small business funding http://www.wisebread.com/taxonomy/term/12518/all en-US Accelerate Your Cash Flow to Buy More Time http://www.wisebread.com/small-business/accelerate-your-cash-flow-to-buy-more-time <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/accelerate-your-cash-flow-to-buy-more-time-elaine-pofeldt" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/accelerate-your-cash-flow...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/accelerate-your-cash-flow-to-buy-more-time" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000011291502Small.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Small businesses come in all shapes and sizes, but most agree on one thing: uncertainty about the future is bad for business. In its recently released <a href="http://www.nsba.biz/docs/2010_ye_economic_report.pdf">2010 Year-End Economic Report</a> (pdf), the National Small Business Association found that 68% of small business owners view uncertainty as the biggest challenge to the survival and growth of their businesses in 2011.</p> <p>There&rsquo;s no way to insulate your company completely from the unpredictability wrought by the changes taking place everywhere from healthcare to regulation. You can, however, position your company to better weather these conditions by paying more attention to cash flow. You&rsquo;ve probably already taken steps to slow down spending, which obviously will help on this front. The more money you can collect in a timely way from your clients, the greater your ability to handle unexpected detours and take advantage of new opportunities.</p> <p>Nick Balletta, CEO of TalkPoint, a New York City firm that brings in about $25 million in sales by providing technology for webcasts and virtual meetings, pays constant attention to maintaining healthy cash flow. Here are some of his tips on speeding up payments from your customers, so you can improve your company's position for whatever lies ahead, good or bad.</p> <p><strong>Vet Potential Clients</strong></p> <p>You don&rsquo;t necessarily have to do a credit check on every new client, but it&rsquo;s a good idea to do a little digging to make sure the client is likely to pay you on time. Some trade groups and industry associations allow members to share information anonymously on the payment histories of companies that work with their members. If you don&rsquo;t have adequate cash reserves, it may not be the best time to go after a prestigious client that has a history of paying small contractors and suppliers in 90 days or more.</p> <p><strong>Push Back</strong></p> <p>In negotiations with clients, Balletta doesn&rsquo;t give up 30-day payment terms easily, because he knows how vital they are for his company&rsquo;s health. &ldquo;Companies will always ask for 60 days,&rdquo; he says. &ldquo;We push back.&rdquo;</p> <p><strong>Make it Easy to Pay You</strong>&nbsp;</p> <p>In the early days of running his company, when money was tight, Balletta found he could speed cash flow by accepting the most common corporate credit cards. Although there were some expenses associated with getting set up, the benefits of getting paid for jobs immediately outweighed them, he says. &ldquo;We found that if it cost less than $10,000, people were putting it on the charge cards,&rdquo; he says. He has since built on that approach, by adapting his company&rsquo;s software to work smoothly with the purchase order systems of big clients. &ldquo;If we mirror their systems, we get paid quicker,&rdquo; he says.</p> <p><strong>Bill by Department</strong>&nbsp;</p> <p>If, say, a company&rsquo;s multimedia department has hired TalkPoint for a project, his team finds out what code the company uses to charge expenses to that department and includes it on the invoice. That reduces the need for the client&rsquo;s accounts payable department to hunt it down and therefore saves time. &ldquo;It&rsquo;s so much easier for them to forward those on,&rdquo; Balletta says.</p> <p><strong>Follow up</strong>&nbsp;</p> <p>This may sound obvious but given how full your clients&rsquo; email boxes and invoices are likely to be, it&rsquo;s a good idea to ask for confirmation that every invoice has been delivered &ndash; and to inquire immediately if a payment becomes late. &nbsp;Balletta encourages his receivables team to cultivate friendly working relationships with those in the accounts payable department of his clients &ndash; which helps to keep his invoices at the top of the pile. &ldquo;People do business with people,&rdquo; he says.&nbsp;</p> <p>&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/elaine-pofeldt">Elaine Pofeldt</a> of <a href="http://www.wisebread.com/small-business/accelerate-your-cash-flow-to-buy-more-time">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">The 5 Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-inspiring-stories-of-normal-people-building-a-thriving-online-store">4 Inspiring Stories of Normal People Building a Thriving Online Store</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-debt-reduction-mistakes-even-smart-people-make">8 Debt Reduction Mistakes Even Smart People Make</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/100-ways-to-make-more-money-this-year">100+ Ways to Make More Money This Year</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Small Business Resource Center cash flow cash flow tips improve cash flow small business small business funding Mon, 28 Feb 2011 00:23:10 +0000 Elaine Pofeldt 490931 at http://www.wisebread.com The Silver Bullet of Cash Flow http://www.wisebread.com/small-business/the-silver-bullet-of-cash-flow <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/the-silver-bullet-of-cash-flow-ken-kaufman" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/the-silver-bullet-of-cash...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/the-silver-bullet-of-cash-flow" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000002828754Small.jpg" alt="Handing over money" title="Handing over money" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>It is rare that a day goes by without me hearing from entrepreneurs about cash-flow concerns. Some have a &quot;take-over-the-world&quot; idea, and their lack of venture capital is the only thing holding them back. Others are expanding, and their cash flow just never seems to catch up to growing expenses. Still others are suffering operating losses and need cash to bridge them to profitability. Whatever the exact reason, the need is the same &mdash; cash on hand.</p> <p>Getting funding for business can be tough, whether you're pursuing investors, a bank loan, or bootstrapping via family and friends. But there is a silver bullet that will lead you to the cash you need to fund your business &mdash; paying customers.</p> <p>Yes, the silver bullet really is that simple, with one general disclaimer &mdash; you have to have a decent business model that leads to profitability and, ultimately, self-sustainability.</p> <p><strong>1. Get Funding from Your Customers</strong></p> <p>Some of them may even be willing to pay you in advance for the products and services they desire. Don&rsquo;t hesitate to develop your pricing and invoicing strategies to accelerate your cash flow as much as possible. For example, allow customers to pay for one or multiple years of services or products in advance for a modest discount.