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For entrepreneurs, especially women, finding the money to start and grow a business is a looming issue. Most tap resources like their own savings, friends and family, and bank loans.

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Yet another valuable option, and one sometimes overlooked, is called an “angel investor.”

 

An angel investor is that rare person who, in exchange for a piece of the business, is willing to take a risk with their own money and help fund early-stage companies. Even better, aside from that all-important early infusion of needed capital, angels typically provide help beyond the investment, such as networking, experience, contacts, knowledge, strategy, and so on. These extra benefits can be especially helpful for female entrepreneurs.

 

If you have ever watched Shark Tank, the sharks are angel investors.

 

Unfortunately, most of us are not fortunate enough to get on Shark Tank, and in that case, finding angel investors may not be that easy. But it need not be that difficult either. Here’s how you do it:

 

1. Be ready: To get an investor to take a risk on your business, your business must be one that is worth taking a risk on. You have to have a great idea yes, but also a great team, a great plan, and the proven ability to execute on that plan. If you were an investor, would you invest in your business? That is the question you need to ask yourself.

 

Angel investors will want to see your business plan, financials, and will want to know how much money you need, and why. What will you use it for? So step one is to have your business act together.

 

If you need help getting investor ready, this site for female-owned startups can help.

 

     2. Where angels hide: Where do you find angels? There are many places:

 

    • Network: The best place to start usually is with your own extended network. Speak with family and friends, with colleagues and associates. Put the word out to your lawyer and accountant. This sort of informal networking works well because not only do these people know you, but you can get an introduction to any potential investor.

 

          Beyond networking, there are a variety of other options available to you:

 

    • Small Business Development Centers (SBDCs): Part of the Small Business Administration, SBDCs are places that typically work in conjunction with local universities and offer all sorts of assistance to businesses and startups. As such, by working with your local SBDC, you can further your network and potentially meet angel investors who are part of that network.
    • Social media: LinkedIn is a great place to search for and locate potential investors, as are Facebook and Twitter. If you want to attract people this way, be sure that you have a strong social media presence. That is a requirement.

 

3. Online angel groups: Not surprisingly, angel groups have begun to show up online and several are dedicated to helping fund women-owned startups.  These sites serve to introduce female entrepreneurs to angel investors. An online search will provide you with a list to choose from, but here are some to help you get started:

 

    • Golden Seeds: This is an early stage investment firm “with a focus on women leaders.”
    • 37 Angels: “We are a community of women investors.”
    • Angel Academe: “We invest in women-founded tech businesses. We introduce more women to angel investing.”
    • Topstone angels:  This is another all-female group of investors who encourages women to apply.
    • Belle Capital USA: “Companies seeking our capital must have at least one female founder or C-level exec, and/or be willing to recruit top female talent.”

 

That should get you started, but if you need even more possible investors, this is a great list.

 

 

 

About Steve Strauss

 

Steve Strauss Headshot New.pngSteven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business SuccessSteven D. Strauss

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice. Bank of America, N.A. Member FDIC.  ©2019 Bank of America Corporation

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Women have made enormous gains—socially, professionally and economically—in the last few decades. And progress is being made on challenges that remain, such as the ongoing wage gap with men and balancing work with life’s other demands.

 

On this episode of Merrill Perspectives, hosts Candace Browning, Lorna Sabbia and Marci McGregor offer practical steps and actions women can take today to help them work toward their best financial futures. Their conversation covers a wide range of topics—from tips and ideas for negotiating salary and promotions, to how women can make longevity their “best asset” in planning for retirement. And they explain why women’s unique life journeys, which often include cycling in and out of the job market to care for children or older loved ones, call for fresh and different approaches to how they save, invest and plan for the future.

 

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Transcript

The Merrill Perspectives Podcast Episode 8: "Women Ri$ing" with:

  • Candace Browning Head of BofA Merrill Lynch Global Research
  • Lorna Sabbia Head of Retirement and Personal Wealth Solutions Bank of America
  • Marci McGregor Senior Investment Strategist Merrill and Bank of America Private Bank

 

NEWS CLIP MONTAGE:

 

Women across this nation smashed barriers in this year’s historic midterm elections. (MSNBC Nov 7, 2018)

 

More companies are going public with women CEOs this year… (CNBC Jul 5, 2019)

 

According to the U.S. Census Bureau women, make about 79 cents for every dollar a man earns. (CBS News Apr 4, 2017)

 

The U.S. women’s soccer team is now on their way back to the United States after yesterday’s huge world cup win and the crowd did not just erupt in this victorious roar for them, they also started chanting for equal pay. (MSNBC July 8, 2019)

 

Candace Browning: Politically, socially, economically, women are making headlines in big ways, whether it's the record number of women now serving in Congress or the fight for pay equity happening everywhere from Hollywood to the boardroom, to the soccer field. Clearly women are making their voices heard.

 

And on top of that, women are more financially empowered than ever. In fact, it's estimated that women globally will control about $72 trillion in private wealth by 2020 and that's double the level of 2010. (Source: Boston Consulting Group, 2016.)

 

But while the progress women have made on many fronts is really encouraging, there's still a long way to go.

 

[Theme music]

 

Candace: You're listening to Merrill Perspectives. I'm Candace Browning, Head of BofA Merrill Lynch Global Research. And with me is Lorna Sabbia, Head of Retirement and Personal Wealth Solutions for Bank of America.

 

Lorna Sabbia: Hi, Candace:

 

And Marci McGregor, senior investment strategist, Merrill and Bank of America Private Bank.

 

Marci McGregor: Hello!

 

Candace: Today we're going to look at the power women are having in the economy and their own finances. We'll look at how far women have come in recent years and the challenges they still face. And we'll discuss ways women can take control of their finances at every key stage of life.

 

So Lorna, Marci, you heard those news clips. What's your take on where we are right now?

 

Lorna: Yeah, I think this current social environment probably in my opinion, provides the perfect opportunity to surface all topics that are impacting women. And you can feel the momentum. And I think that's the part that's super exciting and a real opportunity for us to talk about what we're about to talk about today.

