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This is the second article of a three-part series on  capital-raising mistakes you can easily avoid.  If you missed the first post, can check it out here.

 

Mistake #5: Underestimating How Much Time it Takes to Raise Capital

Almost everything in business, particularly those things outside of your control, takes more time than you expect.  Raising capital is one of those things.  This is especially the case when raising money from individual investors.  Even when people tell you they are going to invest in your business, it is difficult to get them to write the check.  Getting people to part with their money is like trying to get food away from me when I am hungry; a tough task!

 

People will wait as long as possible to part with their “Benjamins.”  Just ask the federal government what percentage of tax returns get sent in at the last possible moment (on or around April 15th) and how many taxpayers file for an extension.  You may have to pry that investment check out of your investors’ hands.

 

Even with loans, documents need to be put together, processed, reviewed, put through bureaucratic processes and ultimately signed.  This takes time and lots of it.

 

How to avoid this mistake:

 

  • Take whatever timeframe you think is needed to raise capital and increase it by 50 to 100 percent.  If you have budgeted six months, it will probably take nine to twelve months (and if you are thinking one month, wake up, because you are dreaming).

 

 

Mistake #6: Assuming Your Business is Fundable by Sophisticated Investors

Most business models aren’t big enough to attract the attention of sophisticated investors like angels or venture capitalists.  These investors want to invest in businesses that have the ability to give them a 30% – 50% return (or sometimes higher) on their capital, on average, for every year they hold the investment.  They use this benchmark because they know a large percentage of their investments are going to fail (as most new businesses do) or be limited in the scope of their success, so they need the one that really succeeds to make up for the nine others that flop.  These investors also need a way to get their investment out of the business, so they expect that in some realistic timeframe (usually five to seven years) the business will be big enough to sell or to take public in an IPO.  30504271_s.jpg

 

Based on the above, there are many more venture capital firms focused on industries like technology, rather than consumer or service businesses.

 

This set of criteria means your business may not be a fit for an angel or venture capital investment.  Venture capital firms only fund a fraction of one percent of all businesses in the U.S. each year.  Sophisticated angels also fund a tiny portion of all businesses.

 

If you are one of the few that do have a business that meets the potential criteria of venture capitalists, it will still be tough to get funded.  Every venture capital firm gets hundreds to thousands of business plans submitted for review each year.  They dismiss most plans that aren’t introduced by someone they know and can vouch for them.  So, if you are not in the inner circle of the venture capital community (and if you need the money, you often aren’t), your plan may not even get a glance, even if your business has merit.

 

How to avoid this mistake:

 

  • Be realistic on whether you have a business model likely to scale quickly and be of interest to venture capitalists or sophisticated angel groups – if not, don’t waste your time going to them for funding and look elsewhere.
  • If you do have a plan that meets the above criteria, try to get an introduction through someone who has a relationship – spend time with your network seeing “who knows who,” as a direct introduction will keep you from the bottom of the business plan (or pitch deck) pile.

 

     Learn more about investors and your business: Why Investors Avoid “Ground Floor” Opportunities

     You can read more articles from Carol Roth by clicking here

 

Mistake #7: Taking Investments from “FFFs,” “DDLs” or “the Crowd” Lightly

If you don’t qualify for an investment from a sophisticated investor group, you may turn to folks who you know—friends, family and acquaintances—who may consider investing in your business.  Two acronyms are usually used to describe these investors: “FFFs- friends, family and fools” or “DDLs- doctors, dentists and lawyers”. These are generally people in your network who may have some extra cash lying around.

 

With technology, and the passing of the JOBS Act, you can raise money in various forms from strangers via crowdfunding.  For the purposes of this mistake, I am going to focus on investments vis-à-vis crowdfunding (not the kind that gets you a perk).

 

Typically, FFFs, DDLs and the Crowd don’t truly understand your business, but they invest either because they believe in you, they have some infatuation with your business idea or because of peer pressure (someone else is investing and they invest alongside them).  As investors, these people can become co-owners or lenders to your business.

 

Going to FFFs or DDLs is challenging.  It is hard to ask people you care about or who are in your social circle to give you money.  Once you accept it, you make a deal with the devil of sorts, because now your relationship with this person has gone from its existing form to also being business partners.  Sometimes you will have to make decisions for the sake of the business that will not make your friends and family happy.  This makes for some seriously uncomfortable future interactions.

 

Because they don’t work with you on a daily basis and yet, you are using their money, your FFFs/DDLs may now:

 

  • Want to get updates on a regular basis
  • Want to put in their two cents worth of ideas (e.g. telling you, “don’t you think the store would look so much better with a singing plastic fish on the wall”?)
  • Want to come and hang out at your office or place of business
  • Demand free or discounted products and services
  • Ask you to employ their lazy cousin Nick, or
  • Ask you for a million favors in return

 

You will have to answer to these people, who are now your co-owners or lenders and therefore, people you can’t ignore.  These people, based on their lack of business sophistication, can take up a lot of your time at best, and at worst, will make demands from you and the business. 

 

How to avoid this mistake:

 

  • Think about both the pros and cons of taking an investment from a friend, family member or acquaintance.
  • Make sure you don’t take any money from someone you have a relationship with that cannot afford to lose 100% of the investment.
  • Make sure that you discuss the implications on your relationship with the other party if the investment is lost in whole or in part and decide if the relationship can endure if a problem occurs.
  • Think once again if you can handle an awkward birthday party or family dinner if things don’t pan out as planned.

 

 

Mistake #8: Not Achieving Milestones First

Everyone thinks they have a great idea for a business and many try to raise money for their business idea.  However, a serious letdown about businesses is that the ideas behind them aren’t worth anything (see my previous article on this subject here).

 

Ideas may have had some value back in the day when there were very few businesses in any given sector.  Now that almost everything has already been thought of, not only is it hard to be innovative, but extracting value comes from executing your thoughts into reality.

 

You have to invest time, money and effort to achieve key milestones, such as developing a technology or securing purchase orders, before you raise capital.

 

The more you do, the more value and credibility you create.  Investors really don’t like to take risks.  The more milestones you have achieved, the less risk for the investor. Plus, you will have more confidence in the success of your business.

 

How to avoid this mistake:

 

  • Focus on achieving milestones – get past the idea stage by building a working prototype, landing paying customers or filing defensible patents, to create value.

