Category Archives: Business

How Much Cash Will You Need

If you’re thinking about launching a new business, you may not know where to start with your finances. Of course, you’ll need a decent amount of cash flow to maintain your company. However, if you are organized and thorough, you can plan out your financing and keep your startup budget on track.

Here’s how to figure out approximately how much you’ll need to launch your business.

 

Start small

You most likely have high expectations for your company. However, blind optimism may cause you to invest too much money too quickly. At the very beginning, it’s smart to keep an open mind and prepare for issues that may arise, experts say.

“A prospective business owner should start planning a small business by simply understanding the potential of the business idea,” McCahon told Business News Daily. “What this means is not assuming your idea will be successful.”

The best approach is to test your idea in a small, inexpensive way that gives you a good indication of whether customers actually need your product and how much they’re willing to pay for it, McCahon said. If the test seems successful, then you can start planning your business based on what you learned. [See Related Story: Creative Financing Methods for Startups]

 

Estimate your costs

While every type of business has its own financing needs, there are some tips that can help you figure out how much cash you’ll require. Entrepreneur Drew Gerber, who started a technology company, a publicity firm and a financial planning company, estimates that an entrepreneur will need six months’ worth of fixed costs on hand at startup.

“Have a plan to cover your expenses in the first month,” Gerber said. “Identify your customers before you open the door so you can have a way to start covering those expenses.”

When planning your costs, don’t underestimate the expenses, and remember that they can rise as the business grows, Gerber said. It’s easy to overlook costs when you’re thinking about the big picture, but you should be more precise when planning for your fixed expenses, he added.

Indeed, underestimating costs can decimate your company, McCahon said.

“One of the main reasons most small businesses fail is that they simply run out of cash,” she said. “Writing a business plan without basing your forecasts on reality often leads to an unfortunate, and often unnecessary, business failure. Without the benefit of experience or actual historical financials, it’s easy to overestimate a new company’s revenue and underestimate costs.”

 

Understand what types of costs you’ll have

According to the U.S. Small Business Administration, there are various types of expenses to consider when starting your business. It’s important to differentiate these types of costs, in order to properly manage your business’s cash flow for the short and long term, said Eyal Shinar, CEO of Fundbox, a cash flow management company. Here are a few types of costs for new business owners to consider:

1. One-time versus ongoing costs. One-time expenses will be relevant mostly in the startup process, such as the expenses for incorporating a company. If there’s a month when you have to make a one-time equipment purchase, your money going out will likely be greater than the money coming in, Shinar said. This means your cash flow will be disrupted that month, and you will need to make up for it the following month. Ongoing costs, by contrast, are paid on a regular basis, and include expenses such as utilities. These generally do not fluctuate as much from month to month.

2. Essential versus optional costs. Essential costs are expenses that are absolutely necessary for the company’s growth and development. Optional purchases should be made only if the budget allows. “If you have an optional and nonurgent cost, it may be best to wait until you have enough cash reserves for that purchase,” Shinar said.

3. Fixed versus variable costs. Fixed expenses, such as rent, are consistent from month to month, whereas variable expenses depend on the direct sale of products or services. Shinar noted that fixed costs may eat up a high percentage of revenue in the early days, but as you scale up, their relative burden becomes negligible.

Comprehensive endpoint device security management

The variety of ways workers are now connecting together and to the web to work more effectively continues to grow.

 

As the connections expand, so do the steps that need to be taken to ensure those connections communicate with the network in a secure fashion.

Because employees increasingly are using mobile devices to connect to the corporate network, this puts pressure on IT to provide endpoint security and device management solutions that make sense for both the mobile worker and the enterprise.

Research firm IDC predicts that the number of mobile workers will increase to 1.19 billion by the year 2013. The variety of devices that these workers use to connect to the network will also continue to grow.

According to the iPass 2011 Mobile Enterprise Report, 73 percent of enterprises allow non-IT managed devices to access corporate resources. This is a figure that is likely to get larger as 83 percent of firms said they expect to support Apple’s iOS, while 77 percent anticipate supporting Android-enabled devices.

