Funding - Can I Use Investor Money To Pay Me Back My Start Up Costs?

Question:

I want to raise $1.8 million from angel investors for my computer business to take it to the next level. Can I use $250,000 of the $1.8 million to pay me back the money that I have already invested in getting my company started?

Answer:

This is one of the most frequent questions I get from clients: Can I get back all of my money that I have invested so far in starting my company from the new investment dollars I get from angel investors or venture capital?

The short answer is almost never.

• Most will see it as a red flag and not invest.
• Most want to see you so committed, financially, to the company that you can't afford to let it fail.
• If you don't get paid back, then the company only needs $1,550,000 instead of $1,800,000 to accomplish the same goals that are in your business plan.

The longer answer is maybe a little.

• Sometimes...not often...but sometimes...you might be able to pay yourself back some...or have the company assume, say a working capital loan you took out...or assume responsibility for a second mortgage on your house where you can document that all the funds went into the company.
• The other way that sometimes works is with direct payments to others that you've made. For example, say you hire that great consulting firm, Ceo Resource, to help your start up consulting, business plan and PPM prep work. Let's say, you have already paid them $10,000. What you might do is list Ceo Resource as a start up expense in the start up expenses table even though you have already fronted the payment for their incredibly worthwhile fees. In this case, you turn in the receipt after the funding like an expense report...you have accounted for the expense on the start up costs table...so the numbers balance. However...if you are going to do this...be sure and disclose it in full and glorious detail in the PPM.
• Obviously, the bigger the amount you want back to you, the more resistance from prospective investors.
• There are always exceptions...a client in Chicago insisted their board members, who were their first round investors, get back $1 million in start up funding of the $2 million they had invested. I jumped up and down strongly advising against it for the reasons that I just mentioned, but the client always gets the final vote. They did allow me to totally disclose the payback in the PPM I did for them.

So, what happened? They sold the whole $5 million deal out to the first investment group who saw the deal...and the board members got their $1 million. The company had such good traction on a product that was already in the marketplace that the investment group agreed to the terms. So, even with all of my experience, I can be wrong. However...it is the only time that any client in 30 years has ever pulled out more than $100,000. Ever.

Don't count on being an exception.

To see the full answer to this issue, please see the details at my blog.

Bonus: For more on funding documents, business plans, articles, tips and tools for entrepreneurs and start up company CEOs, you're invited to visit my blog and web sites...and ask your own questions...

While there, I invite you to download both a sample comprehensive business plan and a complete Reg D private placement memorandum (PPM) for FREE...

While there, I invite you to also download a free 36 minute audio on Funding Foreplay: A four module audio training course that is designed to teach start up company CEOs like you - how to properly prepare and present the dozen documents you must have to successfully romance and seduce angel investors and VC to invest in your company...

http://www.ShouldYouStartACompany.com <~~~ The Blog

http://www.StartUpCompanyUniversity.com <~~~ Courses for the entrepreneur and start up CEO

http://www.ChiefDragonSlayer.com <~~~ Business Plans and Business Planning

Robert Lee Goodman, MBA, Ceo & Chief Dragon Slayer...

© 2008 - Robert Lee Goodman. All Rights Reserved Worldwide.

I graduate from college with an engineering degree. I knew almost nothing about money or the economy or finance. Then I went to business school. (Okay, I worked for a few years in between.) About half-way through my first year, I realized that I had spent my entire life knowing nothing about what made the world go 'round. No, not love (no love at b-school). Money!

Most importantly, I learned that you can program Excel spreadsheet six ways to Sunday, but if you can't speak the language of money, no one will take you seriously. So I started on a mission to learn how people talk about money including watching movies like Wall Street, reading books like Barbarians at the Gate (also a movie) and Liar's Poker.

Of course, many years later, I've forgotten what I didn't know, and I forget that entrepreneurs often have great ideas, but don't have the finance language for moving through the investment world. So here are a few basic definitions when you are looking for money.

Investor - someone who exchanges money for a share of your company.

Angel - an individual who invests a decent chunk of money in your company ($100-500K) in exchange for some ownership. They tend to be entrepreneurs who have made it big themselves and are often less demanding and interfering than venture capitalists. (This is not always true, by the way.)

Venture Capitalist - a person who is a partner in a venture capital (VC) firm who helps find, select, and manage investments made by the VC firm. In general, VCs get their money from limited partners (these can be anyone from rich investors to corporations to pension funds). The limited partners do not have a say in the investments.

