider drop his price like the possibility that he won’t get the job at all–especially in this economy. When vendors compete, I win.

2. I do the math to figure out the vendor’s profit margin. When it comes to working with service providers (white collar or blue), the biggest cost is generally labor. If you can figure out how long the job will take and how much the workers will be paid per hour or day to do it, you can generally figure out how much profit the contractor has added onto his bid and make him sharpen his pencil accordingly.

3. I mentally prepare myself to walk away. In any negotiation, the first person to walk from the table wins. Never let any contractor or service provider become so indispensable that he can hold you for ransom. Always have a Plan B, Plan C, etc.

The bottom line: Haggling can be fun, but it’s also serious business. And once you master it, you’ll never pay retail again.

A year after the government bailed out the big banks, the big automakers and one very big insurance company, the Obama administration seems to have finally gotten around to helping small business.

In his weekly address on Saturday, the president shined the spotlight on small business owners and their struggle to get the credit they need to help get their businesses back on their feet.

“These are the very taxpayers who stood by America’s banks in a crisis,” Obama said, “and now it’s time for our banks to stand by creditworthy small businesses and make the loans they need to open their doors, grow their operations and create new jobs.”

Unfortunately, that’s easier said than done. It was one thing for the government to buy up stacks of bad debt and pump billions of dollars of liquidity into the financial system. It’s quite another to persuade a bank to lend money to a small business that, even in good times, may have a tough time making a go of it.

That’s why it’s going to take more than browbeating banks and super-sizing SBA loans to get America’s small businesses off the respirator and out of the emergency room. It’s going to take revenue–sales generated by customers armed with paychecks, credit cards and home-equity credit lines who feel confident enough to start buying again. But with gun-shy banks and credit-card companies cutting consumer credit to the bone, small businesses are going to have a tough time making sales to customers who have to dig into their wallets and come up with cash. And with double-digit unemployment predicted to continue for many years to come, paychecks will also be in short supply.

What’s the answer? Well, I’d like to think that the government might be willing to give the credit-card companies a run for their money and offer zero-percent financing to people who patronize dog walkers, landscapers and other home-based businesses. It might also be nice to see the feds guarantee trade credit issued by small businesses to their corporate customers–though that isn’t likely to happen, either.

While consumers’ access to credit will improve as the economy begins to recover, it’s going to be a long time before shoppers start partying like it’s 2007.

And what about the startups, the “dreamers,” as Obama called them in his speech? Well, they’ll turn to friends and family to help them launch their businesses just as they always have. Because, even though I share Obama’s view that “all things are possible for all people and [that] we’re limited only by the size of our dreams and our willingness to work for them,” I also know from experience that every entrepreneur succeeds or fails on his or her own.

Last week, I met with two startup entrepreneurs marketing products that were poles apart. One company was developing a feminine hygiene product for women in developing nations. The other was building a website to help Americans with a certain type of learning disability bolster their self-esteem.

On the surface, these two companies could not have been more different. But from the perspective of a business model, they shared a common problem–how to get the users of their products to pay. While millions of women and girls in developing nations need the product that the first company is making, very few of them can afford it. They make do with homemade solutions instead. While millions of learning-disabled children and adults need the second company’s product, there’s so much free information available on the web already that few people would be willing to pay for it even if the company could show that the information on its site was better.

What’s the answer? Third-party payers.

Think about the last time you took your child with a fever or a runny nose to the doctor. Who paid the bill–you or your insurance company? If you’re like most Americans, it was your insurer that paid the bill (minus your co-pay or deductible). If doctors had to limit their practices to people who were willing and able to pay them directly, the only doctors practicing medicine would be plastic surgeons.

Clearly, both entrepreneurs who came to see me last week need to find third-party payers to pick up the tab if they want to gain market share for their products. For the feminine hygiene company, the buyer might be a government agency or NGO (non-governmental organization) willing to distribute the product for free in order to do social good. For the learning-disabilities website, the buyer might be a school district that’s willing to paying a licensing fee in order to make the content available to its students. Once the site got enough traffic, it might ultimately be able to sell advertising to marketers looking to reach its audience with targeted products and services, another way to get third-parties to subsidize its content.