 

Be sure to check back soon for my final post on capital raising mistakes to avoid.

 

 

About Carol Roth

Carol Roth Headshot for post.png

Carol Roth is the creator of the Future File ® legacy planning system, “recovering” investment banker, billion-dollar dealmaker, investor, entrepreneur, national media personality and author of the New York Times bestselling book, The Entrepreneur Equation. She is a judge on the Mark Burnett-produced technology competition show, America’s Greatest Makers and TV host and contributor, including host of Microsoft’s Office Small Business Academy. She is also an advisor to companies ranging from startups to major multi-national corporations and has an action figure made in her own likeness.

 

Web: www.CarolRoth.com or Twitter: @CarolJSRoth.

You can read more articles from Carol Roth by clicking here

 

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

Raising capital for businesses is hard and often misunderstood.  As a “recovering” investment banker, I have helped my clients raise 10-figures in capital over the past 15 years, and have witnessed many individuals who failed to present a compelling, fundable story about their businesses (and themselves).

 

In my unscientific but thorough poll of entrepreneurs, 99% rank raising capital amongst their five least favorite business activities. Hopefully, I can help make sense of the capital-raising process to make it more tolerable – and valuable – for you.

 

To start this three-part series on raising capital, I’ll focus on the key mistakes you must avoid to save time, money and energy while increasing your chances of success when raising money for your business.

 

Mistake #1: Putting all Your Eggs in One Basket

 

The very first capital raising mistake relates to not raising outside capital at all.  Statistics show that the typical start-up business in the U.S. is self-funded from the entrepreneur’s own savings and supplemented with some personal credit card debt.  However, part of balancing risks and rewards is using diversification.

 

It is important for you as an entrepreneur to show your commitment to your business by investing some of your own capital.  This is a safeguard to ensure that you are incentivized to do everything you can to make the business successful.  However, if you are putting every last dime into your business, all of your eggs will be in that one darn basket.

 

How to avoid this mistake:

 

  • Don’t bet the farm on your business.
  • If you don’t have enough money to live on and invest in your business, then: (I) wait until you have more money saved, (II) see if you can revise your budget or (III) consider taking outside capital.

 

Mistake #2: Undercapitalizing Your Business40556715_s.jpg

 

A large percentage of businesses close because they don’t have enough money to survive the rocky first couple of years of business.

 

I have found that early-stage and new business owners underestimate the cost of starting and running the business virtually every time (usually by a factor of 3).

 

In each early stage business I have seen, entrepreneurs say their financial projections are conservative in terms of revenue and expenses (and then I roll my eyes).  They also tend to claim they are raising more money than they need so they have a cushion. When I tell them that their projections, as with all entrepreneurs’ financial projections, are too aggressive, they lecture me about why they are the “exception to the rule.”  Then, a year later, after revenue estimates fall short and expenses were greater than expected, they give me the reasons why they missed their projections.

 

There has yet to be an exception to this in my personal experience.  Note: seasoned investors know this and it is why they always take a “haircut” to the projections; they assume that they are overstated on the revenue line and/or understated on the expense line when they evaluate investments.

 

Another issue arises when you don’t raise enough capital upfront and you start to run out of money.  It is much more difficult—often impossible—to secure capital to stay afloat when things aren’t going so well.

 

How to avoid this mistake:

 

  • Do yourself a favor when you do your projections: Revise them so the amount of money you actually need is three times the amount you originally planned.  If you think you need $10,000, you really need $30,000.  If you think you need $1 million, you probably need around $3 million.

 

Mistake #3: Not Understanding Valuation

 

When you raise money for your business, you are usually dealing with one of two types of capital: equity, where you give up an ownership stake in your business, or debt, where you can take on an obligation for your business that you agree to pay back instead of giving up ownership.

 

There are hybrid scenarios that incorporate both equity and debt (as well as options and warrants), but at a basic level, you need to at least understand equity and debt.  If you raise equity, you end up setting a value for your business, which is based on the stage of your business, the milestones you have reached and the ultimate potential of your business.

 

However, many entrepreneurs don’t understand valuation.  Imagine that your business is symbolized initially by a small pie. You have 100% of the pie and then you give up a slice (or percentage) of that pie in exchange for equity capital.  The hope is that in the future, your business becomes a huge pie, so that even though other people have pieces of the pie, your piece is bigger than when you owned 100% of the small pie (i.e. your stake is worth more in terms of absolute dollars).

 

Often, entrepreneurs don’t understand how the pie works.  They will say that they have a business idea and that they need to raise $200,000.  Then arbitrarily, they will decide that they only want to give up 10% of the equity. However, that establishes a value for the business (and a big one!).  If 10% of the pie is worth $200,000, then 100% of the pie (the whole pie) is worth $2 million!  That $2 million number includes the $200,000 in cash the investor is giving you, so that means before you raise any money, you value your company at $1.8 million ($2 million minus $200,000).

 

Most established small businesses aren’t worth $1.8 million dollars, let alone a brand-new business.

 

Setting unrealistic valuations can increase the amount of time it takes for you to raise capital, prevent you from raising money altogether and create credibility issues for you as an entrepreneur.  Even if you can find a fool to invest at your crazy valuation, beware: You may have to raise capital again in the future and having a silly upfront valuation can impede your ability to raise capital in the future (again, credibility issues). It can also damage the relationship with your investor who is now, in effect, your business partner.

 

How to avoid this mistake:

 

  • Make sure you understand what you are implying in terms of valuation – if you need help, ask a professional.
  • Think carefully about the pros and cons of a high valuation, even if you can get one.
  • Consider an investment structure using debt that either doesn’t require you to set a business valuation or sets one in the future based on achieved metrics and benchmarks.

 

Mistake #4: Being Greedy

 

Let’s say there is a treasure chest of gold located several hundred miles away from your house. If you are the first to get to the treasure chest, you can claim it as yours.  The problem is that you don’t have a car.  You could walk or ride your bike, but by the time you got there, someone else may have claimed the gold.   So, you ask a good friend if they can drive you to the gold and you will share some of it with them if you get there first.

 

In this analogy, the gold stands for the potential upside rewards of your business, and your friend with the car is the investor and investment capital, respectively, that you need to build your business  and reach the treasure chest.