Each mobile device provides its own set of security vulnerabilities. Additionally, mobile equipment has less evolved security applications – most have no anti-virus or anti-spyware protection on the devices themselves. So endpoint devices are among hacker’s preferred targets.

According to the Juniper Networks Malicious Mobile Threats Report 2010/2011, there was a 400 percent increase in Android malware between June 2010 and January 2011.

To take advantage of the productivity offered by web-enabled endpoint devices, including laptops, smartphones and tablets, it is essential that firms adopt policies and procedures that protect enterprise data while enabling staff to use the mobile devices that best fit their needs.

Use Best Practices for Endpoint Security Solutions
There are a number of established best practices for endpoint security management- among these observances are:

  • Require the staff to sign policies and usage statements for all endpoint devices, including those owned by the business and employee-owned equipment. Policies and usage statements should clearly state the security and support that IT will provide, so it is responsible only for those apps and services that IT delivers and approves.
  • Use the cloud layer to route all network requests such as email and server access to block security threats before they can do any damage.
  • Place security solutions in the cloud. This method enables the enterprise to provide central endpoint device management and security rather than going to each device to install security applications.
  • Use the cloud layer to provide authorization capabilities, allowing workers to access different areas of the network, depending on their needs. For example, an auditor might need access to sensitive corporate financial information, while a customer service representative would need to access customer transactions.
  • Delete corporate information from endpoint devices in the event that they are lost or stolen or if the employee’s relationship with the company ends. The Juniper malware study reports that 1 in 20 mobile devices were lost or stolen.

Alternative Financing Methods for Startups

Many aspiring entrepreneurs have an idea for their business but lack the capital to actually start it. Brand-new businesses are often turned down for bank loans, and even if your business is established, funds can still be tough to secure. Loans funded by the Small Business Administration are usually more accessible, but they are becoming increasingly competitive.

So what options are left for someone aspiring to be a small business owner? Here are six options beyond bank loans for financing your startup.

 

Online lending

Online lenders have become a popular alternative to traditional business loans. These platforms have the advantage of speed, as an application takes only about an hour to complete, and the decision and accompanying funds can be issued within days. Because of the ease and quickness of online lending, economist and former U.S. Treasury Secretary Larry Summers said at the 2015 Lend It conference that he expects online lenders to eventually reach more than 70 percent of small businesses.

 

Angel investors

Angel investors invest in early-stage or startup companies in exchange for a 20 to 25 percent return on their investment. They have helped to start up many prominent companies, including Google and Costco. Mark DiSalvo, CEO of private equity fund provider Semaphore said, “You are likely to get an investor who has strategic experience, so they can provide tactical benefit to the company they are investing in.”

Find out what makes angel investors fund a business here.

 

Venture capitalists

Venture capital is money that is given to help build new startups that are considered to have both high-growth and high-risk potential. Fast-growth companies with an exit strategy already in place can gain up to tens of millions of dollars that can be used to invest, network and grow their company frequently.

Brian Haughey, assistant professor of finance and director of the investment center at Marist College, said that because venture capitalists focus on specific industries, they can generally offer advice to entrepreneurs on whether the product will be successful or what they need to do to bring it to market. However, venture capitalists have a short leash when it comes to company loyalty and often look to recover their investment within a three- to five-year time window, he said.

Learn more about venture capital here.

 

Factoring/invoice advances

Through this process, a service provider will front you the money on invoices that have been billed out, which you then pay back once the customer has settled the bill. This way, the business can grow by providing the funds necessary to keep it going while waiting for customers to pay for outstanding invoices.

Eyal Shinar, CEO of small business cash flow management company Fundbox, says these advances allow companies to close the pay gap between billed work and payments to suppliers and contractors.

“By closing the pay gap, companies can accept new projects more quickly,” Shinar told Business News Daily. “Our goal is to help business owners grow their businesses and hire new workers by ensuring steady cash flow.”

