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Why It Is Not Advisable to Not Have a Business Plan

Plan

When you start a business, different people will advise you differently on how to turn your venture into a success. While it looks natural to have a business plan beforehand, do not be surprised if you find some people telling you to not have one. According to some, having a business plan limits you in your exploration and prevents you from taking risks. That might hold true in some cases, but that’s not how it is for everyone. Having a business plan is a sensible step, but if you are on the fence about whether to have one or not, here are some disadvantages of not having a business plan to help you make a well-informed decision.

Why Not Having a Business Plan Is Not Advisable

1.      There Is Nothing to Achieve

Milestones have to be an integral part of any venture. When you don’t have any milestones and targets, there is nothing for you to achieve. Having no business plan is the first sign of your non-seriousness with your business. If you could not take out time to create a detailed plan, how can one expect you to manage your business – an activity that could require even up to 16 hours of continuous working at times? The problem with having nothing to achieve means you will have no strategies for your expenses, profits, revenues, etc.

How would you ever know how much you should spend or not spend? Why would you invest in marketing when you don’t have any goals?

2.      There Is Nothing to Interest Investors

There might be some proponents of the idea that a business does not require a business plan, but there are still more people who believe in having a business plan. Investors always need indicators from entrepreneurs to judge their personalities and potentials. Business plan is one of the strongest indicators of a person’s potential of doing a business. When you ask investors for a certain amount of money, the first question they ask is why you need that money or what you need that money for. Your answer to this question can make it or break it for you.

In fact, that is not the only question. They will follow up this first question with a lineup of crucial follow-up questions. For example, if you tell them you will invest the money in marketing, they will ask you about the type of marketing you are aiming for, the return you expect and the costs of customer acquisition. How can you answer all those questions if you do not have a business plan?

3.      Your Marketing Will Go Awry

One of the damages of not having a business plan is your marketing plans going awry. Entrepreneurs have more power to them today than they ever had before. These days, startup owners have internet where they can collect information about their customers in the startup stages. Collecting customer information helps them create buyer personas and target their audience with appropriate marketing. Here are some pieces of information you will have to collect.

  • What age group and gender my product appeals best to?
  • What interests my target age group and gender?
  • What platforms is my target audience most active on?
  • What is the average buying power of my target audience?
  • What type of content best attracts my target audience?
  • What expectations do my potential customers have with my product?
  • How can I personalize my marketing to my audience?

That’s just few of the many questions that you have to get the answers for to make your marketing endeavors profitable. However, all of this homework is a part of your business plan.

4.      Your Team Won’t Share Your Vision

It is crucial for a business’ success to have a team that shares the same vision and endeavors to achieve it. Several studies and researches have proven that employees do not perform at their best when they don’t understand the vision well. You must define clear and vivid targets to your employees for them to know exactly what they have to do to be of value for the company. What you have to realize is that telling your team the vision of the business is not enough. It is a broad concept and does not define the action plan to your employees.

What you have to do is break the process of achieving your vision into small parts. These small parts are the milestones and within each milestone the role of your team is clearly defined. In short, break the entire pursuit of vision into small missions, and explain the role of every team member to achieve a milestone.

5.      You Won’t Know When to Exit

One of the biggest mistakes most startup owners and entrepreneurs make is that they don’t know when to exit. If you can close down your business before it starts hurting you financially, that’s a form of success. The true failure is when you cannot realize that your business is hurting you and you keep burning dollars for its success. An integral part of a business plan is defining favorable and unfavorable conditions for the business to exist.

In a business, you have to define a deadline before which you must see positive results. You have to define a time frame within which you can continue to invest in your business. However, you have to draw a line to make it clear when you cannot continue anymore. If you have been running your business for six months and the money has been going out of your pocket, it might be an indicator that it won’t work for you.

Conclusion

A business plan should be considered a part and parcel of a venture. It is not an optional component because your success rests on it. If you are looking forward to starting your business, it is advisable that you sit down and take time to write and review your business plan. If that is too much for you, hire a professional to write it for you.

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9 Things to Consider Before Forming a Business Partnership

Budiness partnership

Getting into a business partnership has its benefits. It allows all contributors to share the stakes in the business. Depending on the risk appetites of partners, a business can have a general or limited liability partnership. Limited partners are only there to provide funding to the business. They have no say in business operations, neither do they share the responsibility of any debt or other business obligations. General Partners operate the business and share its liabilities as well. Since limited liability partnerships require a lot of paperwork, people usually tend to form general partnerships in businesses.

Things to Consider Before Setting Up A Business Partnership

Business partnerships are a great way to share your profit and loss with someone you can trust. However, a poorly executed partnerships can turn out to be a disaster for the business. Here are some useful ways to protect your interests while forming a new business partnership:

1. Being Sure Of Why You Need a Partner

Before entering into a business partnership with someone, you need to ask yourself why you need a partner. If you are looking for just an investor, then a limited liability partnership should suffice. However, if you are trying to create a tax shield for your business, the general partnership would be a better choice.

Business partners should complement each other in terms of experience and skills. If you are a technology enthusiast, teaming up with a professional with extensive marketing experience can be quite beneficial.

