When asked about the biggest obstacle facing small businesses, CEO, inventor and reality TV personality Marcus Lemonis doesn't hesitate.

“The number one problem is that you have two different sectors in small business – those that understand the importance of numbers and having their people focused and having a good product, and those that decided to get into business because they thought it was cool and hip and forgot they needed to bring money to the table and have a business plan.”

According to Lemonis, the Small Business Administration should provide financial literacy tools to individuals before they apply for loans, so they will appear sophisticated and knowledgeable about their businesses when dealing with an investor or bank. This includes the basics – like understanding the difference between credit and debit, and being able to create a balance sheet.

“We're not putting any sort of resources behind teaching people, and we're not giving any sort of education about the process.”

Character counts

So what does Lemonis look for when making an investment in a small business?

“I obviously have to be comfortable with the people I'm investing in. You have to believe in their work ethic and their knowledge of their business. You want people who actually understand their craft.”

It's not about how much entrepreneurs have in the bank.

“You've got to find ways to make the deal work, not look for reasons the deal can't happen.”

“It isn't the strength of the financial statement, it's the accuracy and the transparency,” says Lemonis, who points out, “I want to hear humility from people – that they understand what they're good at, and what they're not good at. I want them to acknowledge where their weaknesses are, and be willing to ask for help and be willing to change.

“Owning a small business is a serious thing. You're employing people. You are taking care of customers. You have to have your act together.”

The secret to success

When it comes to raising capital, Lemonis cautions, “I don't recommend the friends and family route, typically, because it ends up putting a lot of strain. If you really believe you have something that works, you should put a plan together and pitch it to everyone possible. Another possible way to raise money is to put some of your personal assets at risk, so that you're showing a true commitment to the lender. If you want to find a traditional lender, then you have to have some collateral. If you want to find a non-traditional lender, then you have to be willing to give up some equity, or pay a higher interest rate.”

As for new episodes of “The Profit,” Lemonis refuses to let the past determine how he handles the next transaction.

“I don't let things that worked well or didn't work well cloud my judgment. You have to go in to it with a fresh mindset every time. You have to look at every individual with a clean slate.”

Lemonis adds, “You've got to find ways to make the deal work, not look for reasons the deal can't happen.”