Looking for startup investors

If you’re looking for startup investors, having a good business idea is only half the battle. You won’t convince them based on your idea alone. The person deciding whether your business is worthy of their investment requires a well-thought-out plan, with details about the business, its growth potential, target market and more.

Business News Daily spoke with Michael Mocatta, partner and COO of Neta Ventures, and Keri Gohman, president of online accounting software company Xero Americas, about investor pitch meetings and how to ensure the relationship is a win-win for you and your investors.

 

1. Show investors you’re a low risk.

Benchmarks for raising venture capital have gone up over time as the cost of product development has decreased, said Gohman. Investors need to see a realistic business model and, in many cases, some initial traction. They also want to see how well the business has been thought out, an acute understanding of the business’s unit economics, and the lifetime value and cost of customer acquisition.

“Investors like to fund growth, rather than product development,” Gohman said. “A startup needs to be able to show an investor month-over-month growth over a certain period.”

 

2. Sell them on your team.

Your team is what makes your idea happen, and potential investors are looking at the people behind the idea.

“When fundraising, it’s important for business owners to show that they’ve been able to recruit a team, inspire the team to develop a solid product, a small subset of people who like using the product, and that the product has grown toward product-market fit,” Gohman said.

Mocatta noted that a common mistake is presenting yourself to a potential investor with a missing link, such as when you’re still looking for the “tech guru.”

“You’ll stand out for the right reasons if the people on your team have experience as well as contacts,” he said. “A diverse team with complementary strengths is what will turn an idea into reality.”

 

3. Create a simple tagline that shows your value proposition.

Entrepreneurs who live and breathe details of innovation find it hard to distill a concept into a simple idea that grabs the imagination of investors. You need to condense the vision of the business into a clear benefit that is compelling and dramatic, said Mocatta. A tagline is even more succinct than an elevator pitch, he added, so have this worked out and memorized before presenting your vision to others.

To define a meaningful vision, Gohman advises going beyond the business’s day-to-day operations and think about the “why.”

“A business with a true vision empowers those involved, giving them a reason to wake up in the morning,” Gohman said. “A vision should be used as a north star, guiding an organization in everything it does: hiring, development, customer acquisition, [etc.].”

 

4. Have a plan for distribution.

Having a plan and some initial traction for distributing your product or service is not a nice-to-have; it’s a must-have, said Gohman.

“An entrepreneur needs to have clarity on what they’re selling to their customer and how they’ll reach them,” she said.

Gohman suggested running a few test scenarios to understand how your distribution and demand work. Ideally you should have initial partners or contracts locked down to demonstrate that the business idea can get off the ground.

Stretch Your Startup Dollars

Initial startup costs are some of the biggest expenses a new business owner will have to encounter. Before you turn a profit, there are many parts of the business that need to be covered up front, and entrepreneurs don’t always anticipate some of these expenses.

To reduce your startup costs and stretch your dollars a little farther, follow these tips.

 

Have a budget, and stick to it

A simple way to save money as a new business owner is to set spending and expense limits. However, a surprising number of business owners don’t have a formal budget, said Carissa Reiniger, founder of small business support community Thank You Small Business.

“There is so much power in knowing what is going on in your business, for better or for worse,” Reiniger told Business News Daily. “Managing the finances of my business is not something I naturally enjoy, so I’ve put rules in place to help me stay on track. I advise setting up a standard time every week or month for reviewing and managing your budget.”

Angie Segal, an ActionCOACH business coach, advised entrepreneurs to factor their own salary into the budget as soon as possible.

“When you don’t pay yourself, you take money out of the business elsewhere to cover your own expenses,” Segal said. “Giving yourself a salary forces you to make everything in your budget work.”

Thatcher Spring, CEO of GearLaunch, said entrepreneurs should always do as much as possible with what they have before they add more fixed costs.

“At my company, we only hire when there is too much for the current staff to reasonably accomplish without additional help,” he said. “I’ve also found that hiring less-experienced, smart, adaptable employees, instead of only those that are senior and highly experienced, can help keep salaries under control.”

