Debt Financing vs. Equity Financing for start-ups and SMEs March 30, 2012

Entrepreneurs looking for funding for their start-up business can choose out of a variety of financing options. All of these financing options can broadly be categorized into – Equity Financing & Debt Financing, both of which come with their unique set of pros & cons for the entrepreneur.

While debt financing allows entrepreneurs to acquire loans from any government agency or institute, equity financing on the other hand involves, exchange of capital for a piece of ownership in the entrepreneur’s business. This type of financing typically includes angel investors & venture capitalists (VC’s).

DEBT FINANCING

Debt financing requires the entrepreneur to repay the borrowed money to the lending institute. This may include everything from a loan to bond, credit or even IOU. An important consideration with this kind of funding option is that, it requires the entrepreneur to have exceptional credit history.

Pros:

• This is looked upon as the best source of financing mostly by companies with steady growth, consistent sales & solid collateral.
• Debt financing can be obtained from Small Business Administration, commercial banks, etc.
• Here the entrepreneur gets to maintain his ownership & maximum control over business.
• The best part is that, debt financing interests are tax deductible.

Cons:

• Debt financing requires monthly payments on a regular basis.
• This sort of financing is most often limited to businesses with a solid & successful track record.
• This requires the filing of formal application either online or at the lending institute.

EQUITY FINANCING

Equity financing seeks ownership in company in exchange for money lent. This kind of financing option can prove extremely useful for start-up businesses or companies that need to raise additional equity for paying off existing debts. They however, need to display a potential to harvest large returns on investments.

Pros:

• This is looked upon as the best source of financing mainly by companies with high profitability or those with poor credit ratings.
• An ideal finance option for small start-ups that lack a solid track record.
• Equity financing can be obtained from credit cards, property equity, savings, friends & family, etc.
• Here entrepreneurs can obtain quick funds without having to worry about incurring debt.

Cons:

• The involvement of more number of investors can mean more loss of ownership control.
• Venture Capitalists or angel investors may opt to have a say in every important business decisions.
• Filing of application form is needed only for VCs & angel investors and never for friends & family.

Considering these pros & cons of debt & equity financing, it is for the SME to decide which form of financing would be best suited for their individual business needs.

 If you need assistance in debt or equity finance visit smegetmoney.com

 

 

PR Campaign Tricks for SMEs to Improve Start-up Business March 26, 2012

The prime reason behind most new businesses to fail is their poor marketing strategy. This realization has motivated many enterprises to divert their efforts into developing a strong public relations (PR) campaign, which can help them promote & advertise their business on a wider scale.

A public relations campaign can compose of many different channels including, promotional offers, broadcasting media, print media, etc. However, you must choose a public relations outlet that can best suit your kind of business.

Here are few important steps entrepreneurs may follow to help them choose the most profitable PR channel to promote their business:

Know Your Target Audience – Before you can actually go about developing a public relations campaign, you must first define your target audience. Depending upon the types of services & products of your company in relation to your target audience, you can then tailor your marketing campaign accordingly.

Identify Competitors – A subsequently important step is to define your competitors. There is bound to be strong competition in every business & in order to be able to outdo this competition, you must first have a thorough knowledge of the opposition. Identifying your opponents and seeking details like, their pricing, marketing strategies, etc can be instrumental in planning your own marketing strategy.

Calculate Advertising Budget – Once you have defined your target audience & identified your competitors, the next step is to look for means to promote your business. However, it must be noted that advertising a start-up can be a costly endeavour. For this you must have prior planning as to how much amount you can afford to spend for marketing strategy.

Self vs. Hired Promoters – Once you have your advertising budget ready, you can then make a decision as to whether you would require a public relations specialist or have the promotions done through other cheaper alternatives like, blogs, newspaper advertisements, etc. The only thing to remember here is that, while the cheaper means of promotions may not be very effective, on the other hand a skilled public relations specialist can help you in implementing more aggressive means of promotion.

If you can spend ample time on each of these steps, you are sure to have a marketing campaign that can easily outshine the campaigns of your competitors.

If you need any assistance in PR email us on media@smejoinup.com

Obtaining Bank Loans for SMEs to Fund their Start-Up Businesses March 6, 2012

For any entrepreneur to start his own business, he must find a funding option that is most appropriate for his particular financial situation.

