Exit Plans: What plan is best?

There may come a time when I will need an exit plan. Within my Entrepreneurship Master’s Program I have been required to create that plan. The exit strategy known as liquidation can be described as the process by which a business closes and sells off business assets (Maguire, 2016). Assets of the business such as business property would be sold to obtain cash (Maguire, 2016). Additional items such as inventory on hand can also be sold off or liquefied (Rogers, 2014), as well as, fixtures, equipment, and furniture (McCarty, n.d.). The cash obtained would first be used to pay off any outstanding debts the business owes (Maguire, 2016). In certain circumstances and if a company has multiple stores, it may become necessary for a business to liquefy certain locations due to lack of sales in that area or due to outside issues unrelated to the company. In this case, the business may find they must close a location, liquefy assets, and relocate employees to other locations.

The exit strategy that I have chosen is liquidation. I have chosen liquidation because it will be the easiest way for me to obtain cash for the books that I currently have in inventory. Since my books are available on Amazon and cost me nothing to remain there, I can leave my books on Amazon and continue to obtain passive income while at the same time reclaim the monies that I have invested in my business. In addition, I am the only stakeholder.

References

Maguire, A. (2016, November 23). Cashing out: Understanding different exit strategies. Retrieved August 29, 2019, from https://quickbooks.intuit.com/r/business-planning/cashing-out-understanding-different-exit-strategies/

McCarty, D. (n.d.). Liquidation as an exit strategy. Retrieved August 30, 2019, from https://www.bizfilings.com/toolkit/research-topics/running-your-business/exit-strategies/liquidation-as-an-exit-strategy

Rogers, S. (2014). Entrepreneurial finance: Finance and business strategies for the serious entrepreneur. Place of publication not identified: McGraw Hill Education.

Cash Flow

Cash flow is extremely important for businesses as cash flow allows for businesses to run smoothly. The lack of cash flow can spell disaster for businesses. Rogers (2014) noted, “Nothing is as important to a business as a positive cash flow.”

What is Cash Flow?

Cash flow can be defined as “…the net amount of cash and cash-equivalents being transferred into and out of a business” (Kenton, 2019). Specifically, businesses desire to have positive cash flow.  negative cash flow will have negative effects on the business. Rogers (2015) noted the importance of business owners managing a business’ cash and Kenton (2019) noted that cash flow can be used to measure the overall health of a business. Rogers (2014) noted, “The goal of good cash management is obvious: to have enough cash on hand when you need it.” Cash flow must be sufficient enough to meet the needs of the business at all times (Rogers, 2014).

Cash Flow and Business Success

Positive cash flow helps ensure business success. Positive cash flow enables businesses to pay expenses and settle debts, pay shareholders, and reinvestment in the business (Kenton, 2019). Further, Kenton (2019) stated that positive cash flow allows for businesses to save in case of challenges in the future. Rogers (2014) noted uses of cash flow include loan payments which may or may not include both principal and interest, rent, insurance, and taxes. In addition, business owners can use positive cash flow to make further investments and in case of difficulties within the markets positive cash flow allows for businesses to stay afloat during financial downturns. (Kenton, 2019). These are a few positive effects of a business having positive cash flow which ensure that businesses can run smoothly and be successful.

Cash Flow and Negative Consequences

Rogers (2014) noted that negative cash flow means that a business is not able to purchase inventory, pay bills and utilities, or make payroll expenses. Negative cash flow may mean that the lights get turned off. Negative cash flow can push businesses into insolvency (Rogers, 2014). Potential downturns in the market could easily cause the loss of the business if there is no cash flow to count on during difficult times (Kenton, 2019). Investors potentially may lose all of their investment monies (Kenton, 2019), as well as, the entrepreneur especially if they have bootstrapped their business venture (Rogers, 2014). These are a few of the negative consequences when a business does not have the appropriate amount of cash flow.

To sum it up:

Cash flow is extremely important for businesses as cash flow allows for businesses to run smoothly and the lack of cash flow can spell disaster for businesses.

References

Kenton, W. (2019, August 28). Cash flow. Retrieved September 05, 2019, from https://www.investopedia.com/terms/c/cashflow.asp

Rogers, S. (2014). Entrepreneurial finance: Finance and business strategies for the serious entrepreneur. Place of publication not identified: McGraw Hill Education.