2. Understanding Your Partner’s Current Financial Situation

Before asking someone to commit to your business, you need to understand their financial situation. When starting up a business, there may be some amount of initial capital required. If business partners have enough financial resources, they will not require funding from other resources. This will lower a firm’s debt and increase the owner’s equity.

3. Background Check

Even if you trust someone to be your business partner, there is no harm in performing a background check. Calling a couple of professional and personal references can give you a fair idea about their work ethics. Background checks help you avoid any future surprises when you start working with your business partner. If your business partner is used to sitting late and you are not, you can divide responsibilities accordingly.

It is a good idea to check if your partner has any prior experience in running a new business venture. This will tell you how they performed in their previous endeavors.

4. Have an Attorney Vet the Partnership Documents

Make sure you take legal opinion before signing any partnership agreements. It is one of the most useful ways to protect your rights and interests in a business partnership. It is important to have a good understanding of each clause, as a poorly written agreement can make you run into liability issues.

You should make sure to add or delete any relevant clause before entering into a partnership. This is because it is cumbersome to make amendments once the agreement has been signed.

5. The Partnership Should Be Solely Based On Business Terms

Business partnerships should not be based on personal relationships or preferences. There should be strong accountability measures put in place from the very first day to track performance. Responsibilities should be clearly defined and performing metrics should indicate every individual’s contribution towards the business.

Having a weak accountability and performance measurement system is one of the reasons why many partnerships fail. Rather than putting in their efforts, owners start blaming each other for the wrong decisions and resulting in company losses.

6. The Commitment Level of Your Business Partner

All partnerships start on friendly terms and with great enthusiasm. However, some people lose excitement along the way due to everyday slog. Therefore, you need to understand the commitment level of your partner before entering into a business partnership with them.

Your business partner(s) should be able to show the same level of commitment at every stage of the business. If they do not remain committed to the business, it will reflect in their work and can be detrimental to the business as well. The best way to maintain the commitment level of each business partner is to set desired expectations from every person from the very first day.

While entering into a partnership agreement, you need to have an idea about your partner’s added responsibilities. Responsibilities such as taking care of an elderly parent should be given due thought to set realistic expectations. This gives room for compassion and flexibility in your work ethics.

7. What Will Happen If a Partner Exits the Business

Just like any other contract, a business venture requires a prenup. This would outline what happens in case a partner wishes to exit the business. Some of the questions to answer in such a scenario include:

  • How will the exiting party receive compensation?
  • How will the division of resources take place among the remaining business partners?
  • Also, how will you divide the responsibilities?

8. Who Will Be In Charge Of Daily Operations

Even when there is a 50-50 partnership, someone needs to be in charge of daily operations. Positions including CEO and Director need to be allocated to appropriate individuals including the business partners from the beginning.

This helps in creating an organizational structure and further defining the roles and responsibilities of each stakeholder. When each individual knows what is expected of him or her, they are more likely to perform better in their role.

9. You Share the Same Values and Vision

Entering into a business partnership with someone who shares the same values and vision makes the running of daily operations considerably easy. You can make important business decisions quickly and define long-term strategies. However, sometimes, even the most like-minded individuals can disagree on important decisions. In such cases, it is essential to keep in mind the long-term goals of the business.

Bottom Line

Business partnerships are a great way to share liabilities and increase funding when setting up a new business. To make a business partnership successful, it is important to find a partner that will help you make fruitful decisions for the business. Thus, pay attention to the above-mentioned integral aspects, as a weak partner(s) can prove detrimental for your new venture.

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A Guide to Crafting the Perfect Startup Pitch

Pitch

As an entrepreneur with a unique business idea, your most difficult task is to make others believe in your idea as much as you do. Your knowledge of your business and the passion for its concept reflects in how you pitch your startup. While learning comes from failures, your target should always be to ace your pitch the first time you deliver it. The idea of pitching your business to the experienced investors can be quite daunting. You are standing in front of the people who can look right through you and your words. Any mistakes or misinformation can ruin the opportunity of a successful investment.

If you have watched a few episodes of the Shark Tank, you would know how brutal investors can be with their probing and reprimanding. While their harsh words can be quite painful, the more disappointing part is when you are not able to get the investment you want.

Regardless of all the internal and external forces, favoring and non-favoring odds, it is your perfect pitch that can win the investors over. What you need to focus on is how you can craft the perfect pitch that has the thinnest chances of being turned down by potential investors. Here are the tips that will help.

7 Tips to Craft and Deliver the Most Successful Business Startup Pitch

1)    Keep Your Pitch Short

Do whatever it takes—hire professionals or spend hundreds of hours brainstorming—but come up with a shortened, succinct and most effective version of your pitch. Don’t make your investors yawn. Split your pitch into three to four different phases and transition through them smoothly. For example, split your pitch into four parts that could look like this:

  • Tell the story how it started.
  • Explain clearly what your product/service is.
  • Give out numbers i.e. revenue, sales, profits, losses etc.
  • State the size of the investment you are looking for and explain what the purpose for which you need the said amount.

So, you could give 2 and half minutes to every part and complete your pitch in 10 minutes. Increase the time for the section which you believe needs more attention.

