Andrew Rogerson's Blog, page 59

Accurate bookkeeping enhances business success

Accurate bookkeeping enhances business success. There are too many things to do when you first start a business or become the new owner of an existing business. One of the simplest and most important things to ignore though is tracking and recording the sales and expenses of the business.

My observation is that there are two reasons why this critical piece of owning and operating a business gets ignored. The first reason is that a lot of business owners simply don’t enjoy the task of recording and tracking all sales. It seems obvious. The money comes in, gets put into the bank on a daily or semi daily basis as a deposit. Each month or whenever the owner chooses, they can go online and see the deposits including the bank balance. As checks are written they are recorded in the check book and so the information is readily available if and when needed. Besides, a tax return only has to be filed once a year and as it’s a long way off from being needed, it can be looked at closer to that date.

The second reason is that not all business owners have the skills to do the book-keeping accurately. Making the right entries in the right boxes, handling the debits and credits, the refunds and right journal entries and then reconciling the bank statement requires and takes a lot of time.

Regardless of the reason, one of the most important tasks to help your business be successful is accurate and up to date financial statements. Good software with good people who know how to use it is readily available. But what’s most important of all, is that within this financial data is good information to help you better own and operate your business. Information such as knowing your top 20% of your customers so you can thank them, where you are buying all your products and services from so you can negotiate better terms including volume discounts, how much interest you are paying on any bank loans so you can negotiate better terms with another bank, if your rent is being paid on time and so it goes on.

There are many things to learn and put in place when you own and operate your own business. As we are human, we tend to work from habits. Get the right habit in place when you first start and it will be a great investment in the success of your business as poor financial records is one of the top reasons most businesses fail.

If you would like more information about selling a business, buying a business, buying a franchise or a related service such as valuing a business, please visit my webpage Services and choose from the drop down menu the information you would like. For more immediate help, you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

Lady Bug Pest Control

Lady Bug Pest Control founder, Lisa Miller, joins Money 2.0 to talk about her entrepreneurial spirit and about the success and methodology of her Lady Bug Pest Control franchise.

Lisa says she has always embraced an entrepreneurial mindset, even as a child. She talks about the various small business she has founded and run throughout college and her life. We discuss what makes a true and successful entrepreneur. Lisa says her most successful franchisees are those that have a true entrepreneurial spirit, and at the same time are also committed to following the system she has set up. I note that my favorite term is “Intrapreneur” – someone who is capable of both of these same values.

Lisa goes on to talk about starting the Lady Bug Pest Control business in Arizona in 1995. She says the franchise specializes in killing bugs and pests in a process that looks after the environment. She says they have a wide array of eco-friendly chemicals to choose from, a much better situation than when she first began 19 years ago. She says all of their chemicals are National Organic Program (NOP) compliant, meaning they are certified organic products. She says in fact, their chemicals are EPA & FDA approved as well.

Lisa says Lady Bug Pest Control has both residential and light commercial clientele. She explains that part of the appeal to franchisees is that Lady Bug is a “Life Style” business, meaning it is very much a 9-5, Mon-Fri work lifestyle. She briefly notes that they also offers a commercial franchise opportunity through the brand.

Lisa outlines the two types of franchising they offer. She says the Regional Development Franchisee is a state coverage option. She says this franchisee needs to be a person that is more of a leader and looks after supporting the Unit Owners (the other franchise opportunity they offer) in a state area. She says the Regional Development Franchisee also runs their own unit, which operates as a training center and helps the Regional Development Franchisee generate income.

Lisa concludes noting that a Unit Owner is looking at an average of a $30,000 initial investment, whereas a Regional Development Franchisee requires a $115,000 – $200,000 initial investment, depending on the area.

If you would like to hear my conversation with Lisa Miller, you are welcome to listen by clicking here. Lisa was my second guests in this episode. The conversation begins 29 minutes into the recording.

Why Buy A Business?

Last month I wrote an article called “How to buy a business.” The purpose of the article was to help future business owners or those wanting to buy a business navigate more easily through the difficult process of buying a business and how they could do things better. As I came to the conclusion of the article a new thought occurred to me; how to buy a business is important but what I would argue is a more important question to answer and that is, “Why buy a business?”

Why buy a business?

