Surprisingly, many for-profit companies have raised a fair amount of capital by simply asking for donations to their organization. But because your company is not an established a non-profit, it is important for your donors to understand that you will not be able to provide them tax deductions. Your “donations” will be considered taxable income.

An easy way to solicit donations to your company can be as simple as using a Paypal button on your site. However, be careful to not use the term “donate” when using Paypal, as that term refers only to contribution to charities. If Paypal sees you violate this term, they will make you return every donation given to your business. Instead, you can use phrases like “support our business”.

One of the most notable companies to use the donation strategy is the web tycoon Wikipedia, which raised $20 million in its annual appeal for donations. This phenomenon of Crowd Sourcing, in which a venture asks members of the general public for funding through many small donations, is growing and growing strong. To read more about Crowd Sourcing, take a look at our past blog.

Whether you have a question about Receiving Donations, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Selling Assets

When in need of some quick cash to help fund early projects, it could be as easy as selling some of your current assets; these assets are things like accounts receivables and inventory. Tangible items are usually the easiest to sell for the quick up-front cash so weigh the pros and cons of selling certain items in your vicinity. Sometimes you can even sell and lease back your assets, such as your office equipment, when you sell to a leasing company.

Tap into online markets like Ebay and other auction sites to attempt making the most bang for your buck. If auctioning isn’t your thing, post on Craigslist, local classified ads, join a flea market, or even host a garage sale.

Exchange Equity for Equipment

When cash is truly limited, you can attempt to exchange equity in the company for equipment. Ask your suppliers if they are willing waive cash payments in return for a stake in the business. Even though it may seem daunting to give away equity in return for something so small, you should understand that when more people are dedicated to the success of a business, the better it is for the business all around. Your suppliers would be more motivated to helping you out if they held responsibility in the achievements or failure of the company.
 

Whether you have a question about Selling and Exchanging Assets, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Throughout history, businesses have been born and thrived through competitions and awards. Most famous is perhaps the yearly international Nobel Prizes that recognize advances in culture and science to the amount of $1.46 million dollars. There is also NASA’s Centennial Challenges that gives out awards up to $2 million during technology competitions. Although time consuming, these types of recognition prizes are great sources of free income and capital if you can put in the work.

A large majority of business plan competitions are found at Business Schools and are only open to students, or alumni members. However, with some investigation on your part, there are still many contests that are open to the best winner. Research your industry and state competitions, and be sure to prepare your business plan.

Resources

• Government Challenges is an online platform created by the U.S. General Services Administration to tackle pressing challenges in the nation while promoting innovation.
• The New York Times has a constantly updated list of business competitions on their website.
• BizPlanCompetitions keeps tabs on “the most promising, legitimate entrepreneurship contests and business plan competitions occurring anywhere in the United States, and soon in Canada too. [They] catalog them, map them, put them on a calendar, and blog about them.”

Whether you have a question about Awards and Contests used to Finance Your Business, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Considering grants are free money that do not have to be repaid, they would be a great way to fund your business. However, like all good things in life, they do not come very easily and require some work on your part to apply and receive funds.

The primary place to look for small business grants is through state and local programs. While grants through the federal government are possible, it should be noted that the U.S. Small Business Administration (SBA) does NOT give small business grants. Instead, federal grants can be searched for through the Small Business Innovation Research (SBIR) Program as well as the Small Business Technology Transfer (STTR) Program, whose annual grant contributions combine to around $2billion.

Almost all grants, from any source, require that small businesses meet the size standard established by the U.S. Small Business Administration (SBA) for their specific industry. Here are a few of the most common criteria:

• 500 employees for most manufacturing and mining industries
• 100 employees for all wholesale trade industries
• $6 million for most retail and service industries
• $28.5 million for most general & heavy construction industries
• $12 million for all special trade contractors
• $0.75 million for most agricultural industries

Grants are typically given out like strategic investments where the money provided will go towards improving and progressing the underlying issue or cause that a company tackles. For example, in 2011, the National Cancer Institute awarded the University of Virginia Cancer Center a $9.55 million grant for studies aimed at improving treatment for advanced prostate cancer.

You should expect to deliver a grant proposal letter as well as a business plan when applying for grants. If you feel you need help with what information your business plan requires, email us and we would love to help you out!

