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Yes, You Really Need a Business Plan

9/27/2011

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Even if a lender doesn’t require a business plan, you really should have one, for the simple reason that you need to have a concise, well thought-out plan for what your business is going to do and how you’ll get from
point A to point B.  By developing your business plan, you go through some critical thinking and analysis, which better helps you understand all aspects of your business.

A business plan is a clearly written analysis of your company.   It explains the industry in which you compete, your company’s goals and objectives and your plan to meet these goals.  In addition to providing you with a management tool that allows you to guide your business, it helps you to measure your success against projected goals and allows you to assess whether you’re meeting your goals.   Of course, a business plan can
help you obtain financing from investors or lenders because it concisely describes your business’s goals, market segment, competitive advantages, management team, financial information, and financing request.   A
business plan organizes and formalizes your business thinking process.  A business plan clarifies the questions that might arise in managing your business.

It may seem counter intuitive but the shorter and more concise the business plan, the better. It is important to be realistic and as detailed as possible without being overly repetitious and verbose. A very concise plan is
better than no plan. You should, however, ensure that enough information is present to convey the full scope of the important points about your business and to positively emphasize your company’s advantages with clarity and honesty.  On the other side, if you know of negative aspects of your business, that others might also see, you should address the issues and show how you have or will overcome the potential pitfalls.  
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Build Business Credit Separate From Personal Credit

9/23/2011

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Business owners need to build their BUSINESS credit rating and make it distinct from their PERSONAL credit rating.  Unless the business credit is built separate from the personal credit, the business credit will be zero even if the owner’s personal credit is very good.  Imagine if you were a 40-year-old woman and you had gone your whole life relying on your husband’s credit.  You had never borrowed money and gotten credit in your own name. Then you find yourself in a situation where, you need to finance a purchase.  Would you be granted a loan?  NO, because you have not established a credit profile.  No credit equals bad credit in a lender’s eyes. 
The same is true for business credit.

Why does business credit matter, you still might ask?  Because if you never build your business credit, then you will have a more difficult time in getting financing for your business;  or you will pay higher interest rates and get worse terms, if your business doesn’t have a credit history.  If you don’t establish it  separate from your personal credit, your business credit will always be tied to you personally.  For liability and growth reasons,  you want you and your business to be separate entities.  Financing can be a crucial part of growing a small business in the good times and keeping it afloat in rough times.  Strive to have your business credit separate from your personal credit, so if something happens in your business and it were to go south (or vice versa) that your personal solvency is not at risk.

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What exactly are FICO scores and how are they calculated?

9/18/2011

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Credit scores, also known as “FICO scores” in the US and Canada, are calculated using software developed by a company called Fair Isaac Corporation (FICO).  There are 3 credit reporting agencies –  Experian, Equifax, and TransUnion – that use the FICO scoring system.  Each credit reporting company will have a slightly different score for the same person because not all creditors or  lenders report to all three reporting agencies and they might record the same information in different ways.  So, you really need to know the scores from all three credit  bureaus.  Credit scores range from 300 to 850, where the higher the number reflects a better credit rating.  Credit scores are calculated based on five categories of information.  The most important category is a person’s payment history (35%). The next  most important is the Amount owed to all creditors (30%), the length of credit history (15%), amount of new credit (10%), and the type of credit used
(10%).  Other things that will impact a persons credit scores are inquiries, civil judgments, tax liens,
bankruptcies, collection accounts, foreclosures, repossessions, charge offs, and closed accounts.  It is important to know that your credit report does not contain information related to income, checking or saving accounts, marital status, race, religion, medical history, political affiliation.

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Top 5 Tips for Raising Equity Capital

9/13/2011

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In my experience working with business owners and entrepreneurs, those who had the greatest success at raising equity capital practiced these five strategies. So, whether you are trying to raise $20,000 from friends and family or $5 million from a venture capital firm, follow these tips.

#1: Understand Business Cash Flow Completely. Not only must the business executive have a strong grasp of the marketing and operational aspects of their company, but they must also fully understand how their company generates cash flow, i.e., how the company actually makes money. Investors want to know with certainty that the company leaders can take the capital invested and turn that into solid revenues. Understanding pricing strategies, fixed and variable expenses, margins, account receivables aging, administrative costs, taxation and depreciation is paramount to being able to communicate how cash is generated in a company.

#2: Prepare an Accurate Funding Request. A concise investment offering spells out exactly how much money is being requested and how the funds will be used. Providing this information as a synopsis in the executive summary is key, but also having a detailed breakdown of the funding request and use of proceeds helps investors to quickly analyze the project but also to evaluate the complete  details if they have interest. Forecasts with specific revenue projections and  cost estimates are crucial and are best developed when based on factual  information from the company’s historical financials.

#3: Execute Professional Presentation Skills. Polished, prepared, and professional presentations to investor prospects will yield higher success rates  than pitching the project on the fly. One of the key aspects to a stellar presentation is brevity. Investors are seeing hundreds of project ideas to fund a single one, so a presentation that is compelling and to the point, presented with enthusiasm, is a must in order to stand out in the crowd. If the company executives are not prepared to present the proposal in a polished succinct manner, then either invest in coaching or public speaking lesson, or hire business executives that have the skills to do so.

#4: Target Only the Right Investor Audience. Before preparing an investment offering, thoroughly research who might be the prospective investors.  Pre-qualifying the investors to make certain that only appropriate funding sources are being pitched will help streamline the process and save precious  time. Determine the investor’s track record for funding companies and projects  such as yours. Find out what stage of funding they provide (proof of concept,  pre-production, scale-up, etc.) Each investor likely has a geographical region  and market sector that they prefer. Narrow down the list of prospective  investors before the investment offering is distributed so that only the right  investors receive the prospectus.

#5: Be Realistic About the Time it Takes to Get Funding. Realistically, it will likely take as much as 1000 man-hours spread over several  months for the capital-raising process. This time will be spent perfecting a  business plan and investment offering, developing a targeted list of prospective  investors, contacting the list and pitching the project, and finally,  negotiating the deal. In some cases, business owners have identified nearly 200  prospective qualified investors, presented the project to 50 of those, to  potentially get offers from 5 investors who received the full-blown presentation.  It’s easy to see how the time spent can add up.

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Interest rates just keep getting better

9/12/2011

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This may be the best time for small business owners to buy already-discounted commercial property, while financing it with the lowest interest rates on record! American business owners can create wealth for themselves and lock in long term fixed payments for their facilities and equipment.

I’m pleased to announce that the 20-year effective fixed interest rate for Small Business Administration (SBA) 504 Commercial Loan program has fallen to its lowest point in history — 4.69%! This new record low rate is a huge incentive that ought to urge small business owners  to invest in their businesses by purchasing buildings and equipment. SBA 504  Loans offer low, long-term, fixed interest rates (fixed for 20 years, by the  way). These features are hugely beneficial for business owners who want to own  their commercial property. When you factor in the lowest rate in the history of  this loan program, this really becomes an amazing opportunity that deserves  careful consideration.

These loans are designed to help small businesses grow and create jobs, and this record low rate goes one step further toward helping these business owners generate the jobs our country needs right now. If you are a small business owners or if you know someone who owns their business, please pass this information along to them. There may never be a better time than now for small business owners to buy already-discounted commercial property, while financing it with the lowest interest rates on record!

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