</p> <p><strong>2. Add Customers Now, Features Later </strong></p> <p>A commonality between the bootstrapping and lean-startup movements is this concept: Building out the features of your product or service just enough to start gathering paying customers, and then using profits from those customers to carefully add more features to attract more customers. These companies continue to repeat this cycle, sometimes for years.</p> <p><strong>3. Customers Can Improve Your Valuation</strong></p> <p>If you still need cash once you get everything you can directly from your customers, you are in prime position to find additional funds because you have cleared the &quot;proof of concept&quot; stage and broken into the coveted &quot;paying customers&quot; stage of financing a business. Why is it coveted? Because your business-funding options significantly increase at this point.</p> <p>Why did your funding options increase? Because your risk just went down. Getting individuals or another business to actually part with their hard-earned cash for your product or service is a milestone in your progress. You now represent a more calculated risk, and your valuation goes up as well. In fact, the more satisfied, paying customers you have, the better your valuation. Repeat customers are even better.</p> <p><strong>4. Friends and Family Will Notice</strong></p> <p>Friends and family will feel better about financially helping you, and you will feel better about taking their money, knowing your chances to repay the money are now much improved.</p> <p><strong>5. Business Plan Competitions Are in the Bag</strong></p> <p>Have you ever been to a business plan competition? Have you noticed who usually wins? It&rsquo;s usually one of the plans that has become a real business and has real, paying customers. And business plan competitions can be a great source of start-up and growth capital, both in terms of the prize money and free services as well as the financing relationships that usually follow the winners.</p> <p><strong>6. Angel Investors Love Customer Feedback</strong></p> <p>Did you know that angel-investor due diligence usually focuses on customer feedback? Angels know your business plan is a best guess and your financial projections are so full of not-yet-validated assumptions that it is obsolete within hours of its completion. They will ask for a list of your customers, and they&rsquo;ll likely call a bunch of them. Paying customers are the best way to convince investors to open their checkbooks along with an &ldquo;A&rdquo; management team, a strong business model, and a definable and sizeable target market.</p> <p><strong>7. Banks Are More Likely to Loan</strong></p> <p>Banks like to loan money to companies with paying customers &mdash; the more the better. Whether the bank is financing working capital (which is often collateralized by the amount of money your current customers owe you) or equipment, they almost never make a loan to a company without paying customers.</p> <p><strong>8. Even More Financing Options Are Open to You</strong></p> <p>Paying customers can create several other financing options, including invoice factoring, PO financing, inventory financing, and more. Without paying customers, none of those would even be an option.</p> <p><strong>9. Investors Will Notice</strong></p> <p>Private equity, venture capital, and even IPO investments are primarily about one thing &mdash; paying customers. Without them and the ability to demonstrate how the investment will directly and exponentially increase the volume of paying customers, those deals usually fall apart very quickly.</p> <p><strong>So, You Need Cash?</strong></p> <p>If you need cash, then you should ask yourself this one question: &ldquo;Am I doing everything I can to keep my paying customers and acquire new ones?&rdquo; If you hesitate in any way to answer yes, then you should start your financing strategies there with specific focus on reasons number one and two above. If you still need money once you&rsquo;ve exhausted those options, then you can focus on reasons three through nine and leverage your paying customers into additional financing.</p> <p>If that still isn&rsquo;t enough cash for you to succeed, then you may need to revisit the viability of your business idea and model. I just don&rsquo;t know of many companies that have run out of cash because they have too many paying customers; their failure is usually the result of another problem with their management or execution of their business plan and financing strategies.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/ken-kaufman">Ken Kaufman</a> of <a href="http://www.wisebread.com/small-business/the-silver-bullet-of-cash-flow">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">The 5 Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-smart-ways-to-get-a-small-business-loan">10+ Smart Ways to Get a Small Business Loan</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-inspiring-stories-of-normal-people-building-a-thriving-online-store">4 Inspiring Stories of Normal People Building a Thriving Online Store</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-debt-reduction-mistakes-even-smart-people-make">8 Debt Reduction Mistakes Even Smart People Make</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Small Business Resource Center angel investors cash flow small business small business funding Sat, 29 Jan 2011 17:29:12 +0000 Ken Kaufman 473106 at http://www.wisebread.com The Politically Incorrect Guide to Venture Capital http://www.wisebread.com/small-business/the-politically-incorrect-guide-to-venture-capital <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/the-politically-incorrect-guide-to-venture-capital-kate-lister" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/the-politically-incorrect...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/the-politically-incorrect-guide-to-venture-capital" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000000214466XSmall.jpg" alt="Business people of various races" title="Business people of various races" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Looking for venture capital for your Internet company? If you&rsquo;re white, between the ages of 35 and 44, and a former CEO or company founder, a recent report by <a href="http://www.cbinsights.com/">CB Insights</a> suggests you have a better chance than most.</p> <p>Keep in mind that <em>figures lie and liars figure</em> and <em>coincidence does not imply causation. </em>But, that said, here&rsquo;s an interesting look at the demographic and geographic breakdown of who won VC favor in the first half of 2010.</p> <p><strong>The &quot;Race&quot; for Funding</strong></p> <p>All-Asian founder teams won the big bucks (about $4 million per deal), nearly twice that of all-white or mixed-race teams on average.&nbsp;California VCs shelled out 25% more for Asian founders than Caucasian ones.</p> <p>Don&rsquo;t know any Asians? Go east, young entrepreneur. New York and Massachusetts VCs put 30-40% more in Caucasian-led firms than those with Asians at the helm.