Saturday, August 9, 2014

Buying A Home Based Business Part 7: Financing Your Purchase – Self Funding

image This article was written by Mike Capsuto, SCORE Orange County Business Mentor

If you can count your money, you don’t have a billion dollars. J. Paul Getty

Home businesses vary in size and scope, making financing needs different. Some home businesses may only require a few thousand of dollars to start. Others may require investments of $100,000 or more.

Information in this article is provided for general educational use only. No responsibility is assumed for any problems associated with the use of its content. One should seek the advice of their financial and legal counsel in every step of purchasing a business.

Self Funding

Self funding sometimes called “bootstrapping” is using resources under your own control to finance a business without having to use outside sources for funding. It basically says you are willing to take the risk. If you don’t have cash readily available, you may consider selling an asset such a stamp or coin collection and using those funds towards your business.


• Owner has not diluted ownership by having investors wanting a payback.


• Substantial personal risk.

• Tight personal living expense budget.

• Loss of your personal financial safety net.

Other sources of self funding are:

Credit cards

Credit cards should be a last resort because of the unpredictability in using them to finance a business. The interest rates are high, credit limits can be reduced without warning, and there are fees if you use a credit card for a cash advance. However, a large percentage of small businesses use credit cards to finance their business in some way.


• Quick cash.


• High double digit interest rates.

• Minimum repayment schedule.

• It is a personal loan not subject to the protection of the business LLC or corporate structure.

Retirement Plans

Many buyers have built up sizable amounts in their 401(k) plan. There two basic ways to obtain money from your 401(k) – the money can be obtained either by withdrawing funds or may be borrowed as a loan. If the money is withdrawn, it is subject to state and Federal income taxes. 401(k) loans are both penalty free and tax deferred, provided that a loan remains in good standing. While early withdrawals cannot be later totally replaced, the paying back of 401(k) loans can effectively replenish your account.


• Minimal paperwork is required.

• No credit check as it is your own money.


• If you declare bankruptcy, your retirement plan assets are protected from creditors. If you withdraw money from your 401(k) to buy a business, that withdrawal is no longer protected.

• The maximum term for 401(k) loans is five years and repayment schedules usually start immediately after a loan is taken out.

• If you quit your job, your entire 401(k) loan balance is due within 60 days. If you can't repay it, the money is treated as a withdrawal. You will owe all Federal and state income taxes on it, plus an additional 10% penalty tax if you are under the age of 59.5 years old. You could be left with 50¢ to 60¢ on the dollar after taxes.

• Some 401(K) plans prohibit loans or early withdrawals except for certain situations. Consult with your plan administrator for the plan's terms and conditions.

Life Insurance Policies

Term life insurance policies typically do not have a cash value. If you have a Whole Life or Universal Life policy that has cash value built up in it, you can choose to surrender your policy and cash it out. Once that is done, you will no longer have life insurance coverage. If you want to take the cash out of your policy and keep your life insurance policy intact, you can borrow from the cash value or do a partial surrender. It's also important to keep in mind any tax ramifications that cause your surrender to become a taxable event.

Advantages of Taking a Loan Instead of Cashing Out:

• You can take out a loan against the cash value.

• A loan against your life insurance policy can almost be granted for any reason, without a credit check.

• The interest rate is usually lower than a traditional loan.

• A loan does not have to be paid back. You can pay back the loan on your own terms, but will not incur a penalty if you decide not to make repayments, however interest may continue to be charged.

• If the loan is fully paid back, the policy is in effect at the original value in the event of death.

• Disadvantages:

• If the loan is not paid back, the death benefit will be reduced by the amount borrowed, plus accrued interest if any.

Cash Out Advantages:

• You can cash out your policy and use the proceeds to fund the purchase.

• Survivors do not have to pay back after your death.


• A portion of the cashed out value may be considered taxable income.

• Surrendering the policy relinquishes the right to the death-benefit protection afforded by the insurance.

• It might be difficult and more expensive to get the same coverage at a later date.

• If the policy is surrendered during the early years of ownership, fees may be charged by the company, reducing your cash value. These charges vary depending on how long you've had the policy.

Please contact your insurance agent or financial adviser to assist you with that decision.

Bottom line: Whether you decide to invest 100% of your own money, seek funding from outside sources, or do both, make sure you review all the options available to you before making a decision.

