5 Valuable Ways Business Funding Will Scale Your Business

Most businesses think that business funding is something that you need when your business is short on cash or times are hard. A lot of businesses go out looking for business funding when the business is not good. The time to get business funding is not when your business is doing horrible or you are strapped for cash.

If your business is doing great, there is no better time to go out and get business funding. Why?

1) It’s easier to qualify
2) You can get better rates and terms
3) It’s easier to grow your revenues with a capital infusion
4) It’s easy to utilize the simple formulas that we have in here to scale your growth.

DON’T WAIT FOR THINGS TO GO BAD; IF YOU ARE DOING GOOD – BUSINESS FUNDING CAN SCALE YOUR BUSINESS TO THE NEXT LEVEL.

This is how you can determine if business funding can help your business grow. There are 5 simple steps which will show you the value of business funding.

Step 1: What Do You Need To Grow Your Business?

While this may sound like a stupid question, it is a very important question.

The FIRST STEP you need to take is determining what your business needs to grow sales. Most businesses need one or more of the following?

• Inventory and More Products
• Expanding Existing Line of Products
• Adding Additional Services
• Marketing and Advertising
• Sales People or Personnel
• Machinery, Equipment, Software or Hardware
• Expanding into other Territories or Adding Another Location

Step 2: How Much Money Do You Need to Achieve That?

How much money do you need to achieve that? Again, another simple question and it may sound stupid. But you need to start off with basic questions.

How much would you like to invest into your business or how much do you need to grow your business?

$10,000, $20,000, $40,000, $50,000, $100,000 +

Step 3: Where will the come from?

There are only three forms of cash that flow into a business:

REVENUES FROM SALES
INVESTMENT DOLLARS
DEBT: A LOAN OR LOANS

Where will the money come from to help your business grow?

If you have an existing business and you want to invest in your business you either sell more or you have great close out balances and have enough reserves to re-invest. If you plan on selling more; most sales and marketing strategies require some sort of cash infusion. If that is not the case you only have two options: an investor or a loan.

Step 4: If you had the amount of money you need to do what you want in your business – there are two key questions: If you know the answers to these two basic questions; you will know immediately how to increase your sales fast.

1. How much money will you make with that money?

In technical financial terms – What will be the ROI (Return on Investment)?

2. In what time frame will you make that money back?

In what time frame will you achieve the anticipated or projected ROI (Return on Investment)?

EXAMPLE (CASE STUDY): (Simple Version)

If someone gave you $100,000 – what would you do and how would that impact your business.

Example:

I (YOUR NAME) would take $100,000 and allocate that money into marketing and increase personnel. (NEED AND WANT)

I (YOUR NAME) would take $100,000 and make 50% return in 5 months. The equivalent of 10% return per month…

Based on this information, you are clear on how you would use the money, what type of return you would make and in what time frame.

The next step; is to determine if you can?

• Increase sales to $100,000 and have the extra money to do this.

• If you obtained an investor how much would they want? Most investors will either charge you anywhere from 10% to 30% in interest or they will want 20% to 50% of net earnings. You have to figure out the cost of capital versus your return.

• If you obtain a loan the interest rate may range from 7% to 30%. You need to factor in the cost of capital versus your return.

EXAMPLE (CASE STUDY) – Crunching Numbers:

For Existing and Operational Businesses

Food Distributors of America currently generates $50,000 per month on an average. At the end of the month they close out $5,000 positive which is about 10% net. Currently, there cost of inventory is $20,000. This means every month they purchase $20,000 to make $50,000 Gross. The question you need to address is: How much are my costs to generate gross earnings? Once you know that, you know how much you need to increase gross earnings by 10%, 30%, or even 100%. In this example, we can increase earnings by 100% by making a capital infusion of $20,000.

We know that $20,000 generates $50,000 per month. We know that $20,000 and $50,000 of gross sales generates $5,000 per month net; which is 10%. They want more inventory because they have prospective buyers.

Conclusions:

• An additional $20,000 would generate an additional $50,000 in gross sales; increasing earnings to $100,000. This is a 100% increase in gross sales.

• An additional $20,000 would generate an additional $5,000 in net margins; increasing earnings by another 10% monthly = 20% monthly.

• If this business can do this every single month, they would increase net earnings by 10% x 12 months = 120%.

