Category Archives: Business Financing

Business 101: So You Got an Idea Do Ya????? Part 4

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Organics Admin

COO at Aladay LLC
Organic Farmer, Property Preservation Specialist and Custom Glass & Wood Worker. Blogger extraordinaire...
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Do the questions ever stop? What is the correct financing avenues for me?

Bootstrapping is a very popular form of Business Financing
Bootstrapping is a very popular form of Business Financing

 

The simple answer, no they don’t. If you’re successful they never will. Believe it or not, that IS a good thing.

Now that you have spoken to family and friends about your business idea and you have started formulating your business plan. If nothing else you should at least be on information overload. By now you have found out that this endeavor will be a challenge and consume massive amounts of time. Then one of the biggest questions comes into play…

How will you finance the business?

As we have been discussing there are many avenues for financing a business. You have a few choices, including Aunt Sally, credit cards (dangerous), angel investors, venture capital (if you’re really onto something), bank loans (good luck finding them) and the most expensive route, equity. Beware, though: Selling shares to the public comes with a host of headaches, including dilution of ownership, loss of control and regulatory hurdles. Bottom line: Bootstrap the business if you can. Finally, always remember to match the timing of cash inflows from your assets and the outflows to cover liabilities. A mismatch can sting. Here are a couple more avenues that can be pursued and have shown some success in the past.

Tax Increment Financing.

TIF subsidies are geared toward real estate development in targeted areas. Depending on the state, the subsidies can be as large as 20% to 30% of the cost of the project. Better yet, you may even be able to borrow against this subsidized value. If your own community does not offer a TIF program, look at communities that do. You may end up a little farther from your home or office, but it could be worth your while. Always speak with your accountant when playing around with taxes. Any accountant worth their salt will be versed in the current laws concerning taxes.

 

Internal Revenue Service:

No, the IRS does not lend money. But it does allow you to deduct expenses. If you are paying a heap in taxes, evaluate whether you can use your profits to expand your business–and reduce your tax bill. Again this is an area that your accountant can help you with. Remember Thanks to “Reaganomics” from Uncle Ronnie and his deregulating buddy Georgey Boy SR. we were given many ways to depreciate and make business deductions. As Georgey Boy Jr. would say, you must carefully stragerize to maximize your potetial. You accountant will be able to assist you with all the proper methods and ways to deduct monies to assist your business.

 

Bootstrapping:

Many billion-dollar entrepreneurs find a way to grow without external financing so that financiers don’t control their destinies or grab a disproportionate slice of the wealth pie. For more on the sound strategic thinking you’ll need in order to live on your own cash flow. This topic has a bevy of information out there. Here are a couple places that will help you with Bootstrapping. Bootstrap to Billions: Proven Rules from Entrepreneurs who Built Great Companies from Scratch and Finance Any Business Intelligently. Authored by Dileep RaoIn addition there are several website dedicated to helping Entrepreneurs. www.uEntrepreneurs.com. Is just one of them.

So now that you are totally confused as to which type of financing you may want to explore someone sneaks in the back door and say…

How much start-up capital do you need?

Any early-stage investor or small business consultant will tell you that most businesses fail because they were undercapitalized. There are no absolute rules here. However, this is where consultants come in, as there are no formulas with easy solutions. If you do not have enough resources going into your new enterprise then you will need to become very fluent in creative financing. Some say to double your original estimates.

Myself when we got started we consulted with members of SCORE and we actually asked for an extra $5,000.00 in our loan for operating expenses. However, our loan was to finance an upstart organic farm and with produce requiring at least 90 to grow before sales revenues would start coming in we asked for a 120 day deferment  in the first payment, we also asked for 3$ interest and had to agree to 5% for the deferred payment arrangements. Again this would not have been on the table if it wasn’t for the help we received during consultations.

Another question that always comes up in regards to financing. You have to sell your products and the will require some sort of marketing.

How should you market your product?

One of the issues I see with new businesses is that they have no marketing budgets.

Getting the word out about your company–without going broke–is no mean feat. In the mid ’90s, America Online spent so much money flooding the planet with free trial software that it tried to mask the bleeding by capitalizing those expenses on its balance sheet. Before you run out and spend money on software do yourself a favor and invest in yourself. Check with your local City College and see if they have classes. Most people don’t realize you don’t have to take a “full load” of classes as is said of someone that takes 5-6 classes a semester. You also don’t have to commit to a four year education program to take a course or two at Higher Education Institutions.

I will have more on marketing in an upcoming interview with a very dear friend of mine in the San Francisco Bay area Rhonda Baker. Rhonda has degrees in marketing I’m sure Rhonda will share some great do’s and don’t’s on the subject of marketing your business.

 

By now some of you may be wondering about if your idea can be patented or trade marked, copy written???

How do you protect your intellectual property?

A quick follow-on to the previous slide: Say you invented a car that can go 150 mph on solar power alone. A few months later five savvy rivals have reverse-engineered it and are now bringing their versions to market. Before you crank out prototypes for the public, file for a provisional patent. It protects your idea for a year while you work out the kinks. For more on intellectual-property protection, check out “Protect Your Prototype” and “ The Patented Path To Profits.” Always remember, to make copies of everything and have them in a safety deposit box, a safe, anywhere that only you can access until your products have been protected for your future.

A question that will undoubtedly come up should your product be one of intellectual nature;

How big is the threat of new entrants?

11-1 says that if there’s money to be made, the competition will come. You just never know from where. If not a direct rival (think what Microsoft did to Netscape in Internet browsers), then a substitute technology might take out your legs (look at what digital film did to Kodak). Construct barriers to entry–by filing a patent, securing an enviable lease, building a loyal following–long before that happens. Remember that technology changes at the speed of light. What is top shelf technology is a dinosaur tomorrow so you will always want to protect yourself. Speak with attorneys and other professional services in regards to development of your products.

I do hope this information has been a help to you. We will bring you more on developing your business plan in the weeks ahead. Should you have questions or perhaps you would like a consultation please contact us at:

consultationservice@aladayllc.com

 

Until Next time

Happy Gardening

Written by: Aaron Aveiro

Sources: Forbes, IRS, SCORE, SBA our Accountant Janet Vick. at Rand and Assoiates