Associate - a junior person at the VC firm who holds no power, but will arrogantly act like they do. If you spend a lot of time with an associate, you are probably wasting it.

Principal - a associate whose been promoted. The power of this person depends on the firm. Still not a decision maker, but can blackball you.

One Pager - a one page (usually front and back) describing your company. Includes some history, mini financials, management description, product description, and business strategy. Your business plan in miniature.

Executive Summary - like the one pager, but a little longer. Your abbreviated business plan.

Your Business Plan - a 20-30 page document that will only be read by the associate. It still has to be good though or they'll think your not taking this seriously.

Pitch Deck - otherwise known as a presentation (see I told you the lingo was different). Usually a Powerpoint presentation that you use when you present to the VCs. If they are really interested, you probably won't get past the first couple slides. Make those slides count! I graduate from college with an engineering degree. I knew almost nothing about money or the economy or finance. Then I went to business school. (Okay, I worked for a few years in between.) About half-way through my first year, I realized that I had spent my entire life knowing nothing about what made the world go 'round. No, not love (no love at b-school). Money!

Most importantly, I learned that you can program Excel spreadsheet six ways to Sunday, but if you can't speak the language of money, no one will take you seriously. So I started on a mission to learn how people talk about money including watching movies like Wall Street, reading books like Barbarians at the Gate (also a movie) and Liar's Poker.

Of course, many years later, I've forgotten what I didn't know, and I forget that entrepreneurs often have great ideas, but don't have the finance language for moving through the investment world. So here are a few basic definitions when you are looking for money.

Investor - someone who exchanges money for a share of your company.

Angel - an individual who invests a decent chunk of money in your company ($100-500K) in exchange for some ownership. They tend to be entrepreneurs who have made it big themselves and are often less demanding and interfering than venture capitalists. (This is not always true, by the way.)

Venture Capitalist - a person who is a partner in a venture capital (VC) firm who helps find, select, and manage investments made by the VC firm. In general, VCs get their money from limited partners (these can be anyone from rich investors to corporations to pension funds). The limited partners do not have a say in the investments.

Associate - a junior person at the VC firm who holds no power, but will arrogantly act like they do. If you spend a lot of time with an associate, you are probably wasting it.

Principal - a associate whose been promoted. The power of this person depends on the firm. Still not a decision maker, but can blackball you.

One Pager - a one page (usually front and back) describing your company. Includes some history, mini financials, management description, product description, and business strategy. Your business plan in miniature.

Executive Summary - like the one pager, but a little longer. Your abbreviated business plan.

Your Business Plan - a 20-30 page document that will only be read by the associate. It still has to be good though or they'll think your not taking this seriously.

Pitch Deck - otherwise known as a presentation (see I told you the lingo was different). Usually a Powerpoint presentation that you use when you present to the VCs. If they are really interested, you probably won't get past the first couple slides. Make those slides count!

Term-sheet - a non-binding offer of the terms under which the VC is willing to invest (see Elements of a Term-sheet).

Pre-Money Valuation - what the VC thinks your company is worth prior to their investment. This will be different than what you think it is worth (see Valuation (for a Venture Capital Investment)).

Post-Money Valuation - what your company was worth before the investment (Pre-Money) plus the investment. Your pre-money was $5 million, the investment is $5 million. Your post-money valuation is $10 million and the VC owns half.

Well, this is a decent list to start. If I think of other VC terms needing defining that are not otherwise defined on the site, I'll add them here.

Good luck. Term-sheet - a non-binding offer of the terms under which the VC is willing to invest (see Elements of a Term-sheet).

Pre-Money Valuation - what the VC thinks your company is worth prior to their investment. This will be different than what you think it is worth (see Valuation (for a Venture Capital Investment)).

Post-Money Valuation - what your company was worth before the investment (Pre-Money) plus the investment. Your pre-money was $5 million, the investment is $5 million. Your post-money valuation is $10 million and the VC owns half.

Well, this is a decent list to start.

Good luck.

Please visit my website for more small business finance advice: http://cfoyourself.com

Business Start-Up Costs

When you launch your business and incur expenses before your business is "open for business," then you have start-up costs. Start-up costs are not deductible until your business begins. Your business begins when it is first open for business - meaning it is ready to service customers.

First, make sure you actually have a business. Here are nine (9) factors to determine if you really own and operate a business:

1. You carry on the activity in a businesslike manner.

2. The time and effort you put into the activity indicates that you intend to make it profitable.

3. You depend on income from the activity for your livelihood.

4. Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business).

