On Equity Crowdfunding

In the environment of tight credit that characterizes the global economy’s tepid recovery from the Great Recession, many entrepreneurs are turning to unconventional sources of startup financing. Equity crowdfunding, mediated through registered online funding portals, is one of the available alternatives.

In order to ascertain whether EC would be right for you, there is some basic information you need to know.

 

What is equity crowdfunding, and how does it differ from standard crowdfunding?

Unlike standard crowdfunding, EC involves more than simply donating money to a cause in exchange for rewards, perks, or goodwill—instead, equity crowdfunders acquire an ownership stake in the company-to-be.

EC differs from traditional equity financing in its potential to attract numerous prospective investors offering modest quantities of capital. Conventional equity financing, by contrast, often involves a small number of deep-pocketed investors capable of advancing large sums.

Advantages

•   Democratization (sort of): EC can foster investment opportunities for people of comparatively modest means. However, the rules governing EC (including accredited-investors-only restrictions) vary by jurisdiction, along with the required documentation. The situation is fluid, as governments learn more about a relatively novel investment tool and modify their regulatory frameworks accordingly. It’s a good idea for businesses and entrepreneurs uninitiated in EC to seek legal counsel, so as to ensure compliance with local securities regulations.

•   Breadth of investment pool: Not only can EC enable entrepreneurs and business owners to benefit from a broader pool of potential investors than might otherwise be available; the relationship is a two-way street. As EC expands and develops, small- and medium-scale investors will also have the opportunity to dedicate a portion of their savings to a vast array of endeavours that might otherwise have received little exposure.

•   You set the fundraising commitment. When businesses attempt to raise early funds through venture capital firms, they receive whatever those organizations are prepared to give—usually a small sum, unless you already run a thriving business with a steady revenue stream. EC, by contrast, offers entrepreneurs relative freedom to establish and adjust their own targets.

•   Your funders have a vested interest in the success of your startup. After all, the more profitable your venture, the more lucrative the returns for them. If you encourage equity funders to promote your business idea on social media and within their friend circle, they will likely be keen to oblige.

Drawbacks

•   Legal complexities: As noted above, the rules governing EC vary by jurisdiction. A lot of entrepreneurs just starting out in the business world may not be familiar with financial disclosure rules, licensing, comprehensive business plans, and other requirements, and will need to undertake a lot of advance research and due diligence.

•   Small- and medium-scale investors may lack business and investment experience. Sometimes it helps to be able to defer to the advice of an experienced angel investor, venture capitalist, or business professional, especially when it comes to dealing with adversity and managing the expectations of your funders. In particular, new investors may not fully appreciate the risks associated with online and startup investments.

•   Some of your funders may be people you’ve never met. Obviously, this entails issues of trust and fraud prevention, and there is a risk that disgruntled investors may try to litigate against you in an effort to recoup a portion of their losses if your business doesn’t pan out. This is another reason why seeking legal advice is a good idea.

To equity crowdfund, or not to equity crowdfund?

EC may not be suitable for startups that lack a strong social media following, or that don’t offer a product or service that is marketable and compelling. For example, many of your Facebook friends may be interested in funding a bicycle store or a pet daycare; relatively few will be keen to support a more esoteric or specialized venture, like a business that designs refrigerator door hinges.

If you’re still interested in EC, I recommend this article in the Globe and Mail, by SeedsUp.ca founder Sandi Gilbert, as a basic guide to help you get started.

Equity crowdfunding portals, and useful links:

SeedsUp.ca—one of the first EC portals in Canada.

ncfacanada.org/equity-crowdfunding—a page devoted to EC, from the National Crowdfunding Association of Canada.

CloudFund.ca—another Canadian EC portal, in development at the time of this writing.

Alixe Cormick is a securities and small-business lawyer with expertise in Canadian EC regulations. She has penned an informative blog post on the subject, available here.

Tips for Small Business Owners and Startup Founders

Having a terrific idea for a business is only the beginning. Getting that idea from the "drawing board" to production is going to be a long and challenging journey.

The good news is that there are many resources and experienced folks standing by to help in your endeavor. The moment you embrace the simple fact that you’re not on your own, the better off you'll be. Here are some other helpful tips for small business owners and startup founders:

Bank Working Capital

You're going to need money for your startup. There's no way around that. Beyond lining up investors to back your business plan, you also should have some capital in the bank. This might not necessarily be for your business, but for your personal expenses. There will come a time in the initial phase of your start up when you're transitioning from a salaried position to entrepreneur. In other words, you're not going to have a steady paycheck, but you still need to pay the bills. A good starting point would be to have savings for at least four to six months of personal expenses. A decent size savings account will also let you float loans to your company to cover a wide range of expenses.