Your answers will probably include:

I am sick of working for someone else and want to do it myself and do it my way.I’m one of the top performers in my company but it’s not recognized. Instead of therefore making my boss look good and rich, its time I go and do this for myself.I’m getting older. I have a bunch of corporate experience and know how to get things done in my industry and within my corporation but I’d really love to own and operate my own business and build something I can sell when I am ready to retire.Where I work now goes through ups and downs and I’m never sure how secure my job really is. If I owned and operated my own business that would be one less thing to worry about.What’s your ‘why?’

Why do you want to buy a business? Why do you want to take on all the headaches, hard work and responsibility that owning and operating your own business demands? Is it to feed your ego? Is it to show you are better than another member of your family? Is it to show someone important to you that you can and will be successful? Is it to fund and build your retirement?

So what’s your why’?  If you don’t have a compelling reason why you want to own and operate your own business then be honest with yourself. As I’ve said before, owning and operating your own business comes with many challenges and stresses. It is incredibly rewarding but it’s also not for everyone. Obviously you are taking risks with both your time and money; two very precious commodities.

If you don’t really understand your ‘why’ then I would put your business buying on hold until its clear to you. The clarity knowing your ‘why’ will give you the drive and purpose you need once you own and now operate your own business. That is, knowing your ‘why’ gives you a reference point so if things are not working out as you planned, you can look at your ‘why’ and decide “perhaps it’s time I go and do something different” or better yet, “I knew the risks and what I wanted to achieve when I bought my own business. Let’s dig deep and keep going as I have so much I still want to do.”

One of my conclusions is that the business buyer really doesn’t know their ‘why’ as they get frightened by the process of buying a business or unsure what steps to follow.

So before you start the journey to buy and acquire your business spend some time to know your why. Business ownership is incredibly rewarding if it’s done right. ‘Right’ means the buyer finding the business that fits their budget, skill set and lifestyle. Each person is unique and brings their own skills and dynamics or why. If you know your why, your chances of success are simply so much greater and help prevent the buyer acquiring the wrong business for the wrong reason.

If you would like more information about buying a business please visit my webpage Buy a business or buy a copy of my book Successfully buy your business. For more immediate help with buying a business you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

Why buy a business?

Last month I wrote an article called “How to buy a business.” The purpose of the article was to help future business owners or those wanting to buy a business navigate more easily through the difficult process of buying a business and how they could do things better. As I came to the conclusion of the article a new thought occurred to me; how to buy a business is important but what I would argue is a more important question to answer and that is, “Why buy a business?”

Why buy a business?

Your answers will probably include:

I am sick of working for someone else and want to do it myself and do it my way.I’m one of the top performers in my company but it’s not recognized. Instead of therefore making my boss look good and rich, its time I go and do this for myself.I’m getting older. I have a bunch of corporate experience and know how to get things done in my industry and within my corporation but I’d really love to own and operate my own business and build something I can sell when I am ready to retire.Where I work now goes through ups and downs and I’m never sure how secure my job really is. If I owned and operated my own business that would be one less thing to worry about.What’s your ‘why?’

Why do you want to buy a business? Why do you want to take on all the headaches, hard work and responsibility that owning and operating your own business demands? Is it to feed your ego? Is it to show you are better than another member of your family? Is it to show someone important to you that you can and will be successful? Is it to fund and build your retirement?

So what’s your why’?  If you don’t have a compelling reason why you want to own and operate your own business then be honest with yourself. As I’ve said before, owning and operating your own business comes with many challenges and stresses. It is incredibly rewarding but it’s also not for everyone. Obviously you are taking risks with both your time and money; two very precious commodities.

If you don’t really understand your ‘why’ then I would put your business buying on hold until its clear to you. The clarity knowing your ‘why’ will give you the drive and purpose you need once you own and now operate your own business. That is, knowing your ‘why’ gives you a reference point so if things are not working out as you planned, you can look at your ‘why’ and decide “perhaps it’s time I go and do something different” or better yet, “I knew the risks and what I wanted to achieve when I bought my own business. Let’s dig deep and keep going as I have so much I still want to do.”

One of my conclusions is that the business buyer really doesn’t know their ‘why’ as they get frightened by the process of buying a business or unsure what steps to follow.

So before you start the journey to buy and acquire your business spend some time to know your why. Business ownership is incredibly rewarding if it’s done right. ‘Right’ means the buyer finding the business that fits their budget, skill set and lifestyle. Each person is unique and brings their own skills and dynamics or why. If you know your why, your chances of success are simply so much greater and help prevent the buyer acquiring the wrong business for the wrong reason.