5. You change your methods of operation in an attempt to improve profitability.

6. You, or your advisors, have the knowledge needed to carry on the activity as a successful business.

7. You were successful in making a profit in similar activities in the past.

8. The activity makes a profit in some years, and how much profit it makes.

9. You can expect to make a future profit from the appreciation of the assets used in the activity.

It's also important to remember that when they begin, most new businesses lose money. In fact, the average business will lose money for the first three years. You will want to make sure you can take advantage of those losses by offsetting them against your other income. If that happens, you can roll the loss forward into the future until you start making money. This is referred to as a net operating loss.

What are start-up costs? Planning to get the most out of any new business venture begins with making sure you get the greatest possible tax advantages for your investigation costs, start-up expenses, and other organization costs. These include costs such as advertising, salaries and wages of employees-in-training, travel and other expenses of lining up customers, suppliers, and distributors, and fees paid for consultants and professional services.

How are start-up costs deducted? You may assume that all of these start-up expenses are deductible as business expenses in the year you pay them, but that is not the case. Such expenses are not considered to be business expenses because they are not incurred in a business that has actually started. Instead these start-up costs have special rules.

A taxpayer may elect to deduct up to $5,000 of start-up costs in the tax year that the business opens for business. The catch, however, is that the $5,000 amount must be reduced by the amount of start-up expenditures that exceed $50,000. If an election is made, start-up expenses that are not deductible in the year the business opens for business as a result of the phase-out must be ratably amortized over 180 months (15-years) beginning in the month that the business opened for business.

Who can deduct start-up costs? Another complication with start-up costs is that they are deductible or amortizable only by the person who incurs them. If your new business is going to be a sole proprietorship, that won't be a problem. However, if the venture is to be a corporation, you can't personally deduct the costs you incur before incorporation. Those costs are part of your investment in the corporation's stock, which is not a great tax position. This can be avoided through proper planning. For example, you may want to contribute the funds to the corporation and let the corporation incur the expenses so that it can deduct or amortize them.

Are any expenses excluded from start-up costs? It's also important to know that some expenses are treated more favorably than the regular start-up costs we have been talking about, and some less favorably. Start-up costs for interest, taxes, and research costs usually can be deducted in the year paid. The cost of tangible property purchased for use in the business can be recovered by way of accelerated depreciation deductions over various periods, depending upon the type of asset, but generally faster than if considered under the general start-up cost umbrella.

Expansion costs are not start-up costs. If you are expanding an existing business, rather than starting a new one, you may be able to deduct the expansion costs currently.

Important note about start-up costs An election must be made on the business tax return to properly claim start-up costs. Be sure to discuss this with your tax preparer.

Warmest Regards,

Tom

Tom Wheelwright is not only the founder and CEO of Provision, but he is the creative force behind Provision Wealth Strategists. In addition to his management responsibilities, Tom likes to coach clients on wealth, business, and tax strategies. Along with his frequent seminars on these strategies, Tom is an adjunct professor in the Masters of Tax program at Arizona State University. For more information, visit http://www.provisionwealth.com.

Startup Fundraising - Do You Know Who You Are Talking To?

Venture capital, private equity, mezzanine debt, venture debt, angel money, investment bank? What's the difference and who are the players? Many people start looking for funding and become involved with investment bankers or business brokers without really understanding what they are looking for or who they are talking to.

Venture capital

Venture capital firms (VCs) raise money from limited partners and invest the money in companies for a share of the ownership. This is not so different than investing money in the stock market: you buy shares and have a say in how the company is run (abet a tiny say - that's what the proxy is for). With VCs, it's a private transaction and they require a significant amount of control. They are, however, not interested in running the business on a day to day basis.

Angel Money

Angels are individuals who invest their own money in a company for a share of the company. The amount of control the angel wants usually depends on the sophistication of the individual and the interest he or she has in being involved in the company. Some angels will invest and come in as management, some will invest and stay very hands off in the management of the company.

Private Equity

Technically, private equity is any ownership stake purchased through a private transaction, which includes VCs and angels. However, as the private investment market matured during the dot.com era, private equity has come to mean late stage companies that invest large dollars for a significant stake with the intention of preparing the company for a future IPO or sale. This term also includes leveraged buyout firms.

