Posts Tagged ‘Finance’


5 Steps to Building a Successful Crowdfunding Campaign

4-22 Crowdfunding smallIt seems like nearly every day, there’s a new crowdfunding campaign or request for support that comes up. There’s a good reason for this, and that is: crowdfunding has become an exciting way for small businesses to build capital to launch a new business venture. If you’re not familiar with crowdfunding, it is the practice of funding a project or venture by raising many small amounts of money from a large number of people through the Internet. If you think crowdfunding may be a viable option for you to raise money, let’s look at how it works and what you need for your campaign to be successful.

There are more than 500 active crowdfunding websites, with the biggest five being Kickstarter, Indiegogo, Go Fund Me, Crowdrise, and RocketHub. While each site has different features and capabilities, they all function basically in the same way. The sites take a commission fee from what you raise (typically 5 – 9 percent). Before you select your platform, you need to decide on your fundraising goal and the time frame. Make sure you research the platforms and their policy on whether you get any funds if your campaign doesn’t meet its goal. Some sites (like Kickstarter) require you return the money to donors if you don’t meet the fundraising goal. This means if your goal is $5,000 and you get $4,999 in pledges and donations, you get nothing.

How to Build a Successful Campaign

Once you decide on the right crowdfunding site, follow these five steps to build your campaign.

1. Work your network first. The worst mistake you can make is starting your campaign and then start using social media as your go-to place to reach prospects. You should be active on sites like Facebook, Twitter and LinkedIn at least six months before the launch of your campaign. Your first 30% of pledges will come from your personal network, and if you can’t get people who you know to invest in your idea, no one else will.

2. Tell a good story. Storytelling is one of the most effective ways to make a sale. If you have a strong idea, tell a compelling story about it. Then write engaging copy that focuses on the story, and create a short video that explains your idea. These will become the basis for your crowdfunding website profile.

3. Do not exaggerate. It’s important to be enthusiastic about your business idea. After all, how can you convince a customer to buy unless you also believe in what you’re selling? But make sure you don’t overhype your project either. If you promise things you cannot deliver, it will turn into a public relations (and possibly legal) train wreck.

4. Have great rewards. People love to get something, even if it’s small, for their donation. Create a list of rewards you are willing to give in exchange for a donation. The rewards should range in significance from the lowest amount to the highest. For example, if you’re crowdfunding to publish a book, perhaps the smallest donation receives a credit in the book as a reward. The highest donation may receive a signed copy and book cover poster.

5. Donor relations are critical. A successful crowdfunding venture does not stop the minute your campaign ends. Have a plan in place to communicate with your network and donors after the funding campaign is over. These people helped you raise the money you need to build your business. Make sure you keep them informed about what’s going on, and thank them whenever you can. You never know when you may need them to raise more capital in the future.

Crowdfunding is a great way to fund a business venture from the ground up. Start researching successful fundraising campaigns, look and your network, and decide whether this is the right medium for you.


Should I Borrow Money from Friends or Family for My Business?

3-15 loaning friend money smallGetting your business started requires money, and while there are many sources for finding this funding, one often overlooked source is friends and family. On the one hand, a friend or family member may be able to offer you an interest-free loan that you wouldn’t qualify for at the bank, but on the other hand, money and the people you’re close to don’t always mix well. Family and friendship dynamics are delicate, so carefully evaluate your relationship with possible creditors before opting for this financing source. Use these five steps to ensure a successful outcome.

Assess the risks from the outset

Begin by having a blunt conversation with your future financier. Talk to her about the risks and pitfalls of this transaction. The idea is not to spoil her enthusiasm in investing in your business, but rather to confront the harsh realities that small businesses sometimes face. If, after this conversation, your benefactor is still ready to loan you money, you have done your part to let her know of the risks she’s taking.

Decide if it’s an investment or loan

Continue the discussion by assessing whether or not your creditor would like to come aboard as a partner and take equity in your company or simply loan you the money and stay out of operations. Be comfortable with the terms and the equity you give, and consider whether this person would be an asset as an advisor to the company or not.

