Startup Funding Options

So, you want to start a business; you have this great idea for one; or, you have a product that you want to introduce to the marketplace.  But what is holding you back?  Money?  Well, there are several options for you to take advantage of.  Let’s take a look at them.

Many aspiring entrepreneurs will say that they will take the money out of their savings.  According to a recent study funded by the Ewing Marion Kauffman Foundation, nearly 70% of entrepreneurs rely o their personal savings. About a quarter of entrepreneurs rely on venture capital and “angel” or private investors (see my earlier essay on Angels vs. Venture Capitalists), while only 15% rely on friends and family. An even smaller percentage — about 7% — received funding through corporate investments. Crowdfunding is also a popular alternative. According to Fundable, a small business crowdfunding platform, crowdfunding raised $5.1 billion in capital in 2012.

There are other options other than those indicated above.  Depending upon the state you live in, you will want to reach out to an economic development agency.  There you will be able to find financing through tax-free bonds.  For example, in New York State there is the New York State Industrial Development Agency, which issues double tax-free bonds.  That is, the income earned from the bond interest exempted the purchaser from both New York State and federal income taxes.  These will offer a much lower interest rate to you from those in the market.

If you are contemplating a manufacturing-based business, you may consider leasing equipment, the supplier of the equipment will finance the purchase of the equipment.

If you are looking to purchase an existing business, the seller may be willing to fund at least a portion of the sale with a mortgage.  This is true especially in the restaurant business and other small businesses. The seller will usually stay with you in the business for about three months to make sure that everything is going smoothly for you and to introduce you to suppliers and other vendors.

Your success in this regard is to think about other financing sources and to think outside the box.

 

 

Time to Sell Your Business?

Business owners will be confronted with the decision whether to sell their businesses. True, it is a very emotional decision to make.  You conceptualized the business from the very start, built it, endured trials and tribulations,and now the thought is blooming whether to hang it all up.

Just as there are many businesses, there are as many reasons to have thoughts of selling. Here are some of them:

  1. Financing may not be available for capital investments, or too expensive to undertake.
  2. The industry is turning down and you want to sell while strategic buyers are still willing to buy.
  3. Conversely, the industry may have seen some events which have driven sales prices high and you want to take advantage of this “window of opportunity”.
  4. You want to retire and reap rewards of your hard work, and  you didn’t plan for  a successor.

If you decide to sell, you should think about how to get your business spruced up for sale. You need think along the lines of asset values,  product lines, customer list, sales force, distribution channels, and employees.

One of the first things to consider is the items on your balance sheet. What is the investment you made in equipment.  What is the state of your equipment; is it technologically advanced or is to ready for the junk heap? How much is it worth?  What is the value of your intellectual property? Do you own any patents and/or trademarks?  Would you be selling them or keeping them for their royalties?

A potential problem area is that of inventory.  What is its value: is it overvalued or undervalued?  Is there any obsolete inventory or failure to properly count inventory? What is the return rate on your inventory,and why was it returned?

Are the liabilities recorded properly, are there any missing?  Are the accounts up to date?

Are the receivables collected on time and recorded properly?  Are there sufficient reserves for doubtful accounts, sales returns and allowances?

The Customer List is a valuable asset.  Many companies would love to obtain a good customer list to increase their own businesses.  What is the concentration of your customers?  Do you have a few large customers with frequent orders?  Where are they located? What is your distribution channel like, distributors, dealers or direct to consumers?

What are your key competitors’ market share?  Are they growing, or declining?  What is the impact of foreign competition?

With regard to your products, who are your suppliers?  Do you manufacture yourself or outsource all or some of your production?  Does your production process require skilled labor?  What are the production costs?  Are you sales increasing or decreasing?  Can you supply three years of projections, including trends and seasonal or cyclical fluctuations?

Any potential buyer will want to look at your financials.  Three years of up to date historical numbers is the norm.  Depending upon the sale date, you may have to obtain interim financial statements.   All of the financials will have to be audited.

So you see, the decision to sell should not be taken lightly.  There is a lot to do to get your business in shape and attractive to a potential buyer.  So, take this advice.  Keep your records and agreements in order, and keep your books up to date.  Run a business in good order, and your business will be attractive to any suitor.