</p> <p>If your team is comprised of mixed races, California is the place to go. They beat the all-white teams there, but still ate the dust of Asian founders.</p> <p><strong>Do Entrepreneurs Improve with Age?</strong></p> <p>Overall, businesses led by 35- to 44-year-olds got the biggest slice of the VC pie and young entrepreneurs (ages 18 to 25) got the smallest. In terms of deal size, 45- to 54-year-olds won too, raising&nbsp;on average $1 million more per deal than the lowest-average-deal-size group, 26- to 34-year-olds. But geographic differences were substantial.</p> <p>Entrepreneurs born before nudity found its way to feature films got the best reception in Massachusetts, where the majority of VCs partnered with older entrepreneurs (45- to 54-year-olds). A full 46% of investees were around when Neil Armstrong made the first footprints on the moon. By contrast, California&rsquo;s &ldquo;seasoned citizens&rdquo; grabbed only 18% of deals, and New York&rsquo;s accounted for just 14%.</p> <p>For those whose footsteps arrived on the planet after Apollo 11 but before <i>A Star is Born</i> hit the silver screen, California was the place to go. There, 35- to 44-year-old founders accounted for almost half the deals. The Big Apple was a good place for seed funding for this group too, but New York VCs were equally enamored with 26- to 34-year-olds.&nbsp;</p> <p>California was apparently the wrong place to try to raise money for those hatched before <em>Wayne&rsquo;s World</em>. Not a single 18- to 25-year-old on CB Insights&rsquo; radar successfully wooed a VC in the first half of last year. In Massachusetts, while young entrepreneurs still took last prize in overall funding, on a per-deal basis, surprisingly, they were able to raise as much as those in their parents' age group.</p> <p><strong>Experience Counts</strong></p> <p>Forty-six percent of VC dollars in the CB Insights survey went to founders who had led prior ventures. The next most favored backgrounds &mdash; sales and marketing, product development, and engineering &mdash; took less than 15% of deals.</p> <p><strong>Are Two Heads Better Than One?</strong></p> <p>Most successfully VC-financed Internet companies had one or two founders (37% and 40%, respectively), but the prize in terms of deal size goes to foursomes.</p> <p>California VCs went for two founders more than half the time, but the big bucks still went to the four-founder deals. In Massachusetts, more than half the deals and a quarter of the money went to one-person ventures. But in Beantown, threesomes led in deal size.</p> <p>Oddly, just 200 miles south, two-person ventures accounted for the majority of the deals (by a small margin over one-person ventures), scoring over half the New York VC booty.</p> <p><strong>Figures Lie and Liars Figure?</strong></p> <p>Okay, it&rsquo;s true that this is a small, un-statistically sound sample and one deal in any particular region could skew the whole mess. But still, <i>n</i><i>o</i> money went to 18- to 25-year-olds in New York? That tells you something about attitudes, chances, and possibilities, doesn&rsquo;t it?</p> <p>If I was an internet entrepreneur eager for the attention of a VC &mdash; make that the <i>checkbook</i> of a VC &mdash; I&rsquo;d be combing the historical deal data for where my venture would have the highest chance of success.</p> <p>By the way, while CB Insights&rsquo; free paper didn&rsquo;t report on gender biases in VC investments, it referenced an intriguing category for ventures led by &quot;mixed-gender&quot; founders. If you&rsquo;re wondering what that means, as I was, you&rsquo;ll have to sign up for their subscription service (or read the definitions section of the free report).</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/kate-lister">Kate Lister</a> of <a href="http://www.wisebread.com/small-business/the-politically-incorrect-guide-to-venture-capital">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/startup-capital-with-fewer-strings-a-look-at-royalty-based-financing">Startup Capital with Fewer Strings: A Look at Royalty Based Financing</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-you-shouldnt-invest-like-warren-buffett">7 Reasons You Shouldn&#039;t Invest Like Warren Buffett</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">The 5 Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-inspiring-stories-of-normal-people-building-a-thriving-online-store">4 Inspiring Stories of Normal People Building a Thriving Online Store</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Small Business Resource Center founders raising capital small business small business funding venture capital Sat, 15 Jan 2011 15:00:36 +0000 Kate Lister 441130 at http://www.wisebread.com Unlikely Sources of Capital http://www.wisebread.com/small-business/unlikely-sources-of-capital <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/unlikely-sources-of-capital-julie-rains" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/unlikely-sources-of-capit...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/unlikely-sources-of-capital" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000007301745XSmall.jpg" alt="Money offered from a computer" title="Money offered from a computer" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Entrepreneurs who run profitable businesses have told me that they regularly access capital apart from tapping bank credit lines, attracting angel investors, borrowing money from friends and family, and digging into their own personal wealth. In the past couple of years, their businesses have added new product lines, hired employees, expanded facilities, and experienced tremendous growth.</p> <p>Being frugal frees cash to fund growth initiatives, and these owners have certainly exercised prudent spending. But there are creative and financially-savvy ways to build growth capital without the exhibiting Scrooge-like behavior, sacrificing quality, or shifting focus from purpose to cost-cutting programs. Unlikely sources of capital and substitutes for outside cash infusion that can support growth include:&nbsp;</p> <p><strong>Using Research and Development by Outside Organizations</strong></p> <p>R&amp;D performed by vendors and university labs, for example, can dramatically lower a business&rsquo;s needs for capital to drive development of new products. Rather than spend on running a lab dedicated to research or software development, businesses can refine, repackage, and resell cutting-edge products using someone else&rsquo;s ideas.</p> <p>For example, <a href="http://www.openforum.com/idea-hub/topics/managing/article/how-to-lay-a-solid-foundation-for-your-business-julie-rains">Chuck Goad</a> of BrookStone Technology leveraged the strength of a larger technology company that created electronic medical record (EMR) software. Chuck recognized growth potential in the healthcare industry, but he didn&rsquo;t want to dedicate resources to the development, testing, and launch of EMR solutions. He partnered with a third-party developer and applied working capital to hiring a sales representative to build a local market for the solution.</p> <p>Your business may be able to locate a research-oriented organization that needs a partner to identify and market commercial applications of its intellectual property.