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$$$ Raising It, Making It, Managing It

Right now, this is about funding money. How do you raise it? How do you make it? How do you manage it once you've got it and it starts with the big question, do you need funding and it's particularly a relevant question for those of you funding your own businesses to know how much do you really need before you start? Just funneling your own personal resource is into it. So you know, when's a good time to say enough is enough when to put a cap on it. What to expect out of your own investment in your business, the same way that someone else who's investing in your business would expect. So the way you know, do you need money? You do a quick financial projection, you say, and this gets back to a question we got earlier today from the photographer what's the projected revenue over this planning period, this being probably a year, you're probably planning for a year, maybe a shorter period, but let's, just say a year, how much do you think you're going to make? And I started to say it in th...

e last session, if you have no idea, the easiest way to calculate what you're going to make is what you have made history is a wonderful indicator of the future look at what you made. For the last three years, look at how it's going up is it going up ten percent a year twenty five percent a year, fifty percent a year what's the trend? That trend will continue unless you do something different, so if you're intending to be basically do the same thing this year you did last year, then count on business growth that is similar to the trend that you've had for the past three years. If it's going down expected to continue going down that's your projection doing nothing, then you layer in what am I going to do differently? And what impact is that going to have on my revenue and one way or another you come up with what you think you're going to make this year and then you subtract out your fixed costs ests that's the stuff that is invariable your rent your cell phone bill, your domain name registration you're everything that captain's every single month including your salary if you pay yourself one, those air, your fixed costs, you subtract those up, then you subtract out your variable cost. Your variable costs are the things that change from time to time sometimes cost of business sales or business product a product start up phase that would be a variable costs that happens only once you subtract out everything you think will be a variable cost this year navy, you're going to redesign your local that's a variable costs that only happens once. Maybe you're going to move your business what's going to be involved with that variable cost once you still have to factor it in subtracted out and you come to owe and then one time often upfront costs, this really would be things like getting legal advice for setting up your business, all the costs that are involved for one time. These are all the things that go into what it's going to cost you to make this money, and that becomes your projected profit or loss. And if it's a loss, you're going to need funding. But you have to do this very quick financial projection. You do not have to be a financial wizard to say here's how much I'm going to make I am going to sell way get into this a little later, but their two thousand eighty hours in a year, forty hours a week, times fifty two weeks a year is two thousand eighty hours if you sell time, that is the maximum number you can sell before burnout, but in fact, you won't sell all of those hours because you need a percentage of those hours for new business development for sick days for a vacation, so let's say you can sell seventy five percent of those hours. Then you do two thousand eighty time seventy five percent and what do you sell your time? An hour at if it's thirty five dollars an hour one hundred and our of its three hundred fifty an hour if you're a high paid attorney, you do the math and that becomes your projected revenue or one stream of your projected revenue and then you add in all those other streams that's what you make subtract out fixed, subtract out variable, subtract out one time come up with your projected profit or loss no if you need money, do you need funding and how much you estimate your expenses? Pleasure upfront costs last night when your revenues will roll in because it's one thing to say this is how much money we're going to make this year it's another one to say when is it going to come? If you have a long start up period between when you're going to start your business or launch a product or whatever, if the funding isn't going to come in until november, then between now and november you need some tide over money. So when will it role in what's your cash flow? And when will your business need funding? And uh if you're really wanting to work this out with real care, go to an adviser, get advice from the s p a get advice from the spdc small business development corporation or anywhere in the world, the economic development offices that helps small businesses and talk to your business advisers. Tara yes, I'm curious about paying yourself and at what point you determine if you do if you don't, do you have anything else to say about that? We were just talking about this over the break, I would say you are when you're funding your business and you're not paying yourself, you really have to at least say, if I were working for anyone else, what salary, what I require and, you know, everybody's different, let me just say fifty thousand dollars, let me just use the number fifty thousand dollars if you are working for your business and you are not taking a salary than you are giving your business fifty thousand dollars a year, unless you're also working somewhere else, and you're only doing your business