Not all businesses can do this. Even if you increase your net earnings by 2% per month = 24% increase in 1 year.

Businesses that carry inventory have an easier time achieving this.

Businesses that sell every day; such as restaurants, hair salons, and anyone who sells consumer products; have an easier time achieving this.

Seasonal businesses can also achieve these types of returns.

Step 5: Calculating Cost of Capital versus Return on Investment (ROI).

If you don’t have the extra money; you will need an investor or some sort of business funding or a loan.

There is nothing wrong with taking on investors or a loan. Most successful businesses have grown with capital infusion. Think of this way. Would the New York Stock Exchange or would the Chicago Board of Trade exists if businesses did not take on investors or debt? All businesses on major stock and debt exchanges have investors or debt.

How do you calculate ROI and Cost of Capital? Easy as 1, 2. 3.

Let’s assume you are able to obtain a loan for $50,000 to invest in your business. You project that you will make 5% return per month for the next 5 months = 25% return. Let’s assume you get a loan with a 12% annual rate = the same as 1% per month.

5% per month (your return) minus 1% = 4% your new return
4% x 5 months = 20% (after cost of capital)

The interest rate on a loan is important. However, if you know how to make a Return on Investment with a loan you will WIN in the end. More important, this is known as OPM (Other People’s Money). Making money with other people’s money! Read the Art of the Come Back, by Donald Trump. Do you think Donald Trump, Warren Buffet, and others utilize their own money to make money? The answer is NO.

The IRS Wants to Know, Are You Running a Business or a Hobby?

Being a small business owner brings with it a whole host of challenges. Not only are you concerned with taking care of your client’s needs, getting paid and paying your vendors. You also have to be concerned with staying compliant with federal and state laws as well as local guidelines. Small business owners, especially sole proprietors, are at an increased risk of audit. The federal government believes that self-employed people are grossly under-reporting their income and over-reporting their expenses. According to the website Tax Help Online, “You might be shocked to learn that 20% of all small business audits involve disallowing deductions because the IRS reclassifies the small business as a hobby under the so-called ‘hobby loss’ rule.” Internal Revenue Code Section 183 (Activities Not Engaged in For Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule”. As a small business owner, it is your responsibility to make sure your business is viewed as a legitimate business in the eyes of the IRS and not a hobby.

Below, I have listed some smart business practices that will not only help you define and grow your business, but will also help you document that you are running a real business and not just performing a hobby.

1) Write a business plan. There are lots of local small business support centers that can help you to put your plan in writing. For example, the Small Business Administration has both local and online resources to assist you.

2) Determine your legal structure (LLC, Partnership, C-Corporation, S-Corporation, Sole-Proprietor).

3) Obtain an Employee Identification Number (EIN) from the IRS.

4) Open a separate bank account for all of your business transactions (deposits and expenses). You need to keep your personal and business transactions separate.

5) Establish a separate line of credit or credit card to use with your business. Put personal expenses on a personal card and put business expenses on a business card.

6) Keep your business documents organized. The National Federation of Independent Business recommends keeping business records and receipts for at least seven years.

7) File completed tax returns on time. This would include all required schedules and signatures. Depending on the type of organization you have, you or your CPA will be filling out forms like 1020, 1065, 1040 Schedule C, 1096, 1099, 940 along with calculating your self-employed tax. I highly recommend finding a local Certified Public Accountant (CPA) that is familiar with your industry to help you determine which forms you will be required to file and making sure they are submitted on time and to the right government office.

8) Hire a support team: A lawyer can help you with your legal structure and a Certified Public Accountant can help you keep your finances in order as well as keeping you compliant with local, state and federal government.

9) Create industry standard business documents and forms to include: logo, letterhead, business cards, and website.

10) Advertise in your local media along with appropriate trade periodicals.

According to IRS document, FS-2008-23, below are some of the questions that the IRS may ask when determining if your business is engaged in for-profit activity. You will need to be prepared to answer these questions and provide documentation.

1) How many hours a week do you work in the business?
2) Do you depend on income from this activity to pay your bills?
3) Do you have the knowledge needed to carry on the activity as a successful business?
4) Have you made profit in similar activities in the past?
5) Does the activity make profit in some years?
6) Do you expect the activity to make a profit in the future?
7) Are there elements of personal pleasure or recreation?
8) Has your business made a profit in 3 of the last 5 years?