</p> <p><strong>Cloud Computing</strong></p> <p>Your business can pay a monthly fee for web-based systems and applications&nbsp;technology services rather than spend money for infrastructure and software design, development, maintenance, upgrades, security, and more.</p> <p><strong>Tax Deductions</strong></p> <p>Make sure that your business is <a href="http://www.openforum.com/idea-hub/topics/money/article/31-small-business-tax-deductions-gregory-go">tracking all qualifying deductions</a> to lower taxes. Things likely to be forgotten are out-of-pocket expenses, so remember to hand those receipts to your accountant along with explanations of their business purposes.</p> <p>Take a Section 179 deduction on purchases of qualifying property (e.g., equipment and furniture), rather than deducting depreciation charges over the next several years. Though depreciation more accurately spreads the cost of the equipment, furniture, etc. over its useful life, deducting the full cost of a purchase will reduce taxes now.</p> <p><strong>Credit Lines with Vendors and Grace Periods on Card Charges</strong></p> <p>Not having to pay immediately will allow your business to receive and use products or services for a specified period (very often, about 30 days) prior to invoice due dates. During this time, your business can distribute products or deliver projects using services supplied by vendors to generate sales and collect payments from customers. As a result, cash is available when invoices are due. Even if there is a lag between receipt of customer payments and invoice due dates, any credit extended by vendors or card companies can shorten the days that your business needs to borrow money or tie up its cash.</p> <p><strong>Faster Payments from Customers and Quicker Deposits to Your Bank Account</strong></p> <p>Speeding up these processes reduces the need for borrowing from a credit line so that your business can pay its employees and vendors. Consider <a href="http://www.openforum.com/idea-hub/topics/money/article/taking-your-invoicing-and-accounts-receivable-management-online-julie-rains">online invoicing and accounts receivable management</a> as a technique to get your money as quickly and efficiently as possible.</p> <p><strong>Sharing, Leasing, or Borrowing Equipment</strong></p> <p>Consider alternatives to outright purchases. Copiers, common-area refrigerators, and grounds maintenance equipment, for example, are candidates for renting, sharing with neighboring tenants, or borrowing from trusted colleagues.</p> <p><strong>Agile Inventory Management</strong></p> <p>This focuses resources on high-turn, fast-moving products rather than tying up cash in inventory. For example, purchasing agents at <a href="http://www.valuepetsupplies.com/">ValuePetSupplies.com</a> place orders on a daily basis to ensure quick replenishment of inventory without overloading on merchandise.</p> <p>If your business is adding new items, consider buying a small quantity and testing its appeal with your customers. This approach worked beautifully for Heidi Kallett of <a href="http://www.thedandelionpatch.com/index.asp">The Dandelion Patch</a> in evaluating new price points of an existing product line. When the item sold quickly, she increased her stock levels.</p> <p><strong>Patience</strong></p> <p>Many would-be business owners have spoken with me about their eagerness to get bank funding or investor cash quickly in order to take advantage of (what they perceived to be) hot business opportunities. Even experienced business owners are often ready to make changes that require immediate cash outlays. Patience can yield financial benefits.</p> <p>For example, when Heidi decided to update her company&rsquo;s logo and its color scheme to reflect a <a href="http://www.openforum.com/idea-hub/topics/marketing/article/how-to-become-a-premier-local-brand-julie-rains">premier brand</a>, she didn&rsquo;t rush to replace marketing collateral, redo the interiors of her stores, and redesign the website. Her company continued to use its logoed business cards, shopping bags, etc. but when supplies ran out, she replenished the collateral pieces with upgraded logos. She will update colors when it&rsquo;s time to refresh the look of the stores and the website.</p> <p>Zach Piech of ValuePetSupplies.com told me that having to delay the launch of a new product line can be frustrating but worth the wait financially. Instead of borrowing from a bank to bring in inventory, he generated capital from business profit margins. In one case, the need for extra funds solidified the decision to discontinue a low-margin product category with a high customer return rate in order to free cash for less problematic, higher-profit product lines.</p> <p>Traditional sources of capital, such as bank financing or outside investing, may not be an option for many businesses. Deftly leveraging other people&rsquo;s assets and being the best possible steward of your business&rsquo;s assets can give you the resources to grow.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/small-business/unlikely-sources-of-capital">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/cloud-computing-and-your-wallet">Cloud Computing and Your Wallet</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">The 5 Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-smart-ways-to-get-a-small-business-loan">10+ Smart Ways to Get a Small Business Loan</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-inspiring-stories-of-normal-people-building-a-thriving-online-store">4 Inspiring Stories of Normal People Building a Thriving Online Store</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Small Business Resource Center capital cloud computing small business small business funding Sat, 18 Dec 2010 22:42:31 +0000 Julie Rains 375208 at http://www.wisebread.com Are You and Your Banker a Perfect Match? http://www.wisebread.com/small-business/are-you-and-your-banker-a-perfect-match <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/are-you-and-your-banker-a-perfect-match-kate-lister" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/are-you-and-your-banker-a...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/are-you-and-your-banker-a-perfect-match" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000002865844XSmall.jpg" alt="Banker" title="Banker" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Imagine logging on to BankHarmony.com in search of the perfect banker and stumbling on this profile:</p> <p><strong>The one thing I am passionate about is:<br /> </strong>Helping small business owners grow their businesses.</p> <p><strong>The three things I&rsquo;m most thankful for are:</strong><br /> Customers, customers, and customers.</p> <p><strong>My friends describe me as:</strong><br /> Generous, hard-working, flexible, creative, and a good listener.</p> <p><strong>Three of my best skills are:</strong></p> <ul> <li>Being able to convince my colleagues to sign off on a loan I believe in.</li> <li>Working with business owners to solve their problems.</li> <li>Always going the extra mile for my customers.</li> </ul> <p><strong>I spend my leisure time:</strong><br /> Talking to business owners and learning what it&rsquo;s like to be them.</p> <p><strong>I can&rsquo;t live without</strong>:<br /> Customers.