Zebraheard

Helping entrepreneurs turn ideas into a business

Entrepreneur Board of Advisors – Yes or No?


The question you should pose is not whether you should have a board of advisors but who should be on the board of advisors. Small business owners fail for a variety of reasons. Not knowing your competencies and poor planning are two of those reasons. Small business owners have a passion and a drive for their products or services, but may lack the skills in a critical area of success such as marketing, financial planning or networking. It is crucial for any business owner to surround their business with a diverse group of advisors. Some small business owners are wary of trade secrets escaping for the benefit of some other person or company. It is vital that the selected advisors are trusted business partners that are thoroughly vetted. The function of the group of advisors is to act as a strong sounding board, pointing you in the right direction and allowing you to focus on your core competencies while making you plan for the future success of your business.     

Business Advisors

Advisors

 

Your group of advisors does need to be a formal board of advisors. There are benefits to formalizing a board such as fiduciary duties to the small business and structured efficient meetings. Drawbacks to formalizing include a lessened ability to change directions when the market dictates the need for a change and advisory pay considerations. Formalizing the board of advisors has to be an individual choice and has to fit the attitude and the environment of your small business.    

One last point needs to be made.  Don’t choose people because they are or have been CEO’s of Fortune 500 or 100 companies.  Unless they grew that business from its inception they are probably as knowledgeable as you on how to run a start-up.  Find successful entrepreneurs to put on your board. Use the CEO’s, if you must, as funding sources but don’t rely on them for sound advice on running your business.  

Three Additional Points

Advertisements

April 29, 2010 Posted by | Entrepreneur | , , , , , | Leave a comment

Funding For Start-ups – Good News for Entrepreneurs!


 

Serious About Funding

Great article on something near and dear to my heart funding for start-up businesses. 

Catherine Clifford is an insightful reporter. I wanted to share her article with you.  I think getting funding is the #1 problem for start-ups. Don’t you agree???? Banks let it flow and let it go!!!!!   My next posting will be on funding and how to approach investors, what they look for and how to improve your chances of success. 

 

 

 

By Catherine Clifford, staff reporter April 26, 2010: 11:38 AM ET 

NEW YORK (CNNMoney.com) — To motivate the well-off to funnel more of their cash into small businesses, should the federal government offer investors new tax breaks? 

President Obama thinks so. He’s thrown his support behind a proposal to eliminate capital gains taxes on investments made in 2010 and 2011 in qualifying small businesses. The House of Representatives has already passed the legislation; the Senate has yet to take it up. 

Bank credit is scarce and investors are skittish, but that didn’t stop these 6 startups. They found creative ways to raise cash during the downturn. 

“We should eliminate all capital gains taxes on small business investment so these folks can get the capital they need to grow and create jobs,” Obama said at a February town hall meeting in Nashua, N.H. “That’s particularly critical right now, because bank lending standards have tightened since the financial crisis and many small businesses are still struggling to get loans.” 

It’s a message he’s repeated often in recent months, and one that resonates with entrepreneurs: Nearly 60% of the 500 small business owners polled in February by PNC Financial Services Group think their business would benefit from the move. 

Here’s a look at what the tax break would do — and who would benefit. 

What qualifies: The tax break would apply only to individuals, such as the “angel” investors who take early stakes in fledgling, privately held companies. 

“This does not help the banks, it does not help the institutional investors,” says Brett Palmer, the president of the National Association of Small Business Investment Companies (SBIC), which are government-subsidized small business venture funds. “This really is highly limited as to who can get the benefits. But to those that are really specialized in small business, it is attractive.” 

To qualify for the tax break, a small business needs to be a C corporation (sorry, LLCs and S-corps) with assets of less than $50 million. Additional requirements rule out businesses in fields like accounting and law, farming, restaurant or hotel operations, and banking and financing. The tax break is really aimed at companies in fields with high jobs-growth potential, like manufacturing and technology. 

Additionally, the investor must buy the stock at “original issue,” meaning it’s purchased directly from the company, and has to hold it for at least five years. 

Running the numbers: “Capital gains” are the profits investors make when they sell an asset that has risen in value. They’re taxed differently than earned income, often at a lower rate. 

But like any tax law, this one has a few loopholes and exclusions. 

In 1993, Congress amended the tax code to let small business investors exclude from their income the first half their profit on qualifying investments. With the capital gains tax rate then at 28%, that took the effective maximum tax rate on small business investment profits down to 14%. 

Over the next decade, Congress slashed the capital-gains tax rate, cutting it from a maximum of 28% down to today’s 15%. But small business stock was specifically excluded from those reductions and continued to be taxed at the higher rate. That virtually wiped out the tax advantages of the income exclusion, putting the effective tax rate of 14% on small business profits almost on par with the overall capital gains tax rate of 15%. 