Have a formal agreement

Even if you trust one another implicitly, having a formal contract for the loan or investment is still a good idea. You may not need a lawyer to work out the details, but if the amount of money is substantial, you’ll definitely need an accountant. If your benefactor wants to forego a formal agreement, it may still be necessary to discuss more precise procedures such as what to do in the event of default or bankruptcy. Never promise something that you cannot deliver.

Keep it professional

Treat your private creditor like you treat your bank. Pay on time or early if that’s part of your agreement, and keep track of every transaction. Don’t take advantage of your personal relationship to pay late or not at all. Being formal and professional ensures that you don’t blur lines between business and personal relationships.

Put everything out on the table

Create the habit of communicating with your friend or family member. Let her know regularly how business is progressing. Never make her pursue you for updates. Whether you have challenges or successes, keep her in the loop in the way you would other partners or investors. She will appreciate this and feel more vested in the success of your company.

Deciding to borrow money from someone you’re close to is a decision you need to spend time reflecting on. The last thing you want to do is jeopardize your personal relationship with that person, and money has a funny way of doing that sometimes. Keep the lines of communication open and make sure you properly manage your investor’s expectations.


Mondays with Mike: 7 Ways To Cut Costs Without Stifling Growth

4-6 Cost Cutting  smallToo often, we discover a new way to reduce our expenditures, only to find out it’s not ultimately good for our bottom line.  The trick is to manage our costs, while still flourishing.  I know – that’s easier to say than do.  But here are seven sure-fire ways to keep your business growing on the cheap.

  1. Pool your resources.  You and other local businesses share many of the same needs.  You need things like ink for your printers, paper towels for the kitchen, and health insurance coverage for your staff.  If you can come together, assess your needs, and approach your providers for these goods and services, you can often negotiate for a better group rate.  Your ink supplier, for example, will likely win some new customers, and you’ll all save money.
  2. Hire contractors.  Take a step back from your staff and assess your real staffing needs.  Often it’s advantageous to hire contractors for certain jobs, paying them a much higher hourly rate, but only using them as needed.  Your staff gets more flexible work days, and you save money in the end.
  3. Free advertising.  So one of your competitors goes out of business, but their billboard on the edge of town is still standing, inviting prospective customers to call their now-out-of-service number.  Call the phone company and arrange to have that old phone number forward to your line.  When the phone rings, you can explain the situation and detail what you’re willing to do to earn that customer’s business.  Why pay for a billboard when you can get one for free?
  4. Cut phone costs.  Most business owners don’t realize how much money they spend annually on their phone services.  Explore lower cost – or even no cost – options like Nextiva.  You may find better call quality and services for far less than you’re paying now.
  5. Assess your office space.  Over the life of your business, you may find that you expand or contract from time to time.  When you’re paying for a space that’s larger than you need, you’re wasting money.  See if sharing a space with another company makes sense, or look for options with shared public areas – kitchens or restrooms.  Make the most of your rent dollars.  Also keep in mind that landlords with space that’s been vacant for a long period of time are far more willing to negotiate rates.
  6. Train your own talent.  Superstar, experienced employees command high wages – no two ways about it.  If you hire raw talent, and take the time to bring your staff up to speed on your own, you can realize huge staffing savings.  Whether you take a chance on an intern or find a diamond in the rough worth taking a chance on, training staff not only saves you money, but also lets your mold your staff to work the way you want.
  7. Get your staff involved.  One of the best moves I ever made was to have a sit-down with my employees and solicit their help in finding ways to trim unnecessary expenses.  They came up with ideas that would never have occurred to me, and when they pitched in, we had a whole team of people working to improve the bottom line.

Cutting costs doesn’t have to be painful.  Finding creative, win-win approaches is the key to making successful, long-term changes without inhibiting your company’s growth. 


How to Make Your Business Appealing to Angel Investors and Venture Capitalists

3-11 funding for SB smallSmall businesses and investors can go together like ice cream and apple pie. It is definitely a vote of confidence when someone provides funding that can take your business to the next level, yet there are trade-offs that come with accepting investor funding. If your idea is so big that you know the only way to bring it to success is with the support of outside resources, then angel investors or venture capitalists might be the right fit for your company. However, remember that this class of investor is looking for a good investment. They weight talent first and ideas second, so make sure you understand how to position yourself for this level of funding.