Start Small but Aim Big

Every great business owner has a story about humble beginnings. This is when a handful of employees worked together in "low rent" conditions to get things going. Although you know how big you'd like your business to become, it is not going to start out that way. Start small, working out of a space that won't cost you a lot of money. Your current home, apartment or parent's garage is as good a place as any. You also don't want to hire staff unless you've got a lot of work for them to do and all of that work should be generating income. The goal is to ramp up towards success.

Keep Records of Everything

No matter what, where or how you spend money for your business, there should be a receipt for that. You want to make sure you're keeping clean records of all of your expenditures and income. At the same time you also want to protect you personal assets. This is why it is important to incorporate your business and begin to run all your expenses through that entity. It's not a lot of money to set up a corporation and it will certainly pay for itself many times over.

Get a Plan of Action

You need a business plan. This can be a multi-page document or a graphic laden power point presentation. Either way it will become your road map towards success. That doesn't mean you have to strictly adhere to that business plan. You're going to make adjustments all along the way. However, with a well thought out business plan you'll be able to appreciate the trajectory of your business. That is also something your investors are going to embrace.

Top 10 Tech Investors To Follow On Twitter

Who are you following in Twitter? Once you collect you favorite celebrities, pundits and comedians, it might be time to focus on your business. 

There is a lot to learn from Twitter even in 140 characters. 

Here are the top 10 tech investors you should be following on Twitter.

Ashton Kutcher @aplusk

He's not just a TV star and master of the Punk'd prank, he's also a serious tech investor. As an "Angel Investor" Ashton will pick and choose who he wants to sink money into. He currently has over 14 million followers. It might be hard to get his attention in that crowd but you can certainly keep track of what he's up to.

Richard Branson @richardbranson

As founder of Virgin Airlines, Richard has redefined first class air travel. Thanks to his success he is open to new ventures through his Virgin Investments. He is the very definition of  a risk-taking entrepreneur.

Al Gore @algore

Got a new tech idea that is "green?" You might be able to rope in former Vice President Al Gore who has made a second career in promoting eco-friendly industries. His firm is Generation Investment Management and if you have an idea that is zero carbon footprint rated send him a tweet.

Mark Cuban @mcuban

Each week on "Shark Tank", Mark Cuban shows what an angel investor is all about. Folks with business ideas come to him, pitch their ideas and try to convince him to invest in their companies.  There have been many success stories to come out of the "tank" but that's not the only place he looks for possible investments.

Fred Wilson @fredwilson

His company, Union Square Ventures, is described as a "early stage venture capital firm." This means Fred likes to get in on the ground floor. IT is their primary focus and in the pasts 17 years Union Square Ventures has helped over 40 companies get up and running.

Om Malik @om

Om is a general partner at True Ventures, a Silicon Valley-based venture capital firm that has around $600 million in funds to play around with. According to Crunch Base, the firm "..maintains a strong founder community and offers innovative educational opportunities to its portfolio, helping entrepreneurs achieve higher levels of success and impact."

Chris Sacca  @sacca

His company, Lowercase Capital, not only offers funds for start-ups and late-stage companies but they also pride themselves on their advisory role. Chris is not someone who is just going to write a check and walk away.

Kevin Rose @kevinrose

Google isn't just a search engine. They've also got money to invest. Among the type of start-ups that Google Ventures invests in are Internet (obviously), software, hardware, clean-tech, bio-tech and health care. Their goal is to invest at least $100 million a year. Not too shabby.

Evan Williams @ev

The Obvious Corporation that Evan is a part of was founded in 2006. Since then it has dedicated itself in helping companies create new cutting edge technologies "which have the power to affect individuals, organizations and society." Since Obvious was behind the creation of Twitter, it stands to reason you should be following Evan.

Guy Kawasaki @GuyKawasaki

When you consider that Apple was started in a garage, it makes sense for this venture capital firm to be so named. Since setting up shop in 2005, Guy has lead his company through many important vestments covering a wide range of tech start-ups. 

Investors Have Given You Money For Your Business. What's Next?

After working diligently on your business plan and targeting potential investors, you’ve managed to snag some much-needed capital.

Good work. Now what?

Essentially, you have to live up to the promise of your pitch and deliver the goods. How you involve your investors in the early phase of your startup will set the tone for the rest of your relationship.