2)    Be VERY Clear about Your Product/Service

One of the biggest mistakes that startup teams make is not being able to explain the idea they are selling. It can often happen when you divide your product/service into multiple sections with each section solving a different problem. If you are not able to explain your product/service clearly, it is an indication of one of the two problems or both: 1) you have not worked on your pitch and 2) you don’t know your service/products very well yourself. As soon as the investors feel lost during your pitch, consider the opportunity lost too.

3)    Know Your Target Market and Product’s Uniqueness

Many entrepreneurs’ pitches have turned into nightmares because of this particular point. It is like an interviewer asking you, “Why should we hire YOU?” There might be many other products similar to yours in the market without you knowing about them. What you have to know is what makes yours unique/different.

You must also know the market you are targeting with your product. Keep in mind that investors are often not interested in products that only target a niche market. Take the example of selling Christmas trees that only sell in the Christmas season—indicates a niche market, a limited product.

4)    Know Your Numbers

If you have not done your homework on your numbers, you have no chance of getting an investor interested in your product. It’s sad but true. In fact, some investors are only interested in numbers as they believe it’s the numbers that tell the real story, not the business owner him/herself. Know your revenues, sales, losses, incomes, etc. Make sure you know your profits and revenues regarding months, quarters and years. If they ask you how much profit you made in last three months, you must come up with an answer immediately.

5)    Be Clear on How You Intend to Spend the Money

This section is where the investors will gauge how trustworthy you are and how good you are as a person in the leading position for your business. Of course, if you want money for your business you must also know where you are going to spend it. A few things that investors are trying to find out by asking “how you are going to spend the money” are as under:

  • You aren’t asking for money just because you haven’t been able to take a paycheck from your business.
  • You are not going to use the money to pay for debts and old investments.
  • You are not going to use the investment money for a business process that will not contribute to business’ growth and expansion.

If your demand for money ends up being for any of the reasons mentioned above, you are likely to be rejected for your investment.

6)    Show Your Passion

Barbara Corcoran, successful businesswoman and investor, says that she looks at the enthusiasm and passion of an entrepreneur for their business. She believes that you cannot fake passion. Whether you are pitching through an online platform or live in front of the investors, your passion can get them interested in your business even if it is not something they have done before.

7)    Choose the Right Platform

In today’s digital world, you can gather funds from investors through an online platform, which is the most popular and successful way for entrepreneurs to gather funds for their start-ups. However, when it comes to choosing the platform, you must pick one that has a reliable network of investors, significant traffic, reputable online image and great exposure for startups. One that fulfills all these requirements and more is Funded. Funded is currently one of the best and most reliable platforms for startups, especially when it comes to angel investors.

Final Word

As a startup, the presence and preparation of your competitors might be intimidating at first, but that’s what you need to change about yourself. Your competitors might have reached to a bigger network of investors, more inventory and better technologies to support their mission, but what can make the difference is your passion and confidence in your startup pitch.

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Small Businesses Must Understand What Marketing Means

Small Business Marketing

The success of a small business depends greatly on how effectively it markets itself, its products and its services. The real challenge with marketing is that it is one of the broadest concepts that any businessperson and entrepreneur have to deal with. Every business has its specific marketing needs, and yours does too. If you have a business, you must understand marketing in its depths and the many techniques that will help your business grow and expand. A lot of the business owners believe that having a website and doing some seasonal material marketing is enough for them, but they are wrong.

Marketing has completely changed in the modern times with “digital” being the main focus. A conventional approach towards marketing will not help you achieve the goals you have set for your business.

Understand the Concept of Marketing Mix

Before you start marketing your business, you have to understand the concept of the marketing mix. Marketing mix consists of price, product, promotion, and place. While many other factors have been added to the mix recently, these four Ps remain the strongest ones to date. If you can understand the concept of the marketing mix, you will ensure allocating strict budgets and still getting the best ROIs from your marketing campaigns. You must bear in mind that spending too much on marketing does not mean you will always be successful.

Your successful marketing strategy has to be a mix of the four Ps. Before you start promoting a product, you must know the product is complete and in an acceptable form. Once the product is complete and you want to promote it, you have to make sure you promote it in the right place. You don’t want to be selling air conditioning units to the people of Siberia. Now, even if you created a great product and are promoting it in the right place, you won’t be able to sell it well if you haven’t priced it right.

You understand at this point that you have to pick every “P” of the marketing mix one by one and see if your strategy touches all of them. An important point to remember here is that the concept of the marketing mix is not limited to the “planning” phase of your marketing efforts. Even when you have executed your marketing plans, you have to keep measuring these four factors. If your efforts are not yielding any profits or positive ROIs, look at the four factors and try to find out which one has not been executed properly. Maybe you are promoting the right product at the right place but to the wrong people.

Base Your Marketing on Data

If you don’t know already, the more relevant and popular term than marketing is data-driven marketing among marketers. It is clear now that marketing without data is less effective and less practical in the modern times. Today, you have dozens of different tools to collect data about your target audience. You use these tools because the data you collect gives you deep insight into your market, what your customers want and what puts them off. In the online world, the process of data collection starts from your website. On your website, the data you can collect include the demographics of your visitors, their recent interests, their path to reach your website, etc.

There are other means of collecting data about your customers. The thing is that you will collect data from many different channels and in many different formats. Being able to view this data in one place and taking effective action on it is what the real challenge is. Companies are now looking for solutions to manage their digital marketing campaigns in one place, regardless of the nature of those campaigns. Data-driven marketing also allows you to create more personalized campaigns that are more effective in persuading your customers to use your products/services.