Venture Debt

Venture debt is a funding source that does not require an ownership stake in the company (although they do normally want warrants). Similar to venture capital, it is for early stage companies that are interested in funding expansion. They require a high interest rate and some control over the company, usually in the form of covenants.

Mezzanine Debt

Like private equity, mezzanine debt tends to be for more mature companies. The interest rate is usually high and warrants are usually required. Mezzanine debt will be subordinated to bank debt, but will have a claim on the assets of the company senior to the shareholders.

Investment Banks

Contrary to their name, investment banks neither invest nor do they lend. They are interested in transactions between companies and initial public offerings. They use their knowledge and experience to market the company to the public and to other banks (who will then sell the shares to investors) and are paid a fee for this service. In general, investment banks are intermediaries and not interested in holding ownership stakes themselves.

Business Broker

Like an investment bank, business brokers are not interested in investing money. They are interested in finding a buyer for your company. They usually have numerous industry contacts and have a good understanding of the value of the company and what are current purchase structures.

If you have decided that it is time to raise money for your company, you must decide what you want ultimately. If you are ready to get out of the business, you want an investment bank or business broker. If you are planning on taking your company to the next level and growing it to an IPO, then you are probably looking for venture capital or some sort of debt. If you are interested in readying the company for a big sale, then you may be looking for a private equity firm. Understanding what you want is the key to getting the most value out of your company.

Ms. Worrall is the President of Worrall Consulting, LLC. Worrall Consulting, LLC is a finance and business strategy consultancy providing professional services to high growth, early stage companies. The company provides capital formation assistance, market research and business intelligence, and business planning strategy. More information about the company can be found at http://www.worrallconsulting.com - Additional financial and strategy advice can be found at http://www.cfoyourself.com

Small Business Startup - Discover The Secrets Of No Money Marketing And Managing For Success

One of my role models and mentors passed away two weeks before this last Christmas. She was my Mom. And during her life, she taught me more about managing and dealing with people than any textbook I have read. You see, she simply practiced what I call the Golden Rule of Management - "Do unto others what you would have them do unto you"-- each and every day. By her teachings and example, she taught me how to lead, persuade, manage and motivate others. Yet, one of the most talked about, and least understood or practiced, skills in business today is how to effectively manage and motivate people. Correct people management techniques are the keys to the success of any organization or business. Let's take a look at some of these.

In formulating a business plan, one certainly develops a strategy for motivating customers to buy. Understanding their buying behaviors, how they like to receive information, where they are located, what keeps them up at night, how to make them successful - are just a few of the many questions to answer in developing strategies to motivate them to purchase products, services and information from your business. The same discipline must go into dealing with an even more important audience - your employees.

Employees #1 key to success

Many think that the customer is king; and ultimately it is the customer who delivers revenue to your business. But some interesting things are taking place in management today. A few years ago a book was written touting that the customer is #2. Employees, the book said, were #1 in any business or organization. The rationale was that if employees are happy, empowered to make decisions and embrace the vision, values and brand promise of the company, they will be more passionate about their jobs and better able to go the extra mile in keeping customers happy. In essence, they become your best brand ambassadors for your company or organization. .

Think about those those companies with which you like to do business. You are treated friendly, fairly, and with respect.. You see that the employees are happy and that they sincerely enjoy their jobs. They greet you by name. They are there to answer your questions. They make you feel like royalty. You enjoy the experience of dealing with them. Even if you do not like the solution, they find a way to make your experience pleasurable. It's simply the Golden Rule of Management....in action.

For these employees, management has found the key to motivating and helping them feel a part of an empowered organization that is focused on the customer.

Performance is pressure-packed. And today's companies and organizations need to produce results for impatient owners. In stressful times, managers can either employ harsh tactics or yelling and cursing, or they can practice reasonable Golden Rule of Management-type of tactics. Let me explain.

Golden Rule of Management ...in Action

The world of sports is filled with examples on both sides of this management equation. When I played football, "back in the day," coaches were screamers and hollerers. Every little mistake was scrutinized, criticized and put up to public ridicule. I remember on once occasion a teammate had missed a blocking assignment during a game and the coach addressed him in front of the whole team at half time. He asked the player what he was supposed to do on a particular play. The teammate gave the right answer to his question, not once, but three times. The coach then hurled an obscenity-laced tirade toward the player, something like "blankety- blank, blank, then why didn't you do it? Needless to say, this teammates self confidence was shattered. No one likes to be belittled in public. Another tenant of the Golden Rule of Management is to praise publicly, correct privately. Perhaps that's why that style of coaching "by fear and intimidation" did not win us any championships. Although some, screamers and hollerers do win games and achieve results - ask, but at what cost?