 

So, how much do you give your “friend” for driving you there?  Now, many entrepreneurs take the stance, “well I came up with the idea,” and offer to give their friends a token amount, say 10%.  However, the reality is that you can’t get to the gold in enough time to claim it without your friend and his car.  So, what if you gave him 30%, 40% or even split it? There will still be enough value for it to be worth both of your whiles. True, the friend wouldn’t have known about the gold without you, but you can’t get there without the car.

 

Valuing a business is an art, not an exact science, and splitting hairs over percentage points is often missing the entire point!

 

How to avoid this mistake:

 

  • Other than understanding valuation implications (from Mistake #3), don’t get too caught up in the percentages that you give up for raising equity capital.  Capital is a necessary component of growing a business which is also a great deal of risk for the investor.
  • Be fair and realize that if the opportunity is large enough, there will be enough to go around for everyone – if not, then you should probably rethink the opportunity

 

Be sure to check back for my next post on capital-raising mistakes to avoid.

You can read more articles from Carol Roth by clicking here

 

Related Articles & Pages:

Infographic: Building Credit for Your Small Business

Bank of America Small Business Financing, Loans & Funding

Tips on How to Finance Your New Business Venture

 

 

About Carol Roth

Carol Roth Headshot for post.png

Carol Roth is the creator of the Future File ® legacy planning system, “recovering” investment banker, billion-dollar dealmaker, investor, entrepreneur, national media personality and author of the New York Times bestselling book, The Entrepreneur Equation. She is a judge on the Mark Burnett-produced technology competition show, America’s Greatest Makers and TV host and contributor, including

host

of Microsoft’s Office Small Business Academy. She is also an advisor to companies ranging from startups to major multi-national corporations and has an action figure made in her own likeness.

 

Web: www.CarolRoth.com or Twitter: @CarolJSRoth.

You can read more articles from Carol Roth by clicking here

 

Bank of America, N.A. engages with Carol Roth to provide informational materials for your discussion or review purposes only. Carol Roth is a registered trademark, used pursuant to license. The third parties within articles are used under license from Carol Roth. 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

You may have heard of “microfinance,” but what it is and what the popular perception of what it is are often two different things.

 

According to Forbes, “Back in 1974, a Bengali man named Muhammad Yunus created the concept of microfinance with Grameen Bank, winning him the Nobel Peace Prize in 2006 for the dramatic global impact of his idea. The World Bank estimates that more than 500 million people have benefitted from microfinance to date.” For example, using a Grameen loan, a farmer in Bangladesh might get a loan of $200 to buy cows.

Microfinance.jpg

 

Microfinance is oftentimes considered a tool to help impoverished people in developing countries. A similar institution to Grameen Bank is Kiva.org. Kiva is a person-to-person microlending organization that has provided more than $1 billion in small loans to 2.5 million entrepreneurs from 1.6 million lenders.  The astonishing repayment rate is 97 percent.

 

The good news for small business owners is that microfinance is not just about $100 loans to poor farmers in India. As you might imagine, there are plenty of would-be entrepreneurs in the U.S. who could also use access to loans smaller than what a traditional bank may offer, but more than what someone in the developing world needs.

That is where the misperception and opportunity exists.

 

CLICK HERE TO READ MORE FROM SMALL BUSINESS EXPERT STEVE STRAUSS

 

Microfinance has become a western option now too. Since 2008, microfinance has become an increasingly popular way to finance expansion of a small business. Microfinance loans in the U.S. certainly consist of more money than that Bengladeshi farmer might get, but are still nowhere near the larger loan minimums required by most major banks.

 

The idea is that people with bad credit or no credit can now be eligible to receive a microloan. Microlenders look beyond your FICO score and bank balance; instead, they tend to pay attention to things like your passion, your experience and the opportunity. Although microloan interest rates might be a little high, new standards of eligibility should get you very excited.

 

So, all of this begs the question: How and where do you get a microloan? Here are your options:

 

CDFIs: One of the best ways to get a microloan is through your local Community Development Financial Institution – or CDFI. CDFIs offer many services, such as financial advice, but what they specialize in is offering affordable loans for small businesses, nonprofits, and other moderate to low-income organizations. You will want to start this process by finding a CDFI near you. Make an appointment, bring your business plan, and come prepared to get funded.

 

Accion: Accion is one of the vanguards of microlending in America. They offer up to $50,000, and also offer financial education.

 

RELATED VIDEO: YouTube Panel: Small Business Financing Tips for 2017

 

The SBA: As perhaps the very best resource out there for small businesses, it is no surprise that the Small Business Administration is in the business of microfinance. The SBA does not directly offer microloans, but is a major funder of microloans for third-party lenders. Typically, the average SBA microloan sits at around $13,000, but can go as high as $50,000.

 

Grameen America: As you now know, Grameen Bank started out in Bangladesh. It came to the U.S. a few years back. Grameen America differs from the rest in that it requires training sessions for borrowers, and the maximum first-time loan is much more on the micro-side ($1,500).

 

Kiva: Kiva came to the U.S. in 2010, and is one of the major microlenders today. All loans are funded by user donations. American borrowers can be lent up to $10,000.

 

So yes, microloans are major help for small business the world over.

 

Steve Strauss Headshot New.png

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 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

By David Burch

 

As an entrepreneur, you may rely on a variety of sources for capital – such as banks, family, personal savings or even angel investors. Regardless of the financing sources you tap or the stage of your business, securing and accessing capital is likely to play a critical role as you plan for future growth.

 

34977526_s+copy.jpgAccording to the Bank of America spring 2017 Small Business Owner Report, more than half of small business owners nationwide are planning to grow their business over the next five years. If you’re among those millions of business owners planning for long-term growth, what should you know about financing that growth?

 

Below are top strategies to help secure financing, identify resources for capital, and navigate through emotions and financial arrangements when funding is provided by loved ones.[1]

 

1. Know the “5 Cs”

To increase your chances of securing funding, planning is essential – and a key component of that preparation is having a general understanding of creditor expectations. While each business is different and has unique financial needs, there are generally “5 Cs” that creditors evaluate when making lending decisions for small businesses: Capacity, Collateral, Capital, Conditions and Character.

  • Capacity evaluates whether your business can support debt and expenses. Typically, you need enough cushion to absorb unexpected expenses or a downturn in the economy.