Look at the Right Numbers

One huge mistake that many small business owners make is focusing on the wrong numbers. You might have a great website, a strong marketing strategy and a lot of data to target your efforts in the right direction, but you can’t get any benefits until you look at the right numbers. Looking at the right numbers means that you measure the success of your marketing efforts by keeping up with the most important KPIs (key performance indicators). For you to measure the KPIs, you must set associate goals and targets with your marketing campaigns.

So, when creating a landing page for your product and get a lot of visitors on that page, it does not mean anything to you unless you are measuring some KPIs. In the case of a landing page, your most important KPIs will be the number of visitors, number of converted visitors and the sources from where the visitors are coming. Now, focusing on the wrong number would mean you are looking only at the number of visitors coming to your landing page every day. The number of visitors is only telling you that your marketing efforts have been successful enough to bring the visitors to the landing page. But how does that benefit you in any way if you don’t earn anything from those customers?

That’s where you have to measure the conversion rate. The conversion rate will tell you how much you are making from the visitors that are coming to your landing page. By focusing on conversion rates, you will put more money towards marketing campaigns that are bringing the most potential traffic, i.e., the traffic that’s converting the most.

Now, no matter how benefiting it is to focus on your conversion rates, it is still only one side of the picture. The right numbers here are your acquisition costs. If you spend on every acquired customer is $100 but you are obtaining a value of only $20 from that customer, this type of marketing is not good for you. You always have to look at positive ROI, i.e., your returns on the investments must always be higher than the amount of money you have invested in a marketing campaign.

Conclusion

So, you know at this point that marketing is a profound concept and you have to understand it in its depths to it successfully. Large companies spend millions of dollars every year on just marketing. They must find some value in this activity to spend that much money towards it. On the other hand, small business owners can often ignore the importance of marketing. They are always focusing on short-term progress and return. If they don’t see any significant results quickly, they stop spending on marketing and start looking for faults and shortcomings of their products/services.

It will pay off in the long-term to start using the right marketing tools right from today. Keep in mind that marketing tools are designed to handle different phases of marketing. While some tools help you market your products and services, others are more analytical. Another category is of tools that help simplify the use of both the types of tools. If you are thinking of starting a business or have set the foundation for a startup already, be sure to give marketing the attention that it deserves.  

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Automation: The Risk to Financial Jobs

Automation

Suppose it is 2030, and you’re teaching in a business school. What will be your reaction to seeing just a handful of learners attending your class?

It must be disappointing, but it has nothing to do with your pedagogical skill, nor it’s about the subject matter you’re teaching or your school’s ranking. Students do not enroll simply because the finance sector has no jobs for them. And automation is one of the main reasons behind this phenomenon.

You might find it hard to believe because management, economics, finance, and accounting are some popular subjects at the graduate level in most universities. Students opt for these subjects as they are associated with high employability; however, changing due to advances in technology and automation.

According to Opimas- a renowned consulting firm, the future will be harder for many universities in terms of selling business-related degrees. Another latest research showed that by 2050, nearly 230,000 financial jobs would be lost to artificial intelligence agents and bots.

To put it simply, when a vehicle manufacturer finds aluminum or any other material lighter, more accessible, and cheaper to make cars with than steel, they stop using it. They replace it to gain functional and financial advantage. It is the same when it comes to evaluating the future of the finance sector.

The current situation raises a few questions:

Our current and prospective financial jobs under threat? Are robotic advisers/employees the future of finance?

Let’s find out.

Artificial Intelligence- A New Generation

A survey from Aite Group –a research firm evaluated that businesses have started investing in automated portfolios. The investment rate increased to 210% in 2015. Many recent reports by market analysts found that robotics-advisers have taken over already in some giant corporations. Wall Street is just one of the examples that have replaced hundreds of its financial analysts with Robo advisors and high-tech software.

Oxford academics in its 2013’s paper claims that approximately 74% of professions are at high risk of becoming automated in the next 10 to 20 years; 54% of jobs among them will be in the finance industry, which is alarming. The phenomenon not just confined to the United States. Indian banks, for example, have also reported a decline of 9% in headcount in the last two consecutive quarters due to the hiring of robots at the workplace, which shows how automation is taking over in the finance sector.

Perhaps, it’s not surprising in finance, particularly as the banking industry is all about processing information. And most of its critical operations, like passbook update and cash deposits, have been digitized. This is one reason why financial institutions and banks are adopting advanced Artificial Intelligence (AI) technology.

This new generation of technology has enabled institutes to automate their financial tasks that were traditionally performed by humans. That includes risk management, operations, algorithmic trading, and wealth management.

For instance, the COIN program and Contract Intelligence that run on a specific machine learning system, help banks shorten the time taken to review loans. Plus, the software is excellent at providing impeccable loan servicing to customers. Considering AI’s growing dominance, Accenture predicts that the banking sector will make AI a’ primary way of interaction with the customers within three years. It is because AI enables a simple and easy user interface to help banks provide a human-like client experience.

Luvo, in this regard, is a virtual chatbot that uses IBM Watson technology to learn and understand from human interaction, making manual workforce redundant.