 

Marci: There's certainly room for progress, but movements like Me Too and Times Up are really putting a spotlight on these issues. And sometimes it takes a little bit of sunlight to dry things out.

 

Candace: Well that's what we're going to do today is shine a light on it. So clearly a lot still needs to be resolved and a very important part of that is of course pay equity. And some of the numbers are actually pretty sobering on that front.

 

In fact, at the current rate, of progress closing the wage gap with men could actually take about 200 years. (Source: World Economic Forum, 2018.)

 

So why is this proving to be such a tough number to tackle?

 

Marci: So I think the key drivers here that would get us to parity are going to be education, employment and entrepreneurship. But another challenge I think it's worth discussing, is studies have shown a third of Americans believe the pay gap is fictional, and that really helps this persist.

 

Candace: But why do you think people think it is fictional?

 

McGregor: That's a great question. (Laughter). Maybe it's for Americans that haven't experienced it themselves, in their own careers. And maybe they find it hard to believe that this could be happening in 2019.

 

Lorna: I also think it's probably because it's such a taboo topic, we just don't talk about it. Right. So when I think about the conversations that I have with my female friends, there's a lot that we do talk about, in detail. Finances, what we get paid, what we save, what we think about retirement, what type of investments we make, we never talk about that. I think the biggest part of this is it's just taboo.

 

Candace: So Lorna, when you look at the pay gap and the fact and factor in career interruptions into that, a woman's lifetime earnings, on average, is actually about $1 million less than a man's. (Source: “Women & Financial Wellness: Beyond the Bottom Line,” A Merrill Lynch study conducted in partnership with Age Wave, March 2018.)

 

What does that mean for how women should think about planning for their financial futures?

 

Lorna: Right. And I think that's important to provide a little bit more context. We think about this as the million dollar wealth gap. And we actually did do a study in partnership with a company called Age Wave on women and investing. And it really spoke to the different life experience that most women have as compared to men. Probably the biggest career interruption is around caregiving. And most oftentimes that's stopping their career to raise their own children. Oftentimes that simultaneously taking care of loved ones as well.

 

And so when you think about a woman taking 40% of their work life time outside of work, then think about the disruption, not only of income, it's of savings. It's of the opportunity to invest in a 401k at their employer or even a health savings account, potentially. And what we also find is when women do return to work, oftentimes they're making 20% less versus the income that they left.

 

So the magic on that obviously is to recognize that as a potential in your life course and to ensure that you're starting to save earlier, to actually account for that. It's not easy to do, but if you're aware of it, it will actually help you.

 

Candace: So we know that women are likely to earn less over a lifetime than a man. But we also know that women tend to live longer than men. There are, for instance, nearly three times as many women over the age of 90 as there are men, which is an amazing statistic, I think. (Source: U.S. Census Bureau, 2010.)

 

We're going to hear now from Ellen DeMoney. She put her career as a research scientist on hold to stay home and raise three boys. As she and her husband start to look ahead to retirement, Ellen worries about the effect her choices may have had.

 

Ellen DeMoney: Will we have enough money to live comfortably and not worry as you get older in your nineties? And I think most women probably worry more than men about it because we have either sacrificed our career or sacrificed money in order to have children.

 

Candace: So Ellen’s probably right. A lot of women probably share these worries. So Lorna, should she be worried? What are some of the issues that she should consider about her financial future and how might she prepare for them?

 

Lorna: As you approach retirement, as you're going into retirement, I think it's natural for folks to start questioning, is this a good idea? Am I really truly prepared? You know, at the end of the day everybody has different comfort levels as to the risks that they want to take on. So to me that answer is very different individual to individual.

 

I would advise folks to think about what are those things that make you most uncomfortable and what are the solutions out there that can actually help either take that risk off the table or at least supplement what you're currently doing as well.

 

Candace: Marci, what are the financial implications of this longer longevity for women, including also higher healthcare costs over that lifetime?

 

Marci: I say for women, it's so important to invest early and invest often. Make longevity your best asset in terms of retirement because your money can work for you for longer. Consistency is really the key here. So if you invest early, you invest often, and you're consistent about contributing, I think that's as women, how we address these challenges.

 

Lorna: If you're living longer, it's more expensive. If your health care costs later on in life are higher on average than men, then you have to have the opportunity to have savings to tap into if you want to self-fund that.

 

The other thing is there are investment vehicles that are designed to help you to save for health care costs. I think of the health savings account, which I think is probably one of the most misunderstood savings vehicles out there, but it allows for tax benefit if you're saving for healthcare costs, at any time during your life. And if you do not have to use it for health care, it can continue to grow and you can invest it in the market, too.

 

So it can be a savings and it can be an investing vehicle as well. And when used for health expenses, there's a tax break. So it's before tax dollars going in, it's growing tax deferred. And when you use it for health care expenses, you actually do not pay taxes when you take it out.

 

Marci: I would also just stress how critical it is for us to have a plan, whether it be for your investments or for taking care of higher healthcare needs or whether it's estate planning or legal needs. A lot of these topics come up later in life. So it's really important to have this plan that you can refer back to. I call it the roadmap. If you have the roadmap, you can always refer back to it and help you make key decisions.

 

Candace: So we know that women tend to live longer than men. We've been discussing that, but it can be hard, especially when you're young, to think about the next year, let alone 30 or even 50 years from now.

 

Let's hear from Leah Collins, a 36 year old tech training specialist from Washington D.C. who's facing this very challenge.

 

Leah Collins: I’m so short-term focused—and when I say short term I really think about like within the next year. It’s even hard for me to think about the next two years. I keep saying by the time that I’m 40, I would like to buy a house, but I am really doing things day to day or month to month. I’m just kind of like cruising on the same path I’ve been on.

 

Candace: So like most of us, Leah clearly has goals, but it can be hard to plan for a distant future when you're so young. So Lorna, how do women like Leah, who are really early in their careers or maybe just starting to raise families, plan for old age when it's so far away?