The bottom line: The quickest route to a sale isn’t always the most direct one. One third-party payer that can buy in bulk and give away your product for free may be worth 1,000 retail customers who just don’t have the money.

As a small business consultant, I get calls and e-mails every day from people who want to know if we can help them write a business plan.

Unfortunately, I have to turn most of those people away.

It’s not that we’re too busy to take on new clients. With the economy only now beginning to recover, I’d love to bring in more work for my talented team of spreadsheet wizards and business plan writers.

It’s just that somebody who’s starting a home-based business or a professional services firm doesn’t need to pay a consulting firm thousands of dollars to prepare a full-fledged business plan just to raise the small amount of money they’ll need for legal fees, accounting software, a website and maybe a new laptop. What they do need are clients–and the way to bring those big projects in the door is through networking, not spending money on an ad campaign, an office suite or full-time staff.

That’s why I tell prospective clients that, unless they’re looking to raise at least $250,000 from a bank, VC fund or angel investor, they’d be better off crunching the numbers on the back of an envelope than hiring a consultant to do the math.

Look at it this way: If you’re running a kitchen-table business with no rent, employees or inventory, then you probably don’t need to predict how much revenue your business is going to generate next year or how much it’s going to cost you to make those sales. If, on the other hand, you have something more ambitious in mind–a restaurant, a fashion label or an internet company that might just become the next Twitter, then you’re going to have to put some serious money behind that idea. And whether that capital is coming from you, your family or an investor, you’re going to need a road map to show you how you’re going to get to your destination and how much time and money it’s going to take to get there. That road map is your business plan.

Back when my partner and I started our internet marketing company, NetCreations, out of my house in Florida, we didn’t have a business plan–though, knowing what I know now, it would have been helpful to have had one. What we did have was a great product, a handful of paying clients and two people willing to work night and day to make our business a success. Instead of spending our money on a business plan, we invested our profits back into the company. Five years and one IPO later, I’m glad we did.

The bottom line: If you believe that you can get from startup to positive cash flow on less than $10,000, go for it. I’ll be cheering you on every step of the way.

Last week, Richard and I took the train up to Connecticut to visit a client we hadn’t seen in a while.

It had been three years since the couple came to us for a business plan to help raise the money they needed to open a high-end women’s apparel store right off the town’s most famous shopping street. They wanted us to see their store and update us on their progress.

The good news, they told us when we walked past the designer shoes and dresses and up a short flight of stairs to their office, was that, after last September’s financial meltdown that ripped like a tornado through New York’s financial community, their customers were spending money again. Apparently, the hedge fund manager husbands had once again given their wives the green light to shop. And unlike a dozen other neighboring stores along the main drag, our client’s store had managed to survive the storm and emerge smarter, stronger and more profitable.

The bad news, our clients told us, was that they were deeper in debt than they’d been when they opened their doors in 2006 and that sales were off roughly 40 percent from 2008, their best year to date. In the meantime, the company’s accounts payable were piling up and several of their vendors–the designers whose fashionable dresses they carry in their store–had stopped shipping for lack of payment. While the couple had been able to negotiate a lower interest rate on their SBA loan, and the landlord had let them defer some of their rent, they were now digging into their own pockets to keep the business afloat.

While I’d love to tell you that Richard and I waved our magic wands and made our clients’ problems go away, the truth is that surviving a recession–especially when you’ve got a retail store that requires a physical location, employees and inventory–is no easy trick. Because the company and its owners are already highly leveraged, it’s unlikely that their bank would lend them more money, we told them. They need an investor–or group of investors–willing to share the risk, help them retire or restructure the debt that’s on their books and give them working capital to grow their business, buy more inventory and keep their vendors at bay.

At first, our clients were mystified. But we’re struggling for survival, they told us. We can’t afford to grow right now. You can’t afford not to grow, we told them. You need equity, not debt, to shore up your balance sheet, and the only way you’re going to get it is to convince an investor that, once the economy turns around, your company has what it takes to get to the next level. Whether that means opening more stores in more locations, partnering with a major department store to open concept shops within its existing stores, or providing personal shopping services for high-net-worth customers, you need a plan that makes investors say “Wow!”

