3 Financing Options To Start Your Small Business

Whether you’re a young entrepreneur still racked with school loans, or an experienced business professional lacking the means to fund your new startup idea, many thought-leaders and prospective business owners are finding the hurdle of initial investment too high to climb.

Fortunately, there are a number of financing options that are readily available and oftentimes welcoming to those who can demonstrate solid financial know-how and an idea with long-term potential for growth and development. While the process may not be particularly easy or enjoyable, matching yourself with the best financing plan can not only make your idea into a business reality, but can also give you a degree of financial breathing room without the need to pay dues upfront all at once. Let’s explore three common ways entrepreneurs are finding solutions to their financing problems:

1. Find a credit card built for your small business

For those unfamiliar with the differences between traditional personal credit cards and those built specifically for small businesses, the essential distinction involves protection and rewards. Personal credit card holders enjoy a greater variety of protections afforded by the government when it comes to maintaining a healthy line of credit. Those designed for businesses come with a higher degree of risk, but also offer many more benefits that are intended to help the average small business owner such as discounted business supplies, airfare, and so on.

The biggest advantage to opening a line of credit through a business card is the ease of attaining funds relatively quickly. This may be appeal especially to those who are forecasting cash flow problems shortly after launching. In addition to the relative quickness of the credit card solution, is the fact that credit cards present one of the easiest ways to get the money in the first place. So for those who’ve found this advice in hopes of working yourself out of a financial pinch, this may be an option you want to pursue.

If you do decide to open a line of specialized credit, be sure you’re aware of the pitfalls. Credit card interest rates are significantly higher than those associated with a traditional loan, so be sure you’re confident you’ll be able to keep up with the payments each month. Late payments can be a killer to an otherwise healthy credit score.

2. Repurpose retirement funds into investment materials

Specifically for those looking to invest in a franchising option, a relatively new trend is emerging that can provide a direct means of funding at the risk of your personal future savings.

One of the biggest challenges to prospective franchise owners is the often large initial fees. If you’ve accumulated a substantial pool of retirement through our career thus far, it’s possible to flip this money for a franchise investment. This is done through a Rollover for Business Startup Strategy you can explore more in depth here.

Since this strategy can present some more complicated financial issues, it’s wise to meet with a personal finance professional before making a substantial change to your retirement savings. Be aware that this too is an extremely risky move if you don’t have full confidence in your ability to make it work.

3. Turn to microloans for a more manageable solution

If your startup is in need of a more “intermediate” financing option, a microloan may be a useful solution. These loans are typically smaller than more traditional options and are issued to those with little income or have a credit history not quite up to the standards needed to qualify for a bank loan.

Issuers have found a good deal of success in terms of borrower repayment, with most statistics reporting somewhere between 90-99% of properly repaid loans. To add to the general assumption that microloans often result in significant success for borrowers, a survey conducted by Accion US Network found that 42% of respondents noted an income increase after being issued a microloan of some kind.

While each of these methods come with some degree of risk, remember that good ideas and solid business models can be very rewarding investments when executed carefully. While you should be careful when signing onto any kind of financing agreement that could put your money at jeopardy, those who are confident and complete in their research are those that typically succeed.

If you’re looking for financial advice regarding a new startup endeavor, our outsourced accounting and CFO services experts can help you carve a successful future for you and your business idea.

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3 Financial Principles to Grow Your Small Business in Madison, WI

Today’s entrepreneurs have no shortage of ideas when it comes to creating innovative products and services in today’s networked business world. The financial end of these ventures, however, can often fall by the wayside when the more “exciting” aspects of a startup take center stage. A dull regard for ones finances as they relate to a business’s sustainability can quickly derail them seemingly out of nowhere when diligent money monitoring isn’t established early on.

Compounding this issue is a sense of financial automation new business owners assume is possible with today’s advanced bookkeeping tools. While accounting software provides a far more convenient solution for keeping track of one’s records and forecasting short-term budgeting considerations into the future, no tool is able to give you total financial autopilot. Whether you’re completely new to small business finance or need to brush up on what you should monitor most, here are four areas you should keep close tabs on as you continue to grow:

Make every effort to keep your cash flow positive

For those who are operating on a fragile budget, cash needs to be a top concern. The “cash flow from operations” line on your statements is the key metric to monitor your cash flow in terms of your day-to-day operations. The implications of a negative cash flow are simple: you won’t be able to pay your bills and may risk running out of cash altogether if steps aren’t taken to rectify the imbalance.