Selling Steps To Success

image This article was written by Barry McKinley, SCORE Orange County Business Mentor

Selling is no different than building a house. First you start with a blueprint of what the house is going to look like when it’s finished. Then you form the basic foundation and you build from there. Without planning and creating the proper groundwork, your house will collapse. Smart salespeople understand that closing sales is done a step at a time. Skip one step and you have a breakdown in the process. Following are the 9 steps of successful sales closing;



1. Prospecting

Potential clients can be everywhere. Always be on the lookout, use social media, referrals, buying lists, competitor’s web sites, trade shows, goggle searches and 100 more ways. Constantly work to grow your list.

2. Qualify Client

Learn to determine who is a possible client and qualify their need, want, and ability to buy. We all want a new Ferrari but very few have the ability to buy. Do not re-qualify a client because of dress, education, race, etc. Never assume a client is NOT interested or can’t afford what you have to offer.

3. Appointment

Once you have found qualified clients you then want to establish a convenient time to make your presentation. Establishing an appointment time is not the phase when you present or try to sell the product. You are ONLY selling the appointment. Let the client know you will answer all their questions and concerns at the meeting.

4. Probing

This is the sales step that is most often neglected or breezed over. To make an effective sales presentation you must understand the client’s needs, wants and hot buttons. How is the buying decision made? Is the person you are talking to the decision maker? Without successful probing you are shooting in the dark.

5. Presentation

It’s show time! Follow a basic format; Introduction, Body, Conclusion, Close. You are always better ending five minutes early then going two minutes over. Keep your presentation interesting, relevant to the customer’s needs, simple to understand. Good eye contact and if possible demonstrations are important. Always sell the benefits not the features.

6. Objections

In any sales presentation you can expect to get objections. The first objection that the client raises may not be the true objection. Follow these simple rules: acknowledge the objection, explore and probe the objection, isolate the objection, answer the objection, move back to trial close.

7. Closing

In over 60% of selling situations the salesperson does not ask for the order after making the presentation. This is a critical error. You must ask a closing question, and wait for the client to answer. One of two things will happen: The client will either agree to buy, or he will raise an additional objection. If he does the latter, deal with the objection in the manner described above, and close again. In closing you want to build creditably, have the client see themselves with the product or service, point out the advantages, create a sense of urgency, and hit the client’s hot buttons.

8. Follow-Up

Successful sales people always contact the client to insure that they have received the product, understand it, and are happy with the results. Too many companies think the sale ends when you ship the product to the customer. This is the most critical part of the sale, insuring complete customer satisfaction.

9. Referrals

The life blood of any company is getting new customers. Most companies recognize that they will lose anywhere from 10-30% of their customers yearly. So, new business is critical for growth and success. Referrals are the best way to grow your business because these come from a “Satisfied Customer” telling a potential customer about your company. All the TV advertising cannot be as effective as word-of-mouth. Reward your referrals with discounts, dinners, trips or whatever.

To learn more of how to be an effective salesperson check the SCORE Workshop schedule on “Secrets of Selling” and attend the 3 hour workshop. There’s a good chance your competitors are.

“The Best Advice You’ll Ever Get”

From the July 2014 issue of Entrepreneur , reprinted by permission

Being an entrepreneur doesn't mean you have to go it alone. Most successful business owners will tell you they could not have accomplished their goals without help--from a mentor, colleague, even mom and dad. For many, their ability to evaluate, internalize and act on the counsel they received was instrumental in getting their companies off the ground.

In an effort to tap some of this wisdom, we called on business gurus to tell us the very best piece of advice they've received. From hiring to philanthropy and more, their responses were as varied as the companies they run.

Dennis Crowley, CEO, Foursquare

“Do what you love, and the rest will come."

After co-founding two businesses, reportedly turning down a $125 million acquisition offer and being named to just about every "40 under 40" list imaginable, Dennis Crowley, CEO of Foursquare, still cites the advice his mother gave him repeatedly as a child: to follow his heart.

This was the mantra he adhered to when he decided to get his master's degree at NYU's Interactive Telecommunications Program instead of going for an MBA. It was also behind his launch of social networking companies Dodgeball (which he sold to Google in 2005) and Foursquare, and his decision this past May to launch Swarm, an app that will unbundle the check-ins and other social media functions from Foursquare. (Foursquare will focus on helping users discover restaurants and other venues.)