By the end of the meeting, our clients realized that they had to move forward, that there was no going back. I’ll keep you posted on our clients’ progress in the months ahead. In the meantime, hang in!

As a small business owner, there are few things more frustrating than bagging a big project, putting in late nights and long hours, then waiting for what seems like an eternity to get paid.

In my experience, corporate America’s excuses typically fall into three buckets:

1. We never got your invoice.

2. Your invoice didn’t have a purchase order number on it (probably because we didn’t tell you that you had to have one).

3. Our controller is on vacation, maternity leave or in Antarctica.

Even when times were good and big companies were flush, collecting bills from large customers could be difficult. But now that we’re in a recession, these corporations aren’t even bothering to make excuses for their slow-as-molasses payment practices. Now, 120-day payments have become a fact of life.

According to a recent article in The Wall Street Journal, companies with more than $5 billion in annual revenue took an average of 55.8 days to pay suppliers and trade creditors in the second quarter, up 5 percent from 53.2 days a year earlier. According to REL Consultancy, the firm that conducted the analysis, big companies also collected their bills faster, shaving the average collection time to 41 days versus 41.9 days a year earlier.

Businesses with less than $500 million in sales, by contrast, took only 40.1 days to pay their vendors, down 6.5 percent from 42.9 days, REL found. But it took them roughly 8 percent longer to collect their payments–an average of 58.9 days vs. 54.4 days a year earlier.

And that really burns me. Because, while General Electric reportedly freed up $3.8 billion in cash last quarter by shortening collection times, collecting past-due accounts and stretching out payments to suppliers, thousands of small businesses have gone under because they couldn’t get credit lines or any kind of financing at all.

What’s the solution? Well, despite the conventional wisdom about offering prepayment discounts, I can tell you from experience that this rarely works with corporate America. And unlike consumers and small businesses, big companies prefer to pay by check–so you can forget about asking GE to hand over its AmEx card. Factoring (selling your receivables at a discount to a financing company) can take a big bite out of your profits if you have to wait months to get paid and your margins are slim to begin with.

That’s why many small and medium-size businesses are turning to online B2B exchanges to help them close the cash flow gap. One of the most visible players in the market is The Receivables Exchange, an online auction marketplace that allows qualified sellers (suppliers) to sell their receivables to the highest bidder. Rather than wait for payment, suppliers can sell their receivables at a modest discount and receive 80 percent to 85 percent of the funds within three days. Sellers are required to have at least two years of operating history, be registered to do business in the United States and have generated a minimum of $1.5 million over the previous 12 months.

Here’s another idea: Don’t let any single customer–no matter how large or potentially lucrative–account for more than 10 percent of your company’s sales. And diversify your business with short-term projects for smaller companies and high-net-worth individuals who are likely to pay you promptly without a lot of red tape.

Recently, I got a card from an attorney who’s a networking buddy of mine.

Strange, I thought. The holidays are a good four months away. Intrigued, I opened the letter. On the front of the card was a leafy green plant growing out of a bed of coins. Inside was a paper dollar sign embedded with seeds that, when planted, promised to sprout colorful wildflowers.

“You’ve made it half-way through one of the hardest years in history,” the card read. “We think that deserves some acknowledgment. We hope you plant the enclosed seeds as a symbol of the great things to come in your future. Wishing you much success during the second half of 2009! Sincerely, Stephen Furnari and Eric Scher, Furnari Scher LLP”

Impressed by the law firm’s innovative marketing approach, I asked Stephen what prompted him to send out the mailing and what kind of response he’s received so far.

Here’s what he told me:

“I started my law practice during the last economic downturn in 2002 after being laid off from two law jobs in six months. In my practice at Furnari Scher LLP, I advise entrepreneurs how to avoid expensive legal problems when starting a business, when buying or selling a business, and when raising investment capital for a business.

