29. November 2017

Angel investors are high net worth individuals that are seeking a large return by investing in what they perceive as fast growth startups. At any given time there are about 250,000 Angel Investors. For the most part they like to invest locally so they can drop by and visit their investment. Angel Investors tend to invest in that which they know and/or feel that their network of contacts can be of great value to their investment.

Angel Investors come in second for private investment capital into small businesses behind only that invested by the principles of the company and their family or friends. The average investment is normally less than $300,000 as this is a private individual investment and not a venture capital fund. Securing an Angel Investment can often lead to more significant investment interest from venture capital or other investment groups.

More than likely you will make your pitch to a single investor or a group of Angel investors. The setting is typically informal and your pitch needs to be brief and to the point. Pre-planning is the key so come prepared to share full product or service details, market size, market capture, competition, etc. It does not need to be a complete business plan but it should be a full executive summary. Slide presentations with talking points make a good pitch. Even a short professional video can work well. Avoid the hype, such as “unlimited potential”, “massive market”, “no competition”, “never been done before”. Anything that cannot be backed up by facts and stats should be left out of your pitch.

Angels are savvy investors who are focused on how their investment is going to be used to make them money. You should be excited about your business and its opportunity, but not over the top. These Angels are being asked to invest in a real business and not it something you thought it would be cool to do. Bottom line is they are all about turning their money into more money and finding out if you having the education, experience, desire, and will to do that.

If you can turn your passion into production you will have their interest. This is where demonstrating how well thought out your business plan is plays a critical part. For example if you are projecting your gross margin to be 20% where the average in your market niche is 8%, then you better be able to show exactly how and why.

Trust is a big factor in their decision to invest in you. Angel investments are very personal. They are investing in your business, but even more so they are investing in you. You cannot slide past this one. If they ask questions that you don’t have the answers to, then the best response is “I don’t know, but I will find out”. If you make something up or lie about the answer you will get found out and the deal will blow up. Be confident in your answers, but even better is to be informed and prepared.

Don’t have your first pitch be to the Angels. Practice with a coach. Practice with your friends and family. Seek out other business associates and pitch them. Get feedback from them and be ready to give a great pitch without a bunch of gaffs and without stumbling through a lot of unprepared for questions.

Lastly have a really good idea of the amount you are looking for and what you are willing to give for it. If you want $300,000 for 10% of your business and they offer $200,000 for 20% are you prepared to accept it?

Alternative Business Financing, Business Startups

23. November 2017

There is a massive difference in the types of debt you may have already or will take on for your business.

1 – Entity
First off if you are doing business as either a sole proprietorship or partnership then the point is mute because all the business debt is attached to you personally and there is no way of having it be otherwise. This is why your business should always be a standalone entity such as an LLC or INC. Without an entity then every dollar in debt your business owes you owe personally. If your business fails the creditors will come after all your personal assets to satisfy the business debt. In any scenario this is a horrible way to be in business and no one should risk it. Form an entity! In the case of a partnership, each partner is liable for 100% of the debt and creditors do not care who they take it from. In the event of a failure creditors will look to each partner individually and it is common to place liens on each partner for the entire amount owed. Yet another reason to form an entity!

2 – PG
The next thing to check for in your business debt are personal guarantees (PG). What these do is to make any debt that has them carry through to you personally in the event of a business default. This will be true even if you have formed an entity so these should be given out as little as possible. Many types of debt almost always require a personal guarantee. They are most common with business credit cards and term loans. They are far less likely and can be avoided all together with asset financing such as for equipment and vehicles, contract financing, invoice factoring, revenue based loans, purchase order financing and all types of vendor financing. Limit you use of personal guarantees when you can.

3 – Convert Debt
You should always take stock of what kind of business debt you have and focus on paying off that which holds you personally liable first. There are many ways to do this. For example, let’s say you have financed a vehicle and provided a personal guarantee. Now your business is a year older, you have taken the time to build your business credit and have your business become bankable so now you can refinance the same vehicle with a different lender and not sign a personal guarantee. If your business is now turning a profit and you have built strong business credit scores this will be true of any assets you have previously financed with a PG. If you have given your PG to vendors or other creditors you can now go back and ask to have it removed. If they refuse, then change vendors as there will be many ready to take their place.