What’s The Difference Between Angels and VCs?

Keep in mind that angel investors and venture capitalists are very different types of investors. Angel investors are usually private individuals who have some money and are keen to use it to get a return, but they may want very little to do with the day-to-day running of your small business. They may fund businesses with lower growth rate projections and be more interested in firms that create value in the community in ways other than high profits.

Venture capitalists, who usually work as a collective firm rather than individuals, have deeper pockets, but desire larger and faster returns. They usually will require a much larger stake of your business to entice them to partner with you and may even take over management of your business as active backers. However both types of investors will become your partners and require a piece of equity in return.

There are many ways to appeal to angel investors and venture capitalists. The main thing to keep in mind is that you will have to work very hard to interest them and have conclusive evidence that your organization brings substantial value to the table. Here are five ways to make sure that you’ve got what it takes to encourage this level of investor.

1. Build your business (and your personal brand)

There is no way to avoid it: building your business takes hard work. One great way to make sure you succeed in this task is to become an expert in your field. Dig deep to build those skills. You may want to look for a mentor or networking group to ensure you continue to grow in areas like public speaking, marketing, or management. Consider this an investment in both you and your company.

2. Solve a problem

Make sure that your business solves a problem for which your customers need a solution. You need to be able to convey to an investor that you understand this problem, as well as how and the why your company is the best solution for this problem. There is no room for feebleness here. You must be on point. Rewrite your business plan if you have not yet fine-tuned this aspect of your business.

3. Have an amazing team

In short, your team must work together effortlessly and complement one another’s skills. Trust me, venture capitalists will go through your roster with a fine-tooth comb. They want to see your team in action and know that you can withstand whatever challenge comes your way. Always hire candidates who bring a variety of hard and soft skills to the table so that you can create a culture of success from the outset.

4. Have a phenomenal pitch

Your pitch must be persuasive, thoughtful, and farsighted. It will go hand and hand with your business plan, but you must be able to convey in confident and concise speech the essence of that plan. There is an art to delivering a pitch, so make sure the right person delivers it.

5. Always have the big picture in mind

If you have your eye on the big picture, you are guaranteed to keep things in perspective. Be honest with yourself about your venture and its challenges, so that you anticipate market changes that affect your industry before they arise.

Investors want humble founders who know the industry, the competition, the technology, the business climate, and regulatory issues. In short, they want to see someone who has their feet in reality, but is reaching for the stars. If you can be that person, you’ll find the right investor to help your business grow.


How to Choose a Bank for Your Small Business

2-25 Choosing a bank smallOne of the first things you need to do on your path to becoming your own boss is to open a business checking account. Now, you might think it’s best to keep your business account with the same bank where you have your personal accounts, but it’s better not to. Should your business fail and you have both business and personal accounts at the same bank, you risk losing everything because the bank can seize your personal assets to satisfy your business debt.

What You Need in a Bank

Your business needs a banking relationship not just a bank. It isn’t just a place to put your money. It’s a place you have a relationship with a partner that should be interested in helping your business succeed. Not every bank has great personal relationships with its business clientele, so keep that in mind when beginning your search.

While you might only start out opening a business checking account, there may come a day when you want to apply for a small business loan through your bank, so make sure the banks you consider offer a variety of small business services that can support your company as you grow.

Where to Start Looking

Ignore billboards, online ads, and commercials when choosing a bank. You’re better off asking other entrepreneurs for referrals, since they will know which banks are small business-friendly (not all are).

It’s a good idea to narrow your choices down to three, and then schedule time to sit down with a branch manager from each. These questions can help you gauge which is the best fit for your business’ needs:

  • What percentage of your customers at this branch are small business owners?
  • How fast are checks cleared to my business account (both in- and out-of-state)?
  • Is there a dedicated small business banker on your staff?
  • What kind of customer service do you provide for small business?
  • Are loan decisions made locally?
  • Does the small business banker have any influence over the loan decision process?
  • How many SBA loans did your bank process last year?