Fintech Grads- A Traditional Threat to Banking

This might sound surprising to you, but universities are revising and reviewing their traditional education blueprints to adapt to new technological disruption in the financial job market. Like Georgetown and Stanford University, business schools are planning to include “fintech” in their MBA programs. This inclusion aims to make students learn, understand, and master financial technology.

One reason why Fintech firms are considered an existential threat to traditional banks is that they work differently from conventional banks. Plus, not only do fintech firms understand consumer issues, but also solve them in a fraction of time. They have become a reliable funding option for customers to look to invest in various businesses.

The critical weakness of the banking system lies in its technical debt. Banks are lagging due to their antiqued IT setups that date back to the last century. Fintech, on the other hand, is in a winning position with its fast-moving and technology-led services, particularly in investment and loan systems for e-commerce businesses.

Kabbage is a perfect example that gives technology-led loans to e-commerce businesses for which traditional banking is not only slow but also inflexible when it comes to lending finances.

Application Programming Interfaces (APIs)

Application Programming Interfaces (APIs) is another financial innovation that enables Fintech providers to create applications on data of bank accounts. APIs will be a long-term solution for data providers as it takes away the crucial information (that only traditional banking employees have). Fintech providers will have the same quantity and quality of data without having any physical branches.

Is Dependence on Robotics Advisors Safe?

There is no denying that robot advisers, AI, and Fintech are changing traditional banking. Many financial analysts consider them the most significant drivers in the financial sector.

However, for many analysts, it’s still unclear to what extent automation and AI will prove to be advantageous for the financial sector. They believe that relying entirely on artificial intelligence could backfire if there are no humans to supervise everything.

Undoubtedly, robotics advisors are inexpensive and save a lot of time and effort when it comes to creating investment portfolios. But there is no guarantee that they will not struggle when it is about taking correct precautionary measures if the market becomes volatile. Thousands of machines are trying to operate the same thing at high speed.

In 2012, Knight Capital Group- a robotics stock trader lost $450 million in just 40 minutes when it went on a spending spree. That means these well programmed and high-tech robotics-traders can cause chaos and fatal errors in the financial markets.

Final Thoughts

Overall, there is no denying that rapidly growing dependence on automated devices and robotics-technologies is raising many concerns for commercial jobs. From banking systems to other financial institutes, automated technologies, like Fintech, APIs, and AI, are considered an integral part of the operations. They are slowly taking over and making employees redundant.

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How Much Equity Will Win an Investor’s Interest?

Entrepreneurs know the difficulty of starting out and getting your idea off the ground. Many teams spend years in the development stage, trying to perfect their idea and bringing it to life while ensuring consistent financing through crowdfunding campaigns and efforts.

Why You Need Seed Investors

However, what comes after can be described as even more challenging as it involves releasing the idea to the world. This means that your team would need to implement other crucial business-related aspects, such as marketing strategies, website optimization, and social media activity.

What was once done from a single room would now require an entire office because that’s how a business transforms. However, it’s not all easy; your team has little to no money left from crowdfunding campaigns and no cash flow, to begin with.

Since you’re officially entering the market, meager funding won’t do the trick- this calls for seed and angel investors. They invest larger amounts of capital than the average investor and are given company equity in return. Now there are a good number of seed and angel investors around, but how do you know how much equity you’re supposed to give each one?

Calculating How Much Equity to Give

It’s tricky to calculate how much of a share you’ll be giving to each and every investor, especially since you’ve just started your business venture. There’s less of an objective formula or rule that is applied, and it actually depends on a number of extraneous elements that can impact the final percentage.

Your Investor

The nature of your investor is a factor that can influence how much equity you end up giving. Angel investors are active and looking around for projects and startups to invest in. Some of them have more money and want to make a safe bet; so, they invest in numerous projects, hoping to get back a hundred times what they originally invested. If you have such an investor, you won’t have to give up much equity but remember that they will hang on to their share until it earns them a hundred times what they invested.

On the other hand, there are people with not as much money to finance various startups, so they stick to making a few investments as possible. They have to be cautious about the company they fund since they don’t have the capacity to finance many others. As a result, they’re bound to become closely involved with your company and its operations. Consequently, they may demand more equity than other investors who are betting on numerous startups.

The Market you’re Entering

The next thing to consider is the current state of your market; is it big? If not, does it have the potential to be? Look at comparable companies for an answer. In the case that your market is huge and is capable of growing further, you can better value your company at a price that’s higher than what you originally thought. In a big market, your company will get better returns, meaning you won’t have to give more equity.

How much you’re getting?

In most scenarios, investors end up with twenty to forty percent equity of the company they invest in, but this is just an estimate. Your investor will demand a portion of company ownership based on how much it will be valued at after their money is added to the value. If the company’s overall value grows exponentially after the addition of investment, the investor will demand a larger portion of equity.

It actually doesn’t depend on the amount they invest but how much of a percentage it makes up of your current value. Think of two situations; your company is valued at $1 million in one, and $2 million in the other. In both scenarios, your investor gives, say, $500,000.

Even though he’s giving the same amount of money, the impact will be different. In the first example, your company’s value grows by half, but only by a fourth in the other. This means that he’s likely to demand higher equity in the first case than in the second.