The most common funding option for start-ups is the commercial bank loans. While such loans are good for raising the initial capital, they should not be solely relied upon for managing all expenses of the start-up. It is important to remember that, every bank has a monthly payment schedule along with maintenance fees. It is only the guidelines that differ from one bank to another.

At the time of approving an applicant for the purpose of small business bank loan, there are certain standards that every bank abides by:

Lender Referral – Most entrepreneurs look for referrals like, established companies or attorneys, businesses, accountants, etc, that may already be having strong business relations with lenders. This increases the chances for entrepreneurs to obtain the required funding.

Effective Business Plan – Another means for entrepreneurs to obtain bank loans is to present an effective business plan to the prospective lender. Since, it is not possible for the lender to remember all the details of your plan, it is important that your plan is well documented on paper. A well documented business plan containing details like, financial forecasts, company objectives etc, makes an impact on the prospective lender that you are serious about obtaining loan and will be utilizing the capital in a planned way.

Credit History – One of the most significant factors for obtaining small business bank loans is the credit history of entrepreneurs. A solid credit history and a great business plan increase the chance for entrepreneurs to avail bank loans with ease. Thus, it is important for entrepreneurs to check their credit history prior to applying for the bank loan.

Alternative Plan – Most entrepreneurs are bound to face multiple rejections. However, instead of getting discouraged by these constant rejections, entrepreneurs must be persistent in their quest for funding and try to seek reasons behind the loan denial. In addition, entrepreneurs must have a strong alternative plan ready, just in case they fail to obtain commercial loan from banks. Many a times, lenders wish to get a brief on the alternate plan to judge the determination of the candidate. At such times, having a strong alternate plan can prove worthy.

Angel Investors – a solution to funding for start-ups and SMEs in India February 28, 2012

Angel investors get their name not because of some halo or golden wings that they have but because they literally serve as “business angels” (early stage investors) for start-up and small businesses, by providing them with capital and strategic assistance they are unlikely to find with other traditional investments. Angel investors are a blessing in disguise for businesses looking for greater returns.

Most often, angel investors are successful entrepreneurs who are a generation ahead in building successful companies & who wish to support the growth of a new business, by providing start-up capital while expecting a percentage of ownership equity as its return. One major reason angel investors are picking up popularity in India and other countries is because, in addition to providing entrepreneurs with financial capital, these Angels may also offer intellectual capital for entrepreneurs to shape and create their business and connect to resources, without actually becoming a part of the operations.

Though many believe that angel investors are difficult to find in India, estimates indicate that there are over 250,000 angel investors presently active in the country funding almost 30,000 start-ups a year.

smegetmoney.com – This is a portal which understands that finding equity funding for start-up and small businesses can be a tedious process. Thus, SME Get Money is aimed at connecting start-ups and SMEs with the right investors including angel investors to help them get equity funding within no time. What gives this portal an advantage over other similar portals is the fact that, it not just helps SMEs get funds but also aids them in finding profitable places to invest their own surplus funds as an ANGEL.

 

 

Tips for SMEs to Handle Online Crisis February 20, 2012

Every online company whether big or small have to face an online crisis like situation some or the other time. At such times, what comes to their rescue is a sound crisis communication.

Studies indicate that no matter what kind of an online business you are involved in, when caught in the midst of a crisis situation, the response typically follows a similar path – acknowledgement of the crisis situation, looking for ways to overcome your fears, informing relevant people, taking a decision & implementing it, optimizing the outputs and modifying your business strategies to ensure that the situation doesn’t arise again.

The only problem here is that, not every company can get all of these steps right due to the lack of enough information. As a result, most often they fail to make a worthy & profitable decision. This consequently worsens the situation and there is not much then that the company can do.

For all such companies, here are a few essential tips on how to face a crisis situation:

Take Initiative – A great advantage for online companies is the available access to internet – the fastest information sharing platform. While even a small blunder can instantly instigate negative response from consumers & stakeholders, the trick is to keep a track of these responses and be the first to come up with a rapid positive response. This helps to stop the negative conversations right on their track as well as provides companies with the opportunity to actually own the conversation.