According to IRC 183, “If your business activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.” The result is that your business deductions will now become itemized deductions and be limited to your hobby income.

For more information and assistance in helping your company maintain their position as a legitimate business, please contact a local CPA. Each state has its own independent licensing board. If you are located in North Carolina, you can contact the NC CPA Board website and click on their “Licensee search” button to locate a CPA near you. All licensed and active CPAs in North Carolina will be found on this website.

Why Half of All Small Businesses Don’t Have Websites

You can easily find a small-business owner that will tell you “I don’t need a website.”

And they’re right– businesses that don’t want to be successful certainly shouldn’t spend the time and capital to build a website for their company.

Honestly, it’s tough for me to admit that every company doesn’t necessarily need a website. But any company that plans to compete in the ever-changing market and become successful in the future will absolutely need a website. A crappy one might do better than none at all.

Half of all small businesses don’t have a website to market their business online. This is not an inflated number. According to a 2013 survey of more than 3,800 small businesses conducted by Google and research company Ipsos, 55% of small businesses don’t have websites representing their company.

These numbers are outrageous when you look at how much the world has changed in the last 10 to 15 years. Consider the growth of smartphones, tablets, Facebook, Google, Amazon, and anything that has to do with the internet.

The world is forever changing. So why the hesitation?

I believe that the problem lies in lack of education and perceived complexity. Here are some of the objections that I’ve come across.

An Incomplete Understanding of the Benefits of a Business Website

As professionals in web development, we have failed to educate the older generation in the benefits of the internet and how it can be used to improve business. 76% of small business owners are over 45 and Facebook has only been around since 2004!

The digital age has only become common in the last 10 to 15 years. Our small-business owners did not grow up in a world of internet technology, they’re only adapting to what is most convenient to them and what is the easiest to understand. Since the average small business owner doesn’t have a dependency on the internet, it would be difficult for them to understand why their business would.

They also don’t understand how a website could help their customers.

Their lack of dependency on the internet, blinds them from the fact that the newer generation would be crippled without the aid and resources of the internet and that their business would be able to reach these customers more effectively online.

“Nearly all consumers (97 percent) now use online media when researching products or services in their local area, according to BIA/Kelsey’s (http://www.bia.com and http://www.kelseygroup.com) Among consumers surveyed, 90 percent use search engines, 48 percent use Internet Yellow Pages, 24 percent use vertical sites, and 42 percent use comparison shopping sites.”

At the very least, small business owners should have their address or contact information on Google so when people are looking for them, they at least have a point on Google Maps. A business card or yellow page ad simply won’t cut it anymore.

By now it will sound like I’m beating a dead horse– I get it. Just to be clear, I am an advocate of figuratively beating dead horses if it means I prove my point. My point may seem obvious to those in the industry, yet it is still foreign to those who haven’t found a use for their business on the internet. It is only natural to have the idea that websites are complex, time-consuming, and not worth their time.

The truth is, anyone can build a website. Trust me, this article was written by a monkey on a laptop. It’s one thing to create a beautiful, functional, and fluid website, it’s another to optimize it so that people can find it and find use in it. Because of this reason there are companies like us that strive to making it easier and simpler for businesses to create a website and run their business online.

But what if my business is doing fine without a website?

Just because things seem OK now doesn’t mean everything is fine. That’s like jumping off a building and halfway down saying, “So far, so good!”

-justaddcontent.com

It may be true that these businesses are doing “fine” with word-of-mouth advertising and their current customer base, but this does not account for changes in the market or guarantee that they will have continued business. The longer it takes for us to realize the need for a website the more we give other companies the time to adapt and eventually replace us completely. Ignoring this concept is a recipe for entrepreneurial disaster.

So how do we fix this?

Simplification, Education, and Affordability.

First we make it easier for anyone and any business to get up and running online.

We then teach them how to take advantage of their online business, reach their customers online, and promote their website.

In order for these to be possible, we have to find a way to make it affordable and accessible to all business owners and entrepreneurs.

Having a website for business shouldn’t just be another business investment, this should be an absolute necessity for every small business. Period. Non-negotiable.