Last year’s Recovery Act stimulus bumped up the exclusion rate: For investments made between Feb. 17, 2009, and Jan. 1, 2011 (and held until at least February 2014), investors can exclude 75% of their profits from their income, bringing the effective tax rate on any gains they make down to 7%. 

“That has a little bit of teeth,” says Laura Warren, a tax attorney at Pepper Hamilton in Philadelphia. “But they didn’t fix the AMT problem.” 

The alternative minimum tax (AMT) is a separate tax structure that aims to close loopholes by eliminating deductions for high-income filers. Most investors, especially angel investors, are subject to the AMT. 

The proposal that President Obama backs — the one that has made it halfway through Congress — would temporarily raise the exclusion to 100% and protect the gains from AMT exposure. 

Will it work? It’s hard to find a small business that can directly trace an investment back to the favorable capital-gains treatment investors get. Those in the field say that’s largely because the tax advantages in place now are so slight. 

“On the [current tax breaks], I don’t think I can track someone down and say ‘this is what happened,'” says Palmer, president of the NASBIC. 

He thinks that would change if the proposed full tax break on all small-business investment profits goes through: “With the 100% and the AMT fix, we would have a boatload.” 

But will individual investors actually change their behavior and amp up their startup funding? 

Mac Lewis, a partner with Minneapolis-based venture capital firm Sherpa Partners, hadn’t heard of the proposed change. “I guess it didn’t get much visibility,” he says. “Getting the word out to entrepreneurs would be a good thing.” 

“There you have really stumbled on the issue — it is very attractive, but confusing,” says Marianne Hudson, the executive director of the Angel Capital Association. “It does sound very motivating to angels, but they are scratching their heads trying to figure out what it means. There is kind of a long list of rules that go with it.” 

Still, if you dangle a tax credit, those with money will probably chase it. 

“We are entering a very high tax environment for a very long time,” Palmer notes. “The new tax regime is going to be affecting people’s investment decisions going forward, because there are high taxes coming down the pike.” 

And Warren likes the relative simplicity of the proposed new rules. “From the psychological perspective, there are no complications — it is an easier sell, it is clean,” she says. “You can explain to somebody in non-technical terms that they are not going to pay tax on the sale of small business stock.” 

Those in the market say they’re ready to open their wallets. Venture capitalist Lewis thinks the tax break could “motivate people to become angel investors who wouldn’t otherwise have made that investment.” 

“I look at it as nice, a great thing that might improve the amount of capital somewhat going into early-stage capital investing,” says Liddy Karter, managing director of Karter Capital, a venture capital advisory firm in Connecticut. 

But Karter was quick to cite the rub on capital-gains tax breaks: They only matter if you hit the jackpot. A typical angel investor turns a profit on just one deal in 10. 

“I would prefer to see something that is a bit more frontloaded, because frankly, so many of our investments don’t come out making money,” she says.  

April 27, 2010 Posted by | Entrepreneur | 2 Comments

Entrepreneurs – Aspirin or Vitamin?


Entrepreneur

Ease the Pain

 

We are all familiar with aspirins and vitamins.    If I am in pain, or have a headache, I will rush to take an aspirin.  However if I am feeling pretty good I will often forget to take a vitamin.   

How does this relate to you as an entrepreneur?  Successful entrepreneurs understand the difference.  Whether you are seasoned, young or are a woman entrepreneur your success depends on your understanding of this concept.   

The question an entrepreneur must ask is, “Will my business be providing  

Feeling Good

 

 an aspirin or a vitamin to my target audience?”   

There is no right or wrong answer, but remember my example above?  Most people in pain welcome the aspirin while, however, if you are doing well, it is sometimes difficult to remember to take your vitamin.   

When positioning your message make sure the material says whether your business is easing their pain or making them feel better.  This concept is what  successful entrepreneurs understand.   

As an entrepreneur every time you reach for an aspirin or a vitamin think, “Which one is my business … an aspirin or a vitamin?”   

As you can tell, I believe that as an entrepreneur you need to find the pain in your target market, and then find a way to relieve it.    

 My next blog will focus on several tips on how to identify the  problem your business will be solving.   

Your thoughts?

The question is, “Do you agree that start-up  entrepreneurs, in positioning their business, should be the aspirin instead of the vitamin?”   

 

   

 

  

 

 

 

 

 

 

 

 

April 20, 2010 Posted by | Entrepreneur | , , , | 3 Comments

Business Plans Three Important Elements


OK, you are convinced writing a business plan will help you be a better entrepreneur. Good. Now let’s discuss three things you must keep in mind when writing your business plan. They are:

  • 20 instead of 10.
  • Eye of the beholder.
  • So what?

Writing a good business plan takes into consideration these three elements.