 

Lorna: Great question. I don't think Leah is alone in how she thinks about it. I think the easiest place to begin is to understand your budget and you know, what you earn, what your expenses are and understanding the debt that you carry and the implications and characteristics of that debt.

 

In her case, she was talking about buying a house. The reality of that coming true and when, right. And I think going back, Marci, to what you were saying, as far as, you know, having a roadmap that allows you to course correct. So if that's the intent of buying a house, then it can inform you to the reality of what type of house, what range of costs, you know, can you be comfortable with and therefore time horizon, when is that something that you can actually afford?

 

Candace: So we've been talking about budgets and an important part of the budget is how much money you're going to get coming in the door regularly. For women, they may take some time off from work to raise children or to care for loved ones and they might also be passed over for promotions for those very reasons, cycling in and out. So how can women navigate around that?

 

Lorna: I think it's really around making sure that you make your intentions known. It's okay to be candid around your personal goals and whether that's raising a family or providing that care. I know for me personally, we had a situation in my own family, my dad got sick and he was sick for a really long time. But I didn't identify myself as a caregiver. I never talked about it at work. It just became this really heavy, important thing that I needed to do outside of work. And looking back, that was probably the worst thing that I did.

 

I think there's a lot of folks that think, let me put my head down, let me, you know, be a really good performer at work and good things will come to me and hopefully my manager or my advocate, my sponsor can read my mind and know exactly what I want to be when I grow up. I think we have to meet everybody halfway and be super candid about what's going on outside of work because it certainly informs what's gonna happen inside of work, too.

 

Candace: If you think about it, one important component or way to close the gender pay gap is actually to negotiate better for compensation.

 

So let's hear about that topic from Leah Collins.

 

Leah Collins: I think the hardest part for me is any time I have started a new job, I have been afraid to ask for more in salary negotiations. And so I have to tell myself to think like a man, where in my mind I should be so grateful they’re offering me X amount of dollars.

 

Candace: Leah made a really good point there about promotions and negotiating and salaries. And it ties into what we were talking about earlier about women having to advocate for themselves and some of these difficult situations, particularly around caregiving. So how can women get better at these types of conversations and really start to understand our real value?

 

Marci: I know especially earlier on in my career, I was not as vocal as I should have been about my goals. I was very guilty of putting my head down, doing good work and always trusting that it would be recognized when the reality is no one cares about your career more than you do.

 

Studies have shown that women are negotiating for raises and promotions now just as often as men, but they're often less likely to see a positive result. So on one hand it's really important to raise the conversation. But on the other hand, I think women almost sometimes need to campaign more for a promotion. And that's where sponsors and mentors, someone pulling you up, becomes so much more critical for women in the workplace.

 

Lorna: It's this taboo topic still, right? So we still don't say, what does it feel like to sit down and have a year-end review or negotiate for potentially a salary increase. We don't talk about that. And so I think a lot of women, Leah may be one of them, feel that they're isolated on this topic. For me it comes with practicing, asking and asking often and getting good at that.

 

I think back to a really important moment in my personal life when I was about to buy my first car. My dad comes with me to the dealership and I watched him negotiate the entire process with the salesperson who is just looking into the eyes of my dad and I think he was trying to do the right thing by his daughter and take care of his daughter.

 

But looking back it would've been better for me to try my hand at negotiating. You try that behavior, you get really good at that behavior and that behavior doesn't seem like a moment in time. It's just in your DNA.

 

Candace: So we've been talking a lot about how there's a pay gap and an earnings gap between men and women, but there's also a lifetime savings gap. And our research suggests that that lifetime savings gap is around $400,000, which is huge. (Source: “Women & Financial Wellness: Beyond the Bottom Line,” A Merrill Lynch study conducted in partnership with Age Wave, March 2018).

 

So Marci, what are some of the things that women can do to counter this?

 

Marci: So one of the key things I think as women we should understand when we look at our investments in our portfolios is, your risk appetite and your time horizon are two of the most important decisions you'll make. And as we know that women tend to live longer, on average, that should be factored into our time horizons because we may not be taking the appropriate amount of risk as investors.

 

The biggest decision you make as an investor is often your allocation and understanding what your time horizon is, how it may be different from a life partner’s time horizon is going to be key here as well.

 

Candace: So you mentioned everybody has different risk tolerances and different goals. But I would be curious, are there any sort of general differences between actually how men and women tend to invest?

 

Marci: So there's a perceived confidence gap between male and female investors. And I use the word “perceived” because there's actually no data that shows that there is an education gap. And I think this has a significant impact on our behavior as investors.

 

What's interesting is women actually tend to be successful investors, I think for two key reasons. One is women are often open to taking advice. So whether it's a mentor in your financial world or a professional, women will take guidance in terms of their investments in their portfolios, in their savings. And then also women tend to be more patient and how that manifests is actually less turnover in their investments

 

Lorna: What you're talking about is really important and it assumes that a woman is investing. I have literally my best friend in the world, wildly successful. She was investing in the benefit programs at work, but she wasn't investing her savings. And so she came to me and said, you know, what do you think?

 

She took another 12 months before she invested dollar one and it was her doing her due diligence. Because I think as women we want to be expert, whether it's at work before we ask for that promotion or even investing before we begin. And I think the challenge there is we need more women to begin to invest faster because they're actually really good investors to everything that you just said.

 

Candace: So to wrap things up, are there other steps or actions that women could consider to help them feel more empowered about their financial future and also more confident in navigating the obstacles that they might encounter in their different journeys?

 

Marci: My big takeaway from this conversation is we should seek a mentor, have these conversations. It's so important. We often talk about mentors in terms of our career and in terms of, you know, promotion and things like that. But why not have a financial mentor and someone to just either learn with or read with or you know, share articles with.

 

We all know the statistic, 61% of women would rather talk about their own death than their finances. (Source: “Women & Financial Wellness: Beyond the Bottom Line,” A Merrill Lynch study conducted in partnership with Age Wave, March 2018).

 

I think we can work together to overcome that.

