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The Fundamental Reasons Why a Funding Business Plan Fails

November 1, 2010 by Frank Goley, Business Consultant

Business Plans don’t guarantee funding. It is the foundation and fundamentals behind a Business Plan that give the plan and company the best chance to obtain funding. The distinction is important. No matter how colorful, flashy, professional looking and apparently well written a business plan is, there are business fundamentals which need to be proven out in the plan to make the funding request viable. We see so many business plans on the market that look great from an aesthetic standpoint and appear to have all the necessary ingredients, but upon closer inspection are just canned, cookie cutter plans that prove little as to specifically why a particular company is a good investment or lending risk. A sample business plan that got one company funding won’t get another company funding unless that company has the right business fundamentals in place. Let’s look at the top two business fundamentals often missing in a business plan that fails to help a company obtain funding.

Inadequate Business Plan Process

The quality and depth of the Business Planning Process is more important than the business plan itself. If the process is lacking, then the produced business plan will be significantly lacking. The planning process needs to be customized for the particular business. Our Business Planning Customers often remark that the process behind the business plan development was extremely beneficial, even more so than the finished plan itself. A good business planning process uncovers problems and addresses them prior to sending the plan to a funder, maximizing the reception to the plan and the results of the plan.

Tip: Please see my Business Plan Book for a proven business planning process that can be applied and customized to all types of companies, no matter the stage, size or funding level.

The Business Plan Didn’t Adequately Prove How the Business will Succeed

This is a huge point. As Business Plan Consultants, we see many funding business plans being developed in the marketplace which are shallow, hollow plans that do little to adequately and realistically prove to the funder that the business is capable of being successful, servicing the debt level requested, and being a good investment risk. The underlying principle behind any business plan, no matter its purpose, is to prove out and show how the company will run successful business operations. Due to the success of the operations and marketing of the company, a case can be made for funding. A Funding Business Plan is really just correct formatting and having the information a funder is looking for. It is the fundamentals behind the plan that prove a best chance for business success that helps to position the company for a successful finance campaign. If a plan is lacking these fundamentals, it will never have a chance at obtaining funding.

My next blog post will explore some more of these business fundamentals and other reasons why a business plan fails to help a company to obtain funding.  

Posted in Business Finance, Business Planning. Comment

Micro Loans are Helping Small Businesses to Start Up and Succeed

September 24, 2010 by Frank Goley, Business Consultant

Micro Loans have been around for a while but they are now getting some attention, particularly with small businesses needing seed finance or early stage growth finance. In fact micro lending maybe what will help us get out of this recession. Micro loans create new businesses, which will need employees. Additionally these newly seeded businesses will hopefully encourage the larger banking institutions to lend more freely again. More reason for job growth. Small business growth + newly created jobs = a fix we need to exit this recession for good.

What is a Micro Loan?

A Micro loan is generally a loan to a start up or early growth small business for less than $35,000. Mostly controlled by non-profits, and they typically lend to businesses in a particular geographical area- generally a “local” or community based loan. Terms are for 5-6 years with collateral to securitize the loan typically. Micro lenders require a solid Business Plan and Loan Package. You can use micro loans for working capital, equipment, machines, inventory, supplies, furniture, etc.

The Impact of Micro Loans

$56 Million in micro loans will be distributed through the SBA this year. An average US micro loan is around $13,000. The payback rate is an astonishing 98%. A lot of these business loans are going to low income entrepreneurs, giving them an opportunity to succeed and strengthen their local community.

Two Businesses that have Benefited from a Micro Loan

Love Joy Sweet Treats makes cupcakes, cookies, and many other sweet treats. The owner received $1,500 to start up her company, and she is off and running and selling those great treats. The owner of Smart Start Sitters received $10,000 to get her child sitting service off the ground and running full steam. These aren’t high tech companies but they are putting food on the table for the family owners and employing people. Something we should all think about. As a Business Consultant, I truly recommend you try a micro loan if you have the burning desire to be your own boss and create your own destiny.