  • Collateral can be offered as security for repayment and forfeited in the event of a default. Examples of collateral include accounts receivable, inventory, cash, equipment, and commercial real estate. Creditors may also take into consideration existing debt that your business may still owe on collateral.

  • Capital takes a look at whether your business’ assets outweigh its liabilities, and how much capital you and other outside sources have invested.

  • Conditions such as the economy, industry trends and pending legislation may be a consideration, although these are often out of your control as an individual small business owner.

  • And finally, Character – your own character and the character of those tied closely to the success of your business – is critically important. Factors such as personal integrity, industry experience, and good standing can make a difference.

 

2. Treat every loan as a contract – regardless of the source!

/videos/1039 When you’re starting out, the financial support you might receive from family and friends can make a big difference in helping to get your business off the ground. However, this can sometimes cause stress and awkwardness for everyone involved. To minimize this, it is important to create a contract for every type of loan you receive – whether it’s a financial agreement with a family member, friend or a bank. It can be immensely helpful to clarify up front with family and friends whether you are receiving a gift versus a loan. If it’s a loan – are they expecting some interest to be paid back? Do you need to pay back the loan within six months, a year, or is there more flexibility? Does your family member or friend want something in return, such as a stake in your business? To avoid unnecessary stress and confusion, it is important to know and write out the full terms of your agreement so you can focus your efforts and energies on making your business successful instead of worrying about misunderstandings.

 

3. Take advantage of resources

There are a variety of available resources you can turn to for lending advice, guidance and support – family members, friends, your professional network, financial experts, small business advocates, online content and more. Take advantage of this vast well of knowledge. I also encourage you to meet with a small business banker. They are experts in small business lending and can provide advice about what is best for you and your business, both in the short- and long-term. Even if you are just starting out and don’t think you will qualify for a bank loan, small business bankers can give you guidance on where to turn for capital. They can also help you develop a business plan so you get where you need to be to receive a traditional bank loan.

 

There is a treasure chest of free online tools and technology that can make life easier for business owners, such as Nav and the Small Business Administration. You can also turn to Google to search for answers to your questions, but a word of caution - use Google searching as a starting point, and always double check with other reliable sources to make sure you are getting good advice.

 

Want to learn more about securing the financing you need to grow your business? Check out the Bank of America Small Business Community for tips and information on accessing capital and more.[2]

 

 


[1] The views and opinions expressed herein are solely those of Bank of America, NA (the “Bank”), and have been obtained or derived from sources believed by the Bank to be reliable. The information provided herein is solely for educational purposes, and the Bank does not recommend that the information serve as the basis of any business decision and may not be construed as such. The Bank does not make any representation or warranty, express or implied, as to the information's accuracy or completeness, and the Bank makes no promise or guaranty that any particular measure of success or results will be achieved from relying on the information provided herein

 

[2] Bank of America, N.A. (the “Bank”) provides informational reading materials for your discussion and review purposes only. Please consult your tax advisor, as neither the Bank, its affiliates, nor their employees provide legal, accounting and tax advice. Credit is subject to approval, loan amounts are subject to creditworthiness, and normal credit standards apply. Some restrictions apply.

Ebong Eka Headshot.pngDebt can be used as a tool to grow your business. More importantly, it can provide the much-needed capital to start, grow and expand your business.

 

For example, debt can be used to hire employees, invest in new equipment, purchase new software for your business or acquire bigger office space.  On the other hand, debt can be a problem for the small business owner if you fall into the trap of owing more than you can pay back.


Here are six things to do to alleviate and deal with your small business debt:

 

1. Evaluate the amount of debt you have. It's important to determine whether your debt could be discharged. Additionally, it allows you to find opportunities to renegotiate the amounts you owe. You'd be surprised how many small businesses have credit card, business debt, and various other loans, and not aware of the terms of that debt.

 

CLICK HERE TO READ MORE FROM SMALL BUSINESS EXPERT EBONG EKA

 

2. Make sure your signed loan documents are iron clad. In other words, have your debt contracts reviewed by your attorney. Unfortunately, many small businesses lack resources and can’t hire a business attorney to review their documents. You may have an opportunity to mitigate what you owe by going through the legal documents and make sure it's iron clad on your behalf. You want to make sure all the conditions you initially agreed to are being met, not only by you but also by the creditor.

 

3. Create a repayment schedule. Create a repayment schedule that lists the amount of debt, interest rate, terms and amortization schedule. You want to identify the true cash outlay for your loans and repayment requirements. Nowadays most businesses use auto pay in their bank accounts to repay the debt and may not be keeping track of their payments to their creditors.

 

69264990_s.jpg4. Negotiate settlements of your debt with creditors based on your relationships. It's always important to create and build relationships with your creditors. If you have a good relationship with your creditors, they won't want you to go out of business. It's more work for them to handle your debt in court. Having a simple conversation with your creditor can alleviate their concern of you potentially going out of business and not paying the debt back.

 

RELATED ARTICLE: THE 7 BUDGETING TIPS YOU NEED TO CONSIDER

 

5. Develop a restructuring plan to alleviate the fear of your business being a “going concern” to your creditors. “Going concern” is an accounting term to describe if a business has adequate resources to continue operating. During the audit process, auditors are required to review the company's books and financial health to determine whether the business can continue to operate. This concept is important banks, creditors and investors because it allows them to make decisions to protect their investment and interest in the company. A going concern also refers to a company's ability to make enough money to stay afloat and not have to fall into bankruptcy. You don’t want your creditors worrying about whether you’ll stay in business. Your creditors may force you into bankruptcy if they believe that you don't have the adequate resources to pay back what you owe.

 

6. Sell your existing and obsolete inventory if possible. You could also add fixed assets to this list. I'm not advocating a fire sale, however, items sitting in warehouses, machines and vehicles in your possession are all things you can sell to create additional cashflow to either settle the debt or make your creditors happier.

 

Debt can be a very useful tool to start and grow your business. Don't shy away from using corporate debt or business debt. The secret is to identify how every dollar borrowed relates to additional revenue generated. For example, if you borrow $100, how much revenue should you expect in return?

 

Many small business owners unfortunately borrow money and don’t spend it on income producing activities. Everything you do should be income producing because that will dictate whether you can stay in business and avoid debt service issues. Consult your CPA and business attorney if you think creditors may push you into bankruptcy, or if you're having problems paying off your debt that you owe potential creditors.

