Category Archives: Business

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.

Tips for Self Funding a Startup

Funding is one of the biggest challenges most entrepreneurs face. Whether they take out loans, crowdfund or accept investments, startup founders often find that they need some kind of outside financing to make their business dreams a reality.

But some entrepreneurs choose to self-fund their operations, investing their own money into the business. This is known as bootstrapping, and if you have the resources to do it, you will benefit from complete financial and creative control over your business. There are no equity stakeholders demanding that you move in a certain direction, or lenders looking for their loan payments each month.

The downside, of course, is that your business budget is dictated by your own personal finances. Bootstrappers are on the hook for every last cent invested in the business, and without the right financial-management skills, you could end up driving yourself into serious debt.

If you’re thinking about funding your startup out of pocket, here’s some advice from business leaders on how to make it work.

The advantages of bootstrapping
Any financing path comes with pros and cons, and bootstrapping is no exception. It’s true that this method will put severe constraints on your budget and increase your personal liability, but there are also plenty of advantages to self-funding. Our expert sources weighed in on why bootstrapping might be a good idea for you:

“Bootstrapping allows an entrepreneur to have complete control over your business without sharing ownership with outside investors. You can manage the pace and iterations of your product, marketing and sales efforts, whereas outside investors may push you to pursue revenue before your product is ready to go to market.” – Bob Johnston, CEO of SponsorHub, a sports and entertainment analytics company

“A bootstrapping founder can prove value without having to give up equity for expensive money. You give yourself the shot of actually driving revenues and greatly increasing your valuation before funding, and maybe never taking money, which would be the best thing a business can do.” – Andrew Heckler, CEO of content marketing and native advertising tech company Hone

“You don’t need anyone’s approval (except yours and your partners’) to spend your money in support of a certain direction or initiative. You’re not subject to the whims and influences of investors who pop in and out of your business without the day-to-day knowledge you’ve got as the leader. You’ve got the freedom to add people to your team as the cash flow can support it, which means you don’t over-hire and then have to let people go.” – Bryan Miles, CEO and co-founder of business process outsourcing company Miles Advisory Group

“Bootstrapping allows you to focus on the essentials. Having a massive sum of money and investors demanding that it be spent can lead to waste. When bootstrapping, you learn to be more analytical in terms of what you spend money on. Learning this skill is crucial to any entrepreneur.” – Endri Tolka, co-founder and COO of YouVisit, a company that provides virtual tours and virtual-reality solutions

“Bootstrapping forces creativity. It drives you to work efficiently and intelligently in order to maximize profits and fund future growth, and to manage that growth carefully.” – Mark Buff, CEO and founder ofHDTV antenna maker Mohu

Building a business on a budget
To make bootstrapping work, you need to be financially disciplined. Here are a few best practices to help make your self-funded startup successful.

Lower your hiring costs (at first). When you’re pouring your own money into your business, you’ll want to keep costs as low as possible. This might mean wearing more hats than you expected, at least in the early days of your business. Buff advised learning everything you can about all aspects of business — such as accounting, product development, Web design and advertising — so you can hold off on hiring someone for these tasks for a while.

Bankroll Your Business While in Personal Debt

Depending on where you are in your life and your career, you might be facing a little — or a lot — of personal debt. Many would-be entrepreneurs owe money on credit cards, student loans, mortgages, cars or all of the above, and these heavy outstanding balances could put their dreams of business ownership on hold.

Quitting your day job to start a business when you’re thousands of dollars in the red is probably ill-advised, but carrying debt shouldn’t prevent you from getting your business going. Although it’s not an easy path, it is certainly possible to become an entrepreneur under tough financial circumstances.

If you’re looking to start a business while you’re in debt, here are a few smart steps to help you minimize startup expenses and keep your cash flow steady.

Explore your financing options
If you’re carrying a lot of personal debt, your monthly cash flow is probably not optimal for funding a business. There are a lot of options for business owners in your position — crowdfunding, alternative lenders, credit-card financing, etc. — but each choice comes with pros and cons, and you should be thoroughly understand what’s involved before moving ahead.

For example, Ethan Senturia, the CEO of business financing provider Dealstruck, said affordable financing options (i.e., loans and lines of credit with a lower interest rate) almost always requires a personal guarantee from the business owner.

