Category: Finance & Capital

The choices you make when raising seed capital from an angel investor will have considerable positive or negative impact on the long-term success of your company.

So obviously it’s important to find investors who will add value over and above the dollars they invest in your company. So take extreme care in their selection.

Pick your partners well and do real due diligence on your angel!

Ask these five key questions, and examine the answers closely!

1. What value and connections will you bring to the mix?

Does the angel have expertise directly related to your start up focus? Have they cashed out successfully from a company in a similar space and/or with a similar business model to yours? Even experience indirectly related to your space can be valuable, especially when the angel has connections through their network, which will be valuable to increase your customer or client base. Check out their network; make sure it is real and not just a façade.

Partner with angels who are passionate about what you do, and show they plan to invest more than money in your success. A true-shared passion can lead to good advice and intros even during your first meeting.

2. How much time will you dedicate to my start up?

How many other angel investments does your investor have, and where are they? How many hours a week will they be available for direct or phone consultation. What other expectations for involvement do they have; such as progress (milestone) reviews, and introductions to customers, clients, vendors and other investors.

You want and need quality time with your Angel; they need to be as dedicated as you in order to advance the goals for the success of your company.

3. How much money will you bring, now and later?

This will be based on a mutually agreed valuation between the Founder and the Angel. (the short answer).

Often, the initial investment does not stretch as far as everyone thinks/hopes it will, so find out up-front how willing your Angel will be to add to his initial investment, and how willing and able he is to make the appropriate introductions to VCs when the right time comes. Also discuss what the incremental cost to you will be!

Delay in getting that first cheque is often an indication of future difficulties. Paul Graham, Y Combinator’s founder, will often advise startups to go with whoever will write a cheque with the least hassle, however this may determine a less than optimum selection of an Angel investor/partner for you, all other needs considered.

4. How much control do you want?

You will find there is a fine line between help and control, and often an area of great misunderstanding. This is something that needs to be addressed very clearly in your term sheet.

Be careful when your Angel wants control by taking a board seat (when that’s inappropriate), and doesn’t demand 50% of the company for an angel investment. You should be structuring things so that all the angels in aggregate should take 5-20% (ideal world). Don’t give away the ship for one check.

5. What is your track record as an Angel investor?

Have previous investments failed? Discover why? Check references with past companies, which your angel has invested in; check both failures and successes.  Find out from past investments, if they kept money in reserve and were forthcoming to add to their investment when needed. Was their attitude supportive or negative? Try to speak directly with other entrepreneurs they have invested in.

Just as the Angel does due diligence to invest in you and your company, so should you take the time and effort to do due diligence on your Angel; make sure that you are both clear about and understand each others intentions and expectations. A good Angel will be supportive of your investigation, just as you will be supportive of their investigation.

This was originally published on Entrepreneurs Questions http://eqli.st/five-key-questions-to-ask-investors/

Companies looking for an immediate injection of cash quite often find that the quickest way to accomplish this is through invoice factoring or discounting. Although it seems like a relatively straightforward process, it isn’t as simple as it may sound. It all sounds fairly basic where the lender will provide up to a certain percentage, often as much as 85pc, of the accounts receivable on the ledgers. Unfortunately, there may be times when this can work as a disadvantage, putting a company further into a negative cashflow. That being said, Real Business Rescue will only recommend factoring or invoice discounting if it seems like the most beneficial way to inject money into your business without putting you further into the negative.

Factoring, Discounting and Accumulated Interest on Loans

When your cash flow is worse off as a result of factoring or invoice discounting, several factors could be the ultimate cause. The first thing to consider is that there are a great number of businesses in distress at the moment and if you are having problems collecting debts owed to your company, those debtors may be in distress as well. Yes, you did get a ‘loan’ against your books but will the factor be able to collect those debts and if so, how long will it take to do so? Keep in mind that there is interest charged on the amount of money you will be borrowing against your books and if it takes an inordinate amount of time to collect on those invoices, you may be paying more in interest than you had anticipated.

Invoice Factoring and Discounting vs. Bank Overdrafts

Another area which may be problematic is when a company has an overdraft account with a lender, typically a bank. In many cases the overdraft will be discontinued when a loan is taken against the books which might end up, as mentioned above, costing more than anticipated. Before seeking invoice discounting or factoring, take a good look at your overdraft account to evaluate which would be most cost effective in terms of cash flow. If the factor or your bookkeeping department (for discounting) has trouble collecting from your clients, the overdraft account might just be a more logical choice. This is why our insolvency specialists do a thorough analysis of your accounts before giving advice on which path to take.