 

Lorna: I couldn't agree more. I think what we're doing today is talking about the very issues and I would love to see that continue. But I also would urge folks to look to their employers not only for the benefit programs but for, you know, financial education and support that they would provide.

 

I think a lot of companies, to your point, Marci, are interested in making sure that their employees are financially well and therefore more productive in the workplace.

 

Marci: At the end of the day. I really think investing is about independence and it's about empowerment.

 

Candace: So we need to take control of our own lives.

 

Marci: Absolutely.

 

Candace: Lorna and Marci, thanks for your insights.

 

You've been listening to Merrill Perspectives. I'm Candace Browning, Head of BofA Merrill Lynch Global Research.

 

And my cohosts have been Lorna Sabbia, Head of Retirement and Personal Wealth Solutions with Bank of America and Marci McGregor, senior investment strategist, Merrill and Bank of America Private Bank.

 

We hope listening to Merrill Perspective inspires you to make the most of your financial life.

 

What would you like the power to do?

 

You can subscribe on Apple podcasts, Google podcasts, Stitcher or Spotify or wherever you get your podcasts. And while you're there, be sure to check out some of Bank of America's other original podcasts like The World To Come, where we explore life in the future by talking with the visionaries of today. And That Made All The Difference, where we talk to people who have made a positive impact on the world about the moments that changed the course of their lives.

 

For more insights into how we can help you pursue your financial goals, go to Merrill.com.

 

Thanks again for joining us.

 

This podcast was published on September 25, 2019.

 

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A tale of two, polar opposite, crowdfunding entrepreneurs:

 

1. My friend Jeff wanted to make a movie. He bootstrapped $10k, created a very rough cut, and then decided to try Kickstarter for the remaining needed balance of $90,000. He promised his backers they would get “Associate Producer “credit in exchange for a donation of $250. When people went to his Kickstarter, they found an underfunded, frankly crappy rough cut of a movie, and little payoff for backing it. Jeff never raised the money and never finished his movie.

 

2. Jonah wanted to open a second food cart. His first was highly successful. Jonah put in $50k and needed another $50k. He offered great perks for different levels of donations, created an engaging intro video on IndieGoGo, contacted everyone he knew, marketed the heck out of his campaign, followed up, and was successful. He had skin in the game and treated the crowdfunding event like a professional marketing campaign.

 

Finding the money needed to start, run, and grow a business or launch a product is never easy and so yes, many entrepreneurs do indeed look to crowdfunding as a way to fund and launch their idea. Some of these campaigns do spectacularly well while others do not. What did the winners do right, and what do they have in common? Let’s see:

 

Coolest - The ‘21st Century Cooler’

 

Screen Shot 2019-07-16 at 10.02.17 AM.png

One of the most notable and highly funded Kickstarter campaigns of all time, the Coolest Cooler, sought to redefine the modern-day cooler. Ryan Grepper, the creator of the Coolest, initially tried a Kickstarter campaign, seeking $125,000. When the original campaign didn’t get funded, he regrouped, redesigned, and launched a second Kickstarter campaign 8 months later, seeking $50,000. That campaign went viral and went on to raise over $13 million dollars, becoming the most funded project on Kickstarter at the time.

 

But why was the Coolest so revolutionary? The amenities of the Coolest were unparalleled to anything on the market at the time. The cooler came with a rechargeable blender, embedded Bluetooth speaker, phone chargers, LED lights, and other items like plates, knives, bottle openers, and more.

 

Lesson: Have a great idea, execute on it, and don’t ask for too much money.

 

Screen Shot 2019-07-16 at 10.06.07 AM.pngThe original cure for figet-y hands

 

Although we all remember the fidget spinner craze that hit everywhere in 2017, the original Fidget cube was way ahead of the distracted-pack.

 

Mark and Matthew McLachlan had already tried four different Kickstarters before they found the success of the fidget cube. Raising almost $6.5 million over their modest goal of $15,000, they reached viral success few achieve via crowdfunding. The vinyl cube has 6 different sides, with each side featuring something to help stimulate each of our five senses. Clearly, this toy resonated with more than just its crowdfunders, as it inspired thousands of knockoffs.

 

Lesson: These entrepreneurs created a funny, clever intro video. Their marketing was very professional. They had a great idea and product. The levels of donation were all reasonable and not too expensive.

 

Let the honey flow

 

Screen Shot 2019-07-16 at 10.04.16 AM.png

“Gentle for the bees, and easy for the beekeeper.” The Flow Hive was a revolutionary way for anyone, and they mean anyone, to have their own beehive and collect their own honey. Stuart and Cedar Anderson spent over a decade creating and testing different honey harvesting techniques, and eventually came up with the Flow Hive honey extraction, and then its progeny, the Flow Hive 2.

 

The method of honey harvesting was simple and allowed the masses to start harvesting their own honey. Clearly, this idea resonated with a lot of people, raising almost $15 million dollars, the Flow Hive and Flow Hive 2 sold over 50,000 units were delivered to 130 countries.

 

Lesson: Be unique. Solve a problem. Innovate.

 

The world’s best travel jacket

 

The Baubox Travel Jacket solved a critical problem for travelers: storage. Instead of carrying on a heavy, bulky backpack, they could use a slim, organized jacket for everything. Not only were the jackets hailed as supremely comfortable, but their big sell was the many pockets embedded within the coat. It had a pocket for a tablet, passport, ID, earphone holders, a place for a neck pillow, gloves, and an eye mask; it even had a pocket to put a drink in.

 

Screen Shot 2019-07-16 at 10.05.28 AM.png

The initial campaign launched in 2015 with a goal of $20,000. They raised over $9 million.

 

The Baubox Travel Jacket was so successful, it even came back for another run. In 2018, the Baubox 2.0 campaign was launched, and raised another $4.4 million for the updated version of this popular coat.

 

Lesson: Build a better mousetrap.