The point of these questions is to see how much energy a bank puts into managing and developing its small business clientele. You want to feel like a welcome and cherished customer, especially since you will be trusting this bank with your hard-earned cash!

Also consider what you’re looking for in a bank. Do you need to easily get to it to deposit cash each day (if you operate a restaurant, this is a must)? Would you prefer to be able to access your accounts through a mobile app?

Developing the Relationship Over Time

You may have little need to visit your local branch, especially since many banks allow you to deposit checks with a few clicks on your phone. But make a point to stop in and visit your branch manager or small business banker every few months and update them on what’s happening with your company.

Ask if there’s anything new service-wise with the bank. You might find out they’ve got a new banking program that’s perfect for your needs at the moment. Keeping that dialogue going will help you both find ways to work together for the success of your business.


4 Tips to Achieve Your Personal Finance Goals Before Starting a Business

2-18 personal finance smallBefore you can commit to funding your new business, you need to take care of your own personal financial goals. You need to move into starting a business with a strong financial record, as well as money in the bank. This makes it easy for you to qualify for a small business loan, if you need one down the road, and keeps you from stressing over not having the funds to cover your expenses while you’re waiting to turn a profit.

1. Eliminate Personal Debt

Don’t start your business weighted under credit card debt. The average American household has about $15,000 in credit card debt, a staggering number if you want to bootstrap your own business.

Having zero debt frees up your credit capacity, so work on zeroing out credit card balances and paying off your car so that you can focus only on basic expenses such as your mortgage, phone, gas and electric, cable, and food. The leaner you run, the more you’ll have to put into your business.

2. Improve Your Credit Score

There will come a time in the all-too-near future when you need credit, be it in the form of a store credit or just credit from vendors you work with regularly. If your credit score isn’t good — say, under 750 — you might not get that credit or pay a much higher interest rate. Since your business will have no credit history to begin with, they’ll look at your personal credit score, so you need to focus on cleaning up your number if it’s less than ideal.

Don’t know your credit score? You’re entitled to one free credit report a year from one of the big three indexes. Get your copy here and start your plan to improving your score.

3. Set Aside 12-24 Months of Household Expenses

You will not make a profit instantly, so you’ll need to keep paying those household expenses in the meantime (another reason to lower your debt: you’ll have less to pay in expenses!). Having 12-24 months’ worth of money to cover expenses may sound drastic, but it’s better to have more than enough than to find yourself unable to pay bills in 6 months.

If you don’t currently operate with a budget for your household, now’s the time to create one. If, in the process, you find places you can reduce your expenses, such as cutting the cable cord, go for it.

Remember: if you’re quitting a job with health benefits, you’ll also need to factor in the cost for your health insurance. It will be significantly higher than your employer-sponsored plan.

4. Have Your First Year of Working Capital

In addition to your personal expenses, you’ll need to be able to cover your business costs until your business gets going. A year’s worth of capital should be sufficient. Again, start with a budget (even if you’re using guesstimates at this point) so you know what expenses you need to plan for.

Since you’ll have a pretty sizeable chunk of money in savings for your personal and business needs, consider opening a money market account or high-yield savings account so that you can earn a little interest while it’s sitting there.

If you get your money straight before starting your business, that will be one less things stressing you as you start your small business.


7 Keys to a Successful Barter Arrangement

1-30 Business Bartering smallCash flow is always an issue for entrepreneurs. It often seems to go out more quickly than it comes in.  So, how can you get creative with your finances?  Part of it boils down to using other currencies- aside from just money- to help you run and grow your business.  In fact, your products and services have great value that you can “spend” through barter arrangements.

Done correctly, you can use barter partnerships (shall we call them “barnterships”?) to meet your company’s needs without an excessive cash outlay, while building great relationships in the process. However, without proper preparation, you can also lose your shirt in a deal or even face unexpected tax bills.

Here are seven basics that you need to know before entering into your next barter agreement.

1. Pick the Right Partner

Make sure that your “bartner”- aka your barter partner- has a good reputation and shares your overall values. This means seeking out past business associates with whom you have a good relationship or seeking recommendations from others you trust. If you expect to barter regularly, consider joining a barter group that verifies or rates participants, or even a barter exchange that intervenes in negotiations.

