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Category Archives: Investing in Small Businesses

Business Planning in a Down Economy

By | Business By The Book, Buying a Business, Buying a Franchise, Growing a Business, Growth Strategy, Increasing Profitability, Investing in Small Businesses, Planning, Starting Up, Valuing a Small Business, Writing a Business Plan | No Comments
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Q: Should the economic forecast be an important factor in determining the type of business to start or acquire? A: Most businesses that are acquired or started are done so with a long time horizon in mind. Add to that the fact of the typical continuous cycles of any economy: (downturn, bottom out, upturn, and peak). Given that long-term view and the necessary expectation of economic cycles that almost defy the ability to forecast the timing of those trends, it’s more important to pick an industry/market in which you have loads of experience and create a superior offering with a…

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Why Crowdfunding Doesn’t Work for Early-Stage Companies

By | Business By The Book, Financing a Startup, Investing in Small Businesses, Organization & Strategy, Planning | No Comments
Crowd Funding

The concept of crowdfunding seems to be a cool idea with good buzz, but I’m not convinced that crowdfunding will work very well besides small projects. A typical early-stage company that is burning cash and going through a “J” curve for years as they attempt to create a product, test market demand, and scale the company to profitability carries a lot more risk than sending a musician five dollars in exchange for getting an MP3 download and a bumper sticker the following month. The crowdfunding process via sites like Kickstarter and Indiegogo works well for small projects where the “investors” get a CD, MP3,…

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Trying to Buy a Retail Store

By | Business By The Book, Business Development, Buying a Business, Investing in Small Businesses, Ownership & Purpose | No Comments
Retail Store

Q: I am negotiating to buy a retail business and would like your advice. I’ve listened to your “Before You Launch Your Business” presentation — which was very good — but I’d like some help thinking through buying this business. The business is a boutique in an upscale part of town that has a very loyal customer base. The owner has relocated out of state and is desperate to sell the business, which is currently being run temporarily by his aged father. I actually know the business fairly well because I sold to the business for years as a manufacturer’s sales…

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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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Venture Academy Video Excerpt: Fixed Asset Investment

By | Business By The Book, Finance, Finance, Financing a Small Business, Growth Strategy, Investing in Small Businesses, Office and Operations, Venture Academy | No Comments

This video provides insight into the impact of the level of Fixed Asset investment in your business planning:     This video is just 1 of nearly 200 videos available with a Venture Academy subscription and is excerpted from the Venture Analysis section.

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Expect Negative Surprises When Acquiring a Business

By | Accounting, Business By The Book, Business Development, Buying a Business, Financial Reporting, Growth Strategy, Investing in Small Businesses, Negotiations, Ownership & Purpose, Selling a Small Business, Valuing a Small Business | No Comments

Some aspiring entrepreneurs will get started by buying an existing small business and many business owners have growth plans that include buying up other businesses to add larger chunks of growth via acquisition (mergers and acquisitions or “M&A” growth as opposed to “organic” growth). And if you are a business owner, you will most likely at some point sell your business. So here’s a few tips to both sides of the transaction… While it may not be statistically significant in terms of all the deals ever done, in my experience of negotiating with roughly 300 prospective sellers, signing approximately 75 letters…

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Stages of Company Growth and Capitalization

By | Business By The Book, Finance, Finance, Financing a Small Business, Financing a Startup, Investing in Small Businesses | No Comments

One of the most pressing concerns for entrepreneurs of early-stage and middle market companies is the question of the capital formation process and how to adequately finance their companies to support their growth plans. The types of financing available to entrepreneurs vary widely and are most dependent upon the stage of the company and the perceived risk/reward tradeoffs by investors and lenders.  The table below summarizes the typical business stages, their goals, and the generally available financing options: Company Stage and Type of Capitalization: The overall enterprise value and how it tends to change and grow over time from stage…

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Venture Academy Video Excerpt: Equity Financing and Venture Capital

By | Business By The Book, Finance, Financing a Small Business, Investing in Small Businesses, Valuing a Small Business | No Comments

This video gives a fairly thorough explanation of raising different types of venture capital at the various stages of a company’s life:     This video is just 1 of nearly 200 videos available with a Venture Academy subscription and is excerpted from the Finance and Accounting section.

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what-investors-look-for

What Investors Look For in a Business Plan

By | Business By The Book, Financing a Startup, Investing in Small Businesses, Organization & Strategy, Writing a Business Plan | No Comments

I’ve invested in around 20 startups, helped launch scores of others, and advised hundreds more, but I’ve never written a business plan. That is to say that I’ve never written the traditional narrative style plan with all of various sections that you get with typical business planning software (and I don’t think I invested in many like that). All of the plans I’ve written (and the startups I’m drawn to as an investor) are combinations of: A Power Point presentation that tell the story well, and A detailed financial model (which led to the model on this site) to make the…

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granting-sweat-equity

Granting Sweat Equity in a Startup

By | Business By The Book, Financing a Small Business, Financing a Startup, Investing in Small Businesses, Leadership and Employees, Organization & Strategy, Valuing a Small Business | One Comment

Q: What is the best way to negotiate and grant someone “sweat equity” in my startup? A: Granting sweat equity in exchange for services rendered can be a creative and effective way to ramp up your startup with limited capital. The considerations will vary slightly depending upon which compensation method you use, but include i) the market value of your business, ii) the market value of the contributor’s sweat equity, iii) the risk premium, and iv) how the sweat equity is compensated. Market Value of Your Business – If the sweat equity is compensated in the form of equity, then both…

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