If you would like more information about buying a business please visit my webpage Buy a business or buy a copy of my book Successfully buy your business. For more immediate help with buying a business you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

How to Buy a Business

How to buy a business.  Notice this is not a question as there is no question mark at the end of the sentence.  So, how do you buy a business?  Good question and it seems to confuse most business buyers.  The reason it is confusing is that buyers go online and fill out forms to request more information about a business they see, send a non-disclosure agreement and personal financial statement and then don’t follow up with questions or requests for more information.

If you are searching for a business on the internet ‘business for sale’ websites, here’s a number of things to share with you.

Too many of the businesses are not ready to sell. If the business is being sold by the owner almost without exception the business will either be over priced or the seller does not have the right financial statements to present to the buyer at the right point in the transaction. If they have these pieces in place, they will see you having to prove you are a good candidate to buy their business, the finance in place and many other moving parts. The bottom line is that there are a lot of moving parts even if there is a remote chance you can buy the business.If you are serious about buying a business, here is a process that will greatly increase your chances of buying a business, but more importantly, increase your chances of finding the business that is right for you. To be clear, there is a huge difference between you buying a business and buying the right business. You obviously want to buy the right business and I would guess you wish to spend as little time and money on it as possible.

Here’s the best way for you to buy a business and buy the right business for you.

Many times the right business is simply not on the market. As a general rule, each buyer has an amount of money they wish to invest in a business. They also want to buy a business in an industry they know and understand (which makes perfect sense) and often they are looking for a business close to where they live as, for good reasons, they wish to avoid the costs and loss of time to sell and relocate.

If you are motivated to buy the right business, are clear what you are looking for, have a reasonable downpayment available, if you want to borrow to help fund the purchase of your business, have a good credit score, have an up to date Personal Financial Statement, if you need to borrow to help fund the purchase of the business, have a good credit score and would like some help to find the perfect business, here is a very successful way to find the perfect business. Part of the reason this method is very successful is because the current owner of the business may not be thinking of selling until we approach them for you.

Here’s an outline of the process we use.

Our first step is to meet with you to determine the industry, sector, size, and location etc of the businesses that would work best for you and to target. Meeting also allows us to hear about your work experience, education, financial situation and how much free cash flow you need after paying all your business expenses including debt servicing and then to properly take care of your family and other responsibilities.If you want to get finance from a third party such as an SBA lender, the next step is to meet with them so you can understand how much you can borrow, the interest rate, debt servicing costs and understand if you would qualify for an SBA loan. Now the fun part starts looking to find a business that meets your needs and criteria. To do this we run a search of possible acquisitions to come up with a broad list. We then work together to scrub and narrow down the list to remove the “wastes of time.”We now mail all the potential business owners to see if any have an interest to sell. To show we are serious, we include a blind executive summary of who you are, the skills and qualifications you bring and more.We now follow up with a phone call to the owner to check their level of interest.Once we isolate the interested sellers, we obtain the financial information about the business and determine a value.If you and the business owner (who’s now moved into the role of a seller) still have an interest to do a sale, we meet and talk to the business owner, do a site inspection of the business and go over key information.If everything continues to look good, we write an offer and present it to the seller, negotiate and finalize the price and terms.The next step is to perform due diligence to make sure all the representations of the seller are true and correct.The final step is to open escrow, perfect all the legalities and formalities and close the sale. Congratulations; you are now a business owner.

As you can see, there are lots of steps in buying a business. With all these moving parts (and more) often there is a need to “hurry up and wait” as life happens. However, with a clear process and plan, the journey to find and buy a business can be fun and set you up for the future for you and your family.

After reading this we hope that you have an interest in our services. If you have questions, give us a call on 916 570-2674 and if it makes sense, we can meet and take next steps from there.

If you would like more information about buying a business please visit Buy a business or buy a copy of my book Successfully buy your business.

How to buy a business

How to buy a business.  Notice this is not a question as there is no question mark at the end of the sentence.  So, how do you buy a business?  Good question and it seems to confuse most business buyers.  The reason it is confusing is that buyers go online and fill out forms to request more information about a business they see, send a non-disclosure agreement and personal financial statement and then don’t follow up with questions or requests for more information.end of the sentence. So, how do you buy a

If you are searching for a business on the internet ‘business for sale’ websites, here’s a number of things to share with you.

