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Urge Your Vendors to Report Part II

Gerri Detweiler — Wed, 8 Oct 2008 9:07:16

A few months ago, I reported on Experian's effort to get companies to report business credit accounts to Experian. Now D&B is trying to make it easier for companies to report as well. They have launched a free service companies can use to report their accounts receivables to D&B from Quickbooks. I can say from experience that in the past, reporting to D&B has been difficult and expensive. While I haven't given this service a try, it sounds like it could be a very useful tool for business owners who want to report. Business owners who are trying to build business credit may want to urge their lenders and vendors to check it out. The downside, of course, is the possibility that mistakes and false information may be reported. Without a law that gives business owners the right to view and dispute their credit information for free, it's possible that one of your vendors or clients is reporting wrong payment info -- and you don't know it. If you try out this service, I'd love to hear how it works for you!

Things You Need to Know About Raising Money for Your Business

Garrett Sutton — Wed, 1 Oct 2008 13:21:21

Whether you have an established business in need of additional capital or are just starting out, you need to know about the benefits and limitations inherent in your financing options. The costs and risks involved in the first few years of operating a business may be frightening. Careful planning will help to reduce the risks. Facing realities about your business's financing needs and diligently preparing your business plan will help you to overcome the costs involved. The investment community is not willing to grant loans or invest in your business unless you provide them with something worthwhile to invest in. The following considerations and suggestions will help you to gain the trust of investors and meet your business's financial needs.

Retain Accountant's and Attorney's services - Although the expense may seem burdensome at first, accountants' and attorneys' services will save you and your business money in the long run. The hourly rate of a competent advisor is little compared to the cost of losing your business or being held liable for the business's mistakes. These advisors will help you to structure your business properly and take steps to help the business grow responsibly. Some accountants and attorneys even provide flexible payment options for young businesses.
Establish the Necessary Structure - While many business entities are available that provide differing advantages, structural differences may affect your ability to obtain financing without losing control of your business. If you have any aspirations of developing your business into a publically traded entity, you will need to know about the structure of a C corporation. Before you approach your first investor, you need to decide the number of shares of stock to authorize, whether more than one class of stock will be necessary, and how many shares to retain yourself.
Prepare Your Business Plan - The first step in your business's search for financing, if not a preliminary step in creating your business, should be ensuring that you have developed your dream into a coherent, well-drafted business plan. Your business plan should provide potential investors with a comprehensive view of the structure of your business, your conclusions about the business, a realistic operating plan that you intend to abide by, potential risks the business may face, the position the business can pretty safely expect to be in over the next six months and over the next year, and possible the comments about your hopes for further developments. In addition to providing investors with valuable information, your business plan will cause you to focus your attention and force you to look at every opportunity and every risk that comes with it with a clear eye and a level head. Periodically updating your business plan will help you to gauge your progress and enhance your ability to make realistic predictions.
Decide Between Loans and Equity Offers - Before considering financing, and possibly in the course of developing your business plan or through other research, you should gain an understanding of the costs involved in operating the business. Remember that many young businesses operate for at least three years without any profit. Unless you start your business with old money, you will need to explore the possibility of loans or raising money by selling partial ownership of your business in equity offerings. While loans may allow you to retain ownership and control of the business, often, institutional lenders will be hesitant to help finance a new business. Accordingly, the business may have to sell equity to meet its financing needs. Depending upon the business uses, this may be through the sale of shares of stock, membership interests, or partnership interests. In selling equity, you and your business must exercise care so as to prevent giving control of the business to investors and to ensure compliance with federal and state regulations affecting such sales.
Differentiate Among Investors - Federal and state regulations affecting the sale of equity in businesses, generally referred to as securities regulations, differentiating among types of investors. Accordingly, in selling equity in the business, you and the business will need to differentiate between investors to ensure compliance with securities regulations. For most young companies, the investor of choice is an accredited investor. Generally, accredited investors have the financial resources and knowledge to rationally make business investments. Regardless of the type of investor involved, the business must make certain disclosures regarding the business's financial resources and its business plan. Before accepting money from anyone, the business must know which type of investor it is dealing with, what the investor needs to make an informed decision, and which laws affect the transaction.
Satisfy Continuing Obligations - Once the business obtains the initial financing it needs, it must manage its debts and obligations responsibly. As with a personal credit history, the business's ability to satisfy creditors and manage its obligations may affect future financing options and prevent the business from being subjected to creditors' lawsuits. Part of ensuring that the business will be able to satisfy its continuing obligations is ensuring that the business obtains sufficient financing from the start. By carefully and realistically planning for the business's needs, you can help the business to achieve short-term and long-term financial stability.

Every business is unique. Your financing strategy should be based on your specific circumstances. However, success requires careful consideration of available alternatives. By considering your financing options and engaging in financial planning, you will ensure that you take advantage of available opportunities.