4 – Personal Credit
Check your personal credit reports. Any business related debt that is reporting on you personally should be your top priority to either pay off or convert to true business debt. Also check your business credit reports. Many lenders such as Amex do not issue credit cards to small businesses. Instead they issue you a personal credit card with your business name on it. This is why you will not see it as a trade line on your business credit reports, but rather it appears only on your personal credit report. Kind of sneaky isn’t it?

5 – Ten Reporting Trade Lines
There are many articles out there providing terrible advice. Such as advice like “pay off all your small business debts first”. Pure junk! To build and maintain strong business credit scores you need at least ten trade lines that report each month on you paying your business bills on time. Way too many business owners do not know that this is a vital component of making your business bankable and able to stand on its own for financing without your PG. Instead when creditors pull up their business credit reports they see only 2 or 3 reporting trade lines. Business owners think this is great. IT IS NOT! Now you have no credit history for lender to base their approvals upon and you are forced back into everything requiring your personal guarantee.

The bottom line is that business debt is not a bad thing and neither is PG business debt when used to turn a profit. Having your business take all the steps to becoming bankable and thereby being able to stand on its own for financing is the key to your business debt not keeping you up at night.

Alternative Business Financing, Build Business Credit, Business Credit Scores, Small Business Financing

31. October 2017

Does it really? A common mistakes of most small business owners is overlooking the use of all types of business capital to make ends meet. Let's take a look at a few.

Equipment Financing - Very many types of equipment can be financed or leased so that purchasing them does not eat up your valuable working capital. Obviously you can finance; cars, trucks, utility vehicles, fork lifts, tractors, yellow iron, but did you know that you can finance office furniture, cash registers, computer, tablets, software, inventory racks, building signage, vehicle wraps, and much more. Too many times small business owners burn up their cash without even trying to finance the hardware and software they are purchasing.

Invoice Financing - You can turn your invoices into cash the day you send them. As a business owner you know that cash flow is king and having to wait 30, 60, or 90 days to get paid can be a back breaker. There are many companies out there that will purchase invoices from you at 97 cents on the dollar. You get paid next day and best of all they will handle all the billing and collecting so you never have to chase you clients around to get paid. The other advantage to this type of financing is that they become your AR department and now you can offer extended credit terms to your clients.

Purchase Order Financing - You finally got that big order or that big contract but you don't have the means to fill it. These types of lenders will advance you the money based on the strength of your buyer and not on you. They typically like to finance finished goods and act as the middle man between you and the deliver to make sure everybody gets paid and the products get delivered. An excellent way to conserve cash flow by not having the shell out a huge amount of cash before you can get paid.

Credit Cards - Buy now and pay later. Credit cards are the easier to acquire type of financing. Most are show up with good credit scores, state your income, and get approved. As a business owner you can float 10, 11, or 12 cards with limits from $5,000 to $20,000 and use them just like cash. You can balance transfer from one card to another if you need more time to pay and in most cases if you pay within 30 days there are no interest charges at all. Business owner can easily float $100,000 to $200,000 on credit cards and it becomes all about money management and cash flow to be able to pay the cards down so that you can run them up again as needed. The advantage to this type of financing is that it never goes away and you could keep using it for 5, 10 or more years. Also if you keep your balances drop and your payments never late, the credit card companies will keep giving you increases every six months. It is not uncommon for $200,000 in credit card financing turn into $300,000 in financing within a year of excellent payment history and card balance management.

Vendor Credit Lines - Over 90% of the small business financing in the USA is Business-To-Business and not Lender-To-Business. It is very likely that all the inventory, supplies, materials, and even services your business needs can be obtained on Net 30, 60 or 90 day payments by requesting payment terms for your vendors or finding replacement vendors who are will to grant you the terms of need.

There are more non-direct cash business financing methods and all just as effective at offsetting cash flow. So you see, your business may not need more money it may just need better money management.