One of the greatest miracles is the lifting of others to reach their full potential and performance level. This year's two NFL Super Bowl head coaches -- Indianapolis' Tony Dungy and Chicago's Lovie Smith -- are perfect examples of this. Both are class acts and have proven themselves great motivators without demeaning a player (an employee) They have found best the way to get the most out of every individual is to be firm and fair and to make sure they understand that it is the TEAM that wins or loses, not individuals. They have mastered the technique of getting individuals to work together toward a common goal - the success of the team.

It's interesting that neither are hollerers or screamers. They are respectful of their players, their employees. They treat them like the tremendous assets to they are to the organization. They positively motivate players to overcome mistakes to maximize their personal abilities. The players know that every member of the team is a vital cog - a key contributor -- to the overall success of the team. In fact, Coach Dungy does not tolerate profanity by his players. He doesn't like it and doesn't use it, so why should they. That is a rarity in today's world of professional sports. Again - the Golden Rule of Management in play.

Positive always trumps negative

Years ago, I heard a speech by a very successful NBA coach who explained how he changed his coaching style and found more success. He was not a screamer or hollerer, and found success in the regular season, but something was missing in the late stages of crucial games that cost the team victories over lesser opponents, and entry into the post-season playoffs. He said, "We kept drilling the players on game situations and what they should and should not do in those crucial times."

In recapping a season, without a playoff berth, he was talking with his assistants and asked, "Why do our players do the things we tell them not to do?" One of the assistants answered, "Perhaps they are doing what we have have taught them. In the pressure of the game, they are not distinguishing between what they should do and should not do, as a result they do what we put in their minds.: The light went on and the NBA coach changed his teaching style. Only the positive things they should do in game situations were taught.. He said the results were dramatic. Mistakes were not made in tight games. They team performed exactly how they were taught. They made the playoffs each year after that and eventually vied for the NBA title.

Feedback - we all love it

All of us love to receive feedback. Of course we like to hear more compliments than negatives, but it is in how the message is delivered that motivates us. We all want to perform well. A few years ago, an experiment took place at a bowling alley. Two teams of bowlers were videotaped during a match and then a coach visited with them. Team One saw the videotape of the match with all the mistakes removed. The coach focused only on the positive strengths of each player and described and reinforced what they had done right. They did not see their mistakes.

Team Two also saw an edited video of the match, but this one included only the mistakes they had made. The coach of this team offered suggestions on how to improve the team's performance.

After receiving the feedback, there was a rematch in which both teams showed improvement. However, the team that received the positive criticism improved 100 percent more than the team that focused on their mistakes. Building on the positive aspects of performance is far better than focusing on the negative.

The power of positive people management can never be underestimated. Mom had it right. The Golden Rule of Management does work. Employees are #1. Be positive in your feedback (Praise publicly, correct privately because you can attract more bees with honey than with vinegar.) Be firm, but fair. Make sure your employees know and embrace the vision of your organization. And then empower them to act with your customers.

Bob Meldrum is a columnist for CORE Magazine. CORE is the leading online source for small business startup. Visit our free online resource center now to get free access to information on small business finance.

The Easiest Way to Construct a Proper Business Report

One of least mentioned areas of business is the time and energy spent creating a business report. This is a strange trend considering how important they are. All of the business reports I have put together were done to inform the reader of an area of business critical to its operations. It can be done in a number of different ways from internal external, technical, or non-technical.

I've always found that business report writing is an essential part of the business environment, especially in the communications part of it. As report writing grows in complexity, knowing how to properly collect relevant information and make that readable is becoming increasingly important in a rapidly developing business environment. Here are some tips to help you put an easy to understand and effective business report:

* You're first mission will be to define the purpose of the business report. I like to get it done early in case my time and energy need to be used on anything but the main goal. In order to put together a reliable report, you'll need all of the pertinent information together so gather that up. This doesn't require too much. All you will need is talking to people involved or conducting a research project.

* Gather up all information relevant to the report and organize in its importance. The only information in the report should be on the main goal or topic. Keep it focused and only discuss ideas within the scope of the report. For example, if you are writing this business report with the purpose of identifying potential new markets, only write about new market information.