The goal is to make sure you can remain on solid ground with the money people. This will help improve your relationships throughout the business community and open up the possibility to return to those investors for expansion down the road. Before you get there, consider these proactive steps for involving your investors:

Set a board meeting calendar. By setting a board-meeting calendar you're letting your investors know that you're serious about the business and about getting their input. You should actually set the schedule for the entire year. You might have to rearrange some future meetings but at least your calendar will be a start for this process.

Have an investor dinner. Before the first official board meeting, you might want to think about having an informal gathering over dinner for all of your investors and board members. This is a great opportunity for everyone to get to know each other. Then when you head into those board meetings you can dispense with the small talk and introductions and get right down to business.

Plan an offsite meeting. This should be a full-day affair. You can break up the day with some recreation like playing golf at a hotel but most of the time you'll be in conference to discuss all the matters pertaining to the company and the direction it is headed. You should save this marathon meeting for the third or fourth meeting of the year. During this meeting you can also have members of your staff come by to make reports or presentations about the growth of the company and problem areas to work through.

Schedule one-on-one meetings. Hopefully your board of investors will be frank and honest at all of the company meetings. However, there might be a huge benefit from maintaining these relationships outside of the boardroom. The occasional one-on-one lunch or dinner meeting is the perfect opportunity to keep those lines of communication open and uncover any "hidden agenda" issues.

Stay out in front of bad news. It's not all going to be "rainbows and unicorns." You'll have some dark days ahead. When trouble happens don't try to bury it in a company report. Get out in front of the bad news and let your investors know you're in top of things. No matter how bad it might be they would rather hear it from you then from Twitter!

Overall you want your investors to feel that are a vital part of your company's success. That's not a stretch. All you have to do is honor their commitment with honest communication. 

How Venture Capital Funds Work

It used to be a popular misconception that venture capital funds only invested in companies that had traction and have proven products. Obviously, that misconception has changed with the large number of risky investments in startups. With the considerable amount of resources and advice available on how to pitch to VC’s, there still is a lackof understanding on how the industry really works.

Innovation has been the key driver of competitiveness within an industry. However, to bring innovative ideas to life requires more than just talent to succeed. As innovative ideas are considered risky for traditional banks to invest in, many entrepreneurs turn to the venture capitalists to bring their ideas to reality.

Venture capital has become an important source of funds for innovative and risky startups that may have a potential for high returns. A venture capitalist invests in a potential company in the hopes that their investment could give them a higher rate of return for themselves in a shorter amount of time.

Due to the risky nature of the investment, the venture capitalist spreads their risk over multiple prospects. This way, they minimize the risk of losing their money in one company and make it back from the one startup that makes it big.

Some characteristics of a VC firm are:

Investing in risky ventures with potential for high returns: VCs usually invest in unproven and innovative ideas which traditional financial institutions avoid. For that investment, they expect a ROI that is higher than usual. In general, they look for a rate o return that is within the range of 25 to 40 percent.

Hands on experience of an industry: VCs have prior experience and contacts which gives them an expertise in better management of the funds deployed. Not only do venture capitalists provide funding, they also provide a network and expertise that can help their investment grow. They can provide technical, marketing and strategic support.

Raises funds from several sources: There is a misconception that venture capitalists are rich individuals who are partnered together to invest in companies. Many VCs are not necessarily rich and almost always manage the funds on behalf of others. They raise financing from institutions such as other investment funds, pension funds, endowment funds, in addition to other successful individuals.

Diversify their portfolio: As mentioned earlier, VCs reduce their risk by developing a portfolio of companies instead of investing their entire fund into one company.

Short-term exits: As high ROI is important for any VC, they always make an investment with an eye for the short-term future. They determine whether they can see a return from their investment within 3-7 years. Their exits can range from getting bought out by a larger company, or taking the company public or even selling it to a private equity fund. 

Advantages of Venture Capital Investments

As a entrepreneurs, you may want to consider funding that range from few hundred thousand to a few million. Normally, you require this funding to grow your company by hiring more employees or the ability to do research and development. When faced with these situations there are many advantages of using a VC. 

These include:

• Securing a larger amount of money than you could from a commercial lender or government lender, turning your shares into more money in a shorter time frame. VCs normally make a decision in investing much faster than traditional financial institutions.

• They share the financial risk in expanding your small business.

• You can get specific experience from different kinds of VC firms, such as those specializing in early stage (startups) businesses or late stage (fully developed) companies.

Some Cons of Venture Capital Funds

Even though a VC firm can review your business and identify a lot of value in your company, it can be a disadvantage to accept VC funding. Some cons are:

• Losing your majority equity share to investors who are not passionate about your company.