 

About Ebong Eka

Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.

 

Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.

 

Web: www.ebongeka.com or Twitter: @EbongEka.

You can read more articles from Ebong Eka by clicking here

 

Bank of America, N.A. engages with Ebong Eka to provide informational materials for your discussion or review purposes only. Ebong Eka is a registered trademark, used pursuant to license. The third parties within articles are used under license from Ebong Eka. 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

Steve Strauss Headshot.pngGetting a bank to loan you money can sound daunting, but one thing I always remind my small business brothers and sisters is that banks want to lend to you. That is their business.

 

It is your job to make their job easy. So, what does a bank want to see?

 

Certainly, a top consideration is reliability, and that is determined under a set of standard conditions often colloquially referred to as the “Five Cs”. Knowing the Cs ahead of time will help you to anticipate, prepare and ultimately get that loan for your small business.

 

The 5 C’s are:

 

1. Character. Character is first for a reason. In the end, business is about relationships, and much of your ability to forge a positive relationship with a bank is based on your reputation; the character of your business and yourself.

 

CLICK HERE TO READ MORE FROM SMALL BUSINESS EXPERT STEVE STRAUSS

 

Much like a job application, a bank will look at your business and personal history, your experience, at your references, and your educational background. The quality and experience of your employees is considered. So of course, is your credit history. Your credit score is meant to serve as a reflection of your ability and willingness to both borrow and pay back lent money, which is the primary factor banks consider.

 

This is where the second C comes in.

 

2. Capacity. This C refers to a business owner’s capacity to repay the loan. The loan applicant must explain exactly, in detail, how they plan to pay back the loan. Credit history is the first and primary indicator of future payment performance. Financial statements are analyzed to determine if the loan applicant has the capacity to repay the loan. In addition to financial history, track records, past employment, and experience in business and in a particular field are also analyzed to conclude whether the applicant has the capacity to successfully handle the loan.

 

RELATED ARTICLE: GET YOUR BUSINESS FUNDED

 

51369135_s.jpg3. Capital. The third C looks at how much money the applicant has personally invested into their startup, the business’s net worth, and the amount requested in relation to that. Having personally invested more capital means that the borrower has more at stake; to lenders, this is an indication of ownership, responsibility and taking the success of the venture seriously. It also means that the business is at least somewhat established, and therefore more viable. You are unlikely to receive a business loan if you don’t have any skin in the game, or if you are seeking too much capital.

 

4. Collateral. Is the applicant in possession of assets that could protect the lender in case of default? Things like property and insurance are considered.

 

Similar to collateral is a guarantee – a document signed by an individual (usually the business owner) promising to pay back the loan if the business cannot. Not all lenders or loans require guarantees, but many do.

 

5. Conditions. Finally, general economic conditions are often at play – that is, external factors that could potentially affect the success of the applicant’s business. Economic factors are considered, both within the specific industry of the business as well as other industries that could potentially impact that business. Macro factors are also considered, such as interest rates, inflation, deflation, supply and demand, and competition.

 

While this one is out of your control, if you prepare yourself ahead of time and present the bank with concrete ways your business plans to respond to these external conditions, it bodes well in your favor.

 

On a personal note, I strongly suggest you meet with your banker well before you apply. One thing I have learned is that your business banker can help prepare you, and your business, to get to yes.

 

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 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

There are three letters that can make small business owners tremble…. IRS. The reality is the Internal Ebong Eka Headshot.pngRevenue Service has a job to do, just like you have a job to do for your small business.

 

As we approach Tax Day, it is important to use available tools to minimize your small business tax liability. As a CPA who has worked with many small businesses, I receive a lot of questions about how to save money while remaining compliant with the IRS.

 

CLICK HERE TO READ MORE ARTICLES FROM SMALL BUSINESS EXPERT EBONG EKA

 

If you are a self-employed small business owner, here are five ideas to help you prepare and are IRS approved.

 

1. Estimated taxes: Self-employed taxpayers are generally required to make estimated payments throughout the year. If you're not compliant with making estimated payments, you may be subject to an ‘underpayment tax penalty.’

 

The questions then become:

     a. How do I make tax payments?

     b. How do I calculate those tax payments?

 

First, making tax payments or estimated tax payments is relatively easy. Speak with your personal tax accountant, CPA, or enrolled agent to help you make payments online. Your tax professional will also be able to help you calculate your estimated taxes for each quarter.

 

RELATED: THE 5 SMALL BUSINESS TAX PLANNING TIPS EVERY SMALL BUSINESS OWNER SHOULD KNOW

 

2. Schedule C or Schedule C-EZ? You may be required to file Form Schedule C, Profit or Loss from Business, depending on the type of business you have. If you are a single member LLC, a different entity but taxed as a single member LLC or a sole proprietorship, your income from self-employment is reported on Schedule C of your personal tax return.

 

You may be eligible to use Schedule C-EZ, which is a simpler form if your business expenses are less than $5,000. Check with your CPA because your circumstances and facts may differ.

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3. Paying Self-employment tax: Self-employment tax is similar to payroll taxes for certain self-employed business owners and includes Medicare taxes and Social Security. The IRS generally requires you pay based on self-employment income. I have seen examples of small business owners having issues with the IRS because they did not realize they had to pay self-employment tax. Whether you are subject to self-employment tax depends on your situation, the type of entity that you have and the character of the income you generated. Speak with your tax advisor or CPA to determine if you are subject to self-employment tax.

 

4. What are my allowable deductions? Small business taxpayers can deduct expenses they paid to run their business that are both ordinary and necessary. An “ordinary expense” is one that is common and accepted in the industry. For example, a printer, computer or other items used in the normal course of business. A “necessary expense” is an expense that is helpful and appropriate for your trade or business, such as a particular type of paper used for proposals. Keep track of your receipts and organize them for your accountant, CPA or tax preparer.

 

5. Sole proprietors or independent contractors: Sole proprietors and independent contractors are two types of self-employed entities but similar in many cases. Taxes for those two can be very difficult if you do not plan ahead. An independent contractor is a person who works for themselves, but may not necessarily have a separate business entity in order to conduct business. Sole proprietors in many cases have a separate business entity or a “doing business as” (DBA). Additionally, independent contractors will receive Form 1099 from clients or whoever they provided services to.

