Category: Finance & Capital

Article Contributed by Gladstone Brookes

Finding the necessary funding is perhaps the most crucial step in setting up your own business if you hope to survive the tough times gripping the economy. The good news is that there are many different ways to do this, meaning you can choose the method that you believe will best meet the needs of your fledgling organisation.

Loan

The most traditional and popular way to fund a new business is to apply for a loan from the bank. If your application is approved then they will lend you the money which you will pay back gradually over time, plus interest. The frequency of payments and rate of interest will be pre-determined before the deal is agreed and as long as you make sure not to take on more than you need to by agreeing to the likes of PPI, then loans can be a good way to support your business until it finds its feet.

Credit card

A business credit card can be very useful for making purchases when funds run dry or cash flow isn’t at its best; both situations you are likely to find yourself in during the early stages of trading. You have to make sure you keep on top of payments however, or else your credit rating will plummet and you’ll soon find yourself in debt you can no longer afford to pay off. Credit cards are very much a safety net for tough times; not an invitation to spend recklessly.

Grant

In some cases, government organisations or other businesses will offer grants to young companies to help them get up and running. Unlike a loan, this money is essentially a gift that does not need to be repaid and is most often awarded to – but not restricted to – businesses that intend to offer some sort of service or charity work.

Family and friends

Small businesses can often find all the financial support they need from their loved ones. Friends and family will generally agree to lend you money with much lower interest rates and a less strict repayment schedule, taking off a layer of pressure. It is important however to value their investment and treat it with the respect and gratitude it warrants; never take them for granted or else you could lose an investor and a loved one.

Venture capital

Venture capitalists are often wealthy business professionals or organisations that invest in business opportunities that the banks have deemed too risky. It has been suggested that those businesses who secure such funding are a lot more likely to succeed due to the reliable source of finance and business knowledge the investor brings to the table.

Crowdfunding

Very much a modern way of sourcing finance, crowdfunding can be done through the likes of the popular site, Kickstarter, where people and businesses can pledge money towards a creative idea that they believe has a future but lacks the necessary funding to make a reality. It is usually for a one-off idea and therefore is not a long term solution but doesn’t have to be repaid and can certainly help a budding entrepreneur to establish their business.

About the Author

This post was written by Gladstone Brookes. By taking up the claim of behalf of consumers, their specially trained members of staff work to get back money that has been lost through mis-sold PPI policies. £345 million has been reclaimed so far but they continue to accept requests to help people get the reimbursement they are entitled to.

Although it isn’t quite clear where the term ‘business angel’ originated, there are some who believe that it was first used to describe private investors backing Broadway productions. Today the term has taken on a whole new meaning and to struggling businesses, it can feel like a touch of heaven sent to heal broken and wounded companies.

Private investors are most commonly referred to as ‘angels’ in other parts of the world, Europe and Australia in particular, but more and more often the term is being used within the United States. If you are the owner or director of a financially distressed business, this may be something worth investigating. However, there are a few things to be aware of when being funded by a business angel because they aren’t always a blessing in disguise.

What Exactly Is a Business Angel?

Business angels are generally private investors who are willing to invest money into small to medium sized businesses for a number of reasons. Usually the owner of the business is looking for funds to expand operations or to stay current on debts when times are tough. A business angel can be a breath of fresh air but they can also resemble a typhoon or a tsunami, wreaking havoc throughout an already distressed company.

Most often business angels are individuals who reached the top of the ladder within their field of enterprise and have a tidy nest egg to invest. Quite often they are retired persons who don’t want to completely leave the world of business and as a result are looking to keep their ‘hands wet’ through investment in smaller firms. They are likely to set themselves up as advisors as well as investors within the company. Herein is where problems may arise.

Define an Angel’s Role at the Onset

When a business is in dire need of money to increase cashflow, the directors or owners may entertain any offer that comes forward promising a quick influx of cash. Contracting with a business angel does sound like the answer to a prayer but it is important to understand the various levels of involvement a business angel may require.

Often referred to as a ‘silent partner,’ a business angel can be anything but quiet. Many, as noted above, are retired business men and women who would like to stay active in their field but work fewer hours. They seek to take on the role of advisor or mentor as a condition of investing in the company.

It is important to take the time to analyze what your definition of a business angel is. Do you want the financier to have an active say in day to day affairs or are you simply looking to offer a portion of profits in return for funding? For those owners and directors who have built a business from the ground up, it may be difficult to share control with relative outsiders, however knowledgeable they may be.

Before accepting funding from a business angel, consider the potential consequences. The right person could be an angel of light, but taking on financing and relinquishing control to the wrong person can be a nightmare. Business angels can be an answer to a prayer but they can also be angels with tarnished halos and broken wings. This is not a move to take lightly or without adequate legal counsel. As the old adage goes, always look before you leap.

