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Category Archives: Finance

Nuts and Bolts of Corporate Taxes

By | Business By The Book, Finance, Incorporating a Business, Legal Issues | No Comments
Form of Incorporation

When starting a business, many entrepreneurs wrestle with the question of what corporate structure is business best. Legal pros and cons aside, there are various tax and financial matters to consider when choosing.  (Note that these are general guidelines and in no way comprehensive). The limited liability company (LLC) is a very popular form of business structure and one most entrepreneurs have at least heard of.  It offers liability protection while being flexible in the taxation department. But what many budding business owners don’t realize is that choosing to operate as an LLC isn’t the only decision to make; you…

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How Should I Evaluate a Venture Capital Firm?

By | Business By The Book, Finance, Finance, Financing a Small Business, Financing a Startup | No Comments
Evaluating a VC Firm

Q: I’m raising a seed round for a consumer web startup and I’m getting good interest from VCs. What questions do I need to ask of them to gain insight into how well we’d work together? A: I suggest that there are two stages of research/questions to determine fit with you and your company: Prior to Contact: Research prior to making contact to qualify them in terms of the broader fit and, Prior to Commitment: Questions you want to ask once you’ve made contact to further qualify them since you will be partnering with them for years Prior to Contact:…

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Looking for Small Business Accounting Services

By | Accounting, Business By The Book, Finance, Finance & Accouting, Financial Reporting, Planning | No Comments
Looking for accounting services

Q: I have a small business with a handful of employees and, although I am not ready for a full-time accountant, I know I need better reporting and control of the company. Any recommendations for me? A: The good news is that in the virtual outsourcing world, there are numerous options for you to explore. One way to think about it is to organize the overall tasks in finance and accounting and decide which tasks you can easily perform and which ones you would prefer to outsource to a finance and accounting (F&A) outsourcer. A typical task list might be…

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How to Change a Loan to Equity But Maintain Ownership

By | Business By The Book, Finance, Finance, Financing a Small Business, Financing a Startup | No Comments
Debt vs. Equity

Q: I am the sole owner of an S-Corp that has received capital from a lender/investor in the form of a loan. Is there any way I can restructure the capital I’ve received to show up as equity instead of a liability to improve my balance sheet without having to sacrifice the ownership of my company? Basically, I want to keep the investors on a fixed annual return for their money, but classify their capital as a equity to meet certain net worth requirements for my industry. A: You can change the debt to non-convertible preferred equity with an annual dividend…

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Determining the Purchase Price When Buying a Company

By | Business By The Book, Buying a Business, Finance | No Comments
Acquisition Valuation

Q: I am considering acquiring a company. How do I determine the value and price I should pay? A: One of the most sensitive parts of an acquisition process is usually the valuation of the business. Sellers will often feel their company is much more valuable than the market would indicate. Sometimes sellers will have a certain price they want, while other times their expectation was set by the price fetched by a friend’s business when they sold. Much of this expectation gap has to do with the perceived value of the business by the owner, but part of the…

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Raising Capital for an Alpaca Farm

By | Business By The Book, Finance, Finance, Financing a Startup | No Comments
Raising Capital for an Alpaca Farm

Q: We are interested in starting an Alpaca farm. Do you think this is something investors might be interested in investing in? A: There are a whole host of dimensions that you should consider in terms of attempting to raise venture capital for any opportunity, let alone an Alpaca farm. See our other blog posts on raising capital to give you a sense for the difficulty and complexity of the process when you try to raise capital for any business. But let’s say that you decided to press on and you do raise some capital from an investor. In other…

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Need Advice on Interpreting Financial Results

By | Accounting, Business By The Book, Finance, Finance, Finance & Accouting, Financial Reporting, Increasing Profitability | No Comments
Declining Net Income

Q: Over past 10 years, our service company’s Revenue and Long-Term Liabilities have increased while Retained Earnings, Equity, and Net Income have decreased. Any observations and/or counsel? A: While it is somewhat difficult to answer the question without additional information, the most likely scenario is that your Expenses are rising faster than your Revenue and — as an owner — you continue to take out the same salary/distributions that is affecting most or all of the Net Income and the shortfall is being made up by taking on more Long-Term Liabilities. To illustrate the point, here is an example of…

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Just Say No to Venture Capital

By | Business By The Book, Finance, Finance, Finance & Accouting, Financing a Small Business, Financing a Startup, Organization & Strategy | No Comments

There is a constant stream of entrepreneurs that ask me to invest in their idea or ask me advice about how to raise venture capital for their business plan.  In many cases, they should just say no to venture capital. There are a lot of benefits to raising venture capital such as the ability to fund a big capital need in a company’s early stages, the ability to tap into the investor’s savvy business advice and mentoring, and the ability to tap into the investor’s deep relationship network. But there are also a lot of disadvantages to raising venture capital…

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How to Read an Income Statement

By | Accounting, Basic Accounting, Business By The Book, Finance, Financial Reporting, Valuing a Small Business | No Comments

Q: What expenses comprise the differences between the terms “total revenue”, “operating income”, and “net income”? A: The easiest way to explain that is to walk through an Income Statement with you. Let’s use a really simple fictitious statement as the one shown below. Even though accounting is far more science than art, there are many terms for the same items and it can be confusing. For several of the main categories, I’ve shown in brackets and italics some alternate terms.   Explanations: Revenue – While the most common term to describe the amount of sales a company recognizes in the given period…

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Institutional Equity Financing (Venture Capital and Private Equity)

By | Business By The Book, Finance, Finance & Accouting, Financing a Small Business, Financing a Startup, Growing a Business, Growth Strategy, Investing in Small Businesses | No Comments

Equity Financing is usually invested based upon the future prospects of a company and the anticipation of a future exit event that will provide acceptable returns to the investment fund. At the Growth Stage, Equity Financing is typically in the form of growth-stage Venture Capital invested by institutional venture capital firms, and at the Middle Market stage, Equity Financing is typically in the form of Private Equity invested by institutional private equity firms. There are also 571 active corporate investment arms that are identifiable that actively make corporate investments in smaller companies as a part of their growth strategy and…

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