"When I look back at my career to this point, I've spent the last 10 to 15 years following the same narrative, building things that people want to use and want to tell their friends about," he says, adding that he decided to spin off Swarm because, "over time, we realized that if we were passionate about these use cases, we needed to unbundle Foursquare into two apps."

He often thinks back to his mom's advice. "All of these [concepts] started as me working in my apartment building on something I thought would be cool," he says. "All are projects that turned into products that turned into companies."

Crowley has plenty of wisdom of his own to offer. Over the past five years, Foursquare has raised more than $140 million, enabling him to see the funding equation with fresh eyes.

"If someone funded your company, they funded your ideas and vision; your job is to turn that capital into the thing that's in your head," he explains. "There are a thousand lessons that we've learned from Foursquare, and perhaps the most important of those is to be clear to investors about what the company will do and will not do, and be open about the priorities of the things that have to get done."

After hiring hundreds of employees, Crowley also has gathered experience on building a reliable team. He likens the recruitment process to collecting art, arguing that leaders must take the time to hire strategically and "curate the team to make sure the people who are great stay, and the people who aren't as good get the help they need to become great."

But most important is to stick to your vision. "Don't let other people tell you that your ideas are bad," he says.

"If you throw away ideas when they exist only on a whiteboard, you miss the point a lot of the time."

Rick Alden, founder, Skullcandy

"The fastest route to revenue wins."

The way Rick Alden sees it, coming up with ideas is never a problem for a creative team. Instead, he says, the challenge is learning to say no to nine great ideas to free up the resources necessary to push one product to market immediately.

"That one product may not be your fantasy, but revenue on a simpler product today always beats running out of money developing a more complicated product that won't launch for another year," he says.

The founder of several snowboard companies, Alden collected this advice from Guy Kawasaki's The Art of the Start, a book he says crystallized many of his long-held observations about how startups work. "An entrepreneur's life is entirely dictated by the questions How much? How fast? and At what margin?" Alden says. "Everything else is secondary."

Peter Relan, founder, 9+

"It's all about the sailor."

An investor in Peter Relan's first incubator, YouWeb--which spawned CrowdStar, OpenFeint and other gaming and mobile companies--once told him that no matter how great an idea is, success in business is more about the sailor than the boat. The way Relan sees it, this advice has proved true time and again.

"A great entrepreneur can take a bad idea and turn it into something incredible," says Relan, who now helms the tech incubator 9+. "This means that while ideas are important, it's even more critical to have the right people in the right positions to execute them."

Sheila Johnson, founder and CEO, Salamander Hotels & Resorts

"Surround yourself with a great team, and build that team slowly."

Sheila Johnson certainly knows a lot about teams. She is owner or partner in three professional sports franchises: Washington, D.C.'s Capitals, Wizards and Mystics. She was also founding partner of the BET network and built Salamander, a manager of luxury resorts, from the ground up. "Your team is one of your most important investments," she maintains, "and if you are careful about hiring only the best people, it will pay dividends."

Melinda Emerson, founder and CEO, Quintessence Group

"Always know your next hire."

There are countless risks associated with being a small-business owner, and one of the biggest is staffing. "Nobody is going to love your business as much as you do, so you have to protect it," says Melinda Emerson, who proffers advice of her own under the moniker SmallBizLady. She credits this wisdom to a mentor, Wanda Alexander, who warned her that people will quit with no notice on the worst day possible--so long as it's advantageous for them. Emerson's advice? "Keep in touch with people you didn't hire but you really liked; you never know when you might need to call upon them to help you out."

Jim Murren, chairman and CEO, MGM Resorts International

"Spend most of your time looking forward."

In the casino industry, where fortunes change literally overnight, reflecting on the past does little good, aside from providing context for future decisions. MGM Resorts International founder Kirk Kerkorian championed the "only look forward" approach to business, and Jim Murren, who recently oversaw the $8.5 billion development of CityCenter in Las Vegas, carries the torch. He wants the people at his company to have the capacity to envision the long term. "Creating teams that have an understanding of not only what they are doing but, most important, why they are doing it, is critical," he says.

Christine Day, CEO, Luvo

"If you wait for evidence, you'll be a follower, not a leader."

Christine Day considers herself a doer--it's what drove her to develop Vancouver, British Columbia-based lululemon athletica into an international juggernaut before she left to lead healthful-lifestyle food brand Luvo in early 2014. Earlier in her career, while heading up the Asia-Pacific division at Starbucks, she heard CEO Howard Schultz explain why he does not rely on market research for innovation. It changed her perspective forever.

