Archive for the 'Banking - Investors - Capital' Category

RESULTS: Would your business be a prospect for outside investor capital?

The Question:
Would your business ever be a prospect for outside investor capital?

15% - Yes, our long-term growth plans is to acquire venture capital.
8% - Yes, but only angel investors we can buy out later.
0% - We want to acquire investor capital but don’t know how.
0% - We’ve already acquired outside investor capital.
77% - We don’t need no shtinkin’ investors.

Jim’s Comments:
As I’ve said - and written - many times, most small businesses are not prospects for outside investor capital. It’s difficult to get, it’s not practical to manage, it’s troublesome to account for, it can be maddening to deal with the investors, and the long-term expectations of the founders and investors are almost always different. So I wasn’t surprised when over three-fourths of our respondents said, “We don’t need no shtinkin’ investors.” And I wasn’t surprised that 15% said they were planning to pursue outside investors in the long term. But I’ll wager that of that group, a very small percentage will actually finalize an outside investment capital deal.

When you get a few minutes, go to this link and read some of the articles on capital acquisition.

Thanks for participating this week. And be sure to give us your position on our new poll below.

RESULTS: Would you consider raising capital from a crowd funding source?

The Question:
Would you consider raising capital from a crowd funding source?

30% — I might consider crowdfunding.
67% — I would not consider crowdfunding.
3% — I considered crowdfunding, but decided against it.
0% — I have already used crowdfunding.

Jim’s Comments:
It’s interesting that none of our respondents has yet used this capital source.  I have to admit, my thoughts on how relevant crowdfunding will be for most small businesses in the previous three Feature Articles may have influenced some of you. Because as you can see, two thirds of you would not consider crowdfunding. It will definitely be an option for some; just not as universally applied across the sector as traditional sources, like bank loans.

Remember, the best source of small business capital is profits you earn from doing business with customers and have the discipline to leave in the business as retained earnings. The beautiful irony of that capitalization plan is that management behavior is the most attractive to bankers.

Is crowdfunding investment capital right for your business?

In previous columns I introduced three crowdfunding sources including donation fundraising, startup transactions, and lending. Now let’s talk about the fourth and most problematic method: raising capital from investors.

Historically, small businesses acquired investor capital from two sources: venture capital and angel investors. So when crowdfunding popped up on our radar, many in the entrepreneurial universe got excited thinking the Internet could be used as a lever for investor capital as it has for other business applications. Here are four reasons why I was not among this group.

1.  Securities Laws
Remember those two crowdfunding markers identified in my previous columns, “innumerable and anonymous?” Well, they’re the most problematic in raising investor funds because, by definition, the public (people you don’t know) has access to Internet offerings. U.S. securities laws are enormously restrictive about selling investments to the public, and the approval process is prohibitively expensive for most startups. Plus, even as part of Obama’s 2012 JOBS Act, the Securities and Exchange Commission (SEC) has yet to approve crowdfunding for investors and won’t say when rulemaking will happen.

2.  Financial reporting
One of the essential markers of investing is financial reporting. Alas, one of the markers of the small business sector is poor financial recordkeeping. When small businesses learn the level of disclosure required for crowdfunding investment, most will not pursue this path.

3.  Minority shareholders
Investors become shareholders. A crowdfunding offering is likely to create many shareholders. When small business owners understand the maintenance expense and effort to comply with mandated reporting to shareholders, most will seek other capital sources.

4.  Exit strategies
Small business owners love their businesses, but most don’t have an exit strategy. Since capital is not romantic, it’s unlikely that a small business owner’s idea of an exit will align with that of crowdfunding investors. And with no after-market for these shares, crowdfunding creates an inherent exit expectation conflict, which will be a non-starter.

When and if SEC rulemaking occurs, crowdfunding equity will benefit some entrepreneurs. But I predict this capital source won’t be a high percentage option for most small businesses. Crowdfunding is part of the future of small business capitalization, but it’s not for everyone.

Write this on a rock … Don’t count on crowdfunding to replace your banking relationships.

Jim Blasingame is the author of the award-winning book, “The Age of the Customer: Prepare for the Moment of Relevance.”


I Loved Mike Menzies

Mike Menzies was an original, founding member of Jim’s Brain Trust, going back more than 16 years to 1998. This is Jim’s tribute to his good friend.

__________________________________

There’s a disturbance in the Force.  Mike Menzies is dead.

There’s an empty locker at Team Menzies. Their champion, devoted husband of Midge, proud father of Mike Jr. and Cal, has left the stadium for the last time.