 

 

 

About Steve Strauss

 

Steve Strauss Headshot New.pngSteven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business SuccessSteven D. Strauss

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice. Bank of America, N.A. Member FDIC.  ©2019 Bank of America Corporation

As the old saying goes, all good things must come to an end. Even your business and career. Even so, maybe it’s not surprising that entrepreneurs go about retirement differently than most folks, just as they go about work differently than most people.

 

According to a recent Manta survey, small business owners generally plan to wait until they are over 65 before retiring. Even then, according to the survey, one third plan to look for new work opportunities.

 

This begs the question – if you do in fact own your own business, what are you going to do with it when the time comes to move on? Essentially, you have three options. You can:

 

  • Close up shop
  • Sell the business, or
  • Give it to your kids53069262_s.jpg

 

Let’s look at each.

 

1. Close up shop: While it would be great if you created a business that can be sold or shared with loved ones, that is not always the case. If, for instance, you have been self-employed and are a one-man (or woman) band, it is often difficult to transfer that ownership to someone else because you are the business.

 

In that case, closing up shop is “simply” a matter of communicating with customers about the upcoming change, paying outstanding invoices, selling assets, closing accounts, and literally closing the doors.

 

2. Sell the business: According to that same Manta survey, about one in five small business owners plan to use the sale of the business to fund their retirement. If this describes you, then there are a few things you need to do ahead of time to ensure a lucrative sale:

 

Spruce the place up: Just as you would want to increase the curb appeal of your home before selling it, you would want to do the same with your business.

 

Figure out what the business is worth: There are a few different ways to value a business.

 

      • You can add up all assets, subtract liabilities, and go from there.

 

      • You can use a “multiplier.” That is, sell it for three times profit. This is a common method, but know that different industries use different multipliers.

 

      • The final option is to get an independent valuation. This is usually best. A professional valuation will give you an expert analysis of what the business is actually worth. That way, not only are you dealing with all the facts, but that valuation will carry weight with any potential buyer. Valuations can be obtained from business brokers, accounting firms, or banks.

 

 

Get your books in order: Buyers will want to see at least three years of financial statements and tax returns. One thing they are buying is certainty; they want and need to know how much they can reasonably expect to make if they buy your business.

 

Speak with your financial team: Before any sale, it would behoove you to know all tax and legal implications of any sale.

 

Stay profitable. Don’t let your business performance decline because you are too focused on either retiring or selling the business. Buyers buy businesses because those businesses make money.

 

3. Give it to your kids: One likely reason you started a business is that you wanted to create an asset to pass on to your children. This is both noble and good, but know that it doesn’t always work out as planned. Your kids may not want to go into your business. There may be squabbles over who gets how much or who will do what.

 

Personally, my dad left his successful carpet warehouse to my siblings and me, but when dad unexpectedly died, none of us were ready or old enough to run it. We ended up selling the business  to the store manager, and only after a lot of hassle.

 

So the key here is communication. Let your offspring know what you want to do with the business, and make sure everyone is onboard.

 

Once you do that, get ready to say aloha, or ciao, or adios – whatever and wherever your grownup retirement wanderlust takes you.

 

Related content: The Importance of Succession Planning for Your Businesses

The Importance of Succession Planning for Your Businesses      Putting The Success In Your Succession Plan

 

 

About Steve StraussSteve Strauss Headshot New.png

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

 

Bank of America, N.A. Member FDIC.  ©2017 Bank of America Corporation

The U.S. Small Business Administration (SBA) maintains a wide variety of loan and other assistance programs that can be valuable resources to all types of businesses. SBA programs offer excellent flexibility and loans that are “built to last,” says Brian Burke, national SBA lending director at Community Reinvestment Fund, USA, a nonprofit organization that works with banks and other lenders to bring development capital to underserved areas. However, finding and securing the best SBA loan for your business requires effort and diligence.

 

“SBA loans do involve more upfront effort, due diligence, and paperwork, but patience and positive attitudes are rewarded with excellent terms,” Burke says. You can boost your likelihood of approval for an SBA loan by knowing your numbers, or at least having a trusted advisor who can help you present all aspects of your business, especially the all-important financial characteristics. “Plan your work, and work your plan. Vision and execution are key drivers to long-term business success,” he adds.

 

It’s also important to keep in mind that the SBA doesn’t actually make loans itself; rather, it guarantees loans made by banks and other lenders, points out Michael K. Menerey, a partner in CFO Edge, LLC, a provider of outsourced financial and operational solutions to businesses. “In seeking a loan for your business, you need a bank that can be a trusted partner. This is especially true in the world of SBA lending, where knowledge of the various loan programs is critical,” he says.

 

Among the SBA programs of most interest to many small businesses are:

  • SBA Microloans, which provide short-term loans of up to $50,000 to small businesses and some not-for-profits. Proceeds can be used for working capital, inventory, supplies, fixtures, and equipment but not for repayment of existing debts or purchase of real estate.
  • SBAExpress loans, which offer expedited processing, generally range from $50,000 to $150,000, and can be used to launch a business or to assist in the acquisition, operation, or expansion of an existing business.
  • SBA 7(a) loans, which go up to $5 million, are the agency’s most common product for helping small businesses obtain financing. They are also the most flexible, says Rohit Arora, CEO of Biz2Credit.com, an online small business loan matchmaker. The SBA can guarantee as much as 85 percent on loans of up to $150,000 and 75 percent on larger loans.
  • SBA disaster loans, which are low-interest, long-term loans for physical and economic damage caused by a declared disaster. Small businesses and most private, nonprofit organizations that suffer substantial financial damages may be eligible for an Economic Injury Disaster Loan of up to $2 million. The proceeds can be used to meet necessary financial obligations related to expenses the business would not have incurred had the disaster not occurred.

 

“The type of SBA loan you choose depends on the amount of money needed and the use of the money once you borrow it,” Arora says. “Each business’s situation is different, and that will dictate the type of SBA loan for which you ought to apply.” A great resource for helping you find the SBA loan program that is right for your business is the federal government’s BusinessUSA AccessFinancing wizard. The tool walks you through four simple steps related to the purpose of the loan, ownership of your company, areas where you do business, and the industry in which you operate. A results page presents the best SBA options and other government-backed finance programs to meet your needs.