Too many of the businesses are not ready to sell. If the business is being sold by the owner almost without exception the business will either be over priced or the seller does not have the right financial statements to present to the buyer at the right point in the transaction. If they have these pieces in place, they will see you having to prove you are a good candidate to buy their business, the finance in place and many other moving parts. The bottom line is that there are a lot of moving parts even if there is a remote chance you can buy the business.If you are serious about buying a business, here is a process that will greatly increase your chances of buying a business, but more importantly, increase your chances of finding the business that is right for you. To be clear, there is a huge difference between you buying a business and buying the right business. You obviously want to buy the right business and I would guess you wish to spend as little time and money on it as possible.

Here’s the best way for you to buy a business and buy the right business for you.

Many times the right business is simply not on the market. As a general rule, each buyer has an amount of money they wish to invest in a business. They also want to buy a business in an industry they know and understand (which makes perfect sense) and often they are looking for a business close to where they live as, for good reasons, they wish to avoid the costs and loss of time to sell and relocate.

If you are motivated to buy the right business, are clear what you are looking for, have a reasonable downpayment available, if you want to borrow to help fund the purchase of your business, have a good credit score, have an up to date Personal Financial Statement, if you need to borrow to help fund the purchase of the business, have a good credit score and would like some help to find the perfect business, here is a very successful way to find the perfect business. Part of the reason this method is very successful is because the current owner of the business may not be thinking of selling until we approach them for you.

Here’s an outline of the process we use.

Our first step is to meet with you to determine the industry, sector, size, and location etc of the businesses that would work best for you and to target. Meeting also allows us to hear about your work experience, education, financial situation and how much free cash flow you need after paying all your business expenses including debt servicing and then to properly take care of your family and other responsibilities.If you want to get finance from a third party such as an SBA lender, the next step is to meet with them so you can understand how much you can borrow, the interest rate, debt servicing costs and understand if you would qualify for an SBA loan.Now the fun part starts looking to find a business that meets your needs and criteria. To do this we run a search of possible acquisitions to come up with a broad list. We then work together to scrub and narrow down the list to remove the “wastes of time.”We now mail all the potential business owners to see if any have an interest to sell. To show we are serious, we include a blind executive summary of who you are, the skills and qualifications you bring and more.We now follow up with a phone call to the owner to check their level of interest.Once we isolate the interested sellers, we obtain the financial information about the business and determine a value.If you and the business owner (who’s now moved into the role of a seller) still have an interest to do a sale, we meet and talk to the business owner, do a site inspection of the business and go over key information.If everything continues to look good, we write an offer and present it to the seller, negotiate and finalize the price and terms.The next step is to perform due diligence to make sure all the representations of the seller are true and correct.The final step is to open escrow, perfect all the legalities and formalities and close the sale. Congratulations; you are now a business owner.

As you can see, there are lots of steps in buying a business. With all these moving parts (and more) often there is a need to “hurry up and wait” as life happens. However, with a clear process and plan, the journey to find and buy a business can be fun and set you up for the future for you and your family.

After reading this we hope that you have an interest in our services. If you have questions, give us a call on 916 570-2674 and if it makes sense, we can meet and take next steps from there.

If you would like more information about buying a business please visit Buy a business or buy a copy of my book Successfully buy your business.

Business Owners Feel Good About 2014

Each year the California Association of Business Brokers has an annual conference.  The focus of the conference is to allow members to share best practices, understand new trends in the economy, what lenders are and are not doing, changes in law, tax and accounting and other related items.

This year the conference was in early April in Newport Beach and one of the keynote speakers was from Pepperdine University. Pepperdine University is located in Southern California and includes the Graziadio School of Business and Management.  It is one of the few universities to study in depth the market of privately held businesses and how they operate and do things differently to the businesses or corporations that are publicly traded on the Dow, NASDAQ and other exchanges.

Dr. Craig Everett was the speaker and not only is he an assistant professor at Pepperdine, he is also the director of research for a project at Pepperdine which is called the Pepperdine Private Capital Markets Project.   The focus of this project is tracking the true cost of private capital across different market types and the investment expectations of privately held business owners.  That is, the shares of publicly traded companies are able to be bought and sold in milliseconds on the different exchanges but this is not the case for privately held companies; there is no market and as a result, public and private capital in these privately held businesses is done in an entirely different way.

