Monthly Archives: December 2017

Challenges Most Startups Business

It seems that almost every day, there’s another startup proudly announcing that it has reached its crowdfunding goal. With so many success stories out there, it’s easy for other aspiring entrepreneurs to believe that sites like Kickstarter are their golden ticket to launching a business. But the reality is, crowdfunding isn’t always as simple as it seems.

“New entrepreneurs often believe that crowdfunding their venture or project is an easy endeavor,” said Sang Lee, founder and CEO of Return on Change. “However, it requires much groundwork as well as a strong support network to truly make it a success. As they say, there’s no such thing as a free lunch.”

Whether you’re looking to raise a small amount of startup cash or acquire a larger sum through equity crowdfunding, there are a few challenges you might face during the process that you may not have expected. Four crowdfunding platform executives shared the four biggest challenges that entrepreneurs face during their campaigns.

While all crowdfunding platforms serve the same purpose — raising money online from multiple donors and sources — not all of them are created equal. Consumer-use platforms like Kickstarter or Indiegogo are great for raising smaller amounts of money, but equity crowdfunding portals are best for entrepreneurs looking for sums in the millions. If you’re interested in the latter, it’s important to do your research and find the platform that will meet your needs.

“For new entrepreneurs, the biggest challenge is accessing investors to fund the capital ventures,” said Matthew McGrath, CEO of Optimize Capital Markets. “There is an enormous number of investors who are willing and seeking to invest in these startup companies. It’s a matter of allocating the opportunity.”

McGrath advised thorough and diligent research into the size of the crowdfunding marketplace, the types of investors who are active, which sectors the portal focuses on, etc. From there, you can make an educated decision about the right portal to use. Choosing the wrong one can result in a loss of time, money and value, he said.

Planning a realistic goal amount and time frame

Many entrepreneurs, especially those new to the crowdfunding scene, tend to think that they will be able successfully raise all the money they need and then some by the time their campaign ends. It’s important to be realistic about time and money when it comes to planning your campaign.

“One challenge area is when to begin raising [money] and how much to target via the crowdfunding site,” said Shereen Shermak, CEO and fund manager Launch Angels. “Entrepreneurs often don’t have a rule of thumb of how long a runway to create.”

Consider how much capital you would need to take your business to the next major proof points, Shermak said. This is the starting point for the magnitude of your crowdfunding campaign.

“Entrepreneurs often believe that the crowdfunding sites will take over the fundraising process,” Shermak added. “They should instead be prepared to fundraise in parallel to the online raise. This will create momentum for the online raise.”

Building interest

So you’ve got a great business idea, and all your friends and family think it’s great, too. That means the donations will come pouring in once you launch your campaign, right? Not necessarily. Doing a lot of prep work before your campaign will help create and maintain interest in your project.

“Gauging interest for your investment opportunity or project is a critical part of the process before you start mass blasting via social media,” Lee told Business News Daily. “This implies an allocation of time as well as resources both beforehand and during the campaign. It’s definitely a process that requires budgeting out the time and the manpower needed to have a successful fundraising campaign.”

Things to Consider for busines loans

Is this your first time venturing into the small business loan frontier? Obtaining a small business loan is just one of the first steps to launching your business. Proper financial planning, however, is critical to your success.

There are two key things to keep in mind as a small business loan first-timer. If you’re seeking a small business loan, the way you present your business idea, business plan and financial forecasts can be the difference between gaining or not gaining investors’ or a bank’s approval. But once you do get a business loan, how you manage your operations and where those funds go can make or break your entire business.

From creating a budget to managing costs, there are several steps you can take to make the most out of obtaining and managing small business loans. Holly Nicholas Signorelli, a certified financial planner and CPA, advises aspiring entrepreneurs and small business owners to maintain realistic expectations. Based on more than 20 years’ experience, Signorelli shared the following do’s and don’ts of first-time small business loans.

1. Do create a real budget.

About 90 percent of the time, clients come in with a huge budget made up of millions of dollars in profits, Signorelli said. But when you start to go through the line items, there isn’t any real backup to substantiate the numbers. Instead, there is always some hype about the product, the market in general and, most of all, “the potential.” Banks and investors don’t want to buy your idea; they want to make a profit, Signorelli stressed. For them to believe in your idea, they have to believe there is a profit. With very few exceptions, they are not going to invest in your idea if it doesn’t make sense, or if it feels too good to be true, Signorelli said.

2. Do have budget references.

Make sure that every single line item has a reference behind it, Signorelli said. “Real figures, real research — get down and dirty on it,” she said. “For example, if you are providing a service and your budget states that you can sustain XX amount of customers per month at XX amount of dollars, then the price of the service will be easy to show, given the average price of that service in your geographic area,” Signorelli said. However, you need to back up why the customers would come to you versus the competition. “That’s ‘down and dirty,’ and you can’t get too detailed; keep it short and to the point with backup,” Signorelli said. “Think about it: When you are reading a budget, you don’t want someone rambling about their pipe dream. You want to know that the person understands what it’s going to take to make a profit and has a clear plan to bring in business.” In other words, you want details, but you want them to be short and concise.