 

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My business recently sent off a tax payment to local authorities and it reminded me of an incident not long ago that I think contains a valuable lesson for all entrepreneurs.

 

For years, I did my personal and corporate taxes on my own. This was mainly because I thought that my legal background afforded me the knowledge to do so. And for a long time I was right… until I wasn’t.

 

It was April 14th a few years ago, and I was struggling with my tax return when I finally concluded that I needed expert assistance. So I filed for an extension, put out some feelers, and interviewed a few accountants. The first two were competent, but nothing special. Then I met David, the guy I hired.

 

I hired him for a few reasons. Yes, he was every bit as smart and experienced as the other two people I had spoken with, but the difference was two-fold:

 

  • First, he had a way of explaining things that was neither jargon-y nor condescending. Indeed, his delivery was friendly and understandable.
  • Second, he made me feel comfortable.

 

That second fact is not unimportant. I was hiring a professional because I needed professional help. There was money at stake, I was unsure of the outcome, and the IRS was involved – all of which are reasons to feel a little uncomfortable.

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But David’s easy-going manner evoked confidence in me right from the start. He cracked jokes and laughed easily. He was sharp. I liked him and believed that he could help me. And I was right. Not only did he do his job superbly, but even when delivering what could have been uncomfortable news (“You owe such and such”), he did so in a way that made it easy to digest.

 

Certainly my experience could have been different. Another CPA, one less emotionally intelligent, might have done the same competent job, but I probably wouldn’t have left the experience wanting to refer them business as I wanted to with David. Indeed, I have since recommended David to several friends and colleagues.

 

That’s the lesson. There are all sorts of professions that require the professional to have a good bedside manner. Healing entrepreneurs come readily to mind – therapists and nutritionists and acupuncturists, for instance. These folks definitely need to have a calm, confident, easy way about them given the job they do. If they do, they will get more business than if they don’t.

 

Click here to read more articles from small business expert Steve Strauss

 

But the list of businesspeople that need to have a good ‘bedside manner’ does not stop there, in fact, it only just starts there. Let me suggest that almost every entrepreneur needs to have their own version of ‘bedside manner.’

 

For instance, an interior designer has to let potential clients understand that she knows something about color, design and furnishings that the client does not. She has to share this knowledge in a way that is inspiring, not sales-y, and makes the client to want to hire her, not be intimidated by her keen eye.

 

Or take a successful salesperson – he has to have a relaxed presentation style that lets customers know that he is as interested in helping them solve their problem as he is in making the sale, even though we all know he wants to make the sale. The best salespeople usually have a friendly, comfortable, positive manner that is more about getting to know the person than diving into the product or service at stake. They are the opposite of pushy.

 

What new customers want from you when they come into your business is something similar. They want to know that you are there to help them, not sell to them. The harder you try to sell them, the less they will want to buy.

 

Of course you want to acquire new customers, that is a given, but what I learned from David is that you only land that larger volume customer when you don’t scare them away.



About Steve Strauss

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest,The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss.

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Inc.

Make Your Business Less Taxing

Posted by Inc. Apr 3, 2014

Tax law is fundamentally nondiscriminatory, and the federal government does not offer many direct tax breaks to women- and minority-owned businesses, says Mike D’Avolio, a senior tax analyst at Intuit’s professional tax group who is both a CPA and an attorney. “However, the tax code offers many incentives to all business owners, such as enhanced depreciation deductions, the credit for small employer health insurance premiums, and the credit for research and development expenses.” A comprehensive listing and discussion of allowable business expenses and deductions can be found in IRS Publication 535.

 

One of the few areas where federal tax code does provide direct tax breaks for diverse-owned businesses is incentives for businesses on Indian reservations, including accelerated depreciation and the Indian employment credit. For property used in the active conduct of a trade or business within an Indian reservation, the tax code provides for shorter depreciable lives and, consequently, larger depreciation deductions. “For example, five-year property can be depreciated over a three-year period, and 10-year property can be depreciated over a six-year period,” D’Avolio explains. The federal tax code also includes an Indian employment credit that applies to businesses that hire individuals who live on or near an Indian reservation. In general, the credit is equal to 20 percent of current wages and employee health insurance costs, up to a limit of $20,000.

 

Many states offer direct or indirect tax breaks and incentives to minority- and women-owned businesses, says Judith H. McQuown, author of Inc. Yourself: How to Profit by Setting up Your Own Corporation (Career Press Inc.; 10th edition May 2004), which is coming out in its 11th edition in 2014. “In New York State, for example, START-UP NY offers 10 tax-free zones to new businesses.” While the program is not exclusive to diverse-owned businesses, the generous tax breaks it provides are particularly appealing to them. They include:

  • A state tax credit that would eliminate any state tax liability for businesses with 100 percent of their assets and payroll in a tax-free area.
  • Exemption from the state organization tax, license fee, and annual maintenance fee.
  • Credit or refund for sales and taxes paid for goods and services used or consumed by the business’ operation in a tax-free area.
  • Exemption from the real estate transfer tax for leases or real property to approved businesses in tax-free areas.

 

Many other states offer programs that provide significant tax breaks and/or incentives to diverse-owned businesses. “The best way to find out about these programs is to contact your state’s Small Business Administration (SBA) office or Department of Economic Development,” McQuown advises.

 

Whenever tax incentives are offered to diverse-owned (or any other) businesses, they are typically accessed by claiming them in the company’s tax return, with no need for additional filings, says Jonathan Barsade, founder and CEO of Extractor, Inc., a developer of end-to-end solutions for secure tax sales recordkeeping and compliance, based in Wynnewood, Pennsylvania. However, successfully claiming them requires diligent recordkeeping and close attention to detail. “The most common reason businesses are denied tax breaks, such as exemptions, is because of the absence of proper supporting documentation,” he says. “Exempt transactions are red flags for auditors. The absence of sufficient support is enough to deny the tax break and place the seller on the hook for taxes owed as well as fines and penalties.”