 

Be flexible

When you created your business plan, you might have envisioned all of the latest office equipment, lavish holiday parties and enough staff to take on big projects. However, not all of those business luxuries are guaranteed.

Office Evolution founder and CEO Mark Hemmeter said small business owners can suffer from a lack of flexibility in their grand plans.

“Your ego and vanity can get in the way,” he said. “You want that car or that perfect sign, but it just isn’t a good fit for the core of the business.

Hemmeter recommended looking into short-term solutions, like using shared office spaces and hiring freelance workers, until you can afford to make long-term commitments such as acquiring private office suites and hiring full-time employees.

Spring added that business owners should always plan for every effort to take longer than expected, whether it’s launching a new website, signing up customers, sourcing new products or hiring employees.

“Make sure you always set aggressive goals, but realize that there will be unexpected terrain on the pathway to success,” he said.

 

Go inexpensive, but not cheap

Startup costs for a new business add up, but there are tips and tools for finding the best areas to spend the money and those where you can cut back a bit. Spring noted that there are numerous cost-effective, self-service tools available to small business owners who want to save money by taking care of their own branding and website development.

However, it’s wise to be wary of “free” opportunities, warned Raad Mobrem, CEO and co-founder of Lettuce Apps (acquired by Intuit).

“Free tools can be a bad idea — they’re free for a reason,” Mobrem said. “Always pay for the important things, like software. You can ask for discounts with B2B services. People understand that you’re a small business just starting out, and if they offer discounts, you’ll want to work with them in the future.”

That said, spending money on the lowest-priced items can mean getting the lowest quality. As a result, you may have to replace things multiple times, and that can be more expensive than going with a pricier option in the first place.

Tech Innovation than Angel Investors

Like all startups, young tech businesses need to find adequate sources of financing to ensure they can get off the ground. But how can you tell which source of financing best positions your new enterprise for success? Recently published research from the University at Buffalo School of Managementsuggest that tech entrepreneurs might be better off partnering with venture capitalists than angel investors.

While researchers note that both angels and VCs are important, they found that VC-backed companies enjoyed several advantages. Tech startups backed by VCs were more likely to issue stocks sooner and often found buyers sooner than those backed by angels, according to the research published in the Journal. The difference, researchers posit, is that venture capital comes along with a larger network, giving them a greater reach when looking for additional investors.

“Angels and venture capitalists are both critical to innovation in business,” said study co-author Supradeep Dutta, assistant professor of operations management and strategy in the UB School of Management. “But it’s not enough to just get a patent. You need a strong network to shape the impact of the innovation, and venture capitalists have that network.”

Dutta attributes the influence of VCs largely to the difference in how money is invested; angels are investing their own capital, he said, whereas VCs are managing a fund capitalized with other investors’ money, meaning tighter controls, stricter contracts, and harder deadlines. Because angels are more flexible, they often put less pressure on startups to quickly innovate and grow.

Of course, sometimes an angel’s flexibility can be an advantage, Dutta added. While their limited influence means angels can only guide innovation so much, it also helps keep founders happy and willing to experiment, which can sometimes lead to breakthroughs.

“While the stringent control rights that venture capitalists have can move startups toward success, it can also create conflict with founders,” Dutta said. “Angels, who are investing their own money, tend to be more flexible and less focused on immediate financial returns, allowing longer-term experimentation.”

The results of the research is based on an analysis of 350 investments from angels and venture capitalists. Dutta’s fellow researchers are Timothy Folta, professor and Thomas John and Bette Wolff Family Chair of Strategic Entrepreneurship at the University of Connecticut School of Business.

Investors confidence increased in the third quarter of 2016, according to the Silicon Valley Venture Capitalist Confidence Index. The index, which is based on a five point scale, now stands at a 3.88, up from a 3.60 last quarter, indicating that investors are more optimistic and willing to pledge capital to startups. University of San Francisco Professor Mark Cannice attributed the boost in confidence to technological progress and the new opportunities that progress is creating.