Article Contributed by Carl Smith

Have you got a brilliant business idea that you’re just longing to implement? Are you in need of a bit of financial backing to help your business ideas come to fruition? If you answered yes to both of the above, then you may be interested to hear about crowdfunding, the latest way to help kick start your business off the ground and get it up and running. In this post we’ll be taking a closer look at what exactly crowdfunding is and how company Kickstarter has revolutionised the entrepreneurial opportunities for new business owners. Read on to find out how crowdfunding can help kick start your business.

What is crowdfunding?

Sometimes known as crowd financing, crowdfunding is the process of raising the necessary money to finance a business project or idea. The after effects of the recession have led to many banks turning people away when they approach for loans to set up a business. For that reason, Kickstarter.com came up with an alternative means of gaining the required financial backing, helping hundreds of thousands of young entrepreneurs see their ideas come to light.

Instead of one person have sole responsibility for financing the small business, crowdfunding takes the idea of an entrepreneur approaching a ‘crowd’ of people, each one contributing a small amount to the funding target.

What is Kickstarter?

Originally set up in the United States, Kickstarter.com is the company responsible for making crowdfunding possible. It is essentially a crowdfunding platform where entrepreneurs detail heir business plan and financial backers pledge their support. Kickstarter launched in 2009 and has since funded over 43,000 creative projects with a total of more than 4.3 million investors.

How does Kickstarter work?

–          The entrepreneur posts a description of their business project, with optional pitch video. List a set of rewards depending on pledge levels. Finally, set a funding goal and time frame.

–          Staff at Kickstarter look over the proposed project and give feedback – they decide whether or not to approve the project, which is then posted on site.

–          The business project goes live.

–          If the funding goal isn’t reached within the time frame then nobody’s card is charged and the entrepreneur receives no funding.

Pros and cons of Kickstarter

As with any company, there are the inevitable pros and cons. Let’s take a closer look at the pros and cons of Kickstarter.

Pros

–          Project filtering: as each posting needs to be reviewed and approved first by the Kickstarter staff, this ensures that high quality projects are posted on to the platform. Financial backers aware of Kickstarter will understand that if your project has been approved, it must be good, and are therefore more likely to provide financial support.

–         Rule conforming: all Kickstarter projects follow the same admissions process, urging the entrepreneur to have to work hard at fundraising, networking and publicising the business venture. These are all skills you’ll need as a business owner so you could argue that Kickstarter helps to reinforce these attributes.

–          All or nothing approach: the fact that the entrepreneur receives no money if the funding target is not met is a great idea. This way, backers are less conscious that their money could simply end up going to Kickstarter should everything go pear shaped. Instead, it may make people more likely to want to invest in your cause, as they can rest assured that their cards will not be charged if the target is not achieved within the time frame.

Cons

–          Hidden costs: if you’re going to be using the Kickstart platform to drum up financial backing for your business, you need to be aware that the company will take a five per cent cut of your received business pledges and that Amazon will take an additional sum on top of that. Before posting your business venture on such a platform, you’ll need to consider whether you feel the service you’ll be getting from Kickstarter is worth the money.

–          Offline funding is difficult: if you’re looking to get financial backing by using Kickstarter, you should also realise that it will be very difficult to take that fundraising to an offline level. Unless you can find someone trustworthy enough to agree to pledge the funds you’ve raised offline, it’s likely that it won’t come to anything as it’s against the rules to pledge towards your own project.

As you can see, it really comes down to preferential choice. If you’re determined to start up your own business and the only way you can get the financial support needed is from crowdfunding, then Kickstarter is definitely worth a look. You can’t argue with their fantastic results after all.

About The Author
This blog post was contributed by Carl Smith on behalf of Parcel2Go. They offer a range of services for residents both in the USA and UK, with partners such as FedEx, TNT, City Link plus more. Visit their website today to find out more about Parcel2Go.com same day delivery and what they could do for you.

Many business owners just starting out get caught up in the glamour of having an info product, or group training program, available for the clients and customers to purchase or register for.  However, what they don’t realize when starting out is that before they can sell products and run group programs that they need a pool of people who are ready to buy … i.e. a list.

And when you’re just starting out, it’s highly unlikely that you will have a ready-made list to market to.

So, what’s a business owner to do? How are they supposed to make a profit?

The answer lies in understanding the different income streams that you need to have in your business, and, more importantly, when to introduce each one.

Let me share with you today what those income streams are, and when you use them. The three income streams that you need to have are:

1. Active Income
2. Leveraged Income
3. Passive Income

And you need to introduce them in that order too!

Active Income: this is the income that you receive from working directly with your clients, on a one-on-one basis.  This is the fastest path to income in your business as you’re typically charging a much higher rate for your one-on-one work.  Therefore, you need fewer clients to earn that income. And when you’re just starting out in your business, this is where you need to focus first. Don’t even think about adding additional income streams until you’ve got some momentum going with your one-on-one clients.