</p> <p><strong>The last book I enjoyed was:</strong><br /> <em><a href="http://findingmoneyadvice.com/">Finding Money: The Small Business Guide to Financing</a></em> by Kate Lister and Tom Harnish. It told the real story about how to find lenders and investors. (Disclosure: Kate is the author of this article.)</p> <p>The traffic on this guy&rsquo;s profile would probably melt down BankHarmony&rsquo;s server.</p> <p>Well, since BankHarmony doesn&rsquo;t exist, how do you find a good banker? Does size matter? How do you know they&rsquo;re not next on the list of government bailouts?</p> <p><strong>Finding Your Dream Banker</strong></p> <p>Accountants, attorneys, and other small-business professionals are a good source of advice. In fact, a referral from someone the bank knows and trusts may get you a little extra&nbsp;attention.</p> <p>You might also want to:</p> <ul> <li>Ask for referrals from local businesses &mdash; preferably those in similar industries so the lender will already understand your business.<br /> &nbsp;</li> <li>Order Dun &amp; Bradstreet reports on your&nbsp;competitors &mdash; their lender&rsquo;s names are often included in the report.<br /> &nbsp;</li> <li>Pay a virtual or actual visit to your local SBA office and pick up a list of the most active SBA lender in your area.</li> </ul> <p><strong>Does Size Matter?</strong></p> <p>Smaller regional banks often have the advantage of being light on their feet. Their loan approval process may be more streamlined than that of larger banks. In some cases, you&rsquo;ll even get to know the senior people behind their decisions. But don&rsquo;t expect their credit criteria to be lax &mdash; with smaller portfolios, they need to be extra careful about marginal deals and industry concentrations.</p> <p>Before you decide on a small bank, ask whether they&rsquo;re likely to be gobbled up by a larger bank any time soon. Mergers and acquisitions often mean changes in personnel, services, pricing, and risk tolerance. Also, ask whether the bank will be able to handle your credit and non-credit needs as you grow. Depending on their size, they could have trouble accommodating a multi-million dollar loan without bringing in other bank lenders.</p> <p>Large banks typically run their small-business lending on the branch or regional level. This allows them to operate more like neighborhood banks, but some are less interested in the small end of the market than others, and personnel turnover can be greater as their lenders have more upward mobility. Keep your ear to the street for who the friendly ones are.</p> <p><strong>Are They Healthy?</strong></p> <p>While the worst of the banking system meltdown is hopefully behind us, it&rsquo;s still a good idea to keep an eye on your bank&rsquo;s financial strength. Even though your deposits may be insured, if a bank goes under comes under the scrutiny of the federal regulators, &quot;it&quot; does roll down hill.&nbsp;</p> <p>While it isn&rsquo;t BankHarmony.com, <a href="http://www.bankrate.com/rates/safe-sound/bank-ratings-search.aspx?t=cb">BankRate.com</a> offers a Safe &amp; Sound&reg; rating system to help you avoid the real losers. Too bad the dating sites don&rsquo;t have that.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/kate-lister">Kate Lister</a> of <a href="http://www.wisebread.com/small-business/are-you-and-your-banker-a-perfect-match">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-smart-ways-to-get-a-small-business-loan">10+ Smart Ways to Get a Small Business Loan</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/cant-get-a-bank-loan-8-other-ways-to-finance-your-business">Can&#039;t Get A Bank Loan? 8 Other Ways To Finance Your Business</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">The 5 Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-benefits-and-drawbacks-of-credit-unions">The Benefits and Drawbacks of Credit Unions</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Banking Entrepreneurship Small Business Resource Center banks financing small business small business funding Mon, 06 Dec 2010 14:18:24 +0000 Kate Lister 338760 at http://www.wisebread.com Ways That Small Businesses Get Ripped Off by Banks http://www.wisebread.com/small-business/ways-that-small-businesses-get-ripped-off-by-banks <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/ways-that-small-businesses-get-ripped-off-julie-rains" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/ways-that-small-businesse...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/ways-that-small-businesses-get-ripped-off-by-banks" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000009780153XSmall.jpg" alt="bank worries" title="bank worries" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Bank offerings for small businesses are often scaled-down versions of products and services designed for global corporations. Deposit-account features, treasury services, and credit products may not be relevant to your business's unique requirements. The disconnect is exacerbated by financial-industry definitions of small businesses according to annual revenue, often classifying independently-owned retailers with sales of $1 million or less in the same category as those producing $50 million each year.</p> <p>The one-size-fits-all mentality may be costing you money. As a small business owner, you'll need to make sure that gaining access to a full suite of financial services (or your banker's desire to land a business account) doesn't dampen business profits.</p> <p>Pay attention to the following areas, which you may consider either clumsily-designed financial packages with superfluous services or pure-and-simple rip-offs.</p> <h3>Account Analysis Fees</h3> <p>Small businesses that are eligible to receive a broad range of banking services are often placed on account analysis. Fees from services provided by various departments are aggregated and, theoretically, offset by credits associated with interest earned on account balances.</p> <p>The credit for which your business qualifies may be substantially less than the reasonable customer may calculate. Account balances may be adjusted for bank reserves, which include percentages mandated by the government as well as those dictated by bank policy.</p> <p>Banks may also reduce balances or generate charges associated with &quot;float,&quot; which is especially troublesome for those companies who manage cash prudently but tightly. In this scenario, your account balance may be reduced when your company <i>initiates a payment</i>, not when the payment clears. (For example, if a check cleared on Day 10 of the month, the bank may presume that the check was generated on Day 5, mailed or transmitted on Day 6, and presented for payment on Day 9 so that &mdash; according to the bank &mdash; money should have been available to fund this transaction on Day 5. If the account balance would not have supported this payment, then the bank reduces the balance eligible for interest or generates a charge for extending a short-term loan.)