 

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Content created exclusively for Bank of America.

 

The federal government sponsors a number of programs designed to help minority-owned enterprises succeed in their business, and one of the most extensive is the Small Business Administration’s 8(a) Business Development Program. The program offers a broad scope of assistance to firms that are owned and controlled at least 51 percent by socially and economically disadvantaged individuals, and its stated goal is to provide such businesses with “access to the economic mainstream of American society” by helping them gain a foothold in government contracting. It is a nine-year program, with participation divided into a four-year developmental stage and a five-year transition stage.

 

The main benefit of the program is that 8(a) certified businesses gain exclusive access to sole-source contracts of up to $4 million for goods and $6.5 million for manufacturing per contract, says Jean Kristensen, president and CEO of Jean Kristensen Associates, LLC, a New York-based consulting firm that provides tools and resources to small, minority, and women-owned firms seeking to increase revenues through government contracting, certification, and innovative business strategies. “As an 8(a) graduate, I can attest to the fact that certain sole-source contracts provided my firm with the ability to gain experience with government contracting, human capital management, and regulatory compliance that increased our ability to bid for competitive contracts in my industry,” she says. “Many government agencies do require that firms have strong past performance and experience in working with government agencies as a precondition to winning government contracts, and the 8(a) program allowed us to get that experience.”

 

Exclusive access to those sole-source contracts is surely one of the most important advantages of 8(a) certification, but there are others as well, says Rick Otero, president and CEO of Tampa, Florida-based Cloveer, Inc., which has helped more than 1,500 businesses navigate the 8(a) application process. Among them are:

  • Limiting your potential competition. Larger firms that might otherwise compete for the same contracts do not have access to them, and there are fewer than 10,000 8(a)-certified business concerns in the entire country.
  • Making you more attractive to larger federal government prime contractors. Since businesses not considered “small” by the SBA definition for this program do not have access to 8(a) contracts, certification makes your company more attractive for teaming, joint ventures, or mentor/protégé relationships.
  • Making it easier for federal agencies to purchase your products or services because 8(a) set-aside contracts require less time, paperwork, and bureaucracy than other types of federal contracts.
  • Faster start times, because 8(a) contracts take less time to be awarded than most other procurement methods.

 

Applicants to the 8(a) Business Development program undergo a rigorous screening process designed to ensure that only the most qualified firms receive certification, Kristensen says. The general eligibility requirements are:

  • The business must be majority owned by an individual or individuals, and they must be American citizens by birth or naturalization.
  • The business must be majority owned and controlled/managed by socially and economically disadvantaged individual(s), and they must meet the SBA requirements for both social and economic disadvantage. Social disadvantage eligibility is presumed for members of certain groups, including African Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans. Applicants are presumed to be economically disadvantaged if they can provide documentation proving their assets, income, and net worth fall below these threshold levels: $4 million, $250,000 averaged over three years, and less than $250,000, respectively.
  • The business must be a “small” business by SBA 8(a) standards, a designation that is subject to a range of variables.
  • The business must demonstrate potential for success.
  • The principals must show good character.

 

Obtaining 8(a) certification requires a high level of involvement on the part of the applicant and the willingness to commit to a nine-year process, during which time all eligibility requirements have to be maintained. The SBA recommends that potential applicants start by taking an online training and self-evaluation course. If you do not meet the key eligibility criteria in the self-assessment test, you will be directed to other SBA resources deemed most appropriate for your business at its present stage of development.

 

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Inc.

Equipment: Lease or Loan?

Posted by Inc. Mar 27, 2014

One of the most common cash-flow considerations business owners face is making the right choice between leasing or buying equipment. There are plenty of good tools available to help you analyze the decision on a dollars-and-cents basis—such as this Excel template and this online calculator, but often there are non-financial factors that must be considered as well.

 

Making the right buy-vs.-lease decision requires an understanding of some basic characteristics and how they affect cash flow and asset management, says Tim Lemmons, a business consultant and educator at the University of Nebraska-Lincoln. Leasing generally entails a smaller initial outlay of capital than buying does, and lease payments are often lower than traditional installment loan payments, resulting in less liability on the balance sheet. However, when you buy a piece of equipment you gain asset value on the balance sheet, and that value may be used as collateral against other loans. Owned equipment does not require a security deposit as leased equipment often does, so capital that would have been tied up for the duration of the lease is available for other purposes.

 

There are three major kinds of leases: financial, operating, and sale/leaseback.

  • Financial leases
  • Operating leases
  • In a sale/leaseback scenario, often used for buildings and other commercial property, you sell an asset you own to another party and immediately lease it back for a set period of time. The capital that would otherwise have been encumbered by the asset is freed up for use elsewhere in your business.

 

In most head-to-head scenarios, buying equipment usually ends up costing less than leasing it, as long as you can take advantage of associated tax benefits, particularly the Section 179 deduction, which essentially allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. However, two of the most attractive aspects of Section 179 expired at the end of 2013. Unless Congress acts to change the law, the limit on capital purchases eligible for the 179 deduction and the maximum deduction allowed drop from $2 million and $500,000, respectively, in 2013 to $200,000 and $25,000 (plus an adjustment for inflation) in the current tax year. In addition, the 50 percent bonus depreciation allowed for tax year 2013 has also expired.

 

The least-vs.-buy decision is one that can only be made on a case-by-case basis, and making that choice is only the start of the process. If you decide leasing makes the most sense, you need to choose your leasing company carefully. Choosing the right financial partner if you decide buying is the best option is just as important.

 

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Opinion remains sharply divided on whether the Affordable Care Act (ACA) will turn out to be good, bad, or inconsequential for American businesses, but it is now the law of the land and has an impact on businesses of all sizes. Those least affected by tax, regulatory, and reporting issues are businesses with fewer than 50 full-time equivalent employees (FTEs), although they do face additional requirements in reporting and tax withholding. Companies with fewer than 25 FTEs also face minimal additional duties from ACA, plus they may be eligible for significant tax credits if they provide health care coverage for their employees.