* As with anything you plan on writing, knowing your audience is critical. You better know who you are writing to and for. After that, decide on how best to address your audience. Factors such as tone, attitude and emphasis should all be addressed so your message is geared towards them.

* The business report should be composed of strong, action verbs. You want your audience to be motivated from what you have to say. This includes the use of effective, well arranged sentences. I try to use scannable copy for certain sections of the report. You'll find that a good portion of your audience may only scan the report. Employ the use bulleted points, plenty of white space, good headlines and short paragraphs to catch their attention as much as possible.

* Finally, after everything is all said and done and you're close to completing the report, you're final step is proofing, editing, and distributing the report. I like to ask a colleague to read over the report for me as a second set of eyes. It helps to make sure your message is clear and focused. Leave yourself plenty of time in case anything in the report needs to be fixed or adjusted last minute. Ensure all documents and attachments are included.

Merit Capital Advance looks at the big picture by offering a financing program that provides small businesses with fast business cash It is the most convenient way to get a small business cash advance when you need it most. Visit Merit Capital Advance at http://www.meritcapitaladvance.com

Guarantee a Successful Home Business by Creating a Sound Budget

Most small or home business owners get by day to day working with a small budget. It can be a frustrating time when you don't have the money or the ability to get the proper tools you need to run your business effectively. The truth is it takes a lot of hard work and some serious business skills in order to build a successful business without a large budget.

One of the reasons why I recommend a business create a budget is that they allow you to plan ahead. It lets you know how much money to save when looking to buy new inventory or how much to ask for as a loan. You need to know how much it will cost you to operate on a monthly basis as well as estimating your sales.

To do up a proper budget, you will need to spend some time thinking about everything your business will have to do. Here are some the best pieces of information I have on setting up a home business budget:

* The first step is to organize all of your home business's current bill statements. Get them in order in front of you by due date or bill amounts. It is easiest to organize if you create two separate categories for the budget. The first one includes all of the expenses you have incurred and the other one is the amount income generated.

* Time to get out the old calculator. You want the total amounts from each of those two categories. This helps you see if your home business is making a profit or not. If your expenditures are greater than your home business income, you need to come up with a plan to find out where all of your extra money is going. Just one simple change in your spending habits can increase your business cash flow.

* You're next step is to begin setting goals. This isn't a step to take lightly. What are the reasons why you started your business in the first place? By answering this question, you can best decide what will work for your business venture and what won't.

* Once, you've decided upon a budget, stick to it. What is the point in creating a budget if you don't plan on following it? Another reason why I like budgets for a home business, is that they can be a great indicator of your level of success. You'll quickly be able to see if your income is increasing and if it isn't you can change what you're doing to make it.

* Lastly, you want to stay organized. After you've completed all of the number crunching and put together some totals, put together a spreadsheet. This allows you to access of this information much easier than you normally would be able to. Say goodbye to the days of looking for long lost receipts come tax time. With a spreadsheet, all the information you need is right in front of you.

Merit Capital Advance looks at the big picture by offering a financing program that provides small businesses with fast business cash It is the most convenient way to get a small business cash advance when you need it most. Visit Merit Capital Advance at http://www.meritcapitaladvance.com

Tips for Staffing Your Small Business Through Recruiting Skills

As a successful small business owner, you can kiss your free time goodbye. You are forced work to long hours, forget about holidays off and expect to spend every weekend working. Sorry but that's the price you pay when becoming a small business owner. One way to get around it is by hiring qualified employees.

The current economic situation has created an increasing unemployment rate but also a growth in qualified candidates. This is a golden opportunity for a small business owner like yourself to find and hire a star employee.

Don't wait too long for this opportunity to pass you by. Finding and keeping employees is a demanding task for a small business and there are no real big secrets to hiring someone. To prove this, here are some of the steps I take to hiring through recruiting:

* My first piece of advice is to get out there and network. I found that this may be the most effective way to not only find new business opportunities but to also find workers. Ask around to friends and family members if they know anyone smart looking for a job, more specifically for your company. Another place to look are alumni groups. Search for recent college grads or even current students looking for a chance to break into the workforce.

* Don't be afraid to go after people that are looking for a change in the middle of another career. These people tend to be the hardest workers you'll find. They are often take their job much more seriously than a worker right out of college and it shows in their motivation.

* It's your company so don't be shy about promoting it the most you possibly can. Let the world know what makes your business different from anybody else's. If you don't care about the subject matter, then why should we? You're interest in the business shows. Don't forget about that.

