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Venture Capital can finance a new business


SCORE, Counselors to America’s Small Business

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In assessing options for financing a new small business, many entrepreneurs  look to venture capital. This approach can benefit a relatively unproven enterprise that appears to have a promising  future. Securing this type of funding is not easy, however. Venture capital firms expect a business to return their investment with interest plus a large profit. And after the disappointments  with many tech-sector companies in recent years, venture capital providers are particularly wary about where they invest.

Many venture capital firms are affiliated with banks, insurance companies, other financial institutions and large corporations. Some are owned by individuals or private groups of investors; others are publicly held. The minimum investment is generally from $50,000 to $500,000, but investment ceilings are almost unlimited.

The interest of a venture capital firm in a small business usually depends on the stage of the new firm’s development.  An investor may be interested only after the new firm has established itself and has a working organizational  structure, a viable business plan and start-up arrangement. However, some firms prefer to come in at a later stage-perhaps when the new company is in its second or third round growth stage and needs more capital either to carry out expansion plans or to tide it over until a merger or public offering takes place.

A company’s business plan serves as the primary analytical tool for the interested venture capital investor. In analyzing the plan, investors have three specific concerns:

1.  The product or service. Investors seek product or service innovations that give the company a strong competitive advantage. A new idea, backed by market surveys (measuring  the appeal of the product or service and its potential market), may be appealing to investors.

2.   Management capability. No matter how good the product or how innovative the service, the quality and experience  of the management are key factors in the success of the business. The astute investor looks for solid evidence of such management skill.

3.   The industry’s  growth. Investors also want to be sure that the product or service is in a growth field. A significant or revolutionary product improvement  may nevertheless lack luster in a declining product or service category.

Most venture capital investors purchase common or convertible stock rather than burden the fledgling enterprise with interest payments on debt or debentures. They may want more than 50 percent ownership. Additionally, while investors may insist on a position on the board of directors or expect to give management and technical advice, they are rarely interested in day-to-day management issues unless the survival of the business and their investment are at stake.

Before taking the next step for obtaining venture capital, get outside advice. Talk with your accountant and tax advisor. You should also contact SCORE “Counselors to America’s Small Business.” SCORE is a nonprofit organization with more than 35 volunteer counselors in the Grand Rapids office, who provide free and confidential advice to veteran entrepreneurs and those just starting out, or find a counselor online at www.scoregr.org.

Free and Confidential Counseling

SCORE, 111 Pearl Street NW

Grand Rapids, MI 49503

(616) 771-0305   www.scoregr.org

E-mail:  score@grandrapids.org

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Make time for marketing

If you operate a home-based business, there are more demands on your time than time to go around. But there’s one business activity you can’t afford to defer if you want to stay in business: marketing.

For any small business, marketing has many facets, and it’s a more complex proposition than just selling what you’re already offering customers. Marketing is the set of activities that attracts customers to your product. In a home-based business, that’s not going to be signs in front of your house and a parade of customers coming through your doors every day. The challenge is to adapt sound marketing techniques to your business’s unique circumstances and offerings. And that takes time.

Here are six tips for making time for marketing:

1.   Convince yourself that marketing is worth the time. When you don’t think a task will contribute to your bottom line, it’s easy to go on to the next item on your to-do list. If marketing is outside your so-called comfort zone, examine why you feel that way.

2.   Have a marketing plan. Invariably, a good plan is at the heart of personal productivity. Examine your business goals and determine how marketing can help fulfill them. As a new business owner, you may need a crash course in marketing. If so, that becomes part of your plan.

3.   Be open to new ideas. How are competing businesses getting noticed by customers? If they’re using techniques or media you never considered, take time to study and learn about new approaches. Experiment with marketing ideas that are low cost and low risk.

4.   Dedicate the time. By reserving the time, you’re less likely to procrastinate. Once you’re committed to marketing, block out time for it just as you would any other important task. Whether the task is market research or cold calling, know what you want to accomplish-in that period of time, and anticipate the distractions that are most likely to interfere.

5.   Stay connected. Take time to be at meetings and other gatherings of your professional and community groups. Yes, this presence takes time away from other business  activities, but it keeps you in front of prospective customers and creates opportunities for you to sell yourself as well as your business. A home-based business is especially likely to benefit from this exposure.

6.   Celebrate your marketing successes. Pay attention to when your marketing pays off. You’ll discover that as effective marketing leads to better exposure and more sales, it becomes easier to justify the time you spend to promote your services.

“Work smarter, not harder” is an expression that applies to marketing as well as other facets of entrepreneurship. Make time for marketing, use that time wisely, and you’ll hone your competitive edge. 

For more insights on making a home-based business succeed, contact SCORE “Counselors to America’s Small Business.” For the SCORE chapter nearest you, call 1-800-634-0245, or find a counselor online at www.score.org.

All SCORE counseling is offered as a free and confidential community service. There are 389 SCORE chapters around the country assisting entrepreneurs. While counseling is always free-of-charge, local SCORE chapters also offer small business workshops and seminars for modest fees.

To learn more about SCORE and its counseling services, call 1-616-771-0305, or email your questions to the Grand Rapids Chapter of SCORE  at www.scoregr.org.

These articles are provided by:

Free and Confidential Counseling

SCORE, 111 Pearl Street NW

Grand Rapids, MI 49503

(616) 771-0305   www.scoregrandrapids.org

E-mail:  score@grandrapids.org

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Read between the lines of your balance sheet



For newcomers to business, a balance sheet may appear at first to be a complex and confusing collection of numbers. However, this financial statement contains valuable information for assessing the health of your company and making decisions on which direction to take.

A balance sheet is like a snapshot of your company at a single moment in time. The balance sheet shows how the capital within your business is distributed over the various accounts. A surplus of assets over liabilities indicates profitability. If the statement shows more liabilities than assets, however, your company is at a loss position—not necessarily cause for alarm, depending on the longer trend. For example, a business may have a month with high expenses and a net loss that may be more than offset by five months of profitability. On the other hand, three consecutive losing months should prompt the owner to make serious decisions about how to overcome the negative cash position.

Compare balance sheets over a period of time for the big picture of your assets and liabilities. By comparing these on an item-by-item basis, you can spot trends that will affect your firm’s overall financial health. For example, larger quantities of merchandise on hand from one period to another may reflect a decision to buy ahead because of continuing inflation. Receivables may show a continuing upward trend when collection of outstanding accounts exceeds 30 days. Debts may run higher when the firm expands or makes capital improvements.

Much like the balance sheet, the profit and loss statement (or operating statement) totals the result of operations over a selected time period. This statement will show sales volume, cost incurred and the amount of profit or loss. Comparing the monthly or quarterly profit and loss statements can be revealing. Why was there a lower gross profit for several quarters? Did price cuts decrease per sale profitability? Was a higher proportion of sales spent on operating costs such as personnel, rent or insurance?  Are overhead costs increasing routinely?

Do not rely solely on your accountant for advice and guidance in understanding your balance sheet. As the decision-maker for your company, you need a clear understanding of how to read, interpret and act on financial information. For assistance, contact SCORE, “Counselors to America’s Small Business.” 

SCORE is a nonprofit organization having more than 35 volunteer counselors in Grand Rapids who provide free and confidential  business  advice to veteran entrepreneurs and those just starting out. For the Grand Rapids Chapter office of SCORE, call 1-616/771-0305, or find a counselor online at www.scoregr.org. Rockford Chamber of Commerce 1-616/866-2000.

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