Be Honest – There is no shame in accepting the fact that anyone can make mistakes. However, as responsible entrepreneurs, it is your duty to let your consumers know about the crisis situation as soon as you become aware of it. While most companies fail to do so due to lack of organized communication, it is always advisable to take a transparent approach & be honest about the facts of the crisis. This not just drives in credibility for you but also associates a trust factor with your company.

Be Transparent – A major disadvantage of online medium is that, rumours can spread like wild fire. At such times, consumers are on the lookout for businesses they can trust. For this it is important for you to be absolutely transparent and build credibility to ensure that your consumers trust you. Responses are powerful when they tend to come from a senior official. Thus, take care to call down your topmost official to handle crisis situations.

Finally, the basic aim behind this complete exercise is to not just overcome the crisis situation but also ensure that the same is not repeated in the near future!

Investment Options For SMEs During Inflation February 16, 2012

There have been instances where the economy has faced an inflation phase, wherein the prices of services and goods automatically rise up. Consequently, the purchasing power of money is reduced to a large extent so that, now with the same amount of money you fail to buy the same goods or services as earlier.

Inflation may result due to a variety of factors. For instance, when there is an increase in the costs of raw materials, it automatically causes an increase in the prices of manufactured goods. However, the general rule of economy is that, “Cost of goods is inversely proportional to supply and directly proportional to demand”. The higher the demand for any particular product, the higher is the price of the commodity. Experts believe that a good way to counter price rise due to higher demand, is to ensure adequate supply to the market.

Top 5 Profitable Investments during Inflation

 Since inflation like conditions usually result into less purchasing power of money, it is important to ensure that investments made during such times are carefully & intelligently channelized. According to some industry experts, the trick is to make your investments into the highest gaining sectors that have the capacity to withstand crisis situations.

Real Estate – For those choosing to invest in real estate can do so with the help of investment vehicles like, Real Estate Investment Trust (REIT). Being a long-term investment, there are maximum chances for your investment to supersede inflation phase.

Gold – One of the safest bets for SMEs during inflation period is to invest in gold or other such precious metals. The reason being that, gold acts as an asset that you can always use in the face of sudden crisis. Other metals you may invest into include, silver, platinum, etc.

Stocks – If you plan your investments carefully and wisely, then investing in stocks can prove to be highly profitable. A good way to make your selections is to choose manufacturing companies producing such goods that people cannot live without like, pharmaceutical companies. Another profitable option is to invest in mutual funds, which can produce cash-rich balance sheet.

International Markets – An inflation situation in domestic market opens the door for offshore investments. Investing in the currencies, shares or equities of growing companies is a profitable idea. Not only does such investments ensure that your money is absolutely safe but also makes sure that by the time you are ready to receive returns, the inflation phase in your own market is superseded.

Crude Oil – Just like your profitable investments in gold & other precious metals, making investments on crude oil or petroleum by means of investment vehicles like, DBO & OIL, is also considered a safe option during inflation period.

 

Do I need copyright protection? A question often asked by SMEs February 6, 2012

A Copyright, or a right over something you have written or an original artistic work, comes to you the moment you create something.

So you need not apply for any registration, as such. Merely by creating something original, you automatically get exclusive rights. Remember to affix a © at the end of the document along with your name or the name of your Company.

Registration only helps to document the date on which you created the original literary or artistic work. For instance, if you write something in the year 2007 and have it published in 2008, technically till 2008, you have no record of the work having been created.

The solution to this is to take print outs of e-mails or electronic files on your hard disk that show that you have created the literary or artistic work as on a particular date. That will help you claim a copyright over the work even without formal registration.

 If you would like legal advice on any issue, want to prepare documents and contracts or want to form an LLP, Company or Partnership, we recommend www.vakilsearch.com. SME Join Up readers get a 10% discount on vakilsearch.com services by using the coupon SMEJNP10

Setting Up Offshore Company – A Brilliant Tax Buster Solution for SMEs February 3, 2012

Although setting up an offshore company may sound a little weird to many, given the recent market trends, there has been an excessive increase in the success rate of companies opting to start their businesses offshore.

Starting an offshore company is not quite as tedious a work as many find it to be, in fact it may take even less than 24hours if all your resources are ready. However, an important thing to consider before setting-up an offshore company, is to carefully analyze all the pros & cons associated with the establishment of the company along with the benefits that you’ll reap from this deal. This is because, there are endless legal & financial benefits that make the option of an offshore company feasible.