* How much education is important or required for the position you are looking to fill? There are plenty of qualified potential employees out there that may not have a degree. Some of the most competent employees I ever had working for me had nothing more than a high school education. Often, I am more impressed by someone choosing to attend school later on as an adult than somebody who coasted through as a teen. It shows they took their education and their career seriously and worked their way through school.

* Post your job position online if it requires them to spend a lot of time working on the Internet. Not only is it a quick way to screen prospects but it's also the easiest. Just from one response you can see how that applicant knows how to work their email and attachments.

Merit Capital Advance looks at the big picture by offering a financing program that provides small businesses with fast business cash It is the most convenient way to get a small business cash advance when you need it most. Visit Merit Capital Advance at http://www.meritcapitaladvance.com

Small Business Finance Recently Uncovered - Determining Your Direct And Indirect Costs

There are two types of costs "direct" and "indirect." Direct costs are also called "variable costs" and refer to costs that are a direct result of producing, delivering, or returning your product/service. Examples of these are materials and labor needed to produce/deliver the product that only occur once you sell the product, transactions costs like visa commissions, sometimes shipping charges, etc.

Indirect costs are also called "fixed costs" and refer to expenses that your business will have regardless of sales volume. Examples of ithese are rent, utilities, wages that are not based upon commission, interest expense, advertising, automobile, etc. The tricky aspect of these are that a cost may increase with increased sales, e.g. an increase in sales may require overtime or the addition of staff but the relationship is not direct.

A good tool for managing direct and indirect costs is to monitor the costs on your monthly income statement using percent of sales. Divide the cost by total sales.

Direct costs as a percent of sales will remain within a narrow margin, e.g. materials costs if 30% of sales at $1,000 sales then materials should be right around 30% at the $5,000 sales level. The actual dollar amount of materials used to produce more products will go up but as a percent of sales, it will remain close to 30%. What would lower the percent is if you got a better deal from your supplier.

Your indirect costs when monitored as a percent of sales will respond differently. For example, rent equaling $500 per month remains $500 per month even if your sales increase to $5,000. $500 divided by $1,000 in sales equals 50%. $500 divided by $5,000 in sales equals 10%. (It is that old math axiom in action here: A numerator divided into a larger denominator produces a smaller fraction.)

So why is this important? Knowing the difference between direct and indirect costs provides you with a couple of valuable management tools, break-even analysis, and your contribution margin. Break-even analysis is a handy management tool for quickly determining if a solution is feasible. Contribution margin is the remaining profit after direct costs are taken out of a sale. For example, if you sell a bookcase for $250 and it cost you $75 to make your contribution margin is $175 or 70%. The contribution pays for all the Fixed expenses/overhead.

A good way of organizing these costs is to put all the direct costs in the "Cost of Goods" section and the indirect costs in the expense area of your income statement. By doing this Gross Profit equals Contribution Margin and is automatically calculated for you.

Another reason to identify your direct costs is when bidding in a competitive environment. Ever wonder how your competitor beat you on a bid??

Imagine a situation where you know you have covered your overhead expenses for the month with normally bid projects. A quick project comes up for bid around the 15th of the month and you have a crew available to work on it. You figure it will be very competitive and if you use your usual estimating process on it you will not get the project. Since you have already covered all your expenses for the month and any margin above your direct costs is profit. Plus you have a crew that it would be better to have working on a project and being paid by a client versus cleaning the shop being paid by your profits. You decide to aggressively go after the project with a bid slightly above your direct costs.

Bruce Hunter is the CEO of CORE Magazine in Denver Colorado CORE is the leading online source for small business startup. Visit our free online resource center now to get free access to information on small business finance

Small Business Budgeting Tips - Perfecting the Plan That Keeps You On-Track

At the end of every fiscal year companies tallying up their scores to see how they've finished. Unlike the game of golf having the highest score is cause for celebration, being in the black you've done well and deserve some congratulations. If there isn't a soirée going on in your business maybe it's because you didn't plan for a year-end party, and that could be the direct result of your failure to budget.

To be successful in business, budget cannot be a taboo word in your company. One of the skill sets you as an owner or manager need to possess is the ability to plan ahead, this includes that ability to budget. If you're a visionary and lack budgeting skills, then stop reading and go find someone who is. So before we discuss budgeting tips, let's first discuss what a budget is and isn't.