Your Potential for Success

While you may have the motivation and drive that’s required, investors are taking a risk and prefer to make a decision based on objective and tangible factors. Essentially, they’ll be looking at your company’s potential for turning out successful.

This involves thoroughly analyzing the people who helped build it and your idea. If you’re a first-time entrepreneur, it’s possible that investors will take hold of a bigger share than if you had experience. If the people you’re contracting with have in-depth experience in the investment department, they’ll make a guess as to whether your idea will work out or not.

Things to Remember

These were just a few things you could keep in mind while negotiating how much equity you’ll be giving to an investor. Nonetheless, you’re in for a surprise if you think that handing over a percentage of equity is all there is to it. The truth is that many investors, especially the ones who make one major investment rather than a number of smaller ones, will attempt to safeguard their funding i.e. ensure that it is spent wisely and results in success.

Even though it’s true that experienced investors bring a lot of knowledge to the table, they’re not exactly that rich with ideas. Due to their ventures with startup companies into various markets, they know what to watch out for but this comes at the cost of innovation and experimenting with new ideas. That’s why you should be prepared to negotiate their involvement in your company before you seal the deal.

The most crucial piece of advice that experienced and savvy entrepreneurs can give is that you should never stop at the first investor. There are hundreds of them out there, and you may actually find someone who’s actively searching to invest in your market. All you need to do is to sell them on the promising aspects of your company, but without leaking out ideas. This helps create an understanding with your investor and they’re more likely to appreciate creativity rather than stifle it.

 

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Calculating Startups Costs before Approaching Investors

Cost

If you have a unique idea that you think can turn into a business startup, you should get ready to do some preparation before you take it to investors. When you present your idea, which might just be in a prototype form, to an investor, you have to be well-prepared to be scrutinized. Quite understandably, investors are always keen to know where their money is going.

They want to have full details of where you will use their money and what return their investment will generate. In order to answer their piercing questions, you have to be on top of your game, know the costs that are associated with your startup, and create ways to justify them.

Getting into the Depths of Startup Costs

You have to create a list of everything that’s going to require money to start your business. How much money you ask for from the investors also depends on what stage your startup is at. Sometimes, your business is running on a micro-level and you need money to expand it. At other times, all you have is a unique idea and possibly a prototype that proves the practical application of the concept but no money to go into production. In either case, your knowledge of the many startup costs helps you get the right investment and decides the fate of your startup.

Here is a list of the major startup costs.

Office Space, Furniture and Supplies

If you are going to have a physical location, you will need cash to arrange an office and everything that goes inside it. You can buy or rent office space. It is a pure expense when you rent it, unless you prepay a lump sum lease. Office furniture will include desks, cabinets, wooden cabins, paper, pencils, etc. These are all expenses and while some of them become your asset too, they are not the best assets you can rely on to get loans.

Professional Fees

Hiring professionals has its benefits, but you have to pay their fees and count them as expense. You will need lawyers and accountants to help you with various tax laws, zoning laws, business structuring, and any other legal matters that can arise when starting a business. If there is one thing that you can be sure of, it is that these professionals are not cheap.

Marketing, Advertising and Promotion

Marketing and advertising are the processes that don’t stop for as long as the business lives. More importantly, they start well before a business even comes into existence. Your marketing and advertising expenses will include the following and much more.

  • Brochures, leaflets, flyers, flexes, etc.
  • Cable advertisements, infomercials, etc.
  • Digital marketing e.g. SEO, PPC, email marketing, etc.
  • Giveaways, gifts for customers, special discounts for first timers, etc.
  • Your website, blog, social media pages and campaigns, etc.

In the beginning, you have to consider taking advantage of the marketing methods that are affordable yet highly productive.

Equipment

Your office furniture and supplies aren’t necessarily business equipment. Business equipment means anything that’s an integral part of your business. For example, if you are opening a restaurant then a fryer, boiler, smoke machine, microwave, etc. will be your equipment. If you are starting a gymnasium, the bench in the waiting area is not your equipment, but the elliptical machines, treadmills, rowing machines, etc. are part of your equipment.

Inventory Costs

If you are a product-selling business, you need inventory right from day one. You will have to do a lot of calculation and forecasting to come up with the right size of inventory that you will start with. You don’t want to commit too much and have excessive inventory due to the fear of spoilage. On the other hand, having too little means you will have to send your customers home or to your competitors. Investors love to ask inventory-related questions. You will always have to prove to the investors why you are producing as much inventory as you have planned to produce.

Salaries

You need workers right from the first day of your business. You cannot afford to pay your employees too much right from the beginning even if they are specialists in their fields. Your investors will not like the fact that you are paying your employees generously when your business has not even lifted off the ground. Hire your talent sensibly and after proper scrutiny to get the most out of every employee.

Taxes and Insurance

Not everything you earn can go right in your pocket. You have to pay taxes on your business property, sales, and income. Furthermore, you need proper protection for your business against lawsuits. The most important insurance covers for businesses include product liability insurance, property insurance, vehicle insurance, workers’ compensation insurance, etc.

Traveling

If the nature of your business requires you or your employees to travel, you have to factor in those costs as well. However, you should be happy to know that most of the business-related traveling expenses can be claimed as deductions. But because that money goes out of your business account, you have to calculate it among expenses too.