Putting in the work to establish a sustainable positive cash flow brings with it the ability to devote more of your attention to the other dimensions of your business. You can begin to devote your time toward strategic business growth rather than worry about staying afloat week to week or month to month. It’s also important to understand the difference between profit and cash flow.

Being “profitable” doesn’t necessarily mean you’ll be able to sustain a positive flow of regular cash. This can become a reality when clients begin paying you through accounts receivable rather than immediate cash. Although you can account for the revenue, you may not actually be able to use it to pay bills or other expenses until sometime in the future.

Have a firm understanding on your net growth

Perhaps the biggest takeaway of this advice is to hold your net margins in the highest regard. Simply put, your net is the clearest indicator of the profit you’re making for each dollar of sales you’re closing. Looking deeper into the value of this metric, it provides a unique way to gauge your company’s ability to maintain profit regardless if your dollars of profit begin to decrease.

This is accomplished by a simply equation: your company’s net income divided by total sales. The result will give you a useful percentage of profit margins you can use to better understand your financial standing even when sales dip.

Make borrowing decisions carefully

No matter how confident you are in your product or service, borrowing too much capital when you launch your business is a huge risk. The fundamental problem is a disconnect between your business’s financial needs and borrowing payment agreements.

In essence, if your initial sales projections turn out to be less than you’d expected them to be, you’re stuck with the same monthly payments to those you’ve borrowed from. While smart borrowing can be a great way to push your company towards expansion, your business model needs to hold up accordingly.

When decisions are made to borrow too much too early, it doesn’t necessarily mean the end of your company, but it can put a heavy damper on your growth for months or years to come. With less revenue than you’d expected to see, more of your money will have to go to those you owe rather than towards new projects. Don’t find yourself a situation where your business is guided more by cash flow restrictions rather than your plans for growth.

If you’re looking for financial advice regarding a new startup endeavor, our outsourced accounting and CFO services experts can help you carve a successful future for you and your business idea.

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5 Expenses You Should Avoid When Starting Your Business

For entrepreneurs and prospective business owners making their first foray into starting their own business, longsighted goals and lofty idealism can often obstruct more pressing considerations that need to be addressed and planned for during a business’s first few months. Specifically, accounting for one’s expenses is a task that while extremely vital to the security of a young company, is too often ignored as being a secondary concern for the accountant.

While the prospect of starting your own business is certainly exciting, crafting a budget that adheres to a plan for eventual growth should be a sobering and important part of the preparation process. The major predator to a startup’s early finances is expense. While some expenses are obviously necessary to create an atmosphere to conduct business and pay those who may be helping you achieve your goals, there are many expenses that should not even be on the table when you’ve just cut the ribbon.

Hold off on unneeded travel

Unless your business relies on you to be in constant movement, traveling is one of the easiest ways to drain your wallet with virtually no return on investment.  On top of the fact that airfare and other travel costs can add up to be very expensive, research has shown workers to be less productive when not working from home base.

Today, the need for in-person meetings has been essentially erased by cheap or even free software tools like Skype and GoToMeeting, which allow people from all over the world to connect virtually from their own offices.

Don’t take on employees if extra help isn’t essential

While the stigma of the “large company” still seems to stand as a measure of success within business, taking on a crew too large for the ship can sink it quickly. Not only does payroll often end up destroying your bottom line when you employee too many people, but there’s also the problem of efficiency when smaller tasks end up in the hands of too many people.

Too many cooks in the kitchen can lead to miscommunication, delays, and other issues that can slow your workflow down considerably. Of course, depending on the size and specific kind of work you do, you may need to delegate business to a team of employees. Make sure when you do hire, your team is talented and ready to assume the responsibilities you’ve carefully laid out for them to accomplish.

Don’t go overboard on a website

This can become a complicated part the business depending on the industry you’re in. Of course, if you’re a software company or another digitally-oriented organization, designing your website is probably more important than designing your office.

However, for those new to web development or are looking to create a “stunning web presence,” remember that although anything is possible online, the design of your website should reflect the efficiency of your actual business. The more bells and whistles you attach to your site, the more can go wrong. Shape your web presence around practical functionality rather than provocative aesthetics.

Don’t advertise until your product or service is solidified

The first six months in the life of a startup are not set in stone. No matter how concrete and thorough your planning process was before launching, your business will no doubt encounter some ebbs and flows, which may ultimately lead you down another business path. With so much uncertainty as you test the waters, it’s wise not to make any major advertising commitments before you know exactly what your product or service will be.