Alternative Business Financing, Business Credit Cards, Small Business Financing, Vendor Credit Lines

26. October 2017

More often than not Venture Capital ruins more startups than it helps. First of all far too many startups spend a huge amount of time chasing Venture Capital that ends up going nowhere, And if they do land Venture Capital they end up with way more than they bargained for.

Venture Capital is interested in only one thing and that is huge returns. If they invest in your startup then the expectations become all about huge returns. What often happens is that they push development too fast and too far.  The result is either a not ready for market product or the need for even more capital which further dilutes your ownership until you are way down on the decision making totem pole.

I will use myself as an example.  I had a startup that was basically a great domain name with a good idea attached. I already partners (a whole other blog post) before we brought in Venture Capital. After Venture Capital I own 20% of the company I founded and created. Not good. I had lost control to make the important decisions and there were too many people now driving the bus.

Found a buyer for $10 million all cash. Great deal, right? Apparently not. Got out voted and told to go back and counter at $20 million. So I think you can guess the outcome of that story. A $2 million dollar windfall for a domain name and an idea blew away like so many fallen leaves. Moral to the story is Venture Capital does take a few to very high places, but most (probably 9 out of 10) just get blown away.

Do your homework very well, try not to get diluted too far, and don't give up control. If your business idea or plan is that great and has huge market potential then it is you who saw that and you who should drives the bus that gets you there. Venture Capitalists should be the passengers who buy the gas and help bring on other key passengers. That is what they are good at, not at driving or creating.

Alternative Business Financing, Small Business Financing

6. October 2017

Equipment finance is one of several options available to businesses seeking start up or growth capital. It is a highly attractive finance option because it can provide exactly what a business needs in order to survive. This could include machinery, software, computers, or even office furniture. Businesses will also find that equipment financing tends to not tie up cash, receivables, or credit cards. Overall it can reduce the amount of cash a business will need, and the best part is that it can be written off at tax time. 

One particular form of equipment finance is a general equipment loan. This option can be valuable because the majority of equipment that is acquired is not likely to become obsolete as fast. The technology and medical industries would have to worry about the equipment becoming outdated. In general an equipment loan is a wise choice because there is low obsolescence. Ownership and equity are other reasons why equipment loans are a good choice. You get the same benefits as if you owned the piece of equipment, and it also allows you to use equity to go after more working capital down the road if needed. The main benefit to an equipment loan is that a business can expense up to $25,000 worth of new equipment for the first year it is purchased. This adds up to decrease the final purchase cost. Any amount of equipment loaned over $25,000 would be depreciated over the next several years for an ongoing tax deduction.  

Equipment leasing allows a business to get the most tax benefits possible while saving cash at the same time when compared to other forms of equipment finance which are available. The lease of course must be returned at the end, but often times the lessor will give a business the opportunity to buy the item for "Fair Market Value" at the end of the lease. That final total is often determined after the lease has already expired. The monthly rental payments can be tax deductible, but it is advised to speak with your accountant before taking out an equipment lease. With the lease you are simply paying a straight rental payment with no interest on the item. It can be difficult to locate equipment leasing companies, but researching the top search engine results from the phrase "funding directory" will return a valuable, free option for getting in touch with equipment leasing companies.

A relatively new concept for businesses trying to raise quick capital is through an equipment sale and leaseback. With this option a business can obtain up to 70% of the original purchase price against equipment they own. This money earned through the sale can be used for startup funding and business expansion needs with no restrictions. After being sold the item would remain on the seller's property, and they would lease back the item from the source purchasing the asset. Businesses really like this option because there are no restrictions on how the money is used and of course no collateral is needed. Other lines of credit are also not affected by a business doing an equipment sale and leaseback. The other aspect is that the monthly payments are 100% deductible. 

Equipment finance is just one of many methods available for obtaining business financing. There is commercial finance, small business loans, venture capital, equity investments, and more. It is also good to work on establishing your business credit, ensuring that you separate your personal credit from your business credit. With good business credit scores obtaining large loans and other forms of capital is very simple, and you won't be one of the 97 percent that actually have a loan application denied. One other strategy that is easy to do and beneficial to a businesses quest for business capital is to use a free business capital search engine to locate potential lenders. 

Alternative Business Financing, Build Business Credit, Small Business Financing