• Possibility of surrendering managerial control to a VC firm

• Risking that a VC firm will take your company to a quick exit before it’s ready. 

• Losing competitive advantage in an industry by sharing privileged information about your business model to others.

Before choosing to work with venture capitalists, ensure that the pros outweigh the cons. The best position for a venture firm to be in is to have a substantial equity stake in a company. A VC earns their fees based on a percentage of the profits they create for their investors.

As the startup business owner you need to be realistic with your available equity stakes in terms of what you're willing to part with and the valuation of your company. It's important to find that balance and understand that first offers should not be generally accepted.  

Clean Technology - The New Bubble?

When it comes to investment "bubbles" we've recently experienced two major "popping" incidents. The first was back in the late Nineties with the technology bubble popping leaving a wreck of literally hundreds of online startup businesses.

The second was the housing bubble from the early 2000s. We're still feeling the impact of that bubble bursting.

Now there is a worry that clean technology will be the new fragile bubble. However, there are indications that would point in the direction of longer lasting investment opportunities with clean technology businesses.

Here's why:

Clean technologies get paid first.

Unlike the internet companies who were offering free services, most clean technology companies like those making and installing solar panels are paid up front for their services. In other words, nobody is giving away a solar energy system for free in the hope you'll buy another one. The potential drawback is that for these businesses to succeed they will require a serious investment from the consumer. This brings up the need for a strong marketing campaign to make sure the consumer understands all the money-saving benefits of clean technologies down the road.

It's good for the planet.

At the heart of any green technology is the desire to make the world we live in a better place. By reducing our dependency on fossil fuel burning forms of energy we can make important strides in protecting our fragile eco-system. That approach holds a lot of appeal for many folks. We might not need to buy a luxury item from some online web store but we should all be interesting in preserving the environment. This makes clean technology more of a "calling" as opposed to a "fun fad" and that is going to increase its longevity as a business.

Government support.

For the most part, governments have stayed out of online businesses. It also seems that any government involvement in the real estate industry has had dubious effects. However, with clean technology the government can play a vital role in terms of offering support. Not only have they been providing loan guarantees to clean technology business but there have also been tax credit incentives to spurn consumers into investing. The partnership between the government and clean technology appears to be in for the long haul.

Slow and steady growth.

Unlike the internet and housing bubbles, nobody is going to become an instant millionaire in the clean technology industry. That doesn't mean you can't find success but the approach is one of slow and steady growth. That removes a sense of urgency in investors looking for overnight returns. Smart investors understand the nature of the clean technology business model and will make the appropriate decisions towards infusing those industries with the needed capital. 

Accepting a Position as a Director in a Company

 

Being invited to join a promising young startup is certainly a boost to the ego. Clearly, your qualifications and experience have impressed someone enough to offer you a position as director. However, you have to think like a business professional. Put aside the compliments and ask “Do I know what I’m getting myself into?”

 

Because you might be taking a radical change in your career path it’s vital that you do research before accepting a position as a director. The following are some key areas you should thoroughly understand about the start up.

1)      Their Finances

Start with asking, “How much money do they have in the bank?” and build from there. What you should be looking for are actual funds and not the promise of investors coming on board. A line of credit is a good thing for the company to have but without working capital, that credit can quickly exhaust itself and add to the red ink in a ledger. Beyond the working capital, you also want to examine the company’s valuation. This will include income projections versus expenses. Bottom line: You need to get the complete financial picture.

2)      Their Competitors

Every startup begins with the notion that they are better than their competitors. It’s your responsibility to take off the “rose colored glasses” and garner a true look at the marketplace. Their competitors wouldn’t be in business if they weren’t doing something right. What exactly are they doing that your startup can’t do? The opposite question applies as well when asked about the strengths of your potential company’s abilities. Not only are competitor’s sales important to review but also their approach to marketing strategies. How will your startup do things differently?

3)      Their Investors

In your new position as director for a startup you might be charged with the task to bring in new investors. Hopefully, that company will already have a few investors supplying capital and intelligence. You would be at an extreme disadvantage if there were no investors already on board. That might prove to be too daunting of a challenge.

4)      Their Board of Directors

Who will you be working with in this new venture? This is crucial to understand because engaging in a startup will have your mettle tested. You might be asked to work long hours with this group in addition to making other sacrifices in your personal life. Will it be worth it? It’s hard to judge that until you have some tangible sales figures but you certainly don’t want to invest your time and energy with a group of directors who aren’t up to the task. Don’t ever forget that the solid reputation which earned you the offer to join the startup is the same reputation that will be at risk.