20 Instead of 10

Writing a business plan that has clarity is critical.  If the reader has to re-read your plan or paragraph then you haven’t been clear in your writing. The reader should never have to re-read what you wrote. The following guidance should help in writing for clarity:

  1. Keep your sentences short.
  2. Don’t use multi-syllable words when one or two-syllable words will work.
  3. Try to avoid writing in the passive tense.
  4. Start each paragraph with the key idea in one sentence.
  5. Review your document. Eliminate unnecessary words.
  6. Give your document to at least two people to read and critique. More eyes on it the better.

Remember! Why say it in 20 words when 10 will work?

Eye of the Beholder

Yes, we know you love your idea and it may make you the next Bill Gates. But when writing your business plan remember the reader is not necessarily in love with your idea. In addition to being clear in your writing you must also be persuasive.

In some part of your business plan you will have information that you are relaying to the reader. This is good, but you are also or interpreting the information so the reader can understand why this information is pertinent to your idea.

Remember your readers are trying to understand your idea and it is your job to help them.

So what?

In reading and critiquing business plans I have found a mistake entrepreneurs often do is making statements without providing back up data. The purpose of the “So what?” test is to undo the clutter in your business plan and allow you to focus on only the metrics that will convince readers of your statement or belief.  Statements that fall into the ‘nice to know’ or the ‘I highly recommend or I am not sure why I am saying this, but it sure sounds important’ are subject to the “So what?” test.

For example, if you state; “My product will become the most sought after product in its niche.” Ask yourself, “So what?” If you can’t answer that question your remove that statement from your business plan or at least until you do the proper research that supports that statement.

Ideally if you have to ask yourself “So what” 3 times then remove your statement.  It is an opinion not supported by data.

By keeping these three elements in mind when writing your business plan your reader will be more informed and take you seriously as a prospective business owner.

April 8, 2010 Posted by | Entrepreneur | , , , | 2 Comments

Kick Coffee- Write a Business Plan!


Every entrepreneur understands that the best way to deprive yourself of any meaningful sleep is to just think about writing a business plan.    

Entrepreneur Sustenance

 

You want to quit caffeine, then try writing a business plan. It makes grown men cry and the bravest among us to run for the hills.    

Business plans do not have to cause such discomfort. I believe they do because so often the emphasis is in the wrong place.    

One of the first questions out of a prospective entrepreneur is, “Do I need a business plan?” The better question to ask is,“ Why do you need a business plan?”    

Experts often cite the need for a business plan as necessary to present to potential funding sources.  And yes, they will require a business plan.  However, I strongly believe it is not the ‘end product’ that is your goal but the rigorous process in creating the business plan that is most important.  If you do the process the product will come.  However, I have seen prospective entrepreneurs focus narrowly on creating just the business plan and forget completely about the process.  The result is a sub-par business plan, and an entrepreneur that is far less prepared to begin a business then if he had invested the necessary time in research.      

If you do the proper research necessary, the result will take care of itself. You will have a good document, but you will be a better entrepreneur.  When preparing the business plan, always focus on how it can  help you become a better entrepreneur.    

By doing that, the rest will take care of itself.    

This topic could become a whole other blog, but for now I want to focus on this topic for the next couple of days.  Since it is a critical tool to the entrepreneur, I feel a few days devoted to this topic is warranted.

April 3, 2010 Posted by | Entrepreneur | , , , , , , | 4 Comments

The Sun Does Come Up


The Wall Street Journal recently ran a story which stated,”…entrepreneurs, as a group, turned slightly more pessimistic in February, according to the latest data from the national Federation of Independent Business.”

I can understand that pessimism by entrepreneurs. In this market only the strong will survive.

Actually, the economic times we are confronting will need a higher standard to meet success.  My reasoning is that this climate dictates that entrepreneurs have a more solid understanding of premises, theories and ‘hunches’.  It is not easy for a good idea to succeed, much less one haphazardly thought through, or data not vetted.

This brings me to the most challenging aspect that entrepreneurs face today…the proverbial ‘gut check’.  I believe that before the first step is taken in the entrepreneurial journey, prospective entrepreneurs needs to do a SWOT analysis of themselves.  Often, this may require assistance from a business coach or friend or business colleague.  Few entrepreneurs are able to complete this important self-analysis.  Therefore, the assistance from someone is crucial.

The reader may ask, “Why is it important for entrepreneurs to do this SWOT self-analysis?”  My answer would be because it can be costly in both time and money, if this self-analysis is not performed.

Too often, I have seen in my business coaching practice, entrepreneur’s vet everything but themselves.  The driving force behind any entrepreneurial effort is the entrepreneur himself.  If the entrepreneur does not possess patience, energy, intellect, people skills, perseverance, flexibility, vision and competitiveness success will be challenging and it will cost them more time and money.

Tomorrow … Business Plans are not scary.

April 1, 2010 Posted by | Entrepreneur | 2 Comments