When your cashflow is worse off as a result of factoring or invoice discounting, the problem is probably due to an inability to collect on outstanding debts. It’s as simple as that. This is why it is so important to know the difference between a turnaround specialist and a lender! A turnaround (insolvency) specialist will seek to find solutions to your cash flow problems that are realistic. Lenders obviously want to make a profit on loans. That is not a bad thing because, after all, every company is in business to make money. However, Real Business Rescue wants to help you find financing that will not leave you in even greater distress. Talk to our specialists with a free consultation so that we can help determine if invoice discounting or factoring are the best way to raise immediate funds for your company.

Article Contributed by Beth Nicholas

But the four major categories discussed above should be your first concern as they are the foundation for establishing control over your cash flow and the impact it has on your business’ profit, survival and growth.

1. Invoice smarter

Slow-paying customers can present a huge issue for small businesses in particular – especially when those businesses are experiencing the same issues as your business and waiting for their own cash to come in. It can be a tricky cycle.

Ensure your invoicing process is streamlined, invoices are promptly mailed out and the invoice content is clear and easy to read. Simple omissions such as failure to include purchase order numbers and payment terms can bring on setbacks and delays.

Assess whether your business is able to go one step beyond and make the payment process easier and faster for your customers.  Electronic payment systems, or discounts offered for rapid payment of invoices, can speed up transactions and may also improve processing times on your side.

2. Negotiate

Just because a price has been quoted, or you have been paying the same rate for years and years, doesn’t mean that is what you have to pay.

Work hard to negotiate with your suppliers since many are willing to discuss pricing and rates (they want to retain your business after all!)

Every little bit might just help – whether addressing standard utility overheads such as energy and phone bills, or working to pay less for the office stationery  – it could have a significant impact on your bottom line.

3. Get close to your accountant 

Many businesses, particularly smaller ones, look to liaise with their accountant at a time of need.

A solid accountant can provide invaluable advice and serve as a useful resource, sharing knowledge, insight and recommendation all year round.

Services such as cost management, profit management, investment, funding consultancy and general check-ups can help you keep things on track and optimise the health of your balance sheet.

Build a regular relationship and dialogue with your accountant to drive smarter business decisions, higher profits, reduced taxes and improved cash flow.

4.  Explore alternative credit and funding options

A wide range of alternative funding solutions are available in the market – non-bank lending is now at its highest in five years as more and more SMEs recognise the benefit of short-term, affordable cash flow solutions.

Beyond the company credit card, hire purchase agreements, leasing arrangements and overdrafts – cash flow products such as crowd-funding and invoice finance could provide much-needed cash and capital to help you manage seasonal demand, or the challenging peaks and troughs of delayed customer payments. If you have followed the previous tip and have a good accountant, they will be full of advice and recommendation on the best path for you.

Overdrafts, premium funding, lease facilities and cash flow funding products such as factoring can all be excellent tools to help match cash supply with outlays. These arrangements take time to set up, so you need to be prepared in advance. In a pinch, the business credit card can be a good way to ease the crunch as long as it can be paid off before interest kicks in.

5. Plan, plan, plan – and stick to it

Heavily monitor your balance sheet and your cash flow budget.

The continual review and action planning for the credit you allow, the bills you pay, how you pay those bills, and when your payments are coming in are all critical for the survival of a business.

It is important to revise your cash flow budget periodically which an accountant can assist with and deliver as an automated, streamlined process. Simple exercises such as payment prioritisation, strategic management of credit terms, weekly cash flow projections and payment collections all form the foundations of the dynamic accounting function of a business.

A solid system in place such as this, will also allow you to plan for lean times and schedule purchases and allocation of capital when you need it the most.

About the Author

Beth Nicholas is a professional writer for Plus Accounting – a leading accountant firm and business financial services provider based in Brighton, England.

If you’re a small business owner, effective cash management and business budgeting are likely high on your list of priorities. But, if you’re not at the point where you need to hire an accountant, how can you manage cash flow on your own without running the risk of making costly mistakes? Business banking software, such as Quicken, might be the answer. Check out the benefits and features of this tool to see how it can help you manage your small business banking and budgeting.