Small Business Financing - It's All About Who You Know

Believe it or not there are plenty of folks out there looking to invest in a small business. Your challenge is to get your business plan in front of them. Easier said than done, right? Actually, if you apply yourself you’ll find that it’s quite easy to build a network of potential investors. First, make sure you have a rock solid business plan ready to go. It makes no sense to seek out investors unless you’re ready to pitch. You might get only one shot and you have to be ready. Here are some tips for building up a network of investors.

1)      Go Online

There is a huge social network waiting for you to explore that is only a few mouse clicks away. LinkedIn is the most obvious choice to start your campaign to connect with potential investors. Here you’ll have a chance to build up a professional profile and find other business professionals who might be able to help. A connection you make on a site like LinkedIn might not be in a position to write you a check but they could connect you to someone who can.

2)      Try Crowdfunding sites

Beyond the direct networking possibilities of social media, there is another burgeoning source of investors you could find online and that would be with group funding. A site like Kickstarter is bringing together pools of small investors who are willing to share their funds with a business that looks promising. Once again, you have to be ready to fire up your business machine and answer any question in a competent matter.

3)      Ask your family and friends

It’s amazing the amount of help we can get from our family and friends if we just ask. You might have a favorite aunt or uncle who is willing to take a shot at investing in your business. As long as you treat them as you would any other potential investment then there is no reason not to present them with a business plan. Just as your online network could help you bridge the gap to meeting potential investors, you might have a friend who works for a company or has their own relationship with a potential investor. Throw a friendly dinner party and make your pitch. Keep it honest and sincere and you’ll reap the benefits.

4)      Network at events

This is a no-brainer. There are plenty of tradeshows geared for entrepreneurs to help them connect with investors. Seek them out but don’t stop at the tradeshow. Follow the money. This means going to places where the “money” would hang out: a country club, museum opening, first night at the opera, polo pony matches… wherever you might think that serious minded business professionals would gather you should try to infiltrate. This doesn’t mean barging in with your stack of business plans ready to hang out. Go make some new friends and see where that takes you.

Predicting Accurate Sales Revenue for your Business Plan

 

Your business plan is your calling card. This is how you’ll be judged by potential investors and lending institutions. It has to be expertly prepared and you need to be able to stand by every projection.

The key word there is “projection.” For all practical purposes, you’re making an estimate as to how your business will perform. In the real world, those numbers can go up and down.

Predicting accurate sales revenues could make all the difference with your potential investor. Those numbers have to be realistic and rock solid. Here are the steps to take for making accurate sales predictions.

 

Step 1: Expenses

You’ll need to put together the list of fixed and variable expenses. These will include all the items you know you’ll be paying out for on a regular basis such as office rent, equipment rent, payroll, electric, phone and inventory (if applicable). You should also factor in the budget for marketing campaigns. It proves you’re being realistic about your business expenditures.

Step 2: Income

Here is where you’ll be doing the bulwark of your predicting. How can you estimate revenue when you haven’t sold your product or service yet? One approach would be to analyze the competition. What kind of business have they done in the past several quarters? If they are a public company you can find that information easily.

You might also have experience from a previous job that can provide projected sales figures. Your local Small Business Administration or Chamber of Commerce might also be able to help you.  

You should also analyze your own market. This is easier with a brick and mortar type of store than with an ecommerce business. Think of your business as a zone that attracts potential customers. What would be the average amount of customers who would visit your store or site each day? Of that number, what percentage would make actual purchases? Of that number, how much would they spend? This is how you shape projections. You should always strive to be conservative with those estimates so as not to over inflate your company’s value.

Step 3: Do the Calculations

Here the math is simple: You subtract your expenses from your sales projections. That is your profit margin and it’s the number your investors will be most interested in.

Whatever set of numbers you put into your plan you’ll need to make sure you’ve got backups for them. This can actually be explained as part of your business plan but it’s a guarantee you’ll be asked at some point, “How did you come by these figures?” You want to make sure you have a responsible answer.

Lessons Learned From Pitching Venture Capitalists

 

Raising money is as much a part of business as the goal of making money. As the old adage goes, “You’ve got to spend money to make money.” There’s an even older adage which posits, “Never use your own money.” One of the most popular sources of funds – especially for startups - is venture capitalists (VC), those who provide money in exchange for large ownership stakes.
 