Some of the findings that Dr. Everett gave during his presentation include the following:

The confidence of business owners in 2014 is higher than 2013 as seen by the following table.20132014Probability of a recession in the next year36.2%29.2%S&P 500 growth rate3.4%4.0%US unemployment rate8.0%7.7%Lacking confidence the US GDP rate will grow30%21% Perception of what factors will influence US growth next year as seen by the following table.Impediments to US growth the next year20132014Limited access to capital22%18%Government Regulations42%39%Global political and/or economic environment29%30%Domestic US economic and/or political environment9%13%81% of respondents were confident the US economy would experience flat to positive GDP growth. That is, only 19% saw the economy shrinking in 2014.This is an interesting statistic.  Only 2% of employers with 16 or more employees expect to hire more.  Employers with zero staff do not expect to hire any new employees.  Employers with 1 to 15 employees plan to hire additional employees.In 2014, 58% of employers plan to increase the salary they pay their employees.  In 2013 this statistic was 45%.In 2013, 61% of respondents agreed that instability in Washington, DC was affecting their ability to hire.  In 2014, this figure was 57%.In 2013, 37% of business owners personally made more money.  In 2014, this figure increased to 42%.Policies that business owners would support in 2014 were as follows:A balanced US Budget – 78%Comprehensive immigration reform – 60%Significant reform of the Affordable Healthcare Act – 58%Repeal of the Affordable Healthcare Act – 49%Continuation of QE by the Federal Reserve – 38%

If you would like to see the full report visit Pepperdine University Graziado School of Business and Management. If you liked this post you are welcome to subscribe by email (or RSS.)

Business owners feel good about 2014

Dr. Craig Everett

Each year the California Association of Business Brokers has an annual conference.  The focus of the conference is to allow members to share best practices, understand new trends in the economy, what lenders are and are not doing, changes in law, tax and accounting and other related items.  This year the conference was in early April in Newport Beach and one of the keynote speakers was from Pepperdine University.

Pepperdine University is located in Southern California and includes the Graziadio School of Business and Management.  It is one of the few universities to study in depth the market of privately held businesses and how they operate and do things differently to the businesses or corporations that are publicly traded on the Dow, NASDAQ and other exchanges.

Dr. Craig Everett was the speaker and not only is he an assistant professor at Pepperdine, he is also the director of research for a project at Pepperdine which is called the Pepperdine Private Capital Markets Project.   The focus of this project is tracking the true cost of private capital across different market types and the investment expectations of privately held business owners.  That is, the shares of publicly traded companies are able to be bought and sold in milliseconds on the different exchanges but this is not the case for privately held companies; there is no market and as a result, public and private capital in these privately held businesses is done in an entirely different way.

Some of the findings that Dr. Everett gave during his presentation include the following:

The confidence of business owners in 2014 is higher than 2013 as seen by the following table.20132014Probability of a recession in the next year36.2%29.2%S&P 500 growth rate3.4%4.0%US unemployment rate8.0%7.7%Lacking confidence the US GDP rate will grow30%21% Perception of what factors will influence US growth next year as seen by the following table.Impediments to US growth the next year20132014Limited access to capital22%18%Government Regulations42%39%Global political and/or economic environment29%30%Domestic US economic and/or political environment9%13%81% of respondents were confident the US economy would experience flat to positive GDP growth. That is, only 19% saw the economy shrinking in 2014.This is an interesting statistic.  Only 2% of employers with 16 or more employees expect to hire more.  Employers with zero staff do not expect to hire any new employees.  Employers with 1 to 15 employees plan to hire additional employees.In 2014, 58% of employers plan to increase the salary they pay their employees.  In 2013 this statistic was 45%.In 2013, 61% of respondents agreed that instability in Washington, DC was affecting their ability to hire.  In 2014, this figure was 57%.In 2013, 37% of business owners personally made more money.  In 2014, this figure increased to 42%.Policies that business owners would support in 2014 were as follows:A balanced US Budget – 78%Comprehensive immigration reform – 60%Significant reform of the Affordable Healthcare Act – 58%Repeal of the Affordable Healthcare Act – 49%Continuation of QE by the Federal Reserve – 38%

If you would like to see the full report visit Pepperdine University Graziado School of Business and Management.