3. Don’t overestimate your income.

“In 20 years, I have never seen a budget where the income was as high as predicted in the first year,” Signorelli said. This is critical, because the lack of income in the first year is what causes 80 percent of small businesses to go out of business, she said. “Once your budget is done, go back to it and reduce your income 25 to 50 percent less than what your due diligence led you to put on the report,” Signorelli advised.

4. Don’t underestimate your expenses.

“There are things that you underestimated, no matter how meticulous you were, and there are things that you forgot altogether,” Signorelli said. “Just like income, you need to go back to your budget and take your expenses and increase them by 25 to 50 percent.”

5. Do have extra funds.

As a small business owner, it’s critical that you have enough savings, to make sure you can pay your bills during the first year, Signorelli said. “It was hard enough to get your loan, but I promise you that six months into when you are not profitable, no one will want to loan you more money to get you though the next six months,” she said.

Startups Rely On Personal Funding Sources

Rather than using traditional loans to fund their businesses, the majority of small business owners dig into their own bank accounts to keep their companies afloat.

More than 60 percent of microbusiness owners rely on non-retirement, personal savings as the lead source of funding for their businesses, according to the Sam’s Club/Gallup Microbusiness Tracker. Additionally, U.S. microbusinesses — defined as those with five or fewer employees — started in the past year are 30 percent more likely than mature companies to use the owners’ personal savings to maintain the business.

Other popular sources of funding for microbusinesses include credit cards and money from family and friends. The research revealed, however, that less than 3 percent of U.S. microbusiness owners rely on government loans, small business loans or crowdfunding to support their businesses.

The study found that over the past year, 40 percent of microbusiness owners have had to dip into their personal or retirement savings in order to improve their businesses’ bottom lines. That practice has given them significant anxiety over their golden years. Nearly 45 percent of those surveyed said they are worried about having enough money for retirement.

Surprisingly, the research shows that the more money microbusiness owners make, the more they worry. Nearly half of microbusiness owners generating at least $50,000 in revenue per year are anxious about saving for retirement, compared to just 42 percent of those making less than $10,000.

Despite their concerns over retirement, the majority of those surveyed are optimistic about the future. While more than half of owners predict the economy will worsen, 70 percent say they are energized by their work and six in 10 express confidence that they have the talent to grow their companies.

“Despite concerns over worsening economic conditions, U.S. microbusiness owners are confident in nearly every dimension of work and life,” Rosalind Brewer, president and CEO of Sam’s Club, said in a statement. “This vital segment of the U.S. economy is passionate about their choice to pursue a small business venture and unwavering in their commitment to serving consumers with an intense focus on quality no matter how many other factors or challenges they may face.”

What First Time Applicants Need to Know

Looking for a way to get some cash for your small business? A loan isn’t your only option: Many government organizations offer grants to local businesses that meet certain eligibility requirements and qualifications.

“Each state and county has access to funds to help small business owners obtain the capital needed to add [things like] jobs, equipment or real estate,” said Kyle Dixon, CFO of snack food company Cosmos Creations.

In addition to government grants, entrepreneurs can also apply for grant offers from certain banks, companies and nonprofits. Some programs even offer special grants for small businesses that are engaged in research and development.

However, don’t confuse a business grant with a loan.

“It is important to keep in mind the difference between grants and small business loans,” said Bill Drewes, a New York-based attorney and grant writer. “Grants generally don’t require any major portion to be paid back, and are very few and far between.”

Loans, while much more readily available, have to be paid back with interest, and often require personal guarantees on the part of the business owner, Drewes said.

Because grants are generally not expected to be repaid, they aren’t given to just anyone. Most organizations have very strict guidelines and reporting measures to ensure that grant recipients use the money wisely. A Small Business Administration article on government grants noted that grants aren’t necessarily free money, and may require you to match or combine the grant with other forms of financing.

“Make sure you know [what the grantor expects you to do] and what the timeline is,” Dixon added. “Some grants may have to be paid back if you don’t hit the benchmarks.”

The process of finding and applying for a small business grant can be difficult, so make sure you seek help from a financial professional.

“There are a lot of rocks to turn over, and you need to find a couple of contacts to help find all of them,” Dixon told Business News Daily. “There are a lot of different funding sources available for growing businesses that are adding living-wage jobs with benefits. Talk to [your local] Chamber of Commerce if you don’t have any other contacts.”

For more information on business grants or to research federal, state and local grants that you may qualify for, visit the SBA’s website.