2. Establish a Fair Exchange

Even in barter arrangements, the dollar remains the core standard of value, so both parties need to set (and agree to) a firm dollar value for the goods and services they’re exchanging.

Then, make sure that you establish an equal-value trade, such as a medical office entering into an agreement with a law firm: four free medical checkups in exchange for four free contract reviews, with a value of $1,000 for each party.

Think twice before entering into an arrangement that exchanges goods or services of dissimilar value or type. If your beauty salon tries to exchange free haircuts with a law firm, you may find yourself cutting the same head of hair until long after it turns grey in order for the exchange to equal out. 

Also, stay clear of lopsided arrangements that seem to benefit you. You don’t want the other party to do a lousy job or feel like they are being taken advantage of- that can impact the quality of the trade and the relationship.

3. Start Small

Successful marriages commonly begin with a first date over dinner before moving on to more … uh … interesting activities. Keep your first barter with a new partner like first date – small and low-risk.

This is not the time to bet the farm. Even if you both have honorable intentions, things can go south, often due to different contract language interpretations or lack of follow through. Until you know that you can really work with and trust this partner, keep it small.  Start with a small exchange and build upon that over time if it works out.

4. Put it in Writing

The idea of bartering typically brings to mind a hand shake over the fence. A hand shake is technically a legal contract, but try proving it in court. A barter agreement is just as complex as a cash-based arrangement. You need to identify every possible detail, write it all down and sign on the dotted line.

Document every detail thoroughly. And if you create a product or service collaboratively (such as working together to create an email list), specify what happens at the end of your agreement. If your barter partner takes full ownership and you can no longer use it after a defined time period, perhaps you should agree to supply fewer names than your partner.

5. Establish Clear End Dates

Your agreement may last for a week, a month or longer, but not forever. It absolutely needs a defined end date. Even if you enter into the identical arrangement many times in the future, it’s best to create a new contract each time. If your first agreement worked well, creating the next one will be a simple matter. But, if you discovered that some provisions didn’t work as expected, you can tweak the next version the next time.

6. Communicate Frequently

Don’t wait until the final deadline date to find out how things are going. Define key milestones with your partner and check in on those dates to ensure that you’re both on track and maintaining appropriate quality levels.

Naturally, when unexpected issues arise, don’t wait for a milestone date to speak up. A setback on one side can affect the other side. Plus, an informed partner may have a solution to fix the issue.

7. Educate Yourself on Tax Consequences

As long as you trade goods or services with a cash value, the taxing bodies generally want their share. So, do not enter into a barter agreement before checking with your accountant.

At the very least, the IRS typically requires that you report barter arrangements on your tax forms. If you exchange like goods or services, however, you gain and lose valuable assets. So, you may not need to pay excessive (or any) additional taxes if you properly track both sides of equal-value exchanges. But, the IRS valuation rules can be complex. It’s worth repeating that the advice of a knowledgeable accountant is essential.

Using your know-how as a currency can be a big boost to your business, but take it one step at a time and do your homework upfront so that you reap the full benefits and minimize the risks.


5 Strategies to Bootstrapping Your Business

1-28 Funding Options SmallAs you prepare to become your own boss, you need to get your finances in order. You’ll need enough money to cover 6-12 months of business and personal finances before you even launch your business. That being said, you have a few options to consider in terms of where that money comes from.

1. Savings

If you’re lucky enough to have a well-padded savings account, kudos to you. This should be your first option for funding your business. Note: don’t jeopardize your own future by taking the money out. If you have a savings account to cover “rainy day” home repairs, the last thing you want to do is take that money out, and then find you need a new roof!

Consider leaving your money in your savings or money market account, and just taking what you need. That way, your money continues to earn interest.

Benefits: Using your savings account keeps you from having to take out a business loan, which many entrepreneurs are reticent to do. If you have less than stellar credit, you can purchase a Certificate of Deposit and use it as collateral for a loan while earning interest.