halftime, then maybe you're only giving it twenty five thousand. But you have to say, is this a wise investment of fifty thousand dollars? Because it's risk opportunity, you're not working, you're risking opportunity, you're not earning the money somewhere else. So that's one thing so to say, how much of my willing to forgo a salary for this business and then the next thing is at what point am I going to make a salary from this business, I think it's an important milestone to determine when you're going to pay yourself a business. If you have a corporation, you really have to pay yourself a business because otherwise it's fiddling with the adjusted with the bottom line in a way so you corporation you have to in a sole proprietorship, frequently it's handled by draws or distributions that the money piles up in the business and then you take a distribution but there's a point where it gets very wise to system eyes that distribution twice a month. You pay yourself whatever amount of money or once a week or once a month so that it becomes a fixed expense rather than a variable expense, and it actually forces you to make more money. Um, anyway, if you're not sure about your cash flow and whether you need funding and when you need funding, there is help that you can get is that correct that in spdc helps businesses through? Yeah it's on there several resource is that you can access to get funding whether espy spdc any banks that participate in the lending network. There's, an organization in southern california called the cdc and they match entrepreneurs who might not have collateral or other resource is with loan opportunities, right? So if you might not qualify for a traditional bank loan, you can get in to them so their several options are and I'm glad you just said that because it made me realize that I left one group off of this and that score which is this in the u s the society it's service corps loree tired executive rick tired executives and it's successful individuals who are more than happy for totally free to help you with your you contact the score office and they help set you up with someone who can help you through when we were starting at agency that was one of the first things we did was met with a a score representative and it's a lovely service that is really very mutually beneficial because the retired executive very much appreciates a chance to work with an upstart that's yeah I mean you have an older experienced person who has all this great experience and I want to keep their skills sharp than you have you know younger business owners so they both benefit from the relationship um but again that's a free service and free is free through the the other parts of the ladder espy spdc acceptable on the services are still free to clients but the advisers air paid that might build a more contemporary yeah I would think I would count on score for help thinking through your funding needs and cashless certain one count on them for marketing or things that have really changed dramatically since when that person was in business switzerland actually both have kind of similar questions here they're asking a judge us is how do you make a projection if you have no history and you're a brand new business, how how can you guess what what that those financial numbers are going to be it's called zero based you start with nothing and you say ok, what are all of our streams of revenue which we went through earlier and what is reasonable to expect that each of those will deliver this year? It's zero based you're not basing it on any you're not saying we're gonna make five percent more than we did last year you're saying start with nothing, we can sell this many hours of this that's going to equal this much we can make this much of affiliate sales this is going to make this much we can do whatever great and thank you in some ways, it's the most accurate way to predict reject but the trending keeps you honest because it's very easy also to get over and played how much you think you can make. And if you have to put it against trends, you say, well, if I could make that much, why haven't I for the past three years so together they're a beautiful thing, but if you're starting up you, you don't have the trans debates if you need funds this is straight out of business plans kit for dummies. Ten ways to fund your business plan it happens to be a chapter that's available online, so if you put in ten ways to fund your business plan business plans kit for dummies, you can actually access this chapter from the fourth edition. First and most frequently to fund your business is your own pocket. You maintain total ownership of your business, you don't have to give anybody a chunk of your business to get that money, you assume the total risk for your business. Nobody else is helping you own your business and therefore anything that should ever go wrong or have a liability or a debt with your business you're responsible for. Nobody shows that with you there are no waits for funding approval approval unless you have other people in your close circle of support that need to say, yeah, that's a good idea. Let's. Invest in your business, but basically no waits for funding approval. But it's very necessary to consider your funding as an investment with a ceiling, so worth it to say, I'm going to do this, but I'm on lee going to put this much of my own money into it. I'm only going to go without a salary for this long because that would be putting this much into my business treat treat the salary that you are agreeing not to take as a loan to your business and decide how much you're willing to give they're saying that this is number one because of the hundreds of clients that I've worked with over the past several years, there was one client who saved up four years of income prior to starting her business, so she