 

About Ebong Eka

Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.

 

Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.

 

Web: www.ebongeka.com or Twitter: @EbongEka.

You can read more articles from Ebong Eka by clicking here

 

Bank of America, N.A. engages with Ebong Eka to provide informational materials for your discussion or review purposes only. Ebong Eka is a registered trademark, used pursuant to license. The third parties within articles are used under license from Ebong Eka. 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 beginning of the year always brings the need for business planning and small business owners should also focus on sound tax strategies. The last thing you want to do is miss out on tax deductions that could lead to more money in your bank account. 

 

Available strategies can save time and money and because President Trump said comprehensive tax reform is a priority for the new administration, there are opportunities to plan ahead.

 

Here are the top five small business tax planning tips you need to know:Ebong Eka Headshot.png

1. Get Organized – Now!

Many small businesses owners do their own accounting instead of hiring a bookkeeper. As a result, it is easy to let organization fall through the cracks. Compile all the documents you receive throughout the year: bank statements, credit card statements, invoices, and form 1099's, as an example.

Being organized lets you track your expenses better. The IRS allows you to deduct your business expenses that are ordinary and necessary. The IRS also requires you to keep track of those expenses and document receipts. If you use an accountant, CPA, or enrolled agent, ask what he or she can do to help you start organizing. They may be able to provide you with an organizing worksheet for your expenses.

2. Give to Charity and Get a Tax Deduction

You can take a tax deduction for items and cash you donate to IRS approved charities. You can confirm if the charitable organization is IRS approved by searching the IRS website. If you donate cash, make sure you keep the receipts you receive from the charity in the event the IRS asks for them. You can also donate items like clothing, household goods, furniture, stocks and even a car. Your deduction is limited to the fair market value of the items and they must be in good condition in order to be deductible. If the non-cash items have a value greater than $500, you have to file a separate form.

Click here for more tips for tax season

3. Use Your Home Office Deduction

Many small businesses work remotely and in many cases, from home. You may be able to take the home office deduction on your tax return this year. The home office deduction is important, because it allows you to take a deduction for the space you use in your home for your small business’s office.

Before you rush to take the deduction, however, there are a few IRS requirements you need to meet to be eligible for the deduction.

     a.     Regular and Exclusive Use – According to the IRS, you must regularly use part of your home exclusively for conducting business.

     b.     Principal Place of Business – You must show that your home is your principal place of business. In other words, you must conduct business in your home.

 

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To determine the deduction, you can either use the simple formula or the regular formula. The simplified method makes it easier for small business owners to calculate and allocate expenses for the deduction. Consult your tax professional to discuss the best method to use for your business.

Related article: How Technology Can Help Small Business Owners Better Manage Cash Flow

4. Maximize Your Retirement Plans

Start planning your retirement contributions now. You can generally deduct contributions to your retirement plans from your income which reduces your taxes. There are several options for retirement plans and each plan has its own pros and cons. Here are several options:

     a.     Simple IRA

     b.     Simplified Employee Pension (SEP IRA)

     c.     Defined Benefit Plan

     d.     Solo 401(k)

     e.     Consult your financial advisors to determine the best fit for your situation.

 

5. Major Purchases? Take the Section 179 Depreciation deduction

The IRS allows you to take a tax deduction for the complete cost of certain purchases you made throughout the year instead of depreciating it over the useful life of the property. There are certain limitations and requirements that you have to meet in order to eligible for the deduction. The deduction limit can be as high as $500,000 in one year, so it’s worth investigating.

For example, you may want to purchase equipment for your T-shirt printing business that has a value of $300,000 and useful life of 10 years. Using Section 179, you can deduct the full amount of $300,000 for the year you purchased the equipment. Without Section 179, you could only deduct $30,000 every year for 10 years. That is a huge tax deduction – so plan to make large purchases this year.

One more thing: In addition to these planning tips, the Trump administration is focused on cutting income tax rates across the board, which can potentially help small businesses. With the extra money you may potentially save, you can invest more into growing and expanding your business.

About Ebong Eka

Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.

Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.

Web: www.ebongeka.com or Twitter: @EbongEka.

You can read more articles from Ebong Eka by clicking here

Steve Strauss

Get Your Business Funded

Posted by Steve Strauss Jan 18, 2017

I always like when I get to see the latest Bank of America Small Business Owner Report (SBOR) because not only do I learn something new, but there are typically fascinating facts in there that I don’t find anywhere else. That was especially true when I recently got to look at the latest SBOR.

 

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The Small Business Owner Report is a semi-annual survey of 1,000 small business owners that examines the views and insights of business owners. This latest Report covered all sorts of things such as business outlook, hiring trends, economic indicators, and more. One thing that really stood out was the section that took a look at funding.

 

One particular fact that really caught my eye and made me do a double take was an incredible statistic about business funding. I’ll get to what it was in a moment, but let’s first note up front that when it comes to getting a business funded, small business owners are a resourceful, creative lot, because they need to be. Getting the dream funded is one of the most challenging things that an entrepreneur faces, both in the short-run at the startup phase, in the long-term, and during the more mature growth phase.

 

Question: How do you think most small businesses get most of their capital at the startup phase? Usually, people say “friends and family” when answering that question, and certainly that is true. For instance, it is a big part of the funding section of my book, The Small Business Bible.

 

But it turns out that ‘friends and family’ is the wrong answer.

 

According to this latest Small Business Owner Report, when first getting their business of the ground, the vast majority of entrepreneurs used personal savings (76%). The next most popular sources of funding were:

 

  • Credit cards. Used by 36% of these new entrepreneurs, followed by
  • Bank loans. Used by 25%. Only then, in 4th place, do we find
  • Friends and family at 21%.

 

Interestingly, 38% of the respondents said that they had received a financial gift or loan from family and/or friends at some point in the life cycle of their business. One of the fun and different things about the SBOR is that it doesn’t just stop there. These entrepreneurs were also asked how that financial support made them feel. Their answers were enlightening:

 

  • Grateful – 66%
  • Extra motivated - 39%
  • Anxious – 30%
  • Happy and optimistic - 27%
  • Embarrassed - 23%

 

While all of these stats are very interesting, I found the lending statistic (of all things) to be the most interesting - the one that gave me the double take.