Quick money versus longterm customers

While some startups are simply too large in scope to get off the ground without some degree of outside investment, most startups can get off the ground on a limited amount of initial capital. Unless you find yourself at the helm of a high-growth business needing the attention of investors, turn your attention to attracting customers. Raising money can be a full-time commitment than can pull the head of a company away from more pressing day-to-day tasks that will result in more sustained growth.

If you’re looking for financial advice regarding a new startup endeavor, our outsourced accounting and CFO services experts can help you carve a successful future for you and your business idea.

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Finding Startup Success Through Financial Metrics

When it comes to offering truly valuable advice to startups, the task of management can’t be brought up enough. While it’s helpful to zoom in and focus on key areas where management can be applied at the micro level of a business, those areas require an equally if not more competent central management team.

Whether an individual or a team comprises management, it’s essential for company leaders to establish actionable metrics by which to judge success or failure. For some businesses, certain metrics will matter more than others. Knowing how to find out the key areas of your business is one of the first big steps you can take towards getting your business working smoothly.

Think of your business in terms of its parts

A useful way to think about your company is to imagine it like a simple machine with inputs and outputs. As a manager, your task is to make sure right buttons are pressed when they should be while the others go idle. To keep the metaphor going, we all know how frustrating it can be when we’re forced to use a brand new technology without knowing how it works. Avid iPhone users are usually frustrated when they’re asked to operate a Windows phone when they have no prior experience and visa versa.

The point is, you need to understand your business through and through before you attempt to design a management system to keep its parts in good working order. The goal with every measurement decision is to make sure you can tell when the outputs are less productive than what you’re putting into it.

Putting communication first

Without a means to solve problems and recognize successes throughout your organization, it’s nearly impossible to envision a bright future for your business. All too often management teams pass the blame of their shortcomings onto the health of the market or other external circumstances they don’t have control over.

While downturns in the market should certainly be accounted for when evaluating yourself, throwing your hands in the air and hoping for better luck next time doesn’t pass for management. In order to get some real problem solving done, you’ll have to open the hood and have a look at all the parts of your business to find and isolate the problem. The systemic nature of problems within your business usually only reveal themselves once the management teams invests the energy in tracking the trail of breadcrumbs back to the original source.

By tracking comparatively poor earnings to poor sales, you may find that salesmen fell behind because they weren’t handed leads by the marketing team. By analyzing your marketing efforts over time, you may find that by downscaling your social media team, you’ve lost a significant amount of engagement which once accounted for a significant amount of your total leads volume.

Where a “band-aid solution” would have probably stopped at the sales team and resulted in restructuring a team that was actually doing everything right, you’ve not only let the actual problem go, but also hindered a part of the machine that was working well. It’s in these kinds of scenarios where poor management can gradually do more hard than good to both your business’ bottom line as well as employee morale.

Early points of focus management teams should pay close attention to

The best way to avoid the kinds of problems presented above is to designate standards by which to measure your business’ actions over time. While it may seem like a rudimentary lesson in business, it’s important to think of these concepts as they relate to one another rather than simply a list of things to check off each time you review your numbers.

In terms of meeting your most important goals early on, the three broad measurements to keep your eye on the most are your cash flow, profits/losses, and assessable growth. While every business obviously requires its own set of measurement parameters from which to judge success and failure, these are the elements of every business which should never be overlooked by your core management team.

If you’re a start-up owner and unsure of how to analyze these financial metrics or others, give us a call. Our outsourced accounting and CFO services experts can help you navigate these waters. Photo Credit: Biking Nikon SFO via Compfight cc

Common Small Business Financial Mistakes and How to Prevent Them

For many small business owners who are either new to entrepreneurship or struggling to adapt to some of today’s more innovative business technology, it’s easy to find yourself neglecting some very important financial practices essential to keeping your business on top of your competition in a fast-moving world.

Specifically for those who are newer than others when it comes to starting and maintaining a business, some tasks, which may appear to be of lesser relative importance to other responsibilities, can quickly start to hurt your business in some serious ways.

With that in mind, we’ve put together a list of some of the most commonly seen mistakes small businesses are making as a result of being overworked and undereducated about what matters most as you begin a business venture

Undercapitalizing early on

A major issue, which can plague an entrepreneur’s efforts before they even get off the ground, is having enough money to cover themselves in the short term. Raising initial capital can be extremely difficult unless a number of financial pieces fit together at the same time. While being optimistic about your business is certainly a  necessary early motivator, over optimism often clouds new business owners to the reality of how well they can expect to do during the first year of business.

Relying on your business to be self-sufficient within a year not only demonstrates a lack of practical business chops, but also can potentially lead to financial disaster if lenders are unable to collect on their investments when they expect to. Starting with sufficient initial capital is essential for businesses that experience early turbulence.