</p> <p>Ask for a statement if your bank doesn't automatically provide your business with the analysis portion attached to the monthly invoice. Review fees for standard maintenance, specialized services, volume-based transactions, and overdrafts along with any credits for balances. Scrutinize details to make sure that your business is not paying for unnecessary services. Note trends to determine if higher balances are rewarded with statement credits.</p> <h3>Delayed Posting of Deposits</h3> <p>Some banks tend to wait to make funds available for your business's use. This practice can cause a couple of problems:</p> <ol> <li>Your business won't earn interest until the funds are officially released and posted to your account, reducing the potential for offsetting service charges</li> <li>Your business may incur overdraft fees because funds to cover vendor payments are not available.</li> </ol> <p>Ask your banker about policies regarding the release of funds. Probe to discover the types of deposits that may be held longer than expected, such as out-of-town checks. Understand that tellers may make decisions to hold funds to prevent fraud.</p> <p>When you or your employees make deposits, review receipts for information to determine when funds will be made available. If funds are to be held longer than usual, speak to the manager about the rationale behind this decision and request that funds are released according to a more reasonable schedule.</p> <h3>Low Interest Paid&nbsp;</h3> <p>Banks may charge 6.0% interest for a loan but pay your business 0.25% on a deposit account.</p> <p>Hold as little cash as possible with your bank. Use cash to claim early-pay discounts and boost your profit margins instead of earning a minuscule amount of interest. Avoid borrowing money, and find ways to use working capital to grow your business. (See this article on <a href="http://www.openforum.com/idea-hub/topics/money/article/how-steady-financial-management-can-support-e-commerce-growth-julie-rains">managing finances to support growth</a>.)</p> <h3>Overpriced Products and Services</h3> <p>It's common knowledge that paper checks can be purchased from a third party for a fraction of the price that the bank resells these products. Fees for other services, such as charge-card processing, receipts of payments from customers outside of the U.S., and e-check capabilities may also be higher if delivered by your bank rather than an outside provider.</p> <p>Compare monthly fees and transaction charges among bank and non-bank service providers. Find reliable, inexpensive sources of financial services, and sign up directly with vendors.</p> <h3>Too-Restrictive Loan Covenants</h3> <p>Banks may place covenants on loans that are reasonable (that is, set standards for company financial performance that indicate stability and effective control of finances). They may also create situations that may too readily trigger loan defaults.</p> <p>Scrutinize bank requirements and <a href="http://www.journalofaccountancy.com/Issues/2010/Aug/20102671.htm">negotiate loan covenants</a> that are achievable.</p> <p>Conventional wisdom says that establishing a relationship with a bank now will reap rewards years later. Bankers may be interested in historical performance, but they also have to focus on selling to profitable companies today. Look for a mutually beneficial relationship in which products and services are designed for your business's needs.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/small-business/ways-that-small-businesses-get-ripped-off-by-banks">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-smart-ways-to-get-a-small-business-loan">10+ Smart Ways to Get a Small Business Loan</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/13-ways-to-use-social-media-in-business">13 Ways to Use Social Media in Business</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/would-you-dance-to-avoid-a-fee">Would You Dance to Avoid a Fee?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">The 5 Best Credit Cards for Small Businesses</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Banking Entrepreneurship Small Business Resource Center bank fees small business small business funding Sun, 28 Nov 2010 17:37:03 +0000 Julie Rains 273907 at http://www.wisebread.com How to Raise Money on “Crowdfunding” Sites http://www.wisebread.com/small-business/how-to-raise-money-on-crowdfunding-sites <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/how-to-raise-money-on-crowdfunding-sites-elaine-pofedlt?cid=email_articlefeed_articletitlelink" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/how-to-raise-money-on-cro...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/how-to-raise-money-on-crowdfunding-sites" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000003354613XSmall.jpg" alt="holding cash" title="holding cash" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Is lack of cash the only thing preventing you from releasing a CD of your music, turning your hand-knit scarves into a business, or opening an artists' cafe? If so, then it's worth checking out the new generation of &quot;crowdsourced&quot; funding sites.</p> <p>These gathering places enable entrepreneurs in artisanal and creative businesses to collect small donations from friends, family, and acquaintances to bring a project to fruition. Typically, fund seekers will post information about a creative project on one of the sites, then reach out to their networks on Facebook, Twitter and other social sites to ask for donations ranging from around $10 to $100 and sometimes more. Some sites, like <a href="http://www.kickstarter.com/">Kickstarter</a> and <a href="http://www.indiegogo.com/Zenschooling?i=pite">IndieGoGo</a>, are open to a range of creative projects. Others, like the music-focused <a href="https://www.sellaband.com/">SellaBand</a>, specialize in a particular niche.</p> <p>Why would anyone hand over money this way while we're in choppy economic waters? Similar to old-fashioned patrons of the arts, many people today enjoy helping talented people bring creative projects to life. &quot;The bigger the network and fan base, the higher the probability they will find success with crowdfunding,&quot; says Brian Meece, co-founder of <a href="http://rockethub.org/">RocketHub</a>, a nine-month-old New York City-based site where entrepreneurs and artists have so far raised $200,000 for their projects in total. Meece, author of the <em><a href="http://rockethub.org/page/manifesto-strategy">Crowdfunding Manifesto</a></em>, shared some tips recently on how to raise money on these sites. Here is his insider's advice.</p> <h3>Know why your project matters</h3> <p>If you're clear on why you want to complete it &mdash; and can convey this in your written description &mdash; you're likely to find a lot of supporters. &quot;Oftentimes, the passion will be contagious,&quot; says Meece. Videos can be a great way to tell your story, he says. (The most successful fund raiser on RocketHub was an indie film maker who came away with $10,000).</p> <h3>Give back</h3> <p>Meece encourages those who raise money on RocketHub to offer their financial supporters something meaningful. A good example, he says, is an entrepreneur who put the names of her donors on a plaque in a tea shop that she upgraded using funds she raised on the site. &quot;It's a matter of offering really cool, engaging things back in exchange for financial contributions,&quot; he says.