For more Resources on Micro Loans, please see my blog posts on:

Have You Considered Micro Lending, Community Banks and Credit Unions for Your Business Finance Needs?

Business Finance in a Recession- Part 3: Business Funding Alternatives

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Consider an Enterprise Lab as a Way to Successfully Start Up

July 27, 2010 by Frank Goley, Business Consultant

There are a multitude of ways to obtain the funds, networking and mentorship start ups need to really get their business off the ground. There are Enterprise Labs which will not just incubate but really have the tools, relationships, mentors, experts and funding to help you successfully model, fund and start up your business.

An example of one of these Enterprise Labs is the Kauffman Labs, which picks up to 20 founding groups per sector to go through their 6 month program to successfully start up. They provide the necessary education, tools, experts, mentorship, relationships, business modeling and the such for founding members of a start up to successfully obtain venture capital and come to market. And you don’t have to have a pedigree education to apply!

The competition is stiff but the process of competing is a great exercise for any start up, whether or not you are selected for the program. You gain so much experience and knowledge in the process of applying and competing, that it is highly advantageous. It gives you a great idea where you stand as a viable start up looking for VC.

Kauffman provides a plethora of resources for entrepreneurs, including Entrepreneurship.org, Kauffman FastTrac and the Urban Entrepreneur Partnership. Take advantage of these programs and resources from Kauffman and other foundations!

Video Resource: Kauffman Labs

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Four Keys to Obtaining Business Funding in a Recession

July 26, 2010 by Frank Goley, Business Consultant

If you are seeking funding in this recessionary market, then there are 4 Key Areas to pay attention to:

#1 – Business Track Record

Showing how you have run a successful business in the past or had an influential hand in running a successful business is critically important.

#2 – Experience

Detail how you have specific experience for the type of business, customer and market.

#3 – Niche Market Identification

Funders want to know you have narrowed down your customers into a profitable Market Niche which you serve well.

# 4 – Cash Flow

A Cash Flowing business is a much easier sell to a funder.

The KISS acronym applies. Keep it Simple. Apply these four key areas to your business and your funding search will certainly improve. Make sure you have a solid Loan Package and Business Plan to present to funders. Good luck!

For more information, please see my articles on Business Finance.

Video Resource:  The Importance of Cash Flow for Bank Finance

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Use Crowd Funding to Raise Funds for your Start Up or Company Project

July 23, 2010 by Frank Goley, Business Consultant

Ever heard of Crowd Funding? Want to raise capital for your business with out paying an interest rate or giving up equity? Crowd funding provides donations to your business for a reward and can be a viable capital raising strategy that has a strong social media influence.

Its Origins

Crowd Funding grew out of the internet phenomenon of raising donations for charities, political candidates, etc.  It was then used and now used pretty heavily to raise funds for musicians, artists and independent film makers. It has now evolved into a viable strategy for companies to raise funds.

How it Works

You register your business proposal on a Crowd Funding website like RocketHub or KickStarter. You provide different rewards for different levels of donations. Donation levels range from $5 to $1,000, and the larger the donation, the better the reward. Rewards aren’t an interest rate or equity stake, instead it is a thank you letter, a gift, a mention on a website, name of the donor put somewhere prominent, discounts, free products and so forth. Up to $250,000 has been raised using this method and many use it to raise $5,000 – $15,000. The Crowd Funding service takes a percentage of the total amount raised.  

Social Network Element

The success of Crowd Funding depends on its donors and those seeking the funding to spread the news among their social networks, particularly through FaceBook, Twitter, MySpace, YouTube and the like. It is important you have a planned fund raising strategy going in because these Crowd Funding services require you to raise the entire amount you are seeking in a certain time period, otherwise you don’t get any funding. Many who do this strategy correctly will raise more than they need.  