Cash Reserve

In addition to all the expenses stated above, you need the right size of cash reserve. Cash reserve is the money you set aside to finance your business without getting loans from banks. You take this money out of your net profit and set it aside for business expansion or to fulfill large orders. Additionally, you have to have at least six months of backup for your business to run smoothly when sales are low and profit margins are thin at the initial startup phase.

Approaching Your Investors

Now that you have a list of every expense that will come in your way at the time of starting your business, it is time you come up with a number and approach your investors. You have to be good with numbers when you stand in front of your investors. If math is not your strength, hire someone to be with you to help you answer cost-related questions from investors. Your accurate calculation and cost analysis increase your chances of impressing investors and compelling them to invest.

Calculate your startup costs and note them down because doing so will help you win over the investors and also show the transparency of your business plan. Also, it is important that you trust your calculations and avoid going back and forth on your investment demands. Asking for more or less than what you have calculated will get you in trouble down the road. Having too much will lure you into overspending, and bury you under a mountain of debt. Having too little will shrink your cash flow, which will choke your business as a result.

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What Makes up a Perfect Business Plan

Doing business plan

Whether you have a small business or a large one, you have to have a business plan in order to set a path for it. A business plan is more like a manual or guide that lists your goals in an order, and how and when you will achieve them. It is even better to have a plan B if things do not work out the way you expect them to. But an important question you should ask yourself is “what makes up a perfect business plan?” What are the important factors that you have to take into consideration to create the perfect business plan?

Of course, you can’t make a plan randomly because business matters are a game of numbers—you have to be precise and accurate.

Describing Business and Writing a Summary

The first and foremost part of any business plan is the executive summary. It is a summary of what’s included in your business plan. You have to keep in mind the word “summary” i.e. you are supposed to summarize everything. You will face two challenges when you do that. First, you will have to find the most selling and appealing parts of your reports to grab the attention of the readers of your business plan instantly. Secondly, you have to find a way to shorten all the descriptions. Bear in mind that the details are in the plan itself, so you have to efficiently summarize all the points.

Furthermore, you have to explain the industry and your business. At this point, you want to talk about what industry your business serves, what the industry looks like and how much potential of growth your business (and the industry) has in the future.

Market and Competitor Analysis

At this point, you will have to put in some work to gather the details that will fill this section of your business plan. You have to know the market that you are about to target. For this, you will have to analyze the market and the sub-markets within it. By doing this, you are trying to paint a clear picture of your target audience. Without this type of analysis, you could end up selling the right product to the wrong people, which means your business will not survive. As you are describing your target audience and how you will approach them in the most effective way possible, you will have to do some analysis of your competitors.

It is just another level of market analysis. You want to get a good idea of what your competitors are doing to run their similar businesses and how much they are succeeding with their strategies. You should also pinpoint their weaknesses and why certain strategies are not working. When you have a business with many competitors, your investors will always ask you several questions about your competitors. They do this not only to know how knowledgeable you are about your target market but also to figure out if what you are about to do is going to work at all.

Development and Design

This is the section where you will define not only the design of the product but how the development takes place. Are you creating the product in your garage or do you have manufacturing plant working for you? How do you get the materials for creating the product? Are you producing your product within the country or outsourcing the production? In case of either of the options, you will have to explain why you have chosen that path. Investors will also ask you how much it costs you to design your product and make it available on the shelf.

What they don’t want you to do is pay more for the production and design of your product than you should. If there are other options available but you are sticking to the expensive ones, it will show them either the stubborn side of your personality or the less knowledgeable.

Costs of Operation and Management Planning

The ongoing processes of the business are the most important ones to pay attention to. How have you planned to take care of the daily matters? How have you assigned the roles and why have you assigned them to certain individuals? At this stage, you also have to talk about the costs of operations. You have to keep your costs realistic and justify that what you intend to spend is not an excessive by any means. In the costs of operations, you will also have to have an estimate of how much you will be spending in salaries. You can include this particular piece of information under the financial planning section as well.

Financial Planning

In this section you have to describe how you intend to finance the business. Are you using your own money to start the business or have you borrowed it from a family member? What kind of debts are there on your business. Debt is deadly for a business, so you want to have a very strong plan on how you will handle the initial debt when starting the business. You also have to show your management of the financial resources and knowledge to prove that any loans that you are taking for the business will be paid off in time and with ease.

If you have given a detail of various loans that you intend to use for your business, you will also have to state how you will use the money. Your usage of the money should be precise. At no point should the investors get a hint that you are going to use the money for something personal or something that will not benefit your business in any way.

Conclusion

Last but not least, make projections a part of your business plan as well. You will need to ready balance sheets and income statements for the coming years. It is imperative to know here that business plans are just assumptions, not facts. You should always expect things to go a bit away from how you planned them. However, such minor setbacks should not stop you from going forward and turning your small business into a large one.

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Importance of Location for Your Small Business

Location

If you are thinking of starting a business that benefits from walk-in foot traffic, you have to pay attention to the location you choose. Whether it is a retail store, a motel, a restaurant or a spa, the right or wrong location of the business can decide its fate. Yes, some businesses reach the heights of their success at the oddest locations possible, but it is not very wise to keep exceptional cases in mind while starting a business. So, what role does a location play in the success of a business? Here are some important points for your understanding.