“Like many other law firms, our business is slower this year than in previous years. However, our firm has been hired to represent a number of new clients who have been laid off from their jobs and want to use this change in fortune to pursue their entrepreneurial dreams.

“We’ve been maintaining an ongoing dialogue with our clients and referral sources throughout these difficult times. I have been impressed by the efforts our clients and friends have made to ensure the survival of their businesses. I thought that their courage and persistence should be acknowledged and celebrated.

“We sent out about 250 cards to all our clients and other professionals who have previously referred business our firm. We received over 20 replies. More important than drumming up new business, for us this campaign was more about letting our clients and friends know that we are thinking about them and are rooting for their success. The campaign cost around $1,000, and it has paid for itself in good will and client loyalty alone.”

Bottom line, Stephen: Would you try this kind of campaign again?

“Absolutely!” he said. “A greeting card and small gift sent to clients unexpectedly in the middle of the year as opposed to one that is sent during the holiday season with every other service provider gets noticed. We will definitely do this again next year.”

With the stock market enjoying a summer rally and the recession looking like it’s coming to an end, it’s tempting to think about staffing up again–especially with the holiday shopping season just around the corner.

But if I were you, I’d think twice before putting that ad on Craigslist. Last week, the Commerce Department reported that retail sales fell more than expected in July while foreclosure filings soared, signaling that consumers–whose spending accounts for roughly 70 percent of U.S. economic output–may not be in a festive mood this season.

While the government’s “cash for clunkers” program succeeded in boosting auto sales, sales of furniture and home furnishings dropped 0.9 percent from June while electronics and appliance stores saw 1.4 percent declines. Sales at building materials, garden and supply stores–the retailers who cashed in during the housing boom–fell 2.1 percent. Even Wal-Mart took a hit.

That’s why a client of mine in Los Angeles told me last week that he has no plans to ramp up hiring–especially now that the recession has shown him that he can do more with less. When times got tough last fall, he and his partner decided to cut back their office manager to three days a week and spent $2,500 on an automated phone system that routes calls to their employees’ desks using voice prompts.

While business has picked up at their company recently, sales still aren’t where they were a year ago. And my client and his partner have learned the hard way that extra people don’t equal extra profits.

On the home front, my client has become more frugal, too. On Friday nights with his family, it’s good-bye Bennigan’s, hello pizza. Hiking has replaced shopping as the family pastime.

Of course, things may change by the time Thanksgiving rolls around. The holidays have a way of doing that to people. But for now, I’d take the good news you’ve been hearing from The White House with a grain of salt.

After all, if your business is struggling to stay afloat, what makes you think your neighbor’s business is doing any better? Or that either one of you will have lots of holiday jingle to spread around this Christmas?

Despite last week’s rally on Wall Street and signs that the recession may soon be ending, it’s still tough for startup businesses to raise capital.

Which is why it pays to think outside the box.

Last week, one of our clients, Lia Sanfilippo, shared with me a creative fundraising recipe that she’s been testing–and which seems to be working well for her so far. Lia, who grew up in a family of Italian-American restaurateurs in New York City, came to us for help with her business plan last fall when she and her partner, Selene Martinez, decided to open an upscale bistro in Harlem called The Pearl. Thanks to the soundness of their plan and their stubborn refusal to take no for an answer, they succeeded in raising $650,000 just as the economy hit bottom.

But recently, some unexpected construction costs left the partners strapped for cash. Reluctant to go back to their original investors for more money so quickly, they hit on an idea–to sell loyal supporters $1,000 gift cards redeemable for $1,400 worth of food at their new eatery. Not only would this spare them and their investors unnecessary dilution (not to mention legal fees and other costs), but it would also serve as a marketing tool to bring new diners in the door.

“We need your support to make this dream a reality,” Lia and Selene wrote in the letter they sent out. “We need people like you to stand for us, cheer us on and share in the pride of being part of this endeavor.”

So far, Lia says they’ve received commitments for nine gift cards with more on the way. She expects The Pearl to open in October.

“Our goal is to be the pearl of the community providing outstanding food and service as well as offering employment to local residents, and training and classes to community members of all ages,” she says.