Due to their popularity, VCs are extremely busy and hear thousands of pitches in a month. Out of that many, they invest in only in handful, hoping for a very lucrative exit in a short amount of time. To pitch a VC for financing requires the founders of a startup to not only be well versed in their own companies, but also do extremely detailed research on their potential investors. Not doing your research will make the difference in getting funded millions of dollars or being delegated to the black hole of has-beens. The following tips are some valuable lessons to learn about pitching VC’s and getting your startup funded.  

            Do Your Homework

Every venture capitalist you’ll be pitching to has their own distinct personality. You need to get as much background information on that potential investor as possible. Don’t just Google them but ask around – especially other investors. Do they have a short attention span? Would they prefer to see the bottom line numbers first and then the “sizzle?” What other successful businesses have they invested in? Why did they make those investments? In many ways, you’ll be giving the same basic pitch to every venture capitalist but if you can adjust to their investment criterias and individual personalities you’ll be ahead of the game.

Be Smart With Your PowerPoint

One of the most popular (and easy to use) skills for any business owner to have is the use of the PowerPoint presentation. This is not something you should be slapping together the night before the big pitch. Instead, it’s something you should be developing since the inception of your business plan. An effective PowerPoint presentation can’t stand alone. You’ll still need to “narrate” to fill in the gaps from your bullet points but you shouldn’t become top heavy with data. If you can make your point with a strong visual then go for it. Before building your PowerPoint, go online and view other presentations. Take note of what you like and “borrow” the idea.

Have a Thick Skin

Every entrepreneur walks into a VC pitch with dreams of walking back out with a check. That’s not going to happen. What will happen is you’ll be grilled aboutyour business. This is a good thing. The more you can engage that investor the better off you’ll be. Make sure you listen clearly to any question and think through the answer before blurting out something you think they want to hear. You’re not going to get the same reaction twice. Don’t let that throw you. Remain confident in your proposal and if they don’t bite move on to the next investor.

 Pitch the Facts

It’s great that you have conviction about your business idea but you can’t let that passion become pie-in-the-sky thinking. Over-valuing your company is the quickest way to turn off an investor. If you’ve got grand assumptions to make about business projections you better back it up with more than sweeping generalities. Just because the dog food industry is a multi-billion dollar business doesn’t mean your brand of dog food is guaranteed success. Sell your passion but back it up with the facts.

 

Why Should You Incorporate Your Company?

There are many reasons for incorporating but the most important to consider are the benefits of incorporating and the implications that it may have for your business. A quick examination of all the benefits to be derived from incorporating will reveal that the best time is when you are actually taking your startup business from inception to reality. Consider all of these corporate advantages:

1.      Limited Liability

Incorporating your business is really about protecting your personal assets. Anyone who starts up a business will find it taking up a major portion of their time but that doesn’t mean you have to assume a total risk with everything you own. By incorporating your business you are drawing a clear line between your personal asset and the assets of the company. That way if anything should go wrong with the company, you’ll still have your personal property. It’s important to keep those two aspects of your life separate.

2.      Attracting Investors

When you incorporate your business you’re also telling potential investors that you’re serious about your company’s future. That is going to make getting money from investors a lot easier. Any investor will be taking a risk by giving you capital. You can make them feel more confident with a professional approach to your business plan through incorporation.

3.      Tax Issues

Just as incorporating your business will protect your personal assets it can also help improve your tax filing status. With a corporation, you have the ability to defer paying taxes to a time during the fiscal year which will be more beneficial. This also applies when you accept an income. The goal should be to work with your accountant to find a proactive way to reduce your tax burden which can ultimately allow you to reinvest in the business. There are also a wide range of small business tax deductions which can help you make improvements but they would only apply to a business that has been incorporated.

4.      Better Client Prospects

If an investor feels better investing in a corporation then a potential client will also share those feelings of confidence in your business. Incorporating your business projects a level of stability to customers. They know they’re not dealing with some “fly-by-night” organization but someone who is in for the long haul of providing service.

5.      Corporate Legacy

For all practical purposes, a corporation is a legal entity that can far outlive the lives of its founders. When you can move your company into the realm of Fortune 500 type of businesses then the hope is that they’ll be around long after the original board has gone onto greener pastures. A corporation is about longevity which is exactly what you should be focused on for your new business.

5 Startup Lessons I Wish I'd Known

If someone can develop an app that provides “hindsight” they would truly make a fortune. Sadly, most startup businesses stumble out of the gate only to embrace valuable lessons too late in the game. Can you benefit from any of these lessons learned from startup entrepreneurs?