If you liked this post, subscribe by email (or RSS.)

Is Crowdfunding Right For Your Business?

During the depths of the Great Financial Crisis, Congress became very concerned with the stubbornly high level of unemployment and how this was weighing on the US economy.  Additionally, the Federal Reserve in the US is given two mandates; first, manage the rate of inflation and second, make monetary policy decisions that lower the unemployment rate when it becomes unacceptably high.

To put some energy into lowering the unemployment rate and help start new businesses, in April 2012 a new law was signed to jumpstart business start-ups known as the JOBS Act or Jumpstart Our Business Startups Act.

At the April meeting of the Sacramento County Bar Association, a presentation was given by Mr. Roger Linn who’s an attorney practicing with Barnett and Linn in Roseville, CA about this new law and how it’s affecting business start-ups and particularly those that are looking for finance.  If you are either looking to invest your money into a business startup or raise capital to use in your new business, be aware of the following.

The US federal regulator with the responsibility for protecting investors is the Securities and Exchange Commission or SEC.  However, the very purpose of the JOBS Act was to help aspiring business owners raise working capital and to do this meant increasing and decreasing regulations the SEC administer or creating more risk for investors.

There are other groups at both a State and international level that try to protect investors and this includes the North American Securities Administrators Association or NASAA.  This is the oldest organization (having been around since 1919) whose primary mandate is also to protect investors.Historically the SEC recognized different classes of investors.  If you had at least $1 million in net worth or an annual salary of $300,000, you were deemed to have some sophistication as an investor and therefore able to properly evaluate the risks of investing in a particular company.Under Section 4(6) that was part of the new JOBS Act, anyone could be solicited by and invest in a company’s securities offering without first registering with the SEC as long as the investment did not exceed the greater of $2,000 or 5% of that person’s annual income of net worth.Due to the power of the internet, the JOBS Act saw a large number of public offerings being made through “funding portals,” for example, Kickstarter, Indiegogo and CrowdCube.  As of 2012, according to Wikipedia, there were over 450 crowdfunding platforms.The role of these funding portals is to connect investors with those business owners that are seeking capital.  The role of these funding portals is still evolving including the disclosures they give and are required to give to each party.If you choose to invest through one of these “funding portals’ make sure you know what you get.  Often you are simply getting a product or service the start-ups creates or sells but you do not get any equity in the start-up so if the start-up hits a home run and becomes very successful, it will not increase the value of your investment.  For example, I have a friend, Tamara Dorris who has written about 11 books.  She’s writing her next book and to raise funds to offset her costs she is looking for investors.  There are different levels of investment but her ‘dividend’ for those that invest in her new book include free copies of books that are signed or have some other value she is disclosing.Companies that accept money from crowdfunding are also required to provide a set of ‘quality’ financial statements.  The ‘quality’ varies depending on the amount of funding the company receives.Portals that receive funds for crowdfunding require a license from the SEC as either a ‘broker-dealer’ or ‘funding portal’ so this provides some safeguards to investors.These crowdfunding portals are also required to provide investor-education material, explaining the substantial risks involved in investing in new or small businesses and establish an investor questionnaire which demonstrates each investor’s understandings of risk, illiquidity and other related matters.If companies use crowdfunding to attract investments they will be found liable if any of their disclosure material contained an untrue statement of a material fact or omitted to state a material fact.  This liability extends to the directors, managers and executive officers of the issuing company.Investors purchasing securities through crowdfunding must hold the investment for a minimum of 12 months unless the securities are sold back to the issuer, an accredited investor or to a family member due to a change of circumstance such as divorce.

The bottom line is as follows.  When the JOBS Act was passed into law it required the SEC to interpret the new legislation and give guidance to those companies that wanted to raise and provide capital to small businesses.  The NASAA is very uncomfortable with some of the protection to investors as you can see by going to the home page of their website – www.nasaa.org.

If you plan to invest money through a crowdfunding portal such as Kickstarter or Indiegogo, these web engines are up and running and will gladly take your money.  Be aware that a lot of the rules and regulations are still evolving.

If you plan to look for money through crowdfunding for your small business be aware of the same; that is rules and regulations are still evolving.

If you would like more information about selling a business or a related service such as valuing a business, please visit my webpage Services and choose from the drop down menu the information you would like. For more immediate help, send an email to Andrew Rogerson or give me a call on 916 570-2674.