There will come a point though, where you’ll find you’ve reached the ceiling in your business.  You can only increase your profits so much at this point, by either:

• Increasing your fees; or
• Working with more clients; or
• Increasing your fees and working with more clients.

When you reach this point, it’s time to introduce the second income stream: leveraged income.

Leveraged Income: this takes the form of you teaching live to a group of people.  This can be a teleseminar, telecourse or some other form of teaching or support program. You are required to be present to teach the information but you are doing so to a group of people; therefore you are leveraging your time – one person but many participants.

You introduce this income stream when you’re almost at capacity with your one-on-one clients.  You feel you’re going to hit the bursting point in your business; you have more demand for your services than you can supply, so you need to leverage your time … and teaching to a group of people all at once is a smart move.  It’s also great for your clients too, especially if they aren’t yet ready to invest with you at your highest level. This is a great way for them to experience your work at a lower investment.

When you put the Active Income and Leveraged Income together, you’re creating a much stronger business foundation.  But there is one final source of income that is also great to add to your business, and that is passive income.

Passive Income:  this is something that you create once, and then sell it via your website for a continuous income flow.  Usually this will be a digital product, i.e. a product that once someone has made payment for they are taken to a page to download the product.  The product can be a PDF document, such as a workbook or report, and/or an audio file, maybe of a live teleclass.  The point is with passive income you spend time creating the product once and making many sales from it.  These sales take place via your website, so in fact you are earning income even while you’re sleeping – that’s why it’s such a popular business model!

The Successful Business Building Formula

Active Income + Leveraged Income + Passive Income
= A Successful, Thriving, and Profitable Business

You’re not reliant on a single income source; instead you’ve spread your revenue out over several different income sources.  And when you add passive income to the mix, you’re able to take time away from your business and still generate an income.

Article Contributed by Andrew Cravenho

Start-ups may be large or small, members of the service industry or manufacturers; however, there are common elements in all types of businesses.

First of all, there have to be sales. For service industries such as the medical field, it would be the number of patients seen over the course of the day. For manufacturers it could be the number of widgets ordered and produced.

Also common to all start-ups is the decision to grant or to not grant credit to those purchasing products or services. For example, most doctors and hospitals bill you for services if it is a major bill, such as surgery. Yet the same doctor may have an office policy requiring payment at the end of a regular visit. Sub-contractors, such as roofers and carpenters, generally bill the contractor and wait to be paid.

Start-ups must budget and calculate whether they have enough funds to pay their own bills and debts. New businesses that cannot wait to collect their accounts receivable often turn to banks for help. When you’re trying to keep a company afloat, cash is king.

What is factoring?

“Factoring” is the purchasing of outstanding receivables (debts owed to businesses). The term factoring often has negative connotations for bankers. Not because it is bad, but because of the way factoring has been used. Factoring usually is not offered through banks, but by outside companies seeking higher profits.

Some industries routinely turn to factoring: for example, your department store credit card bill probably isn’t generated at the department store’s home office. It’s likely processed by a third party, such as Household Finance Corp. or GE Money Bank. The retailer saves the cost of hiring people to collect the accounts and gets its cash quickly.

Factoring companies profit in two basic ways. First, they discount the amount of receivables by a certain percentage. For example, if $10,000 is owed to the company then that amount might be discounted to $9,000. So for the $10,000 in money owed to your business, the factoring company will only give you $9,000.Then the same company will charge your firm interest until that amount is paid.

Accounts Receivable Financing vs. Factoring

A few banks have started a new type of accounts receivable financing to help start-ups manage their accounts receivable and provide for more efficient billing. Receivables financing is traditional debt financing using a company’s receivables to secure the debt. In receivables financing, the receivables are a source of collateral for obtaining financing on typically a short-term basis.

Factoring and receivables financing differ in that factoring involves transferring the ownership of the receivables, while in financing, receivables are simply pledged as collateral. In the latter, the business is still responsible for collecting from its customers. However, if receivables are factored with recourse, the business still has full responsibility for collection.

What kind of terms are available when factoring?

In both factoring and receivables financing, certain receivables carry greater value for financing. The age of the receivable and creditworthiness of the customer are considerations. For example, a bank may accept only receivables less than 90 days past due.

Usually, lenders will not lend 100 percent of the receivables; instead they discount them for possible bad debts. Discount fees are applied based on these considerations. Discount fees of 2 percent to 5 percent on lower risk and 8 percent or more for higher risk are typical. Discount fees vary, so it is important to shop for the best deal and check out the organization and the contract closely.

About Author:

Andrew Cravenho is the CEO of CBAC LLC, an innovative invoice financing exchange. As a serial entrepreneur, Andrew focuses on helping both small and medium sized businesses take control of their cash flow. Prior to CBAC, Andrew founded an annuity financing company relieving tort victims of financial hardship.