Highlighting Benefits of an Offshore Company

• Minimized burden of personal taxation

• Most offshore companies are taxed low or exempted from taxes

• As long as an offshore company restricts itself from entering another business, it can easily exempt itself from most local taxation.

It is for this very reason that, establishing an offshore company can be of great help in reducing the tax burden of a company. Consequently, the routine operations of the company are also simplified & a great amount of time & energy that is usually required for filing of records & account auditing, is also saved. This automatically helps you cut down on the overhead costs & offers you additional time & energy to look into other vital elements of your business.

Another major advantage that comes with the establishment of an offshore company is that, since the setting up of such a company comes with extreme confidentiality rules, automatically steps are undertaken whereby all details of the company are kept out of public vigil.

Thus, for every business looking for ways to lessen their taxation burden, the best & safest option is to setup an offshore company. A similar kind of tax shelter is provided by the offshore banking. However, irrespective of whether you choose to setup an offshore company or bank offshore, take care to receive professional aid so that the legal procedures of the respective jurisdiction can be carried out smoothly.

Corporate Branding or Corporate Identity for a SME – Answer to a Successful Business January 31, 2012

Given the increasingly competitive market scenario, it has become vital for companies to establish a strong corporate image, in order to gain popularity & develop long lasting customer relations. With the increasing number of preferences at the disposal of your consumers, a strong corporate identity is what helps in setting apart your products & services from your competitors.

Branding & Marketing pioneers believe that the most essential & effective way of establishing a relationship with your surroundings, is to add a human attribute to even lifeless objects.

The foundation of a company’s identity is the company logo, consisting of a distinctive logo mark & the name of the company. Logo is nothing but the visual or graphical representation of your company, which is meant to convey the essence of your brand.

While most businesses fail to give much importance to branding, it must be understood that, corporate branding is a vital asset & must intelligently be invested in, managed & leveraged, in order to assure the success of the company. Business logos reflect the values & mission of the company. The more is the perception of consumers to the logo of the company, the greater are the possibilities of it being remembered & recalled by them.

The reason a strategic branding is so essential for the growth of the business is because, it cultivates a sense of quality, expectation & promise of your customers from your products & services. Corporate branding is especially important for the start-up businesses since, brand consistency can help your customers easily recognize your services & products. Most importantly, it helps them easily differentiate your brand from other competing brands.

The business market being a competitive one, it is essential to design your corporate logo in a way that helps it compete aggressively with other competing logos in similar markets. Creating corporate logo is not just about putting any image on the screen or paper, as many companies believe. Instead, corporate logo design requires a lot of research & discovery. Professional designers believe that, for a company logo to be effective, one must first be clear on the essence of the company & the key message to be conveyed. Thereafter, factors like, shape of logo, size, colour, etc must be taken into account. Take care that all these elements relate to the essence of your company & has an impact on your target audience.

With a channelized corporate branding & effective logo design, you are sure to be successful in meeting your goals & reaching out to your target audience.

For any help on corporate branding or corporate identity email us on media@smejoinup.com

Common question asked by a SME …When is it advisable to form a Company? January 26, 2012

As we saw earlier, in the case of small businesses with low initial capital and the core group consisting of friends, it makes sense to start with a partnership owing to the cost and speed of starting up.

A Partnership is not suitable for enterprises requiring high initial investment or where there is very valuable intellectual capital involved.

In such cases, it makes sense to form a private limited company – here the initial cost and the regulations you need to comply with are much greater, but you have many advantages too. These include:

1. Limited liability (your personal assets cannot be used to discharge the debts of the Company)
2. Easier to attract investment: A private limited company is much easier to draw investment into. You can dilute as little as 0.001% stake in exchange for capital infusion in the business.
3. Developed legal ecosystem: The legal and regulatory ecosystem surrounding companies may be rigid, but it is well developed. So for example, if you have a dispute between directors, there are many decisions of Courts and the Company Law tribunals which will provide clarity on the subject.

 If you would like legal advice on any issue, want to prepare documents and contracts or want to form an LLP, Company or Partnership, we recommend www.vakilsearch.com. SME Join Up readers get a 10% discount on vakilsearch.com services by using the coupon SMEJNP10