</p> <h3>Be realistic</h3> <p>RocketHub, like some of the other crowdfunding sites, requires you to set a target date for meeting a funding goal you set. If you don't raise the total amount, you forfeit everything. As a result, it is important to set a goal that's achievable in the time frame you pick. For guidance, Rockethub offers a page to help you determine the <a href="http://rockethub.org/page/difficulty-levels">difficulty level</a> of various funding goals.</p> <p>Think hard about the length of your campaign, he advises. The optimum length for most projects is 30 to 60 days, but sometimes, a 75-day campaign will work well for bigger-budget projects, says Meece. &quot;Any longer than that and the campaign loses its impact and urgency,&quot; he says. Ideally, they'll come away feeling like they got involved in a great project while there was still time &mdash; not ruing the day they friended you on Facebook.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/elaine-pofeldt">Elaine Pofeldt</a> of <a href="http://www.wisebread.com/small-business/how-to-raise-money-on-crowdfunding-sites">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-ways-to-fund-your-business-without-touching-savings">3 Ways to Fund Your Business Without Touching Savings</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">The 5 Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-inspiring-stories-of-normal-people-building-a-thriving-online-store">4 Inspiring Stories of Normal People Building a Thriving Online Store</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-smart-ways-to-get-a-small-business-loan">10+ Smart Ways to Get a Small Business Loan</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Entrepreneurship Small Business Resource Center Technology crowdfunding small business small business funding Fri, 01 Oct 2010 21:33:23 +0000 Elaine Pofeldt 243343 at http://www.wisebread.com Startup Capital with Fewer Strings: A Look at Royalty Based Financing http://www.wisebread.com/startup-capital-with-fewer-strings-a-look-at-royalty-based-financing <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/startup-capital-with-fewer-strings-a-look-at-royalty-based-financing" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/crown again_0.jpg" alt="Royalty based financing" title="Royalty based financing" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>A mere whisper of the words &quot;venture capital&quot; or &quot;angel investor&quot; can inspire a shudder in some entrepreneurs.</p> <p>While an infusion of capital can breathe new life into a fledgling business, there's often an equally powerful concern that accepting investment capital means ceding control of your vision.</p> <p>Meet a concept that's working to carve out a middle ground: Royalty based financing.</p> <p>Truth be told, it's actually an old investment method that's beginning to get a second life. But it's proving to be an increasingly attractive financing option for certain categories of small business.</p> <p>The concept behind venture capitalism and angel investing is typically rooted in an exchange of equity. Entrepreneurs can lose a degree of autonomy upon bringing angels or VCs aboard, part of the give-and-take nature of these deals. On the other hand, royalty based financing forgoes the standard equity-for-cash swap and instead dishes out funding in exchange for royalty payments from your revenue stream.</p> <p>The frequency and amount of those payments, and even the payment structure itself, is always up for debate and depends on the specific needs of both entrepreneur and investor. For example, you might dedicate a percentage of each month's revenue &mdash; or each quarter's revenue &mdash; as royalty payments. Some of these deals wind up resembling traditional bank loans, with fixed interest rates and routine payments, at times supplemented with a royalty check.</p> <p>Royalties are capped at a certain level beyond the financier's investment. It's usually not a jaw-dropping level that triggers a new kind of shudder. There are a couple firms that specialize in royalty based financing, including Royalty Capital and Rockwater Capital.</p> <p>Beth J. Felder, who this spring wrote <a href="http://venturebeat.com/2010/04/08/seeking-capital-a-new-option-rears-its-head/">an excellent piece on royalty based financing</a>, breaks it down in a real-world example:</p> <blockquote><p>Suppose a company needs $1 million. An investor could lend the money on a 10-year repayment plan, paying only interest in the first year and equal monthly installments of principal and interest over the next nine years and, perhaps, payments of three percent of the company's monthly revenues during that same nine-year repayment period.</p> <p>The investor would reap a return on principal, together with interest and the royalty amount, up to the agreed upon cap, and the company will have achieved fairly low-cost financing without giving up any equity in the company.</p> </blockquote> <p>There's a lot to like here for entrepreneurs and investors. The financier starts see immediate returns, which isn't the standard outcome for most angel investors and venture capitalists waiting for an IPO or an acquisition. Small business owners get much-needed capital and keep a firm grasp on their original dream.</p> <p>Royalty based financing doesn't make sense for every entrepreneur. Companies that aren't already experiencing some success (read: generating revenue) might have a hard time selling their story &mdash; but this can be a significant growth avenue for entrepreneurs grappling with the difficulties of raising capital in the current economic climate.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/chris-birk">Chris Birk</a> of <a href="http://www.wisebread.com/startup-capital-with-fewer-strings-a-look-at-royalty-based-financing">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/16-ways-to-get-money-for-your-business">16 Ways To Get Money For Your Business</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-you-shouldnt-invest-like-warren-buffett">7 Reasons You Shouldn&#039;t Invest Like Warren Buffett</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">The 5 Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/101-tax-deductions-for-bloggers-and-freelancers">101 Tax deductions for bloggers and freelancers</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-freelance-jobs-that-pay-surprisingly-well">11 Freelance Jobs That Pay Surprisingly Well</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Entrepreneurship angel investing royalty based financing small business funding venture capital Thu, 23 Sep 2010 13:00:07 +0000 Chris Birk 244087 at http://www.wisebread.com Money Pitfalls of the Big Sale http://www.wisebread.com/small-business/money-pitfalls-of-the-big-sale <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com" target="_blank">http://www.openforum.com</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/money-pitfalls-of-the-big-sale" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000006139084XSmall.jpg" alt="Pit" title="Pit" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>Making the big sale is often the dream of a small business owner. Without proper funding, the dream can become a nightmare. When striking a deal, be prepared to avoid potential money-related pitfalls.