had resource is to do everything you need to do to successfully launch the business, whereas a lot of people they might come up with an idea or they want to start a business and they say, I don't have any money, I don't have any resource is so this goes back to what I think you're talking about earlier about planning, so if you're playing to start a business, start setting the money aside, be able to replace your incomes, you can both live and work while you build your business, he's, right? And a typical place that people reach for for this business, for this money out of their own pocket is this is alone on their home, a second mortgage if they own a home, people asked, should they draw from their retirement account and there's a couple of very serious considerations that I would definitely want to talk to your accountant or financial advisers about one? Is that there's a penalty when you draw from your retirement account? But the other thing is, in the case of a bankruptcy, most retirement accounts accounts are protected from bankruptcy, and if you tapped your retirement account to fund your business, um, and your business should go bankrupt and you know, I hate to say it, but you know a fair number do than money that would have been protected is gone, so be careful. Ask before you tap your retirement account, find out what are the ramifications, and by all means, set a ceiling on how much you willing to drop in personal investment guidelines, tap non retirement savings and tap no more than fifty percent of your non retirement savings. If you're older, older people starting businesses should tap less of their retirement savings, they're going to need them or if you're in the thirty two. Two forty eight range you could tap a little more of your non retirement savings if you're in your twenties, you're not your retirement savings, probably at that high feel fredo investment a great idea and see what you can do but be very careful with typing anything but non retirement. Don't touch your family emergency funds avoid tapping your retirement fund don't invest it all up front, decide how much you can put in and put in a little bit now and a little bit if you need it later in a little bit that you hope you won't need later, but don't give it all at once because to use that first rule, when the money's gone, the money's gone, consider will your investment make your business more valuable? Well, it actually add value for you to not take a salary and put it into your business for your are you building something that you will recoup through either being able to make lots and lots of money or sell someday the money that you put into it? And will your investment come back to you with a healthy return? Friends and family of the second place people turn its time honored tradition often involves only an iou or a contract with pay back, although a contract with pay back terms is better because thanksgiving dinners can get kind of tense, so better that you get it in writing, but it's usually much easier than any other kind of loan disagreements or pay back failure. Khun spoil personal relation family relationships so it is a a common way to do it. Just make sure you get it in writing and don't be surprised if they ask you the same tough questions that someone else would ask you how is this going to work? How is it going to make money? Have you thought about this? They're an investor, they deserve to ask those questions. Customers are the third way that people find their businesses co creation of a product it inspires early buzz and lasting support good examples. Real estate real estate frequently brings a project out of the ground a condo project and sells them early at a cheap for price to people who buy in. We used to call it at the ground level in hawaiian on early on, and the customers end up amassing the funding for the project. Often they also become huge ambassadors for the product and spread the world word it's kind of a viral thing. It requires an investment incentive of some sort to get your customers to buy in farmer's markets use customers you know where they have you buy early in the season to have a bundle of vegetables delivered all year, all summer long customers funding the project restaurant advanced memberships that's. You know, a lot of people are a lot of restaurants are doing that by membership on our restaurant and you'll get this and this and this and gives them the funding they need. Local vester zay did quite a column that got a lot of publicity and pass around on a group in portland that they had three hundred fifty thousand dollars. They needed a half a million. They raised the other one hundred fifty thousand from customers who gave anything from two hundred fifty dollars to six thousand dollars and they did it with a pay back so you would get discounts up to the amount you put in plus ten percent more. So you got you got if you put in six thousand five thousand dollars, you got sixty two hundred fifty dollars back in discounts plus a bunch of other little gifts, but it assured them ongoing clientele and people talking about them plus it got them the money so customers are another way that people inventive people get their money. Oh, this is local vesting. Local vesting is getting more popular. It's, a local movement that involves investing on main street to earn profits that support the local community. There's a book out called local vesting by amy cortese restaurant examples I just explained that the restaurant gets the return. The customer gets the return on investment and gop vips treatment the restaurant gets funding plus dining commitments and I didn't put in here viral sharing the customer becomes the advocate they feel the ownership of that restaurant so it's a way that customers helped fund crowdfunding you all hear crowdfunding um today one of the women I