 

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

 

Bank lending is really important because it is where most entrepreneurs turn to for funding as their business becomes more established. After a few years, most small businesses outgrow the friends and family / credit card / personal savings level and need more money to grow bigger and handle increased capacity.

 

So let me ask you the question: What percentage of small business bank loans do you think were approved in 2016?

 

  1. 25%?
  2. 60%?
  3. More than 80%?

 

The correct answer is C.

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Yes, that’s right. According to the spring 2016 Bank of America Small Business Owner Report, approval rates for small business loan applications were an astonishing 89%, falling only slightly this fall to 84%. And get this, “While stable, these numbers are the lowest since the question was first posed in fall 2012.”

 

Roughly 85% of all small business loans were approved. Wow. That flies in the face of urban legends that state that getting a bank loan for a business is very difficult.

 

But, if you think about it, such approval rates actually make a lot of sense. By the time a business has been around for, say, five years or more, the small business owners know what they are doing. By then, they clearly have come up with a business that serves the market, makes a profit, and has a good foundation. Additionally, by that time, they also usually have established a solid relationship with a bank and/or banker. Combined, this adds up to all sorts of reasons to not only get a loan, but have that loan approved.

 

And it comes with the added bonus of not having Uncle Chuck ask about his loan at Thanksgiving dinner.

 

(You can read more of the Small Business Owner Report here.)

 

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.

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

A tale of two cities:

 

My pal Jeff in New York wanted to make a documentary film but didn’t have enough money to fund the project. He had heard about crowdfunding and decided to give it a shot. He made a quick video about his movie and put it up on Kickstarter. Jeff said to me, “I figure people will definitely donate the money I need if I give them an Associate Producer credit”.

 

A colleague of mine, Jonah, wanted to launch a food truck in Portland, Oregon. He also opted to crowdfund his idea with Kickstarter, but was much more methodical about it. Yes, he created a solid video, but he also cultivated a great list of people to pitch to once he launched his campaign. He also thought very strategically about the rewards people would get, and created tiers that made sense. He put three months into his campaign before he even posted it on Kickstarter, and even then, as he told me later, “I worked it. I treated it like a marketing campaign.”

Guess which entrepreneur met his funding goal? You guessed it – Jonah.

 

So yes, there is a right way and a wrong way to go about crowdfunding the dream. Here are the dos and don’ts:

 

THE DO’S:

 

Do have a concrete, focused product/solution to a problem: It should be no surprise that people will be much more likely to invest their time and money into something that they see solves a problem, especially if it is a problem that they personally have. Potential backers will stay away if your vision is too muddled or abstract.

 

As such, you need to be sure that your product or service is simple, clear, focused and logical. You are also more likely to be successful if the problem you are attempting to solve is fairly ubiquitous.

 

And for the record, physical objects, and games, have the highest rate of success on Kickstarter, whereas documentaries, shorts, and music are by far most likely to fail.

 

Do know who your product is for, and market to them before launching: Jonah intuitively had the right idea. Thoroughness and forethought are needed throughout every phase of your campaign, but especially before launching. Prior to the launch, you should be

doing plenty of marketing to your tribe and target audience via email and social media – regularly sharing ideas, prototypes, sketches, your mission, etc. Remind your audience over and over again about your great solution to this problem so that they become familiar with it.

Getting your audience excited ahead of time and wanting to be a part of your solution is what works.

 

Have other sources of income: Kickstarter pledges should not be your only source of funding. There are several reasons for this:

  • Backers will want to see that you have skin in the game
  • Also, you need capital to run a campaign – to make prototypes, videos, for marketing, and to handle unexpected road blocks or changes of plan Steve-Strauss--in-article-Medium.png

 

Your Kickstarter funds should be going toward manufacturing and distribution, while your own money should be for things like paying office rent, etc.

 

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

 

THE DON’T’S:

 

Don’t set your funding goal too high: A lot of Kickstarter campaigns make the #1 mistake of setting their funding goal much too high, thinking that it reflects their drive and passion. Yes, you should be proud of that drive, but your funding goal needs to be more strategic and realistic.

 

Your Kickstarter goal should reflect your actual funding needs, and should be an amount that you feel you can reach. People feel much more confident investing in something that looks like it’s already winning, so if your page reads “200% of goal,” you are sure to attract more potential backers.

 

For reference, the median funding goal for the top one thousand most successful Kickstarter campaigns is $1,000.00, whereas most campaigns set a goal of $5,000.00 or more

 

Don’t make your campaign a second or third priority: This project should be your first priority, and you and each team member should be spending enough time ensuring its success. People are not just going to give you money because you posted a cool video on Kickstarter; that’s not how it works.

 

Perhaps the most crucial element of this is prioritizing your backers and potential backers. If you do your campaign right, your inbox will be overflowing with questions and introductions. You need to promptly respond to those queries in a personal, informative, and transparent manner. Give folks regular updates. Get your rewards out the door on time. Respond to requests for additional info.

 

The key here is to act in such a way that backers will want to take a chance on your vision. Do that, and they will help you, well, kick start the dream.

 

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.

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

One of the biggest issues facing entrepreneurs is how to fund their businesses, particularly in the early stages of growth. This leads many to consider venture capital. However, the process is not easy.

 

Here are five things your business should do before talking with a VC.

 

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1.     Make sure your business is VC-fundable

 

While venture capital gets a lot of space in the press, it only funds a fraction of a percent of businesses each year. Venture capitalists (and the “angel investors” that precede them) are looking for big, scalable opportunities. So, depending on the industry, if your business isn’t going to get to at least $50-$100 million or more in the next 3-5 years, don’t be surprised if the venture capitalist doesn’t want to talk to you.

 

This is also why VCs tend to disproportionately fund industries like tech and biotech. For industries focused on the consumer, they tend to come into the funding cycle later in the process.

 

2.     Refine your business plan and deck

 

While your business plan or pitch deck won’t alone get you funded, it acts much like a resume does in a job interview – it helps get you to the next level. Make sure you can clearly explain what problem your business is solving and why your team is the best suited to solve the problem. Clearly communicate your business model and why your approach is better than the competition (whether direct competition, indirect competition or competition that may come down the road). Address and overcome the key objections an investor is likely to have. Explain the milestones you have achieved, what you will achieve with your capital infusion and the scope of the ultimate opportunity. 