</p> <h3>Extended Credit Terms</h3> <p>Companies with large purchasing budgets often leverage their status by establishing stringent conditions for vendors, including extended credit terms. For example, I&rsquo;ve noticed that major corporations have introduced &ldquo;net 90&rdquo; credit terms, meaning that their vendors (that is, your business) must wait 90 days to get paid. Vendors are to place &ldquo;net 90&rdquo; on invoices rather than collecting payment immediately or according to more standard terms, such as &ldquo;net 30,&rdquo; requiring payment due within 30 days. These extended terms may cause a cash-flow crisis for your business.</p> <p><em>Solutions:</em> Verify customers&rsquo; credit-worthiness and discover their standard terms before getting too far in the sales process. Negotiate terms acceptable to your business prior to finalizing an agreement. If extended terms stand, then make sure that your business can pay its bills (including those relating to shipping orders for this large customer) while waiting for payment. Or consider selling your accounts receivable to a factor or similar agency in order to get cash quickly.</p> <h3>Costs to Ramp-Up Production</h3> <p>Unless your business has loads of unused capacity, you will need to expand in order to deliver product and projects on time. Overhead expenses may skyrocket for facility and equipment purchases, rentals, and renovations.</p> <p><em>Solutions:</em> Before landing the big sale, calculate your actual capacity on a weekly and annual basis. Knowing your full capacity will help determine whether your business can fill orders according to customer timelines. Based on this information, you can start the process of developing a plan to meet commitments, which may involve expanding your facility, renovating space for greater efficiency, hiring new employees, etc.</p> <p>Rather than increasing overhead by expanding facilities and adding equipment, consider alternatives such as adding a second shift, placing work with a subcontractor, or <a href="http://www.openforum.com/idea-hub/topics/the-world/article/financial-risks-and-more-in-global-sourcing-julie-rains">sourcing globally</a>. (These solutions may have their own pitfalls associated with quality assurance and timeliness, but may require less upfront investment.)</p> <h3>Expenses to Achieve Vendor Compliance</h3> <p>Buyers representing large companies may gladly close sales deals with your business but fail to explain the intricacies of compliance. Beyond achieving product specifications and quality standards, your business must comply with labeling, packaging, shipping, and reporting requirements. Designing and implementing processes to achieve compliance may be expensive relative to the value of the big sale. Failure to comply can result in <a href="http://www.openforum.com/idea-hub/topics/money/article/8-ways-great-service-prevents-chargebacks-julie-rains">chargebacks</a> or customers&rsquo; deductions of the amounts from your invoices.</p> <p><em>Solutions:</em> Research customers&rsquo; vendor-compliance requirements prior to initiating sales calls. Evaluate the expected cost of compliance as well as the strategic value of instituting changes to your business. Access resources offered by corporate customers, such as online versions of compliance manuals, onsite reviews of work processes, support for system integrations, and free training.</p> <h3>Higher Payroll Expenses</h3> <p>You may need to hire more people to handle increased workload, especially if the big sale involves a project. Payroll expenses may increase dramatically including costs for <a href="http://www.openforum.com/idea-hub/topics/money/article/high-value-employee-benefits-at-a-reasonable-cost-julie-rains">employee benefits</a>.</p> <p><em>Solutions: </em>If your business is delivering a creative service or project, negotiate interim payments at key milestones rather than a one-time payment at the time of project completion. Consider hiring temporary workers or contractors to increase flexibility and avoid benefit costs until you are ready to hire employees permanently.</p> <h3>Unexpected Costs Associated with Out-of-Control Scope</h3> <p>If your business struggles with <a href="http://management.about.com/cs/projectmanagement/a/PM101.htm">defining scope</a> for small projects now, these problems will become magnified with large projects. Even slight discrepancies between what your business intends to deliver and the expectations of customers can cause trouble, especially if you will be required to perform extra work for which your business doesn&rsquo;t receive compensation.</p> <p><em>Solutions: </em>Address problems with scope and contract issues now. Get expertise in project management or hire someone to guide the development of defining scope with clients.</p> <h3>Increases in Inventory Purchases</h3> <p>If your business needs to acquire inventory well above normal levels, you may have problems paying for such large orders. At the same time, your vendor may not have the capacity to meet these expanded needs.</p> <p><em>Solutions: </em>Establish credit lines with vendors, or if credit is available now, begin conversations to determine if credit limits can be raised to accommodate large orders. If vendors can&rsquo;t extend credit, then make arrangements to use a business charge card or line of credit.</p> <p>Investigate alternate sources to confirm marketplace pricing, especially if you are uncertain that your current vendor is able to service your business at higher volumes.</p> <h3>Potential Loss of Sales</h3> <p>Delivering on commitments made to close the big sale may mean that resources are no longer available to service smaller accounts. As a result, total sales could remain flat. In addition, profit margins may decline if you negotiated lower pricing based on higher volume (though overall profits could still increase due to higher sales as well as greater economies of scale).</p> <p><em>Solutions: </em>Consider whether potentially lower margins are a valid trade-off for higher sales. Make sure that your business has the capacity to service all the accounts you intend to keep for a long time.</p> <p>The pursuit of large accounts is a strategic decision that requires forethought and planning in all areas including finance and operations.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/small-business/money-pitfalls-of-the-big-sale">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">The 5 Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-inspiring-stories-of-normal-people-building-a-thriving-online-store">4 Inspiring Stories of Normal People Building a Thriving Online Store</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/100-ways-to-make-more-money-this-year">100+ Ways to Make More Money This Year</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/lessons-we-can-learn-from-blockbusters-demise">Lessons We Can Learn From Blockbuster&#039;s Demise</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Small Business Resource Center credit terms inventory small business small business funding vendors Wed, 06 Jan 2010 21:25:14 +0000 Julie Rains 427300 at http://www.wisebread.com