 

A Funding Match Made in Heaven

Equity crowdfunding, a method of raising capital from small-dollar investors implemented by Title III of the Jumpstart Our Business Startups (JOBS) Act, came online nearly a year ago. The measure was touted as an alternative way to finance both early-stage and local companies that might have trouble securing a loan or attracting more conventional investors.

By its nature, equity crowdfunding is a horizontal endeavor; companies soliciting small investments register with the SEC through an intermediary platform and begin to build capital toward their goal. If they reach that goal, they receive the funding and the investors officially become shareholders. One intermediary platform, GrowthFountain, saw an opportunity to merge the concept of equity crowdfunding with another kind of horizontal institution: the credit union.

Credit unions are financial institutions similar to banks, except for one major difference: Credit unions are not for-profit entities, but rather cooperatives. Each account holder in a credit union is a part owner that retains a democratic stake in the institution and receives dividends in the form of more favorable interest rates, whether it’s on deposits or loans. Marrying equity crowdfunding with credit unions was a no-brainer, said Ken Staut, CEO of GrowthFountain.

“When we formed GrowthFountain and thought about crowdfunding, a lightbulb kind of went off over my head,” Staut told Business News Daily. “Our mission has so many similarities with a credit union’s. We’re both focused on people helping people and community development.”

 

The intersection of equity crowdfunding and credit unions

After Staut realized equity crowdfunding and credit unions should go together, he reached out to Callahan & Associates, a prominent credit union think tank, to gauge some of the unions’ interest in offering access to GrowthFountain’s equity crowdfunding platform. It turned out interest was immense, Staut said. Although the company is still early in the process, it already has three credit union partners: Digital Credit Union, a top 10 credit union with 620,000 members across 50 states; Massachusetts-based Jeanne D’Arc Credit Union with 85,000 members; and Oregon-based Rivermark Community Credit Union, also with 85,000 members.

About a dozen more contracts are in the works, and Staut estimates that when the ink is dry, GrowthFountain’s equity crowdfunding platform will be available to roughly 3 million credit union members nationwide.

Each credit union leverages GrowthFountain’s platform, but the branding and imagery is all unique to the credit union that’s offering it to members. The foremost businesses displayed on each site are unique to the geographic region in which the credit union operates as well, meaning members can invest in local companies – maybe even ones they visit and patronize.

What You Need to Know About Business Financial

Startup financing is a huge consideration and an important decision for any aspiring entrepreneur. There are plenty of ways to fund a business, and whether you borrow money, dip into your savings or go another route, you need to understand your options before you choose.

While these are far from the only ways to finance your startup, here are three of the most popular methods today’s entrepreneurs choose.

 

Borrowing

 

Traditional bank loans

The notoriously high rejection rate of bank business loans combined with the proliferation of online lenders has made traditional business lending seem like it’s not even worth the time and effort. But plenty of small business owners still turn to local and national banks, as well as the Small Business Administration (SBA), to help them finance their operations.

“There’s still a lingering perception out there that banks aren’t lending, but that’s not true,” said Jay DesMarteau, head of regional commercial specialty segments at TD Bank.

“Traditional bank loans typically offer better terms and build credit, but the arduous [process] that comes along with this type of financing often overextends time-to-credit necessary to meet the small business’s needs,” added Matt Schaffnit, CFA, co-founder and COO of Lending Technologies Corp.

 

Alternative lending

Alternative lenders provide quicker, smaller, more flexible loans through an online application and transfer process. Depending on your credit score, you can be approved for a loan in a matter of minutes and have your money in just a day or two.

While having all these options can be great for businesses that may not qualify for a traditional bank loan, it also means you’ll need to be much more diligent about researching potential lenders and their reputations. Sabrina Parsons, CEO of Palo Alto Software, said that although online lenders will make a lot of promises about their funds, some are just “sharks” out to take advantage of small business owners.

“These sharks will charge business owners to ‘qualify’ for a loan and to have access to their lenders,” Parsons said. “[Also, some alternative] loans can come at a very high interest rate, and business owners need to understand the implications of these types of loans.”