The Foot Traffic Matters

Now, the area you choose must have ample foot traffic for you to take advantage of. Of course, you are a business that benefits from the foot traffic, so you need a lot of it. For this purpose, you first have to look for commercial areas where people normally go for shopping. If there is no place available in the commercial area, you want to explore further to look for locations from where a lot of people pass. Think about your marketing as well. If you are going to use billboards, neon signs or vinyl for marketing purposes, you want them in places where people can see them. The more people there are at the location of your business the more they will notice your marketing signs.

There aren’t a lot of people at the location that you are considering for your business, you are already at a disadvantage. It shows that people don’t naturally walk in that direction when they are looking to do business. It is the same way on the internet. You bid for keywords that have the highest number of searches. You want to put your banner ads on websites that have a lot of traffic. In short, foot traffic matters.

The Buying Power of the Community

Before you choose the location, you must know the type of audience your business attracts. Are you a fine dining restaurant? Will you be selling low-cost meat burgers? You have to decide your location based on the type of business. If you are opening a fine dining restaurant, you want to open it at someplace where people have the buying power to afford expensive foods. It requires a lot of research for you to be able to find such locations, but the time you spend researching will always pay off in terms of a good return on investment.

Businesses in Proximity

A lot of businesses try to avoid having their competitors located close to them. But believe it or not, it is extremely beneficial for small businesses to be located near other big businesses. By doing this, your business benefits from the traffic of other businesses. It solves a lot of problems that can be detrimental to businesses at locations where there are no other businesses. The first benefit is that you already have foot traffic, so you can already move on to the next step of pulling those potential customers into your premises. Secondly, you don’t have to force people to walk away from their daily routes to come and do business with you.

If you already have a lot of similar businesses located around you, people already come there for that type of business. So, if you are opening a boutique in an area where there are many boutiques already, you can rest assured that people already come to this market for buying clothes.

The Expenses of Operation

This item has to be on your checklist of choosing the right location for your business, otherwise, you are going to regret your decision. Sometimes, you find a place that has high foot traffic volume and lots of other similar businesses in the vicinity, but the operating expenses are through the roof. The businesses that have already established might have adjusted according to those expenses, but things will not be the same for a starting business like yours. You want to keep your operating costs as low as possible. What if the area you are going to has private companies providing electricity?

What if the availability of clean water is a challenge at your desired location? What is the rent of the building if you are considering renting a place for the business? A starting business already has very thin profit margins. Add high operating costs to the equation and even those little profits will be gone.

The History of the Location

The location you have chosen has proven to be ominous for many businesses in the past, you have to dig deeper even if everything sounds right. When a lot of businesses have opened and closed at the same location, it is an indication of something wrong but not visible with a casual survey. You will have to be very careful in finalizing such a location. If nothing, it could be the owner of that building that might be an issue for its renters.

Some landlords are overly interested in their profits and do not care how much damage they are doing to a starting business with their demands.

Many small businesses need some favors and flexibilities from their landlords for them to be in a stable position. Some building owners will even lower your rent to allow you to establish first. If the landlord’s reputation is okay, check to see that the place is not a frequent picnic point for robbers.

Final Word

Many of the things mentioned above might sound basic or understood to you, but you will be surprised to know that many new businesses shut down because they fail to realize the importance of these same points. Believe it or not, you cannot take any of the points given above for granted. And while they might sound very understood and intuitive, lack of time and capital can often push you in a direction that you don’t want to go in. Stay tenacious to this checklist because a compromise at this point will give birth to several compromises in the months to come.

 

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Loans Or Investors: Which Is The Way To Go?

Getting funding for your business is the top priority to getting it going. As you consider your options to procure funding, heading to the bank for a small business loan may seem like an easy solution. While banks can be helpful in their attempts to provide funding for a small business to start or even to grow, it may be remiss in providing the same level of benefits that you can receive from an angel investment.

The Business Of Banking

With a small business loan, sure you may be able to start your business quickly, but you will be missing out on the valuable advice, guidance, and experience that a private investor offers. A bank loan is cut and dry. You are on the hook to pay back the loan, plus interest, without any support backing you.

A bank has no involvement in your day-to-day operations. Their main concern is timely payments, so there is no sounding board for your ideas or help to make those big decisions that affect your operations. You are on your own without anyone to lean on when times get tough.

The Advice Of An Investor

An angel investor offers you more. For starters, they will direct their current customer base directly to your business startup, giving you an instant boost in revenue just through your partnership with them. In addition, you’ll gain the expertise of your seed investor as they offer words of wisdom and can help direct you on making those hard decisions that every business owner faces.

Your angel investor has a vested interest in seeing your business startup succeed and will do what it takes to help guide the operations in a positive way. Together as partners, you and your private investor will be able to find solutions, implement new ideas, and find ways to continually increase your customer base as well as your revenue.

Why go it alone when an angel investor can give help your business get the successful start it needs. Banks may seem like a doable option, and for some they are, but the added benefits that come from joining forces with an investor can be more beneficial to make sure your business startup is a resounding success.

More detailed information and useful advice can be found at Funded.com. If you need to access our network of angel investors or a business plan for start-up funding visit  Funded.com