2. Bank Loan

The Small Business Association (SBA) is set up to help businesses get the money they need to start a business. There are banks that cater to small businesses just like yours that can help you find a great rate. Start with your own bank, or look for one that does small business lending.  Look for alternative lenders as well, such as Women’s Business Loans. Note: banks don’t lend to startups, so you’ll need to be in business two years prior to applying for a traditional bank loan.

Benefits: The SBA provides a guarantee for business loans, which means applicants with challenged credit score still have an opportunity to get funding.

3. Your Retirement Fund

You can borrow against your 401(k) to start a business. With this option, you essentially use your own money to fund your company, then pay yourself back. Just make sure you pay it back! Sometimes there can be penalties for borrowing funds, so you want to make sure you are aware of them before you take this option.

Benefits: 401(k) financing actually has lower risk than an SBA loan. If things go badly, you still have to pay for the loss, but the 401(k) provides before-tax money, reducing the effective cost. Plus, there are no credit implications and your house is not on the line as collateral.

4. Home Equity Line of Credit

If you own your home, borrow no more than 80% of your home’s value through a home equity line of credit to avoid having to purchase private mortgage insurance.  You’ll increase your chances of getting approved for one if you have great credit and good payment history. Make sure to pay attention to what current interest rates are before deciding on this strategy. And remember: you’re putting your house on the line, so if your business fails, you risk losing it if you can’t pay the loan.

Benefits: Funds are easy to access once you’ve been approved. The interest is tax-deductible, since it’s mortgage interest.

5. Friends and Family

Having a friend or family member who’s willing to invest in your business idea is a real boon. Some may want to be involved in the business in exchange for the investment, while others may hand you a check and say “pay me whenever.” Either way, make sure you’re clear on payment terms (and offer interest) and how willing you are to have someone involved in helping you make the business decisions.

Benefits: If you have a family member who can afford to loose the money they invest in your business, this means they could be more patient with letting you build your business.


5 Tax To-Dos to Wrap Up Before Year’s End

12-17 Business-Taxes smallThis time of year zooms by, and before you know it, it will be January. Waiting until then to get your business tax affairs in order can put you in a time crunch at the start of the year, so get started now to ensure you’re ready for 2015. Here are five things you can do now to ensure you get off to a great start on New Year’s.

1. Make Sure Your Corporation is Compliant

If you’re incorporated, it’s imperative that you remain compliant. That means you’ll need to file your Statement of Information and update any information that has changed in the last year for your corporation. You should receive notification of when your paperwork is due, but it’s a wise idea to keep that due date on your calendar to ensure you don’t miss it.

2. Pull Together Your Accounting Records

If you are one of those business owners who had been putting off doing financial statements all year, you are out of time. In addition to your receipts, you also want to make sure you have all your invoices, bank statements, credit card statements, and your records from anyone you pay online pulled together so that a bookkeeper or tax professional can help you get you accounting records in order.

3. Prepare Your Profit and Loss Statement

While you’ll need to wait until the year has ended to actually run your profit and loss statement for tax purposes, you can start the preparation by logging into your accounting software and making sure all your expenses are appropriately categorized. Match them up to tax categories to ensure that, come tax time, it’s easier to get a clear picture of what you’ve spent and what you’ve earned.

4. Examine Your Budgets

Remember those budgets you set at the start of this year? Now’s the time to see where you stand with your budget projections versus what you actually spent. If, for example, you still have money in your marketing budget, decide how you can spend what’s left in a way that will best help your company before the year closes out. If you’ve got a surplus, consider sharing the wealth with your staff as a holiday bonus, or spending it on a party to celebrate all their hard work throughout the year.

5. Get Your Tax Form Information Ready

Again, you’ll have to wait until the year’s up to file, print, and mail tax forms to your employees and contractors, but you can still get everything lined up. January 31 is the deadline for sending out W2 forms to your staff, so you won’t have much time to take care of them once 2015 rolls around.

Additionally, you should decide now whether you want to DIY your own business taxes or hire a tax professional to help you before the March 2015 deadline. If you’re a solopreneur, you may be able to handle doing your own taxes, but if you have a more complex business, it is worth it to get professional help.




 
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