To be confident you can avoid this problem, try to mitigate unrestrained optimism about your product or service and be as conservative as possible when projecting your business into the short-term future. If you’re new to business, value the advice of those who have been in your shoes and pulled themselves out of the dark and into long-lasting success. At the very least, make sure you’re well-aware of your initial expenses and gather at least double the capital you project yourself to need.

Insufficient accounting considerations

Tracking your finances is a task that never ends. For those trying to juggle everything at once, it’s often one of the first business metrics to fall by wayside only to be noticed when it’s too late to reverse a negative trend. For business owners, glancing at your bank statements is not enough.

Although you may be entering the market with a ridiculous amount of capital in the bank, turning a blind eye to your cash flow can turn a small stream into a waterfall of lost money.

If you’re too busy to keep track of your books as well as your need to, hiring a bookkeeper either in-house or outsourced just to run basic financial reports can go further than you think. Accounting is much more than number crunching and calculations––it’s what allows you to track your performance with incredible accuracy. Seeing where cash is spent and projecting your growth into the future are two of the most essential parts to keeping a small business afloat in a turbulent business environment.

Poor resource allocation

Capital is meant to be spent; the trick is to know what to spend it on so you can start generating real revenue. When it comes to doling out your initial investments, carefully weigh the cost-benefit of everything decision you’re making.

By being smart with your resources, you can easily stop yourself from overspending before it starts to unbalance your cash flow. Before making a considerable investment in an item or service you’re unsure about, ask yourself if you can live without it––you might be surprised how little you actually need. 

If you’re looking for a reliable accounting or CFO service, contact our start-up accounting and CFO services experts.

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How To Maximize Your Chances Of Obtaining A Small Business Loan

For many small business owners, starting a small business means generating outside capital in addition to personal investment. Although certainly achievable, prospective small business owners shouldn’t go into the loan application process without going through the proper preparation. Receiving a loan often means doing some degree of research as well as meticulous organization and conceptualizing a coherent vision for the future.

Research local banks to rule out those who don’t specialize in your field

It’s important to understand that not all banks are the same. While some might cater specifically to budding entrepreneurs looking for a financial starting block, others may not offer business loans at all.

At a finer level, some financial institutions might offer loans only in specific areas of business while excluding others. Similarly, some may offer loans only to those businesses operating in a particular stage of the business cycle. These kinds of banks typically give loans to established businesses and exclude startups to mitigate risk but it’s best to look into such policies to make sure this is the case.

One of the key considerations to look for when “shopping” for banks is industry relevancy. If you’re confident in your proposal, focus on institutions that have partnered with similar businesses. Not only are these institutions typically more interested in businesses like yours, but will also have be better able to offer advice about your industry when specific financial questions arise.

Be fully prepared to explain your business proposition

Bankers rely completely on you to articulate your plan and vision for the company’s future. While confidence in your organization’s success should certainly characterize your overall presentation, bankers will not buy into lofty idealism without seeing a substantial financial plan fueling your optimism. Keep your plan practical and realistic––don’t overstate your goals.

A good way to keep your proposition within practical limits is to frame your plan around why consumers and other companies will be compelled to do business with you. A sensible way to get all of these ideas across at once is to lay out your best case business scenario along with the most likely one.

Formulate at least two ways to make good on your obligations to the bank

Along with establishing a viable business model for your short and long term future, the second big concern among banks considering a loan is the method of repayment. Typically, banks will be looking for two possible repayment sources. It’s up to you to formulate what these sources will be. Don’t rely on bankers to hold your hand and guide you toward a solution. This is your chance to convey a solid understanding of financial responsibility and planning.

If you’re struggling to put together a secondary plan, consider a pledge of collateral either business-related or personal. In addition, you could also establish a loan guarantee agreement among the owners or suppliers to reassure the bank their investment will be promptly repaid when due.

Get assistance from the Small Business Association if you’re struggling to formulate a proposal

The Small Business Association (SBA) can be a great financial resource for small businesses looking for extra assistance. In addition to providing government-backed loans through banks or credit unions, they also counsel small business owners primarily during the loan agreement process.

Although the SBA only provides direct loans and grants when assisting with disaster recovery, the programs offered through other banks can sometimes give eligible businesses longer repayment agreements as well as opportunities for businesses with bad credit to receive loans in the first place. If a potential lender is proposing a repayment plan too steep for your business to confidently enter into, these sorts of assistance programs can offer extra relief.

If you’re looking for a reliable accounting or CFO service, contact our start-up accounting and CFO services experts.

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