 

The Small Business Health Care Tax Credit may be the most interesting aspect of ACA for companies with fewer than 25 employees, says Jeffrey Ingalls, president of The Stratford Financial Group, an insurance consulting and brokerage firm, and author of Healthcare Reform Made Easy. In order to claim the credit, a business must cover at least 50 percent of the cost of single (not family) health care coverage for each of its employees, and those employees must have average annual wages of less than $50,000, a figure that will be adjusted for inflation beginning this year. Additionally, employers will have to purchase insurance through the Small Business Health Options Program (SHOP) Marketplace to be eligible for the credit for tax year 2014 and subsequent years.

 

Businesses in states that have set up their own exchange sites can purchase qualifying insurance coverage through those sites (click here to see if your state has a site). Launch of the federal government’s SHOP Marketplace for businesses in states that don’t have their own site has been postponed until November, but businesses can still qualify for the 2014 credit by enrolling their employees in coverage through an agent, broker, or insurer that offers a certified SHOP plan and has agreed to conduct enrollment according to Department of Health and Human Services standards.

 

While ACA does not mandate businesses with fewer than 50 FTEs to provide health care insurance to their employees, it does impose notification requirements on any employer covered by the Fair Labor Standards Act (FLSA). (In general, any firm that has at least one employee and at least $500,000 in annual dollar volume of business is covered by the FLSA.) Those businesses must provide notification to their employees about the new Health Insurance Marketplace where employees can obtain coverage on their own. Most people are required to have basic health coverage as of January 1 of this year or be subject to a penalty. Businesses covered by the FLSA must also inform their employees that they may be eligible for a premium tax credit if they purchase coverage through the Marketplace, and they must advise employees that if they purchase a plan through the Marketplace, they may lose the employer contribution, if any, to any health benefits plan offered by the employer. A sample notice for employers who do not offer a health care plan is available here; as is one for employers who do offer a health plan is available.

 

ACA also requires any business, regardless of size, that offers a health insurance plan to its employees to provide employees with a standard “Summary of Benefits and Coverage” form explaining what the plan covers and how much it costs.    Likewise, all employers are responsible for withholding the increased portion of Medicare Part A Hospital Insurance that ACA imposed on employees with incomes of more than $200,000 for single filers and $250,000 for married joint filers as of January 1, 2013. The law increases the employee portion from 1.45 percent to 2.35 percent on wages in excess of those thresholds, but the employer portion of the tax remains unchanged at 1.45 percent.

 

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“Capital structure” is a phrase that often comes up when professional investors, analysts, and pundits discuss the current state and future prospects of publicly traded companies. But every business, no matter how large or small, has a capital structure, and it’s important for business owners to understand this concept and what it means for them. Simply speaking, capital structure is about the ratio of different types of capital being used by a business. Debt and equity are the two most common sources of capital for most businesses, but a third type, hybrid securities, combines some aspects of the first two.

 

Debt financing involves a contractual agreement between a company and a third party that calls for payment of a predetermined claim (interest) regardless of the company’s operating performance. Interest payments are generally tax-deductible, and debt has a fixed life. Bank loans, commercial paper, and corporate bonds are examples of debt financing. Equity financing is permanent because it involves exchanging a share of ownership in the business in exchange for capital. Examples include owners’ equity, venture capital, and common equity (stock. It often provides for the payment of dividends, which generally are not tax-deductible. Hybrid securities share some characteristics of both debt and equity, with the most common type being a convertible bond, which can be converted to equity at a predetermined time and conversion rate.

 

The optimal capital structure (OCS) for any business is a mix of liabilities and equity that meets all its business objectives at the lowest cost to the business while adhering to all regulatory requirements and allowing for the adoption of relevant industry best practices and appropriate risk management. Formulating OCS can be a complicated undertaking for large, diversified organizations, but the basic steps involved in the process are the same for any business:

  • Define the capital needed and the business objectives. This is necessary to determine whether there are any elements of the business plan that may dictate parts of the capital structure.
  • Identify regulatory restrictions to make sure the capital structure you are planning will be in compliance with all applicable rules and regulations, both local laws affecting all commercial enterprises and industry-specific ones affecting the field in which you operate.
  • Identify risk restrictions, including liquidity (your ability to meet maturing obligations as they come due), interest rate risk on debt that does not have a fixed rate, and exchange rate risk if you operate in more than one country or plan to.
  • Identify the range, amount, and cost of funding instruments available. Many variables can affect the options available to you, including the legal structure of your company, the market(s) where you operate, and the regulations to which your business is subject.
  • Build the optimal capital structure, that is, fill any capital need identified with the lowest-cost funding instruments available to you as determined in the previous step.
  • Analyze the total financial cost of the OCS by estimating its weighted average cost of capital (WACC), which is the sum of each funding instrument’s after-tax cost multiplied by the percentage of the total capital structure it represents.

 

OCS for most growth-oriented companies will focus on internal over external financing, says Iqbal Ashraf, CEO of consulting firm Mentors Guild. “In general, avoid external funding, and if you have to raise external funding, get as much debt as you can service through at least one year of bad business.” Debt is easier to raise and cheaper than equity, and it leaves control of the business intact with the owners. The main risk of high debt is repayment when cash is tight, which can give you sleepless nights, lower the possibility of further financing, “and may even put your business at risk,” he says.

 

“Try equity after you are leveraged to your board’s comfort level or the industry average, whichever is higher, and get it from those who bring more to the table than just cash,” Ashraf adds. “Get ready for scrutiny, CPAs, and lawyers, and be prepared to share your profits in perpetuity.”

 

Optimizing capital structure can be a challenge even for those with a sophisticated financial background, but getting a grasp of the fundamentals is important for any business owner. A great resource that provides an easily understandable dissection of the concept and the process for achieving it is Optimizing Capital Structure Toolkit, a step-by-step guide with sample spreadsheets created by Women’s World Banking.

 

Disclaimer: Since the details of your situation are unique, you should always seek the services of a qualified CPA, tax advisor, and/or other financial professional.

 

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