Use Crowd Funding to Get Closer to Your Customers

This is a real viable platform for you to really engage customers in your business, both existing ones and prospects. It gives them a real involvement in the success of your business and cements that necessary bond you need to really have “sticky” customers. Can you think of all the possibilities?

How to Do It

I recommend you go to the different Crowd Funding websites and see how it is done. You will see projects that successfully raised money and those who didn’t. Normally those who didn’t had a “wish” or “dream” rather than a viable plan. You can also gain some invaluable tips on what works for soliciting donors to your project by studying successful ones. Looking at the different projects also gives you good ideas on the different rewards you can offer and which ones worked. You will also see the dollar ranges that where most successful, i.e. $35 donation level with the right reward seems to be a hot level.

Be careful to see what type of projects and businesses are promoted on the Crowd Funding service and if it meets what you are trying to do. Also, some are really venture raising sites, which require an equity stake or other type of pay back. The two websites I mentioned seem to be good ones for most businesses and are true Crowd Funding platforms, but do your homework and you can find others too.

Video Resources

What is Crowd Funding and How it Works

Different Crowd Funding Services and Platforms

Posted in Business Finance. Comment

A Unique Equity Funding Strategy – Exchanging Equity for Services

July 20, 2010 by Frank Goley, Business Consultant

Nowadays companies have to look at unique funding arrangements as business finance is tight and markets fickle. Have you thought about bringing on an equity partner not for the cash they can provide but the expertise and services they can provide? Sometimes a company needs a certain service more than it needs cash, particularly if it is from a company that is highly sought after for their area of expertise. When things are tight and options limited, you may want to expand your funding search for service providers who could be integral to your company success and present them with an equity position verses paying cash for their services.

In some sense this appears as barter, but it is really an equity deal as the service provider receives an equity position for the service they provide. For this to work, there needs to be incentives built in so the service provider has a real stake in the success of their services, and the receiving company can rest assured they will be a priority to the service company. What a better way for a start up to secure high end services with out having to outlay precious and limited cash.

Valuations can be tricky in determining the equity trade for services but it is doable. Understanding the value of the company from a comparable sale and operational revenue, along with what the services will cost from the service provider, can get you in the ballpark.

Marketing and Advertising can be the mainstay of a company’s success so trading equity for these type of expert providers can be very worthwhile. Make sure you have incentives built into the equity share agreement so the service provider / equity partner has plenty of reason to work hard on your account. For instance, if they meet certain level of sales or increase in sales due to their services, then the equity stake can grow to a predetermined cap. It can be a real win-win for both companies in this uncertain economic time. Consider a relook at your Business Plan to see if trading equity for valuable services makes sense for your business.  

Video Resource: The Angel Funding Market

See this video on Vator.tv »

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Tools and Venues to Develop Your Venture Idea and Pitch Your Opportunity

July 19, 2010 by Frank Goley, Business Consultant

Being around experienced entrepreneurs, inventors, angel investors and venture capitalists is key toward developing your Venture Concept. The feedback and experience you can gain is invaluable while providing great networking and pitching opportunities for your venture. Here are some venues and tools to try.

Funding Post

A City by City Venture Capital and Angel Investor Education and Pitch Event. Great for networking, perfecting your pitch and generating interest and referrals.

Vator TV

Puts together a host of competitions for Start Ups to compete for great prizes and receive awesome exposure to VCs and Angel Investors. Opportunities to pitch your opportunity on video and connect online with VC. Lots of discounted and useful services offered.

Ignite

A local forum to pitch your opportunity and network. They video the presentations and put them on their website.

TED X

A spin off of the TED event for local communities. It is a great event to share ideas, network and learn from the best.

Get Exposure and Perfect Your Pitch and Opportunity

Practicing your pitch and receiving feedback on your opportunity is invaluable. Also the exposure you get through these venues and tools is tremendous. Start getting your ideas out there today by looking into these and other idea development and pitching forums.