There’s a boat on his beloved Eastern Shore, motor still, lines secure. Captain Mike won’t be takin’ ‘er out anymore.

There’s a quiet office at Easton Bank and Trust. Those honored to have been led by Mike for so long will now be sustained by memories of how he conducted himself with grace and professionalism.

There’s a hole on Main Street in Easton, Maryland. Without Banker Mike, to whom will small business owners now turn?

There’s an enormous void in the marketplace of ideas just now. When Mike spoke, people listened. At a time when we can ill afford it, one of the most compelling, knowledgeable and fiercest voices for free markets has been silenced.

There’s a new fault in the banking landscape today. As the industry trends toward giant banks, independent community banks have lost a giant.

Emotions are raw, the sadness overwhelming. Women are lucky—they weep. Men well up, but tears are scarce because we begin with anger. Then tightened jaws become unspoken feelings stipulated with a nod to each other. And finally Mike stories shared out loud with laughter. Mike would be angry if we didn’t laugh.

And stories and laughter there must be in the world Mike Menzies has left behind. How else can we honor the way he blessed our lives in his much too short life? What better way to celebrate Mike’s abundant life?

As singer-songwriter Warren Zevon was losing his own battle with cancer, he was asked what he had learned about life. Zevon said, “Enjoy every sandwich.” Mike Menzies enjoyed every sandwich. And if you ever had the fortune to be in his company, he made sure you did too.

There’s a disturbance in the Force today: Mike is dead and our lives will never be the same.

Mike Menzies made a difference. He was an enormously important and benevolent force who made the world a better place.

And I loved him for that.

Three fundamentals of small business capitalization

The first sentence in the job description of every CEO should be, “Get the capital your company needs.”

Webster defines business capital as, “any asset, tangible or intangible, that is held for long-term investment.” Capital blended with operating cash flows becomes the financial fuel your company’s engine uses to operate with and fund growth.

•  Investment Capital — from you or someone else.

•  Borrowed Funds — for most small businesses, from a bank loan.

Additional capital is required just to STAY in business beyond what was necessary to START the business. And the stay-in-business capital is much more than the get-in-business capital. Success begets growth and growth eats capital like Cookie Monster eats chocolate chip cookies. So without a capitalization plan you can grow yourself out of business.

Here are three capital allocation guidelines. Don’t use operating cash to purchase assets. Don’t borrow money for operating expenses. Funding growth with borrowed money is okay, if you have a plan to convert growth funding from debt to retained earnings.

Retained Earnings

As the CEO or your business, it’s your job to acquire, manage, allocate and maximize all sources of capital.


Jim Blasingame is the author of the new book,”The Age of the Customer: Prepare for the Moment of Relevance.

SBA Poll: We don’t want no shtinking loan!

The Question:
What is your recent experience with getting a bank loan for your business?

24% - I have applied for and received a business loan recently.

18% - I tried to get a business loan from a bank but was turned down.

27% - I don’t think my business could qualify for a bank loan.

30% - Economic and/or political uncertainty makes me reluctant to borrow right now.

My Comments:
The best source of capital for a small business is from profits left in the business. But since most small businesses can’t generate enough profits to grow very fast, the actual primary source of growth capital for a small business is a bank loan.

In our online poll last week we wanted an update on where our small business audience is with regard to borrowing money, so we asked that question. More than three-fourths either don’t want to borrow money from a bank, can’t or don’t think they can.

Small businesses create over half of the U.S. economy. If three out of four small businesses aren’t borrowing money, that explains a lot about why U.S. GDP is stuck at below 2% annualized, doesn’t it? So which comes first, the loan or the growth? Historically, entrepreneurs will borrow money to take advantage of growth opportunities they believe are possible. So, the loan comes first, then the growth.

Four years after the end of the Great Recession, the U.S. economy should be growing at over 3%. Instead it’s slouching along at less than 2%. If three fourths of the sector that produces over half of U.S. G.D.P. is not a candidate for a bank loan, that does not portend a rosy outlook for the economy.

The economy will pick up when small businesses start borrowing money again.

###

Check out more of Jim’s great content HERE!

Take this week’s poll HERE!

Watch Jim’s videos HERE!




Warning: fsockopen() [function.fsockopen]: php_network_getaddresses: getaddrinfo failed: Temporary failure in name resolution in /var/www/wordpress/wp-includes/class-snoopy.php on line 1142

Warning: fsockopen() [function.fsockopen]: unable to connect to twitter.com:80 (Unknown error) in /var/www/wordpress/wp-includes/class-snoopy.php on line 1142