1.      Line Up Early Investors

Operating capital is essential in any business whether it’s just starting or has been around for generations. For the new business, it is important to have working capital on hand to not only cover the day-to-day operations but also as a “cushion” for any unforeseen circumstances. Too often new business owners look for the big investors who want to minimize their risk by only investing in a proven entity. This means they won’t be interested in a first position investment. Instead, look for contributions from eager investors who are willing to come in early. It might mean smaller amounts from more investors but it could pay off in the long run.

2.      Bank Your Content

If content is king, then do you know where all your content will be coming from? A lot of excitement can be generated by launching a new website. All the social media networks will be lined up and you’ll get started with a powerful push by providing tons of fresh content. Unfortunately, that fresh content could quickly dry up if you don’t prepare for the long haul. You should treat content fulfillment just as you would with any other type of fulfillment: it has to be delivered on a consistent schedule and maintain the standards you set for the company.

3.      Be Smart With Your Marketing

There are many valuable resources to tap into in terms of online marketing campaigns. The real question is do you know what you’re doing? Just because you set up a Facebook page and Twitter account doesn’t mean you’re work is done. Set aside some of your marketing budget (yes, you should have a marketing budget) for online consultants with a proven track record of success. Let them be your guide.

4.      Reach Out

No company should be an “isolated island.” You should be forming business partnerships as an ongoing function of your operations. Suppose you are setting up a web business to sell custom sneakers. Wouldn’t it make sense to partner with a shoelace company? Think about how you can expand the reach of your business through these partnerships.

5.      Manage Expectations

Every new business startup dreams of fast success. The same can be said for anyone buying a lottery ticket. Just because you think you’ve got it all figured out doesn’t mean your business will perform according to plan. Expect the unexpected and understand that a business is meant to endure. Your six month plan is every bit as valuable as your five year plan and both should be grounded in realistic expectations.

Business Planning: An important step towards starting your business

As an entrepreneur, you juggle a lot of balls.

From managing employees, sales, financial and operations, it’s easy to get lost, trying to put out the daily fires. If you don’t take a step back and take a look around, you may have realized that your business is not what you had originally started.

This is the point when you realize you should have sat down and spent the time in creating a business plan. Not just something that you’ve jotted down in the back of an envelope, but a document that maps out your long term strategic plan for your business.

Creating a business plan is important as it not only provides you with a compass – guiding you in the right direction, but also reducing the stress and frustration in reacting to situations on a daily basis, because you know the path you are on. A business plan also allows you to:

• Be visionary –identify where you’re going and keep you on track towards your goals;

• Execute with confidence – you know what your tools and resources are going to be and can handle any potential surprises;

• Be fiscally strong – you’ve already laid the groundwork for your financial health, knowing your expenses and profit margins.

What’s a business plan?

A business plan is a document that outlines how you are going to achieve success in your business and a step by step process on how you’re going to get it done. However, you have to realize that the information that you put in your business plan depends on who your target audience is.

Here are the items you need to keep in mind when writing your business plan:

1. Know your audience

Tailor your plan to your readers’ requirements. If the plan is to raise funds, then you must indicate how your potential investor would make a return on their investment and how long it will take. However, if you are communicating your future plans for the company, then the goals of the plan are different. Always remember to tailor the material to your audience.

2. Identify your customers

Use the plan to delve deeply into outlining who your customers are. Why would they want to purchase from you. What are their pain points? How will you solve it for them? Understand the size of your potential market and how it will grow over the next 5 years. By answering these questions, you will uncover if your business is sustainable for the long-term.

3. Who are your competitors?

You also need to know the size of your competitive market - how will you differentiate yourself? What kind of challenges will you face when you go against them? It’s important to know your competitor’s strength and weaknesses so you can exploit them to your full advantage.

4. The design of your plan

If your plan is a document, make sure that your plan is easy to read, well organized and looks professional. If you are doing a PowerPoint presentation, make sure that your key points are clearly stated and easy to read.

5. What is the ROI?

Most business plans are written with the goal of raising financing. So, know your numbers! You should be aware of how much money you’ll need to raise, what your profit and operating margins are and how you’re going to make money. If you’re looking for funding from investors, then you need to communicate clearly the return of investment that they will get. How long will it take for them to make back their investment and more? What will make them confident that you will succeed in this business – so that they know they will not lose their money? They also would want to know if you are prepared for all contingencies and can protect their investment from failure.

Finally, a plan is not written in stone. Due to changing market conditions or new opportunities, you may have to react quickly and adapt. You should review your plan every quarter, just to see where you are against your milestones and address as necessary.