was meeting with here today told me about a community theater that was just funded on could kick starter um it pulls small sums from many many people give a little bit it's not reliant on deep pockets supporters or strong financial condition you don't have to have a wonderful balance sheet you have to have a wonderful idea supporters donate money in return for perks or rewards and those rewards have to be significant they have to be something that not significant in scale but significant in meaning to the person who's giving the money and in two thousand there's something called the two thousand twelve jobs act that isn't yet done that may allow once it gets approved up to a million dollars in small equity investments as soon as this is through, crowd funding is going to get real big because all of a sudden people khun give crowd funding to be equity investors versus recipients of whatever gift but how it works is it's a broad reaching online funding appeal that rewards donations with perks, products or services it's often an all or nothing model that you say I want to raise one hundred eighty thousand dollars to build theater and most of the platforms have it that you get none of the gifts if you don't reach your whole funding goal, nobody has to give if you don't raise the whole amount of money and the crowdfunding platform sets the model, they host the campaign, and they keep a percentage of everything that gets put in the popular platforms you hear about all the time kickstart starter in indy, gogo and here's. Their advice include a video. If you're ever going to do a kickstarter campaign and they are very, very popular and successful, you have to include of it. I mean, you don't have to, but so strongly they recommend that you include a video. It raises one hundred fourteen percent over what those without a video race aim for no more than three minutes with a great opening, and in the marketing section, we go into how you have that much time to catch attention, provide a complete written description and complete frequently asked questions because people want to know before they give offer three to eight perks or reward tears. Seven seems ideal, according to kickstarter, that they could give this much and get this this much and get this this much and get this the average campaign reaches its target on day thirty six this gives you a sense of how fast you have to get out of the gate, or else your chance of funding your program was really, really small. The average donation is seventy dollars, on a successful campaign aim for a first day groundswell and twenty five percent of your goal in the first week. You do that by contacting friends and family, everybody you possibly can to get them the minute that kickstarter you see it on facebook all the time, I just donated to my friends kickstarter campaign can't recommend it enough they're trying to get those first couple of days of swell that carry it through. So, anyway, that's crowd crowd, soc number five bank loans this is the one everybody automatically thinks of, I'll get alone loans aren't that easy to get? Um, you have to present a convincing business plan. You absolutely need a business plan in writing, not just in your head. If you want alone, how much you want, how you will use the funds, and when and how you'll repay the funds, you need to tell them that, then they you also need to give them the information to verify in their own mind, that this repayment is likely to happen based on all the financial information you've given them, you need to be prepared to secure the loan, usually with a personal guarantee and with valuable property called collateral this is when I say are you willing to put your home went for it or whatever else you own because most bank loans expect the person asking for it to guarantee that it will be repaid with valuable in from valuable property if in fact it isn't repaid through the plan usually it has lower interest rates and many other forms of funding and payments the bad thing is payments or do even during hard times you hear about banks calling alone be sure before you take a loan that you're going to be able to pay it off at home online no we did do a kickstarter course here creative life so we have that available I believe it was called kickstarter for photographers so it goes really in depth to the all of the crowds funding type resource is a lot of art projects a lot of music projects are funded with kickstarter and you know not all of them have huge demands that they're trying to raise I mean obviously if the average donation is seventy dollars you can get a sense of of what the scale of a lot of moammar but it is an interesting way to fund the production of a new app or something that you're trying to do lina credit you hear about that that is really alone but it's not alone that you get all at once its access to money that you don't need all at once you draw on the line of credit particularly if you have a business that's very cyclical that maybe it's very seasonal and has a lot of it's fixed costs are high enough and fixed all year long, but the revenue all comes in at certain periods and in between sometimes you need a little bit of funding to carry you through before the next round of revenue comes through you would draw in your line of credit preapproved funds it's like getting alone, but once you get it you on ly use what you need and you only pay interest on what you use and it's usually secured by business assets not by anything else it's like their funding like by your equipment or your inventory or something like that s b a loan we all hear about s p a loans and we still call them spl loans they aren't really spl be a loans small business association is the group through which american businesses go to get loans that are guaranteed in part by the s p a they're still really bank