Video Resource: The Vator Splash Event

See this video on Vator.tv »

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An Alternative to Franchise Finance – Private Investors

July 12, 2010 by Frank Goley, Business Consultant

With bank and franchise finance drying up in this economy, a smart entrepreneur came up with a solution. A platform to link investors with potential franchisees. FranEquity provides a platform where a potential franchisee in need of money can present an opportunity and accumulate investors into a group so the franchisee can qualify for bank or traditional finance. This platform also matches franchisors with investors.  

This type of system really opens the doors for many entrepreneurs seeking capital to start or grow a franchise. Here are some applications of this concept which may be helpful in your capital raising efforts:

Ø  If you want to fund a franchise start up but lack capital and expertise, then consider putting together a local private investor group to fund 40-50% of the funds necessary and then finance the rest with the bank. Use a good law firm to set up the investment group and define the rules.

Ø  Already a business owner and want to franchise your concept? Don’t have the funds? Consider forming a private investment group so you can develop the system and do some test franchises. Leverage your investment group into larger bank finance when ready to sell your franchise concept.

Ø  Already own a franchise but can’t get financed for more units? Consider forming a private investment group to help you qualify under the franchisor terms.

There are a ton of applications and advantages to this franchise finance concept. Namely, if a franchisee has the expertise to run a franchise unit, then he or she shouldn’t be disqualified for lack of funding. It is a win-win for both the franchisee and the franchisor during a period of tough business finance acquisition. Apply it to your circumstance and see what creative ways you can come up with to enter the franchise market.  

Disclaimer: ABC Business Consulting is not offering investment or finance, nor endorsing a particular company in this blog post. Please conduct your due diligence and utilize legal help when considering such a strategy.

Video Resource: Bank Franchise Finance

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Should You Rollover Your IRA or 401(k) to Fund Your Business Start Up?

July 9, 2010 by Frank Goley, Business Consultant

I was a Financial Planner back in the day but no longer practice. More than likely as a financial planner I would advise not to do this if you are using all or a majority of your retirement funds to do so. Moreover, there are all the tax rules to consider – another big negative and potential risk.

But from the standpoint of a Business Consultant, it is my job to share ways to fund your business and present the positives and negatives of a Business Funding Strategy. It is up to you to decide, but if you are going to consider this funding strategy, be sure to meet with both a very qualified Tax Attorney and ERISA CPA to discuss the pros and cons.

Nearly 4,000 businesses in 2009 used this strategy to launch their businesses. Why so many? I will discuss why, but first let’s see how it is done.

The Mechanics of the Retirement Fund Rollover as a Business Funding Strategy

– Step 1 – Move Your 401(k) or IRA into an ERISA Profit Sharing Plan: This ERISA plan then becomes the retirement plan for your new company.

– Step 2 – The New Retirement Plan Buys Stock in the New Company (C Corp):  When the funds have transferred into the new company, it becomes Tax Free Capital. The idea is you are buying stock in your own company rather than the stock of another.

– Step 3 – Open a Business (Corp) Checking Account and Pay Yourself Back: You must offer the retirement plan to the employees and use it as a retirement plan.

The Risks

v  Your business may fail and there goes your retirement money.

v  You may violate the complicated ERISA rules and end up paying harsh penalties and taxes. Very complicated compliance rules. Be sure to read the IRS publications on this strategy, including: http://www.irs.gov/pub/irs-tege/rollover_guidelines.pdf

v  Fee up to $5,000 to set up the ERISA Plan, plus all the Attorney and CPA fees prior to assess it.

v  On going annual fees to maintain the ERISA Plan in compliance with the IRS, which can run up to $1,500 a year.

v  Some Tax Experts predict the IRS will crack down on these plans in the future.