“Even though you can get a business loan with a heavy personal debt load, most small business lenders will ask that you personally guarantee repayment of the loan in case your business can’t make the payment,” Senturia said. “This could add a heavier burden on your already heavy debt obligations, and could add stress to your personal life. Financing that doesn’t require a personal guarantee … is very expensive and can significantly strain your new business.”

You can also probably secure additional personal credit cards for your business, but Senturia doesn’t recommended this, as these cards will not help you build business credit, and will instead hurt your personal credit.

The Most of Your New Business Loan

Congratulations! You’ve received the good news that many cash-strapped business owners long to hear: You were approved for a business loan.

Whether you’re getting a traditional bank loan or you went through an alternative lender, your newly acquired funds will no doubt help your business achieve goals, make important changes and continue growing. Your mind is probably racing with all the possibilities this money represents, but before the loan hits your bank account, you need to have a well-thought-out plan for what to do with the funds.

“This may be the end of the loan-application process, but it’s the beginning of what hopefully will be a growth-oriented and prosperous future,” said Michael Finkelstein, CEO of online lending platform The Credit Junction. “Judicious deployment of the new funds is critical to ensuring the business optimizes the new capital.”

Business financing experts shared their best tips to help new business-loan recipients properly manage the money they’ve received.

What you should do with your loan funds?
Put the money in a separate account. If you’re using your loan funds to cover ongoing operational expenses and purchases, you might want to place the money somewhere other than your primary business checking account. Essentially pretending the money isn’t there, and only transferring money as you need it, will prevent you from overspending, said Levi King, CEO and co-founder of business credit and financing company Nav (formerly Creditera).

“If you have to transfer money from one account to another — especially if it’s with different banks — you’ll think long and hard before you make that decision,” King said.

Set up automatic loan payments. Late or missed payments on your loan can really hurt your credit score, and make it more difficult for you to borrow money in the future. One way to ensure you stay on top of your loan repayment is by setting up automatic debits. Most lenders have an online banking system that allows you to do this, and as long as you know you’ll have the funds each month to make the payments, it will save you the hassle of manually moving your money around.

“[Auto-debit] helps ensure timely repayment and is one less thing for a small business owner to worry about,” said Mollie Gawronski, head of small business segment strategy for BMO Harris Bank. “In some cases, [banks can] offer better terms for customers who do that.”

Continue cutting costs and planning your budget. Don’t let that large bank-account balance go to your head: In the long run, continuing to save money, trim your budget and plan for your business’s future, even though you now have the funds to cover your expenses, will ensure you’re prepared for a financial emergency.

“Don’t assume that once you’ve got funding, you are all set,” King said. “Another big opportunity or problem can present itself tomorrow. Always be anticipating future funding needs, and look for opportunities to lower the cost of existing loans by refinancing for example.

Stephen Sheinbaum, founder of financial technology company Bizfi, noted that putting certain expenses like utilities on an equal payment plan, or looking into vendor discounts or early payoff plans can help you better manage your cash flow.

“Whatever savings you generate should go into your reserves,” Sheinbaum said.

Money mistakes to avoid
Spending just because you can. There are probably at least a dozen small expenses your new loan funds could help cover. You have a plan for the bulk of that money, and you may think spending $50 here or $100 there won’t throw off your financial strategy too much. However, those little costs add up, and before you know it, you could find yourself back in the position of being short on cash.

“Create good operational controls and checks and balances for cash monitoring and authority for release of funds,” Finkelstein said. “It is tempting, with an influx of cash, to add fixed costs, but many times this is not optimal.”

King agreed, and noted that any plans to spend the money should be run by someone else first, like your accountant or financial manager.

“It’s so easy to use [your loan] on things that aren’t going to move the needle,” King told Business News Daily. “Only spend when you need it … as slowly as possible, validating [the expense] along the way. A lot of times, projects and needs change.”

Crowdfunding Takes Off for Small Businesses

It’s been a four full months since the Title III equity crowdfunding provision of the Jumpstart Our Businesses (JOBS) Act went into effect, allowing small businesses and startups to raise up to $1 million annually in crowdfunded securities investments from both accredited and nonaccredited investors. As of Sept. 15, businesses had raised more than $7 million in capital investments using Title III.