Whether you have a question about Receiving Grants, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Customer Financing

Using your customer base can deliver an encouraging foundation of early funding for your business. By using pre-sales (also known as advanced sales), you can direct a very forward approach to trying to fund your company. While some would call it “wishful thinking”, many companies have been very successful in using the pre-launch method: receiving money from your buyer before you deliver, or even develop, their good or service. Almost like an “I owe you,” you are promising the future exchange of your product for up-front cash today. Finding buyers under this technique could prove difficult, but, with a compelling enough pitch or product, a big enough sales order could provide your business with the finances necessary to jumpstart the project.

A regular example of “pre-sales” are housing sales. The buyer enters an agreement with a contractor to build a home within a timeframe and provide the money before the finish of the project. The money given before or during the project allows the contractor to buy necessary tools and equipment as well as sustain payroll – something that would have been very difficult, or near impossible to do, if they were paid when the home was finally finished.

Supplier Financing

Also known as Vendor Financing, this type of financing is when you receive capital directly from a supplier. It is one of the most popular types of alternative debt financing methods where vendors sell you a product that you do not have to pay for right away – buy now, pay later. To finalize the transaction, you have two options: to either pay the debt back in full, or pay back periodically with interest. This allows you to start generating revenue from your personal sales without having to take the monetary hit that could have tied up other financial obligations and resources.

This type of financing is utilized by suppliers so that they can mainly create a new customer base from your business. They understand the hassles of early business costs and play this to their advantage to create loyalty and commitment from their buyers.

If money is extremely tight, ask your suppliers how they feel about Supplier Financing. Stay in a good relationship with them and pay your bills on time as to avoid losing their trust and service.

Whether you have a question about Customer and Supplier Financing, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Often overlooked, there are many alternative sources of funding and financing available that apply creativity and innovation towards supporting business.

One of the earliest business exchanges of humankind, bartering is a great business strategy to use when starting up your new business. Known as the simple exchange of goods or services between individuals, it can be a great way for you to keep cash flow to a minimum while receiving benefits from neighboring businesses. By giving some of your product to another business, you in return will receive their product as well.

Take for example a car shop that is looking to create a website for their business. Instead of shelling out big bucks to a web designer, the shop could barter mechanical work on the designer’s car for his help creating the website.

Another huge benefit of bartering is creating partnerships and networks with other local businesses. Not only are you minimizing early costs, but newly established relationships can help refer, promote, and market your business. Continuing on, members of this type of bartering community can use their personal networks towards profits and make commissions off sales. Take our mechanic from above: If his web designer has any friends looking to get their car worked on, he can offer a 15% cut to the designer for every successful referral. Not only has his network increased exponentially, he has created a win-win symbiotic relationship through bartering

Lastly, bartering is an easy way to get big value from outdated inventory and stock without having to lessen their cash value.

There are now multiple barter exchange groups that can be found online and in communities where companies come together to work in 2 basic methods:

1. Firms find other firms to barter directly with
2. Firms sell their goods and services for “trade credits” or “’bartering dollars” to use at a later time with members of the barter exchange

IRS and Taxes

It is important to note that when dealing with a barter exchange, you will need to fill out and submit Form 1099-B to the IRS. The IRS deems trades dollars identical to real currency and required them for tax reporting. Also, when dealing with direct bartering, your tax return should state the fair market value of the product or service.

• As per the IRS: The rules for reporting barter transactions may vary depending on which form of bartering takes place. Generally, you report this type of business income on Form 1040, Schedule C Profit or Loss from Business, or other business returns such as Form 1065 for Partnerships, Form 1120 for Corporations, or Form 1120-S for Small Business Corporations.

Whether you have a question about Bartering, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

When starting your new company, you may quickly become aware of the financial challenges that await you but did you know there are many different ways you can finance and fund the growth and success of your company without utilizing traditional debt or equity models? Often overlooked, there are many alternative sources of funding and financing available that apply creativity and innovation towards supporting business. Take a look at some creative sources in this next section of our series and ask yourself if these types of repayments and savings outweigh the risks of debt and equity settlements. Some of them require extra work, and some of them require extra time, but all of them provide you with unique ways to raise capital without traditional markets.

Below is a list of the sources we will be covering. If you would like to read more about a topic, just click the phrase and you will be redirected to its blog post!