loans but the guarantees that they will stand by to pay back a large portion of it should you not pay back your loan? It means in some ways you have to pass the test of both the s p a and the bank, which makes it time consuming you're really getting to loan approvals instead of one but it is easier to get the bank loan once espn has given you the approval and s b a is more likely to give you approval if it's for expansion of a business startup uh is for expansion rather than for startup or purchase of a business so if you're trying to expand a going business and you could make a good case and espy alone is a good way to go they're sees there's paperwork there's double financial oversight, personal guarantees and plenty of times but you will get consideration by banks that you wouldn't get otherwise once espn has proved it equipment leases another way two fund business startup costs or business expansion costs it's really an alternative to a bank loan often a lot less paperwork you don't have to lay out the cash in the same way banks actually give equipment leases it's not like you're leasing you can also lease a car for instance did instead of leased by the car but banks can give you an equipment least where instead of having to purchase it the payments are often tax deductible like any other expand um be sure that the initial lease payment though is low enough that it wouldn't have been just azizi just by the thing and they often require a high interest rate and and a personal guarantee so once you're into loans expect personal guarantees deep pocket partner everybody wishes for a deep park a partner this is the ninth won a match up with a like minded entrepreneur with money likely requires a partnership for shareholder agreement and shared ownership usually a deep pocket partner is a silent partner who doesn't participate in your business except for funding but they do own part of it and be sure to define what their involvement is going to be in strategy planning operations and be sure you're compatible because even if they don't have day to day involvement they have oversight involvement and tenth is angels and d c s we all hear about them venture capitalists and angel investors and that's when you need more than a bank loan more than what a bank is likely to lend. This is the question we got today with the multi million dollar round of capital venture capitalists are professional investor groups and asset managers seeking a return on investment that is really their primary purpose they're making money for the group that they represent they I don't care that it's a cool idea they care that it will make money and that it will pay off to the degree that they need to pay off to meet their investment projections for their uh partners angels air successful wealthy entrepreneurs who invest money, expertise and guidance there are a lot like deep pocket partners except they participate they bring their guidance venture capitalists and buy invest sizable sums when they're invest when they're impressed by the business concept and management team they seek ah high rate of return they usually want twenty five percent back on their money they want their money back first and then is that you know twenty five percent they seek a major role usually in control and in ownership and for free online tools and information go to gust dot com or global platform for start up that's what gust er it's a global platform for start up funding and endorsed by the leading angel and vc associations. So if you want to know howto weight into the whole arena venture capital and this would be a good resource that I should have mentioned to the person who called earlier gust dot com angel investors buy in with both money and expertise unlike venture capitalists who often buy in with money and control, they usually expect an equity stake once again you're giving part of your business away they typically operate independently and make funding decisions more quickly than a vc group. They take greater risks, they entertained smaller requests and they fund earlier in the business cycle aa lot of times you'll get angel investors involved first and they become the ones that help you get it off the ground and the credible names that you need to go with you when you reach out to the big best investment capitals the most likely source is someone you know and the resource is air the websites of angel list and dust who needs funding and I'm giving you this because there are a few people that really are aiming to fund their businesses versus tied their businesses over which is what a lot of us are doing with smaller sums of money seed stage your initial development pre startup pre revenue very difficult to finance, very difficult to get financing for an idea before it's produced anything or made a single sale early stage our business this is that operations are underway, prototype versions are available, they likely have patents, management directors path to profitability much easier to finance. Not easy but easier later stage our businesses that already selling possibly not profitable but with significant revenue growth financing is required for expansion pre sale you know before you decide to sell the business or go into a in this uh I po in initial public offering and your business if costs succeed, revenues that's who needs funding? If this is your business, chances are it's not bc or angel. Chances are it's month of the other the other funds forms of funding, but if it's major revenue you're seeking, you do end up fitting into one of these three categories and going for the big bucks one way or another you have to get the money to cash. Flow your business to have money coming in, either through revenues, through investment. That gives you positive cash flow every single month. So when the bills come through, you can pay them.