California's Franchise Tax Board Hit with $388 Million Judgment

Garrett Sutton — Fri, 26 Sep 2008 11:17:14

After 10 years of legal wrangling, Las Vegas investor Gilbert Hyatt scored a huge judgment last month against California's notorious Franchise Tax Board ("FTB"). At issue is licensing income Hyatt received on his patents in the early 1990's. Hyatt claims he moved to Nevada in the fall of 1991. California asserts he moved in the spring of 1992, and owes over $50 million in state taxes, as well as penalties for fraud. Hyatt filed suit in 1998 against the FTB claiming he was the victim of their fraud, abuse of process and invasions of privacy. Hyatt claimed the FTB falsified evidence during his audit to reach their desired results. After a 14 week trial, a Nevada jury agreed with Hyatt. They awarded him $138 million in compensatory damages and $250 million in primitive damages. Hyatt hopes the verdict "will send a message to the Franchise Tax Board that they cannot continue these kinds of tactics." He further contends that reform is needed "of a very bad government taxation system that abuses tax payer rights." And yet Hyatt is realistic. He expects appeals from the FTB will tie up the case for quite some time. After all, California has lawyers on their payroll to fight this out for another decade. Stay tuned. . .

Improve Your Cash Flow: Collect Debts You Are Owed

Gerri Detweiler — Mon, 15 Sep 2008 13:25:27

Recently a friend called me about a debt she is owed. She operates a small business consulting firm and another small business owner stiffed her for about a grand. It's not a huge amount of money, but collecting it would make a difference to her. (And since she provided the service, she should be able to collect.) She was asking for my advice in collecting. An attorney was out of the question (too expensive - and the client is in a different state) and the collection agency she had contacted wasn't interested in one small debt. Here's another option she might consider: Dun & Bradstreet's Debt Collection Services Affordable Debt Collection Services Their offerings include:

DunsDemand Letter - send a "wake up call" to slow payers

DunsDemand Letter Series - convey the seriousness of the delinquency and escalate the collection process by sending three letters

Contingent Collection - an effective combination of DunsDemand Letters and telephone calls made by a professional collections agent

How it works: DunsDemand Letters are sent within a 30 day period by Receivable Management Services, a D&B partner, on your behalf. These letters will be sent on RMS letterhead and will have a tear-off remittance included for your customers to mail their payments directly to you Starting at just $25, these services aren't expensive and might just do the trick. If your business is owed money, it might be worth a try.

Credit Investors: Partnering For Personal Credit

The XBanker — Fri, 18 Jul 2008 10:38:03

Like it or not, your personal credit will open or shut doors for financing your business. If you have terrible personal credit, we can help you obtain trade credit, credit cards, equipment leasing and potentially some bank financing. However, we can obtain much more financing, if a business owner has great credit (preferably 700+ FICO). This has important consequences for you, if you are trying to finance a business and have poor personal credit. You need to consider bringing on a credit investor or partner that can help you obtain bank financing for your business. Last week, I asked an entrepreneur about his loan readiness and he told me his credit was in the toilet. So I turned to his partner, "My credit is even worse," was his reply. I guess when it came to selecting partners, this criteria slipped their minds - don't make the same mistake. Unless a partner brings irreplaceable technical expertise, they can always be replaced with someone that brings skills and credit to the table. If you're an entrepreneur with poor personal credit, you should consider bringing on a credit investor or partner. Ideally, you'll need someone with 700+ FICO scores and good ratios (feel free to ask one of our consultants to do an analysis of a potential partner before you tie the knot). You may have better luck finding an investor or partner with good credit, than finding one with cash. Credit investing is investing - rather than risking savings, they are risking their credit and guaranteeing the businesses debt (one could argue that this is an even greater commitment than cash). Keep in mind that this type of investor is bearing the financial risk for your business and should have a commiserate equity stake for that risk. Business credit cards (the cards that require a personal guarantee) typically don't care what percentage of the business your credit investor owns; however, banks will be much more particular. When applying for bank lines of credit, banks typically want to see 80% of the ownership on the application. I'm sure your first reaction is: "I don't want to give away 80% of my company!" First of all, I don't blame you - but consider the value of owning 100% of a under-capitalized and failing business. Now, there are intelligent ways to provide coverage and upside for your investor - while preserving your ownership interest. The risk to the credit investor is typically short-lived, until the business can pay-off the debts and stand on its own two legs. I recommend structuring an agreement that protects your control of the business and provides for an option or claw-back of a predetermined percentage of the business. For instance, you may exchange an investor 80% of the business, but agree that once the debt is settled and the business is profitable that you can exercise an option for 60% for $5,000. This gives the investor an ongoing 20% interest for providing you with much needed capital and keeps you from unnecessary dilution (I just made up these numbers – so take them with a grain of salt). Of course, you should seek professional legal advise before implementing any of this – I'm just trying to expand your thinking! A credit investor might be exactly what your business needs - so choose your partners wisely!

Two More X-Men Join The Team

The XBanker — Wed, 16 Jul 2008 17:40:44

From the day we started the XBanker we set out to do two things: bring together world class expertise and best in breed solutions for helping entrepreneurs access capital for their business. We've been busy making key deals to enhance our offering and to attract great talent. That being said, it is my pleasure to announce that Trent & Chad Lee are joining the XBanker initiative - a critical portfolio asset for Shared Success.

This dynamic duo built Corporate Credit Concepts from the ground up, establishing themselves as the premier provider of cash credit solutions for entrepreneurs. We have formed a strategic alliance to integrate our consulting solutions into a combined offering: Business Credit Success. Through this partnership, we will be able to help our clients obtain thousands of dollars in cash credit without personal guarantees - regardless of the business owner's personal credit.

Stay tuned as this relationship develops and other key acquisitions are made. In the meantime, enjoy the great content these two experts will contribute to the blog and to the business.