"There is no evidence for what has not been created yet; only insight, purpose, passion and a willingness to move into what could be instead of what is," she says. "Truly innovative companies are not afraid to let go and create the next market shift."

Diane Bryant, senior vice president and GM, Data Center Group, Intel

"There is value in expanding and rounding out your expertise and skill set."

Just because you've been around the block doesn't mean you can't grow as a professional. This is the gist of the advice former Intel CEO Paul Otellini gave to Diane Bryant when she served as chief information officer earlier in her career.

"The better you understand your customer, the higher the probability of success," she says. "As CIO, I was tasked with translating Intel's products and technologies into business and productivity benefits--top-line and bottom-line results for the corporation. Now I know firsthand what works and what doesn't."

Rehan Choudhry, founder, Life is Beautiful

"Stop being scared, and jump."

It took Rehan Choudhry years to get the courage to leave his hospitality-industry job to start Life is Beautiful, a Las Vegas-based festival that features music, food, learning and art. This advice from a mentor provided the final push he needed.

"What makes an entrepreneur is not knowing everything about business, but rather being passionate and fearless," Choudhry says. "There's no 'right time' to take the leap; you can take it at any point in your life, and should."

He says this perspective has prevented him from overthinking every decision or opportunity that comes his way, leaving him more focused and nimble.

Reece Pacheco, founder,

"Be human."

It's easy to focus on transactions, especially when you're struggling to start a company. But this is when it's most important to remember that your customers are people, too. "Take a second to recognize that there is a person on the other side of you," says Reece Pacheco, who was given the advice early in his career from a branding expert. "It can make all the difference in the world." Pacheco adds that the mantra applies to every aspect of life as an entrepreneur, from the way you treat colleagues to the way you interact with investors.

Nick Lazaris, president and CEO, Coravin

"Trust yourself."

Issues You Need to Consider in Starting Your Business and Why Having a Checklist is Important as You Move Forward

image This article was written by John Rau, SCORE Orange County Business Mentor

There are dozens of sites on the Web that have checklists that remind you of the many tasks you should perform before you open the doors to your business. The real importance of these checklists is to help you remember a lot of important steps that you might otherwise overlook. For example, the U.S. Small Business Administration (SBA) has provided a listing of the “10 Steps to Starting a Business” (see -business) which is summarized as follows:



  • Step 1 Write a business plan
  • Step 2 Get business assistance and training
  • Step 3 Choose a business location
  • Step 4 Finance your business
  • Step 5 Determine the legal structure of your business
  • Step 6 Register a business name such as “Doing Business As”
  • Step 7 Get a tax identification number
  • Step 8 Register for state and local taxes
  • Step 9 Obtain business licenses and permits
  • Step 10 Understand employer responsibilities

The above suggested steps by the SBA are only to “get you going”! Before opening your doors and capturing your first sale, there is the “last minute” type of checklist you need to examine to make sure you are “good-to-go”. In general, independent of the type of business you are planning, an illustrative listing (not necessarily all-inclusive) of the types of items you need to make sure you have considered is as follows:

1. Have you prepared a master plan and schedule that shows at least weekly for the next six months and monthly thereafter for the subsequent six months that shows all activities and tasks you need to perform to get your business going? Such activities would include staffing and hiring, marketing and advertising, and attendance at trade shows and industry-related events. You will need the schedule to track your activities and measure your performance. Consider your master plan and schedule an integral part of your time management system which is important when trying to get your new business venture started.

2. Do you have an agreement in place with your key family members where everybody agrees with what you are venturing into and everyone understands the risks and potential family stresses that might occur? You’ve got to have “buy in” so as to not jeopardize marital and other family relationships.

3. Referring to the SBA Step 4, do you have your business banking account opened and do you have a relationship (such as credit lines, loan agreements, etc. as applicable) with your banker to help you deal with any financial issues that may arise in the course of running your business? Keep in mind that most start-up businesses don’t generally show profits for at least 6-9 months and perhaps even longer. You should have a budget in place to account for this and your banker can provide guidance to you.

4. Have you made a list of all the key functions (such as human relations/personnel, advertising, financial operations, sales and marketing, employee training, etc.) that will need to be performed in the course of running your business and have you made assignments in the sense of who will be responsible for performing these functions? In the beginning, you may be the one that has this initial responsibility, but, as your business grows, you will need to delegate these functional responsibilities to others in your company.