Although Title III is a particularly young section of the JOBS Act, it’s been hailed as a potential game changer for small-scale financing. Whether a company’s projected growth is too flat to interest venture capitalists or an owner simply doesn’t want to end up beholden to one highly powerful investor, Title III is seen as a way to raise growth capital without sacrificing independence. Moreover, campaigns can be targeted at locals within a business’s community, helping to build a loyal customer base that maintains a stake in the company’s success.

“I think Title III will change financing. If you look at how the industry evolved in Great Britain when they did it, we’re already growing faster than they were,” Mike Norman, CEO of equity crowdfunding platform WeFunder, said. “It will take a little time, as any new securities legislation does. Awareness is the biggest challenge right now. A true test and the most compelling part is that we now have companies that have raised meaningful funds from investors. How can they activate those investors in terms of promotion and customer loyalty?”

WeFunder has tracked the growth of the equity crowdfunding industry so far, and the early statistics appear promising. More than 9,000 investors have contributed $7.14 million so far, helping to fund 29 successful offerings, three of which raised the full allotted amount of $1 million in capital. In just the past seven days, investors from the crowd have contributed $112,068 to small businesses.

For companies like stock-photography gallery Snapwire, which crowdsources made-to-order photos from over 300,000 photographers worldwide, leveraging the power of an already-engaged community led the company to immense success in its Title III equity crowdfunding campaign. In 72 hours, Snapwire had eclipsed its fundraising goal. Now, the company holds about 280 percent of its goal in investments.

“The very truthful reason we got into equity crowdfunding is that we struggled to raise capital from traditional [venture capitalists],” Chad Newell, CEO of Snapwire, told Business News Daily. “We were such a leader in doing this — nobody had run a successful campaign yet at the time. I had little expectations other than a fair degree of confidence that we’d be successful.”

For Newell, the key to success is about the market response to an idea, and Snapwire was lucky enough to have that 300,000-strong community of photographers who wanted to see the company succeed, he said.

“The crowd collectively makes the decision as to whether this is a good investment or not,” Newell said. “We’re 273 percent funded now, and we’re going for the full” legally permitted amount of $1 million.

Lending Right for Your Business

So, your company needs money that you currently don’t have. Maybe your business is just taking flight and is still lacking the necessary funds, or perhaps you have high aspirations with low profits at the moment.

If loans are your go-to choice for financing, you’ll need to decide between a traditional bank loan and an alternative lender. For the latter, peer-to-peer (P2P) lending might be a smart option if you’re looking for a smoother, faster borrowing process.

According to Investopedia, P2P lending lets individuals borrow and lend money without an official financial institution as the intermediary. Lenders collect income from interest, usually at a higher cost than with traditional loans, while borrowers access financing they may not have been approved for elsewhere.

“P2P loans can often offer higher approval rates and competitive interest rates — a stellar combination,” said Emily Bartz, a writer at, which provides independent research and comparison tools for financial, tech and business products. “The beauty of P2P lending is that it offers borrowers a more personal experience by avoiding big banks and financial institutions. Plus, borrowers can rest easy knowing that their lender is accredited and provides legitimate loan support.”

Another upside, according to Bartz, is that P2P lending is flexible, allowing borrowers to complete the process in pieces.

Is P2P right for you?
So how can you determine if P2P lending is right for your business? Be sure to ask yourself these questions:

Is it legal in your state?
Not all states allow P2P lending. However, it may depend on the platform you use. For example, according to LendingMemo, 49 states provide funding through LendingClub, while only 47 do so through Prosper.

“Potential borrowers should make sure that P2P lending is legal in their state, as it is prohibited in some areas,” Bartz said. “You can usually find this information fairly easily on the lender’s website or by completing a quick Google search,” she noted.

Before committing to the idea, research which sites are accessible in your state.

How quickly do you need the loan?
One potential downside of P2P lending is that it might take longer than a traditional loan, thus hurting any immediate transactions or aspirations, Bartz said.

Bartz said that “if you are in a time crunch, P2P lending might not be ideal.” Make certain that your company’s needs are in tune with the time frame of your lending process before settling, she advised.

Is your financial standing good enough?
Bartz noted that it’s important to consider costs such as interest rates and origination fees. While not all P2P lenders require this, it’s smart to determine whether your credit score is high enough, and your business makes enough money, for you to be approved.

“It’s crucial that all potential borrowers have a clear understanding of exactly what they’ll be paying and have a plan to keep their payments consistent and on time,” she told Business News Daily.

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.