1. Bartering
2. Customer and Supplier Financing
3. Grants
4. Crowd Sourcing
5. Awards /Contests
6. Selling and Exchanging Assets
7. Donations
8. Peer to Peer (P2P)
9. Employee Stock Ownership Plan ESOPS
10. Partner Equity Investment and Direct Public Offering
11. Seller and Landlord Financing
12. Sponsors and Advertising
13. Work Part time and Offer Consulting
14. Investment Groups and Clubs
15. Personal Account Financing

Whether you have a question about Alternative Sources, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

A Private Equity Firm is a firm that manages the investment of equity securities in corporations not listed on the public exchange through various strategies. Each firm employs several Private Equity Funds, which are the projects jointly led by the firms and limited partners. These limited partners are often public or corporate pension funds, foundations, insurance companies, wealthy individuals, etc. Private Equity Firms receive shares in the profits earned from each of the funds they manage as well as administration fees for the investment strategies they engage. PE is normally catered towards more matured companies rather than early stage business.

Private Equity Firms are known to buy and invest in underrated and undervalues companies with little stock power. Once bought, the companies are then removed from the public stock market so that the private equity firms can make shifts in internal procedures and management without releasing information to stockholders. Similar to house-flipping, the private equity firms implement common strategies to renew the company and then will either bring in new investors that will buy the company for a desirable profit, or take the company public again in the stock market.

Common Investment Types

1. Growth Equity (also called growth capital and expansion capital): investments that focus on slightly matured companies that are looking to grow and restructure their firms, as well as enter new financial markets. These companies are typically stable and sustainable yet lack the capital to head on major projects and expansion efforts. This equity type is structured as either common or preferred stock (although some instances of hybrid structures have been noted).
2. Venture Capital: investments towards young and fast growing early-stage, high risk/potential startup companies. Read more about Venture Capital here.
3. Leveraged Buyout Investing (LBO): the strategy of acquiring the controlling majority of a company’s equity or shares through leveraged (borrowed) financials. Attractive buyout candidates include companies that have potential for new upper management, capital assets like buildings and property used for collateral, and depressed value of stock prices. PE Firms finance LBO with a hybrid structure using syndicated loans that deliver revolving credit and high-yield bonds.
4. Recapitalization: the restructuring of debt and equity without disruption to a company’s balance sheet. Generally used by private companies, this form of refinancing issues bonds that increase money which allows for the buying of stocks or paying of dividends.
5. Mezzanine investing: a type of debt financing that allows the lender claimed rights in a company if their loan is not paid back. Frequently used to finance acquisitions and buyouts, mezzanine financing is operated about 6-12 months before a company goes public so that profits from a public offering will repay the debt. This equity type is structured as either debt or preferred stock.

Whether you have a question about Equity Capital with Private Capital Firms, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Corporate Investing is when larger corporations seek investment in smaller external start-up companies. The reason for these investments is often a combination of financial gains and strategic management. First, like regular venture capital, the financial return on investment in these companies would be beneficial for large corporations. Secondly, in a strategic sense, corporate investing would also allow big companies to retain partial control over potential changes in their target market and industry. It is a great way for a developing company to create a relationship with an established company, especially if their good or service will directly impact the mutual industry or corporation. These types of strategic investments can range from a couple hundred thousand dollars to a few million. According to data from the National Venture Capital Association, the largest portion of corporate investing goes towards companies in their Expansion or Later Stage cycles of business.

Investment into start-up companies is referred to as Corporate Venture Capital (CVC). Although not all companies have established CVC departments or entities, many of these corporations are willing to invest and fund smaller businesses should the opportunity present itself. As long as you can clearly illustrate how your company will benefit their industry, or give them a competitive advantage over other competitors, larger corporations will become very receptive towards investments.

Industries of CVC

Currently, the top industries of CVC are Biotechnology, Software, Telecommunications, and Media/Entertainment. Some of the big names in Corporate Investors are computer firms such as Microsoft, Acer, and Intel who capitalize in new companies in order to apply emerging technology towards their own efforts. Most notable is perhaps Intel’s CVC entity Intel Capital who, since 1991, has invested over 10 billion dollars in over 1,100 companies.

Whether you have a question about Equity Capital with Corporate Investors, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!