Now I realize that not every startup business has delicious meals to give away. But if you’re smart and creative like Lia and Selene, I’ll bet you can cook up some creative ways to raise fresh capital that will have investors lining up for more.

As every small business startup knows, asking a bank to lend you money these days is like asking Angelina Jolie on a date.

Unless your company is the financial equivalent of Brad Pitt, it just ain’t happening.

That’s what makes the story of two former Buddhist monks and their New York City cheese shop so amazing.

According to Crain’s New York Business, political refugees Thupten Tenphel and Lobsang Tsultrim recently landed $400,000 in loans to purchase East Village Cheese in one of New York’s trendiest neighborhoods. Capital One Bank ponied up $350,000, Crain’s reported, while microlender BOC Capital Corp., an arm of nonprofit small-business development group Business Outreach Center Network, put another $50,000 into the pot.

How did the former Tibetan monks seal the deal? First, Tenphel and Tsultrim spent several years proving their mettle by first working as employees of the store, then negotiating a five-year loan to buy it in 2005 from founders Al and Carol Kaufman, who opened the shop 25 years ago. BOC Capital Corp. provided $25,000 for the initial down payment.

By living frugally and watching expenses, the two entrepreneurs quickly built up credit scores of more than 700. After paying off about 40 percent of the loan to the Kaufmans, the partners persuaded Capital One Bank to lend them the money to pay off the loan in full. Lawyers from J.P. Morgan Chase and Baker & McKenzie did the legal work pro bono.

What made Capital One say yes to these startup entrepreneurs when so many others have been turned away empty-handed?

“The proprietors of the East Village Cheese Shop worked with our community partner BOC, and we clearly saw the strength and vibrancy of this neighborhood business that is such an important part of the East Village,” Richard Schnapper, senior vice president at Capital One Bank, told Crain’s. “Capital One Bank continues to see good lending opportunities and a demand for specialized products and services in the region.”

BOC Capital Corp., which chipped in $50,000 of its own, told Crain’s it was impressed by the team’s strong track record in managing the store, citing the shop’s profitability and strong discount model. “The fundamentals were all there,” a BOC spokesman said.

Here at Axxess, I often hear clients complain about how difficult it is for startups to get funded. “We have already been turned down by three banks,” one client wrote me recently, “and the situation has only worsened. [And] we keep getting the same response from VC firms-–too early, too small, go to friends and family round.”

Now there’s no denying that things are tough out there. But if two former monks who came to this country with no business skills, no English and no connections can get Wall Street to open its wallet, I think it’s time for America’s startups to stop making excuses and go out there and show the banks they’re made of.

With retailers closing their doors in record numbers, the news for commercial landlords is bad–and, in many parts of the country, getting worse.

Last week, Smith & Hawken, an upscale garden-supply chain, announced that it would close all 56 stores and liquidate its inventory. The same day, Ritz Camera, which filed for Chapter 11 bankruptcy protection in February, announced that it would sell its remaining 400 store locations by the end of July.

But for entrepreneurs willing to take a risk, there’s a sunnier side to the story–and some great deals to be had on commercial space.

Two years ago, our consulting firm was flooded with startup tech companies looking to become the next Facebook or MySpace. Today, the tech startups have been replaced by startup restaurants and retail stores looking to take advantage of cheap rents in New York City.

Who in their right mind would open a store or restaurant in New York these days? Experienced business owners who’ve done it before and feel confident that they can do it again. Two of our clients–one in Manhattan, the other in Brooklyn–came to us for help with their business plans after neighboring landlords approached them with long-term leases and sweetheart deals on rent. An, because these two restaurateurs already have successful businesses and proven track records, they’ve got investors salivating to put money in their deals.

Now, I’m not saying it’s going to be easy for clients like ours to make it in this economy. The recession is far from over, and many people are bringing bag lunches to work and making dinner at home. And unemployment looks like it’s going to get worse before it gets better.

But retailers and restaurant owners who are willing to take the plunge and lock in long-term leases at today’s low, low rents will be way ahead of the game when the economy turns around.