Is crowdfunding right for your business?

During the depths of the Great Financial Crisis, Congress became very concerned with the stubbornly high level of unemployment and how this was weighing on the US economy.  Additionally, the Federal Reserve in the US is given two mandates; first, manage the rate of inflation and second, make monetary policy decisions that lower the unemployment rate when it becomes unacceptably high.

To put some energy into lowering the unemployment rate and help start new businesses, in April 2012 a new law was signed to jumpstart business start-ups known as the JOBS Act or Jumpstart Our Business Startups Act.

At the April meeting of the Sacramento County Bar Association, a presentation was given by Mr. Roger Linn who’s an attorney practicing with Barnett and Linn in Roseville, CA about this new law and how it’s affecting business start-ups and particularly those that are looking for finance.  If you are either looking to invest your money into a business startup or raise capital to use in your new business, be aware of the following.

The US federal regulator with the responsibility for protecting investors is the Securities and Exchange Commission or SEC.  However, the very purpose of the JOBS Act was to help aspiring business owners raise working capital and to do this meant increasing and decreasing regulations the SEC administer or creating more risk for investors.

There are other groups at both a State and international level that try to protect investors and this includes the North American Securities Administrators Association or NASAA.  This is the oldest organization (having been around since 1919) whose primary mandate is also to protect investors.Historically the SEC recognized different classes of investors.  If you had at least $1 million in net worth or an annual salary of $300,000, you were deemed to have some sophistication as an investor and therefore able to properly evaluate the risks of investing in a particular company.Under Section 4(6) that was part of the new JOBS Act, anyone could be solicited by and invest in a company’s securities offering without first registering with the SEC as long as the investment did not exceed the greater of $2,000 or 5% of that person’s annual income of net worth.Due to the power of the internet, the JOBS Act saw a large number of public offerings being made through “funding portals,” for example, Kickstarter, Indiegogo and CrowdCube.  As of 2012, according to Wikipedia, there were over 450 crowdfunding platforms.The role of these funding portals is to connect investors with those business owners that are seeking capital.  The role of these funding portals is still evolving including the disclosures they give and are required to give to each party.If you choose to invest through one of these “funding portals’ make sure you know what you get.  Often you are simply getting a product or service the start-ups creates or sells but you do not get any equity in the start-up so if the start-up hits a home run and becomes very successful, it will not increase the value of your investment.  For example, I have a friend, Tamara Dorris who has written about 11 books.  She’s writing her next book and to raise funds to offset her costs she is looking for investors.  There are different levels of investment but her ‘dividend’ for those that invest in her new book include free copies of books that are signed or have some other value she is disclosing.Companies that accept money from crowdfunding are also required to provide a set of ‘quality’ financial statements.  The ‘quality’ varies depending on the amount of funding the company receives.Portals that receive funds for crowdfunding require a license from the SEC as either a ‘broker-dealer’ or ‘funding portal’ so this provides some safeguards to investors.These crowdfunding portals are also required to provide investor-education material, explaining the substantial risks involved in investing in new or small businesses and establish an investor questionnaire which demonstrates each investor’s understandings of risk, illiquidity and other related matters.If companies use crowdfunding to attract investments they will be found liable if any of their disclosure material contained an untrue statement of a material fact or omitted to state a material fact.  This liability extends to the directors, managers and executive officers of the issuing company.Investors purchasing securities through crowdfunding must hold the investment for a minimum of 12 months unless the securities are sold back to the issuer, an accredited investor or to a family member due to a change of circumstance such as divorce.

The bottom line is as follows.  When the JOBS Act was passed into law it required the SEC to interpret the new legislation and give guidance to those companies that wanted to raise and provide capital to small businesses.  The NASAA is very uncomfortable with some of the protection to investors as you can see by going to the home page of their website – www.nasaa.org.

If you plan to invest money through a crowdfunding portal such as Kickstarter or Indiegogo, these web engines are up and running and will gladly take your money.  Be aware that a lot of the rules and regulations are still evolving.

If you plan to look for money through crowdfunding for your small business be aware of the same; that is rules and regulations are still evolving.

If you would like more information about selling a business or a related service such as valuing a business, please visit my webpage Services and choose from the drop down menu the information you would like. For more immediate help, send an email to Andrew Rogerson or give me a call on 916 570-2674.