How to Valuate Your Business

There comes a time for many businesses when it may be necessary to find investors or a buyer. In either case, it will be imperative to assess the value of your business. Long before you approach a potential investor or buyer, you need to know exactly where the negotiations will begin.

Valuating a business is by no means an exact science. There are several common methods that can be employed. Each method uses different assumptions and, logically, each method will result in a different value. Obviously, part of the negotiation will involve agreeing upon the method employed to determine the business' worth.

Many investors prefer the Discounted Cash Flow method to determine the value of the business. It is based on future cash flows. By employing this method, the investor can see a projection of the actual cash that will come to the company and thus determine the investor's return on investment. A similar method is determining the Going Concern Value. This method compares the current investment to future cash inflows. The revenues of previous years are used to project future revenues, on the assumption that the revenues will not change drastically.

Another common method to determine the value of a company is based on assets. A determination of the book value of the company is quite straightforward. The company's net worth, or shareholders' equity, is determined based on the financial statements of the company. Quite simply, subtract liabilities from gross assets and the result is the net worth or book value.

A similar method is determining the liquidation value of the company, based on the company's assets. This method calculates the income from the sale of all the company's assets. The assumption is that equipment and land would be sold at a price close to their market value. Inventory and receivables generally yield a reduced value. A liquidation value is generally employed for the sale of a business, rather than investment purposes.

Whichever method you use, it is best to consult with a professional advisor who can help avoid mistakes that could prove costly.

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Do I Need a Business Plan?

A business plan sounds like a complex study. In some cases, it may be. But, the question is asked if every business truly requires a business plan?

The answer to that question is "yes", more often than not. A viable business, rather small or large, should make use of a well-designed business plan at some point in time.

Starting at the time when the business is still but an idea, a business plan is an excellent way to organize ideas. It allows you to create a filing system in which the various cogs and wheels begin to come together into a working machine. Long before you begin actually getting the idea off the ground, your business plan allows you to draw a picture of your idea – so to speak – and stand back to take a look if there are any mistakes or problems. Also, none of us are perfect. Especially if we are dealing with a complex idea such as a new business, it is best to have others review our concepts. Your business plan is an excellent way to allow others to help you develop your thoughts and use their feedback to improve what you have begun.

As your business begins taking shape, you will need the business plan to help interest possible investors. Your bank may wish to see the plan when you begin discussing credit with them. Perhaps you have decided to take in a partner. The business plan will be dissected at your meeting. The business plan is the blueprint of your business. It should accurately describe the concept. It will discuss the goals, milestones, financing, cash flow, staffing, and virtually every aspect of your business. It is the theoretical side of the entity. Also, a good business plan should be updated as the business begins operating, especially in relation to financial projections.

Invest the time to write a proper business plan. It is an investment that will have a guaranteed positive return.

Here is some business plan software to get you started.

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Normalizing Interest Rates?

With the end of the global recession now becoming more than merely a prediction, the time has come to begin the clean-up from the temporary measures that were a necessary part of the economy during the difficult financial times. In short, besides stimulus funds becoming part of the scenery, record low interest rates were also an everyday occurrence.

Interest rates, at near zero levels, were the Shangri-la of investors. Investors who could tap this virtually free money, profited well and the markets responded in kind. In a chain of events, this unprecedented boost of the markets helped restore confidence in the average household and greatly strengthened the ailing economy by fortifying its foundations. However, even the best of vacations must come to an end. Any student of economics will tell you that interest rates reflect and influence an economic situation. Artificially set rates will cause undue influence and possible damage. The current rates were set for an emergency situation. With the economic emergency now having been downgraded, the time has come to allow the markets to respond appropriately. The question now is the timing and magnitude of the normalization of rates. Having faced a near collapse of the financial sector in the Western world, it is crucial that the central banks of both the US and Canada time their adjustments accordingly. For example, towards the end of the Great Depression in the 30's, the US government pulled out its stimulus funds in a final push in 1937-38. This sudden move, due to improper timing, had a negative effect, pushing the US economy into a tailspin and sent the markets reeling.

Economists are mixed in their predictions as to the end of the rock-bottom interest rates. Most feel confident that neither the Governor of the Bank of Canada nor the U.S. Federal Chairman will allow a repeat of the Great Depression mistakes. However, even the latest of predictions for rate hikes is no later than early 2011. Some predict that rates will begin rising by this summer. In either case, investors should prepare themselves for a return to normalcy. The worst, we hope, is over.

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