5. Are your record keeping and accounting systems ready to go? Do you have an accountant who can help you with setting up your bookkeeping structure, tax planning strategy and payroll setup?

6. Referring to SBA Step 10, if you plan to hire employees, do you have a plan for preparation of an employee handbook that spells out all business rules and policies that are consistent with applicable labor laws and regulations?

7. Do you have legal service available to you if you need it? It would be prudent to have your attorney review all lease and rental agreements, as well as all other potential liability agreements and contracts, before you sign them.

8. Have you researched and do you understand all applicable laws and regulations that may pertain to the operation of your business? These would include at, a minimum, laws and regulations dealing with environmental issues (such as storage and use of hazardous materials) and workplace health and safety issues.

9. Have you identified all local, state and federal agencies that may have regulatory oversight regarding your business operations? You may have identified these agencies in your business plan (SBA Step 1), but once you commence business operation there may be reporting requirements and forms that you will need to fill out and submit on a periodic basis. Make sure you list these requirements in your master plan and schedule.

Have you given consideration to an Advisory Board to help guide you through the operation of your business? Having a “sounding board” of knowledgeable people to consult with as you go down the path of being an entrepreneur will help keep you on track and can give you guidance as to how to deal with important business issues as they arise. It could be a “lonely journey” without friends to talk to!

Have you met all of your business insurance requirements? If you are going to run a professional services company, you may need professional liability insurance. If you plan to manufacture and/or distribute products, you will probably need product liability insurance. If you hire employees, you will need Workers Compensation insurance. Depending on the size of your business in terms of number of employees, you may need to provide health insurance. You can expect to need business property insurance (fire and theft) and your landlord will want to be named as an additional insured. The point here is that you should have an insurance agent/advisor who can help you get all required coverage in place before you start your business. Remember, insurance costs need to be budgeted for in operating your business.

10. If you need office equipment (such as furniture, computers, copiers, telephones, etc.) and/or production equipment and related machinery and tools to operate your business, have you made all the necessary arrangements to make sure these essentials are in place when you open your doors?

11. Do you have sales and marketing brochures and literature completed along with scheduled advertising programs identified and ready to be implemented? Your marketing plan should have been presented in your business plan (SBA Step 1). Now is the time to implement it.

12. Have you done your “pricing homework”? If you are starting a services business, do you know what to charge for your services? If you are going to sell and/or distribute products, do you know what to charge for these products? Remember that pricing your products or services is one of the most important business decisions you will make. You must offer your products or services for a price your target market is willing to pay and one that produces a profit for your company; otherwise, you won’t be in business for long. You should have this information in place before you ever talk to a customer.

13. Could your business benefit from the use of social media such as Facebook, Twitter, etc.? If so, do you have a plan for doing so. If applicable, this should be an integral part of your marketing plan that you could probably start early in your start-up activities.

14. Do you plan to have a web site? If so, you will need to not only design it but also select your domain name. These are things you can do before you open your doors.

If your business involves manufacturing and/or distributing products, then there are some additional checklist type items that you need to consider such as:

1. Have you identified your vendors, suppliers and distributors that you will need and do you have agreements in place?

2. If you will need any special equipment and tooling to operate your business, have you placed orders and made arrangements to get these items delivered to you so as to not delay the start of business operations?

3. Do you have a system devised for tracking inventory and determining when to reorder?

4. Do you have quality control procedures and processes defined to be implemented when you start manufacturing and inspection operations? If you are going to be required to have ISO and/or UL type certification for your products, then investigating what is involved before opening your doors would be a prudent thing to do.

5. If you are either importing or exporting goods, do you know what is involved such as applicable U.S. Customs regulations and the use of Customs brokers if necessary? This is an example of the type of homework you could do before starting your business. There may be applications and registration type forms that you could get completed and submitted before opening your doors.

6. If you have any intellectual property such as patentable products, copyrights and trademarks that you would like to protect, than have you taken the necessary steps to do this? Registering copyrights and trademarks can be done in a relatively short period of time, but filing for utility patent protection can take 2-3 years before the patent is issued. Hence, why wait? Start this process as soon as possible.

Admittedly, all of the above checklist type items may not apply to your particular new business venture, but you should at least peruse them to make sure you haven’t forgotten anything. The key is to get as much of a running start as possible. Remember SCORE counselors can not only help you with the preparation of your business plan but also with the steps required to run a successful business.