What a Budget Is:

A budget is a proposed plan to monitor financial activity over a period of time. A budget is a planning tool an owner and/or manager should be using to measure trends over a fixed interval; this includes inflow, outflow, and asset/ liability growth. Finally a budget is a resource to forecast an assumed outcome.

What a Budget is NOT:

A budget is not the law; it is not to be used as a means of accountability and to ensure financial integrity. A budget is not to be used a ceiling to spending, and a method of absolute control. And finally a budget is not a guarantee so financial and business success.

So now that we have defined what a budget is, let us get to how to properly use and understand how a budget actually benefits a company.

The budget should be put together and approved at least 1-2 months prior to the start of the new fiscal year. This will allow for key employees to look at what the company is trying to accomplish and what is being aimed for. So for this to happen planning will need to take place approximately 3-6 months before the start of the new fiscal year, this of course depends on the complexity and size of the company.

The budget should reflect the direction that the company is headed in; this of course is handed down by the CEO and/or Board of Directors. Everything about the budget should point towards the strategic plan the company has adopted. The budget should also be multifaceted, not only should you include a Profit & Loss operating budget, but also a Balance Sheet budget to help track cash inflows and outflows.

Finally the budget should be realistic. An exponential increase in revenues without any foundational proof or purpose can lead to fiscal year failure. Again remember the budget is for mapping out trends in an attempt to forecast growth or decline. All the pieces must fit, in business there is usually a cause for increased revenues (hint: check for the reason in your expenses section!).

To summarize let's recap the key points:

1. Budget is not taboo
2. Budget is a proposed plan
3. Budget is not the law
4. Approval should allow for time to disseminate throughout the company
5. Reflects the strategic plan and heading of the company
6. The budget should be realistic, for all growth there should be a reason

Jayson Cardwell is the Founder and President of Serium Consulting, LLC a non-profit and church consultancy. Serium Consulting specializes in helping board members, directors, pastors, and leaders in the business aspects of running an organization. This is accomplished through consulting in the areas of Financial Management, Analysis, Strategic Planning, Executive Development, Organizational Development, and Management Consulting.

For more information about Serium Consulting and how they can help you visit them on the web at http://www.SeriumConsulting.com

Top 10 Reasons Small Businesses Fail

Every time a small business fails I get dismayed. The owners of a new business have often staked their entire capital on a new venture and they stand to lose a lot more than if a big company fails in their new venture. Before you start a new business familiarise yourself with the top 10 reasons why many new businesses fail.

1. The manager is incompetent

Most small businesses fail because the owner does not have the knowledge to run a business properly. It is advisable to do a basic business course before starting a new venture.

2. Finances are not in place

Many people start out in business without any idea of how much money is really required. If you do not know how to write a business plan get your accountant to help you. In any new start-up cash flow is king and without proper funding even the best idea will fail.

3. The Owner gives up too quickly

Any new business will be lucky to break even in their first year. Many people new to business often assume that they are going to make a fortune within 12 months. In reality less than 80% of new start-ups make a profit in their first year.

4. Advertising

There is zero point in doing a single leaflet drop to all your potential customers. There is no point in doing a single advertisement in your local newspaper. Advertising is all about repetition. Many of your potential customers will not buy your products until they have seen your marketing material at least half a dozen times.

5. Branding

Every single piece of your company has to scream out your brand including your brochures, websites, delivery vans and the uniforms that you and your staff wear.

6. Ability to close the sale

This is really an art form in itself. Some people are naturally good closers but others have to learn by reading and studying the art of closing a sell. The more you practice the better you will become.

7. Location

Location is very important to the chances of your businesses survival. Often you will have to pay more for a decent location but it can make the difference between just getting by and turning a decent profit.

8. Ability to get on with other people

We all know that we have to treat our customers with respect but what about our suppliers. If you do not pay your suppliers on time they will start quoting you higher prices. If you are rude to them they might stop doing business with you altogether.

9. Lady Luck

Some people are really unlucky; there is no getting away from this. Just hope and pray that Lady Luck smiles at you, especially in the first year.

10. Demand and USPs

Small businesses often overestimate the demand and usually have no unique selling proposition built in to their products. If people only ever need to buy one of your widgets and you make millions, chances are that you are heading for a point of no return.

Examine all the points above. If you feel that you have an answer to most of them then you are ready to take the plunge and start your own business.

Naz Daud is the founder of CityLocal. This Business Franchise Opportunity is for people who would like to work from home and be their own boss.

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