Top features of Quicken for business banking 

• Business budgeting software

Quicken business budgeting software brings all your accounts together to generate a suggested monthly budget based on your finances. It will even include important elements such as interest you may earn or credit card and other debt you may owe. Designed to be intuitive and highly accessible to the average user, this business budgeting software uses eye-catching, colorful graphs and options like quarterly and yearly forecasts so you can gear your business budget to your specific needs and goals. It also groups different areas of spending together, such as utilities, credit card payments, accounts payable, client expenses, etc., so you can get a quick snapshot of where exactly your money is going and what you might want to cut back on.

• Cash management software to reduce debt

Reducing debt is a common financial concern for business owners. Quicken features a debt reduction tool that helps take the guesswork out of paying down debt. Simply enter the account information for your various debts and the tool formulates a pay-down plan. It also gives you helpful insights like which types of debt should be paid down first and how much of your money is going toward interest each month.

Top benefits of using Quicken software for business banking 

• Organizes data in one place

One of the advantages of using Quicken is that it lets you compile the financial data for your small business. This means you can download information from checking or savings accounts, retirement and investment accounts, and credit cards to comprehensively analyze the data in one place. Providing a more convenient way to see your business banking information at once gives you a more accurate and holistic representation of your finances.

• Gives you real-time information

In addition to the convenience of having data from multiple accounts in one place, this business budgeting software gives you real-time information via the Internet. With up-to-the-minute data, you can easily see where you’re spending, and where your employees are spending, to make more timely decisions regarding cash management. Having this information in front of you whenever you want it will give you a better idea of where your money is going and help you find areas where you can cut back and save, or spend more to foster growth. 

Cash management is key

When you run your own business, you often need to wear multiple hats. Creating a small business budget can be a daunting task, especially for those who need to focus on daily operations more than financials. Having a tool like Quicken however, is a great do-it-yourself way to efficiently handle finances. After all, proper cash management and budgeting can make or break a small business, so arming yourself with this kind of tool can help set your business up for financial success and can help you reach your goals.

Sponsored content was created and provided by RBS Citizens Financial Group.

Article Contributed by Doug Barden

It is pretty difficult to get a new business off the ground without some kind of start-up capital. You may need to buy fixed assets, pay new employees, or even draw a wage to cover your personal living expenses. There are ways to keep the costs down—setting up a small business from the spare room can work for entrepreneurial IT types—but if your dream is to open a restaurant franchise or a boutique, the only way to do so will be to look into your potential sources of available finance.

Bank Business Loans

Banks have always been a traditional source of funding for small businesses. Going cap in hand to your local bank manager with a head full of dreams and an embryonic business plan might just be enough to secure you a business loan. Or at least it would have been ten years ago. Nowadays, the economic climate has changed and banks are far more risk averse. Your credit history and business plan will need to be rock solid before most banks will even give you the time of day. But there is funding available, so don’t lose heart if the first bank you approach says “no”.

Private Equity

The first place to look for private equity is close to home. If you are lucky enough to have any friends and family with deep pockets and a desire to help, you may be able to secure enough money to get your new business off the ground. Another possible route is to approach a private investor and try to persuade them that your business is worthy of their investment.

Venture Capitalists

Venture capital funding comes from private investors interested in long term growth potential. High risk businesses with the potential for generating massive returns for their investors are attractive to venture capitalists, so if you can’t raise cash through traditional avenues, but you are certain your business plan will make you rich, venture capital may be your best option. The main disadvantage of this type of funding is that your investors will expect to have a say in how you run your business, plus they will expect a slice of the equity pie.

Grants and Government Start-up Initiatives

There are many non-profit organisations and government backed initiatives offering finance solutions for new businesses. Many are aimed at young entrepreneurs aged between 18 and 30, so if you fit the bill, this could be the ideal path to take. Aside from a cash loan, you will also receive lots of support from a mentor to help you make a success of your business venture.

Invoice Factoring

Instead of chasing payment from customers, use invoice factoring to release capital from the sales ledger to help build your business. Invoice factoring companies will charge a fee and a percentage of the invoice, but it is useful way of raising working capital in the early days.

There are many ways to raise finance for a new business start-up, but almost all of them will require that you have an excellent business plan. Nobody will lend you money unless they feel that your ideas are workable, but if you are convinced your business has the potential to be more than a pipe dream, it is time to turn your dreams into a reality and join the thousands of other people who start their own business every year.

About the author:

Doug Barden is a managing partner in Beech Business, one of North Manchester and Lancashire’s leading chartered accountancy firms.  For more information on the services they offer, including book-keeping, payroll and accounting, visit http://www.beech-business.co.uk.