Tag: business launch

Bootstrapping a Business

One of the most common ways that a new business is started his by a direct investment from the owner. This is commonly known as bootstrapping especially if the entrepreneur is working on a very small budget in order to get the business up and running. While this may be a struggle in the beginning stages of the business, the benefits for bootstrapping or self funding a business are tremendous.

Foremost, the owners able to start the business completely with their own capital and they are going to be able to retain a 100% ownership interest as the business grows. If the owner is able to bring the business to profitability within a two-year period than they are going to be an excellent candidate for a business loan away working capital line of credit for expansion purposes. This eliminates the need for a private investor which would dilute the ownership interest of the business substantially.

Most banks and lenders are very receptive to providing capital to companies that have been in profitable operation for a two-year period. As we discussed throughout this website, there are a number of different loans and start fund financing available for start up businesses, but they do come at a price and there these are only available for specific industries. For companies that require a substantial amount of working capital, most banks and lenders are not willing to provide this money and that it is for something like a professional practice including doctors, lawyers, accountants, or other individuals that a hold  professional license to practice.

One of the other benefits to using your own capital start a business is that when it does come time to raise capital – even if you need funding from a private investor – the terms which will receive the funding will be substantially better than that of when you’re startup business. Companies that are operational in profitable already have a substantial amount of value built into the company – and as such, they can negotiate a much lower ownership interest in the business among a private funding source. Most importantly, this will allow the entrepreneur to obtain substantial control over their company even in the event where things do not go as planned and the private funding source need some additional capital. This is going to be one of the key things that we discuss on a continuous basis throughout this website at his as it is a topic that we are frequently asked about on an ongoing basis.

Bootstrapping a business or using owner provided funds for company also allows these companies to grow at a much quicker pace given that less time is allocated towards having the source capital. Smartly, many technology businesses rely significantly on the talents of their owners and related companies are able to start their businesses for a very low cost. As such, if your business does not require substantial amount of startup capital and it may be in your best interest to use your own funds in order to get things up and going before you seek outside capital.

One of the ways that entrepreneurs will frequently fund their business with is through the use of credit cards. This is an expensive option for most entrepreneurs given that most credit cards are unsecured and have an annualized interest rate ranging anywhere from 10% all the way to nearly 30%. As such, unless the entrepreneur is able to generate substantial amounts of revenue from the usage of buying assets via a credit card and is typically in the best interest to you savings or other types of capital in order to fund business operations. In some cases, retirement phone funds can be used for this establishment of a new business. However, there are a significant number of considerations that need to be put in place if the individual is going to use retirement funds from a 401(k) or individual retirement account. This is primarily due to the fact that there are tax consequences with using funds from these accounts. As such, if an entrepreneur does intend to use funds from a retirement account and they absolutely need to speak with a certified public accountant in order to ensure that they are remaining within the letter of the law as it relates to the removal of these funds. Your account when were related professional may need to establish a new account or file appropriate paperwork in order to showcase the fact that the money being used from a retirement account is being used for a qualified purpose. As always, if you intend to start a new business then you should always consult with a certified public accountant, lawyer, and related professionals before engaging in any activity as they do have varying tax consequences.

In conclusion, bootstrapping a new company can be when a rewarding experience or sport newer given that they did not need any outside capital in order to bring the business to profitability. It also provides a significant advantage as it relates to raising capital down the road given that the terms that are going to be offered are going to be much better than when the business was just a concept or start up.

Attorneys and Small Businesses

One of the most important people you can have when developing a new business is an attorney. Certainly, the entire focus of this website has been and will continue to be on business planning needs but having an attorney by your side will ensure that you are operating within the letter of the law as you develop your business and as you progress through your business operations. An attorney is especially important if you are raising capital from the private investor or a number of angel investors.

Foremost, these types of activities can fall within the realm of securities laws. As such, an attorney can assist you in determining whether or not your capital raising activities need to be examined by a state and the federal regulatory agencies overseeing the sale of securities. There are a number of safe harbor rules and other regulations allow for the sale of private securities without having to go through an extensive registration process, but only an attorney is qualified to make that determination on your behalf. Most business attorneys are able to properly examine these issues and provide you with qualified legal advice as it relates to your capital raising operations. In some cases, and as we have discussed throughout this website, you may need a private placement memorandum in order to ensure that investors understand all the risks that are associated with providing capital to your business.

Beyond the startup phases of your business, an attorney can assist you with ongoing legal questions that may arise as you conduct revenue generating activities. This is especially true if you operate within a heavily regulated industries such as finance, healthcare, telecommunications, or specialized online based businesses. Your attorney will be an invaluable source of information as well as it relates to general business operations. Most lawyers have extensive training in regards to thinking strategically, and they can not only provide you legal advice but business advice as well. Of course, billable hours by lawyers are very expensive she may want to keep these down to a minimum but they can be very helpful if you are formulating a new strategy as it relates to providing a new product in the market.

Often, your attorney will work very closely with your certified public accountant to make sure that your business operations fall completely within the letter of the law only from an operating perspective but also from a financial perspective as well. Some entrepreneurs opt to hire a tax attorney who can provide them with both advice regarding the general operations of business coupled with insights as it relates to the company’s financial operations. Most tax attorneys are very expensive, and only large-scale small business were medium-size corporation typically retains a tax attorney on an ongoing basis. On an ongoing basis, we are going to discuss the professionals that you’re going to need to hire not only during the start of phases of your business but also as you progress through expanding and developing her operations.

As it relates to startup functions, your attorney can assist you not only in developing a business plan but also developing the operating agreement that may be required if you are starting a limited liability company. Most attorneys also will provide services as it relates to registering a corporation or a limited liability company. In some cases, your attorney’s office can also double as a registered agent. However, make sure your attorney provide the service before you list their address as the service of process address on any incorporation forms that you are producing.

In closing, your attorney can be a great ally as it relates to the development and expansion of your business on an ongoing basis. You can estimate that on a yearly basis attorneys fees will generally run about 4% of the revenues generated by your company. However, for certain smaller businesses feel advice may just be needed on the incidental basis but it is always good to have an attorney on retainer in case an important matter needs to be discussed.