 

Doing this slickly and concisely, with graphs, charts and bullets is the current trend for frequently approached investors with short attention spans.

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3.     Get an introduction

 

If you want to ensure your business plan is never seen, send it in over-the-transom without any introduction. Seriously speaking, having an introduction from someone connected to your targeted VCs who can vouch for your team exponentially increases your chance of being seriously evaluated. 

 

Try your business banker, lawyer, accountant, circle of friends and other VCs to make those key connections. It will make a world of difference.

 

Click here to read more from small business expert Carol Roth.

 

4.     Enhance your team

 

At the end of the day, most venture capitalists are betting on the entrepreneurs. Using a racing analogy, if you are going to put money on a race, you bet on the driver first, then the car they are driving. If you are missing key experience or credentials that make you a credible team to pull off your plan and grow the company at warp-speed, fill in the team first so a VC will be willing to make a bet you can execute on your plan.

 

5.     Take the risk out

 

While venture capital is often referred to as risk capital, the reality is that those investors don’t like to take risk. So, the more you can do to eliminate execution risk, the better chance you have of finding funding.

 

This means you should advance your intellectual property, sign up customers and build out your business as much as you possibly can before asking for a big chunk of cash.

 

Frankly, if you go out and are really killing it early on, the venture capitalists will come to you.

 

About Carol Roth: Carol Roth is the creator of the Future File™ legacy planning system, “recovering” investment banker, billion-dollar dealmaker, investor, entrepreneur, national media personality and author of the New York Times bestselling book, The Entrepreneur Equation. She is a judge on the Mark Burnett-produced technology competition show, America’s Greatest Makers and TV host and contributor, including host of Microsoft’s Office Small Business Academy. She is also an advisor to companies ranging from startups to major multi-national corporations and has an action figure made in her own likeness. 

 

Web: www.CarolRoth.com or Twitter: @CarolJSRoth

 

Bank of America, N.A. engages with Carol Roth to provide informational materials for your discussion or review purposes only. Carol Roth is a registered trademark, used pursuant to license. The third parties within articles are used under license from Carol Roth. 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.  ©2016 Bank of America Corporation

When Warren Buffet was first starting out in business as an investor, naturally, he needed funds to invest. Like many small business people, he turned to friends and family to get his stake. Specifically, six close relatives and a college roommate helped Buffet get started.

 

Among those believing and investing in the young man was Buffet’s Aunt Katie. Over several installments during those early years, Aunt Katie eventually invested about $20,000 with her nephew. In an interview with Fox Business on the occasion of his 50th anniversary in business, Buffet was asked what Aunt Katie’s investment was worth when she passed away,

 

“Oh, probably a couple of hundred million dollars,” replied Buffet.

 

Similar to Warren Buffet, Richard Branson was also given an early assist by an older relative, in his case, his mother. Branson says that when he was 16 he wanted to start a magazineSteve-Strauss--in-article-Medium.png to give the youth in Great Britain a voice, especially given the war in Vietnam. The problem was that he had no money and neither did his family.

 

It was fortuitous that around this time his mother found a bracelet on the street. She turned it into the police as a lost item. Two months later, when it still had not been claimed, the police said it was legally hers to keep. Wanting to support her son’s dream, Branson’s mother sold the bracelet for $200 and gave it to him, which he used to start the magazine (and what would eventually become The Virgin Group).

 

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

 

While the story of family and friends helping entrepreneurs is not an unfamiliar one, it still is interesting. It turns out that more often than not, small business owners turn to their extended tribe to get help with launching and growing their businesses.

 

This fact is borne out by the latest Bank of America Small Business Owner Report. The Report is a bi-annual survey commissioned by Bank of America that looks at the views and aspirations of small business owners. While this fall’s Small Business Owner Report examined, among other things, economic confidence and hiring trends, it also surveyed the extent to which small business owners rely on friends, family, and community in their businesses.

 

It turns out that they do, a lot. Consider these interesting statistics from the survey:

 

  • More than half of those surveyed (53%) rely on family to serve important roles in their business (advisers, employees, investors, partners, etc.)
  • More than one-third (38%) have received financial gifts or loans from family and/or friends to fund their business
  • Nearly two-thirds (62%) report that residents in their community actively shop at small businesses

 

Sharon Miller, Managing Director and Head of Small Business for Bank of America says,

 

“For this report we looked closely at the roles that family, friends and communities play in supporting small business owners. The vast majority of entrepreneurs depend on their family for emotional, operational and/or financial assistance, and more than one-third have at some point received financial support from family and/or friends to fund their business . . . while nearly half say the local community plays an important role in the success of their own individual enterprise.”

 

There is a view out there that entrepreneurs are iconoclastic lone wolves; that they are this unique breed of individual who can buck a trend and head off in an uncharted, unique direction that only he or she can see.

 

That is a misconception.

 

What we see from this latest Small Business Owner Report is just the opposite. Oh sure, entrepreneurs have to have a vision – whether it’s creating an investment firm or a student-run magazine or launching a dry cleaner – but the fact is, they can’t and don’t do it alone, and they don’t want to.

 

Whether it is enlisting relatives to invest in the dream or hiring their kids to clean the shop or recruiting elders to act as advisors, the fact remains that entrepreneurs weave together a rich tapestry of people in order to create businesses that serve us all.

 

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.

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.

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If getting credit for your small business is proving to be an uphill climb, you may want to look into a secured credit card. Not only can it help you build or reestablish the credit you need now, but also possibly provide a stepping stone toward an unsecured credit card or bank loan in the future.

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Click here to download a PDF of this infographic.

How to repair business credit When it comes to your small business, better credit could mean bigger possibilities. Improving your company’s credit score — and in some cases, repairing it — could help you take full advantage of opportunities that may fuel your business growth.

 

Learn the ins and outs of building a solid foundation of good business credit with our new guide.

 

Click here to download the guide "Eight Ways to Maintain and Repair Good Business Credit" (PDF).

Now that you’ve gotten familiar with the loan choices the SBA offers with, you may be ready to apply. Here, we give you a step-by-step checklist of everything you need to do to complete and present the necessary paperwork and cover all your bases.

 

You can also read Part 1: "An Overview of  SBA Loans" here and Part 2: "Types of SBA Loans" here.

 

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Click here to download a PDF version of this infographic.

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