Save money with todays secure providers

Just a few short years ago, the image of an IT department for small and medium businesses was one of Dilbert-looking technicians noodling around with Cat 5 cable and speaking in a blend of Klingon and Robot. In other words, IT seemed completely remote, complicated and inaccessible to most employees. Additionally, each new hardware and software deployment, including installing malware protection, could take weeks to manually implement across the enterprise, and rarely went smoothly.

One solution – outsourced IT – has found greater acceptance in the past few years as its benefits have become more tangible to even small businesses. It is estimated that globally, 74 percent of companies use some form of outsourced IT solution, up 25 percent from 2009.

Read further for compelling reasons why a small or medium business should consider the IT-outsourcing trend.

 

Cost savings

Moving IT off-site can save an SMB thousands of dollars per year. As most business decisions are predicated on the bottom line, this is often the main driver in the decision to migrate. Areas of savings include:

Reducing hardware expenses. Servers, storage, cabling, cooling, and datacenter square footage expense can now be on a cloud vendor’s dime, not yours.

No salary or benefits expenses for IT employees.

Potential tax savings by converting capital expenditures (servers), that depreciate slowly over time, to a monthly cost which can potentially be deducted in the current tax year.

 

The latest software versions – hassle-free

Outsourcing IT means software, including malware protection for endpoints, can be updated automatically by the provider. This obviates the need for a local tech to run around taking workstations offline for upgrades.

Furthermore, updating software not only unlocks newer features, but also closes exploits in older versions that might allow hacker penetration. So it’sworth exploring any platform that can make this process painless and automatic, such as a cloud service.

 

Focus on your business, not technical issues

Anyone who survived working in Corporate America from the 1980s onwards is familiar with the spectacle and lost productivity that accompanies the proverbial “system going down.”

When outsourcing IT to the cloud, this nightmare occurs less often as data is often distributed redundantly across many servers that are monitored constantly, leading to greater stability and uptime, and less worrying about IT matters.

Choose Your Words Closely

It’s not what you say, but how you say it that could determine how successful your crowdfunding campaign is, new research finds.

A study from researchers at the University of Illinois at Chicagorevealed that linguistic style, which is how one speaks, is critically important in crowdfunding campaigns, especially for social entrepreneurs.

The study’s authors found that how a pitch is voiced and worded is much more important for social entrepreneurs than it is for their commercial counterparts.

“Here, we show that the persuasiveness of entrepreneurs’ stylistic expressions is dependent on their category membership – that is, whether they are social or commercial entrepreneurs,” said Annaleena Parhankangas, the study’s lead author and an assistant professor at the University of Illinois Chicago in a statement.

For the study, researchers analyzed 656 Kickstarter campaigns between 2013 and 2014. They discovered that linguistic styles that made the campaigns and their founders more understandable and relatable to potential funders boosted the exposure and success of social campaigns. However, linguistic style made little impact for commercial endeavors.

“Early-stage entrepreneurs are increasingly involved in the theatrical pitching of their projects to various audiences at forums, such as accelerator demo days, pitch mixers, competitions and online crowdfunding sites,” Parhankangas said. “How they deliver the message matters – and, as a result, it is important to study how entrepreneurs’ language use affects their chances of raising funding.”

The study was co-authored by Maija Renko, a UIC associate professor of entrepreneurship.

The researchers said style doesn’t matter as much for commercial entrepreneurs. Instead, content is likely to be enough to persuade their audience to invest.

While what’s being pitched is more important for commercial entrepreneurs, there are some phrases they can use in their pitches to increase their chances of success.

A previous study from researchers at Georgia Tech looked at more than 45,000 Kickstarter campaigns and found that certain phrases used on the campaign’s webpage could predict whether it was going to fail or succeed.

Based on the 100 most popular phrases used in the project descriptions they studied, the researchers found that the top phrases found in successful campaigns were:

  • “Also receive two”
  • “Pledged will”
  • “Good karma and”
  • “Option is”
  • “Given the chance”
  • “Has pledged”
  • “To build this”
  • “Accessible to the”
  • “We can afford”
  • “Project will be”
  • “Mention your”
  • “Your continued”