The Advantages

v  Cash is King in business. You do not have to strap the cash flow of your business with this strategy.

v  Businesses not burdened by debt finance can become profitable much quicker.

v  Tax Free

v  Doesn’t require a credit score to acquire the capital. Bank finance is hard to find even for credit worthy applicants, let alone a start up.

v  Money is ready quickly. You don’t have to wait on banks or investors.

v  60,000 jobs and $8.3 Billion have been added to the Economy as a result of these Plan Rollovers.

v  You don’t have to secure a second mortgage on your house and adversely affect your personal cash flow to fund your business.

v  Great way to attract quality employees to your Start Up by offering a Company Retirement Plan right from the start.

v  If you only use a portion of your Retirement Funds to set up the Rollover Plan, then you don’t risk your future retirement funds in the event the business fails.

v  Combine the retirement funds with other Business Finance Sources to find the best mix of cash and debt finance for your business.

The Bottom Line

Don’t risk all your retirement funds to try this strategy. Whether the business turns out successful or not, most smart entrepreneurs only use 20-30% of their retirement fund to set up the new company retirement plan. It depends on your financial security and if you have kids or not – in this sense, it is a personal financial planning decision as well. Understand the implications of all the IRS Rules and the possibility of future IRS scrutiny.

Disclaimer: Frank Goley or ABC Business Consulting is not offering tax, investment or legal advice. Consult an Attorney and CPA for tax and legal advice.

Video Resource: Why the Retirement Fund Rollover as a Business Funding Strategy May Not be a Good Idea…

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What Venture Capital is Looking For in this Market

July 7, 2010 by Frank Goley, Business Consultant

If you think you require venture capital, then it pays to do your homework.

With the Recession, Venture Capital has shrunk 18% the first quarter of 2010, compared to 4^th quarter of ’09. Some say that is good, others say that is bad. Either way, you need to understand if you have a fundable business model for Venture Capital, what VC is looking for in an opportunity, how to find VC and what VC investments are hot now. So here is a Venture Capital checklist for you to help steer you through the competitive market of venture capital.  

The Venture Capital Checklist

ü  Is Venture Capital really appropriate for your business model? Will your company be fast Start Up, grow very big quickly, and have an Exit of a sale or IPO?

ü  Understand only 1 in 20 serious deals get funded

ü  Tap VC networks of professionals and advisors to get close to a viable VC firm.

ü  Get close with a VC’s group of funds relationships

ü  Up to 50% of VC inquiries can come from cold contacts but highly recommend you find a referral source

ü  Find the VC inner networks. These people are trusted by VCs and are great referral sources. This includes previously funded entrepreneurs.

ü  Find VC by researching online

ü  Find VC by using your personal networks and the social networks

ü  Use VC attorneys and accountants for an introduction

ü  Research the companies a particular VC firm has invested in

ü  Read very carefully what the VC principals say and write and make that personal, informed connection when contacting them via email. Make it a personalized email!

ü  Keep the introduction email short: how much looking for, why you are a good fit to the fund, comment on the principal’s writings and speeches and make a personal connection. In other words, do your homework on the VC and keep your initial contact short and too the point but very personalized.

ü  The lead Entrepreneur(s) is scrutinized for knowledge, credibility and experience around the business opportunity.

ü  The entrepreneur has real Passion.

ü  Entrepreneur has vision

ü  The entrepreneur isn’t too optimistic about potential problems and threats

ü  Company has a great Team in place.

ü  The management team is more important than the business idea. A great team can be profitable with a mediocre idea. A great idea with a mediocre team fails.

ü  A website that already has lots of Organic traffic

ü  A Web Model that makes profit sense

ü  Understand online marketing well

ü  A Product or Service Solution that will change the market or create a new market.

ü  Some Current Hot VC Areas: Wine, Food, Financial Services, Video Delivery, E-Business Infrastructure, Infrastructure around Cloud Computing, Media and Music. Solutions to save Consumers and Businesses money in this long Recession.

If you don’t qualify for Venture Capital, consider private investors. If you qualify for VC, use private investors to get you VC.

Resource: Here is a Video on How Venture Capital Works

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