CrowdFunding…

What is GoFundMe?

The following is an overview I compiled from the GoFundMe website for an educational assignment. While I have tried to be as accurate as possible, please see the website to obtain full details.

GoFundMe is a crowdfunding website that enables individuals, groups and organizations to raise money for different purposes. Fundraiser purposes listed on the GoFundMe website include: emergency, medical, memorial, charities, educational, nonprofit organizations, animals, business, community, creative, competition, events, faith, family, sports, travel, newlyweds, volunteers, wishes, and other. GoFundMe advertises that they are “the #1 expert” in online fundraising. They list trust, speed, tools, reach, and service as reasons for their success. See website for full and accurate details.

Description of the Requirements Needed

 to Qualify as a Potential Candidate:

There appears to be no requirements needed to qualify. Anyone can start a fundraising campaign. GoFundMe advertises they have no eligibility requirements. See website for full and accurate details.

Steps in the Process:

(Chart created from information located on the GoFundMe website by Patricia Kay Reyna, please see website for full details.)

Steps 1-3 Steps 4-6 Steps 7-9 Final Steps
1- Sign up on Site
and
Determine
Fundraising
Goal
4-Send out
Emails to your
contacts
7- Receive
Donations
Apply Funds
to
Goal
2-Prepare Your
Story
5- Send out Text Messages to Your Contacts 8- Thank
Donation
Donors
 
3- Select Pictures or Videos to Use 6- Share Your Fundraiser on Social Media 9- Funds are Withdrawn  

Success of the GoFundMe:

The current top three fundraisers as of today, 8-30-2019. See the website for full details.

“Contribute to Yash’s Future” Carteret, NJ (Raised $277,822 of $200,000).

“Help for baby Atlas” Fairbanks, AK (Raised $155,275 of $100,000).

“Help 6 Year Old Guy Sizikov” Sunnyvale, CA (Raised $128,427 of $180,000).

What GoFundMe takes as a Fee:

GoFundMe advertises as a free fundraising platform with no sign-up fees or eligibility requirements. Tips that are given by donors maintain the GoFundMe platform. There is a processing fee of 2.9% + $.30 per transaction). See website for full and accurate details.

How Long Does it take to get the Money Raised?

GoFundMe advertises that there is no long waiting period to get the money raised and that funds can be withdrawn “right away.” Withdrawing money does not affect the campaign. See website for full and accurate details

Restrictions:

There appear to be no restrictions.

Reporting Requirements:

There appears to be no reporting requirements. However, there is a way for people to submit claims if they feel funds are misused or if law enforcement determines funds were misused. Donations are refunded if determined that something “isn’t right” according to the website. These statements are backed by The GoFundMe Guarantee. See website for full and accurate details.

References

All of the information provided regarding GoFundMe was obtained from the GoFundMe website found at the following link:

https://www.gofundme.com/

Liquidation: as a Business Exit Strategy

The exit strategy known as liquidation can be described as the process by which a business closes and sells off business assets (Maguire, 2016). Assets of the business such as business property would be sold to obtain cash (Maguire, 2016). Additional items such as inventory on hand can also be sold off or liquefied (Rogers, 2014), as well as, fixtures, equipment, and furniture (McCarty, n.d.). The cash obtained would first be used to pay off any outstanding debts the business owes (Maguire, 2016). In certain circumstances and if a company has multiple stores, it may become necessary for a business to liquefy certain locations due to lack of sales in that area or due to outside issues unrelated to the company. In this case, the business may find they must close a location, liquefy assets, and relocate employees to other locations.

There are pros and cons to the liquidation exit strategy business owners should keep in mind.  On a positive note, the liquidation exit strategy can keep a business from acquiring additional debt and going further into a financial hole (Maguire, 2016). An additional positive of the liquidation exit strategy is that professional firms can be hired to help make the process as successful as possible (McCarty, n.d.). Finally, McCarty (n.d.) noted that the liquidation exit strategy can be a rewarding process for business owners when all goes well making this strategy worth considering. However, one con that Maguire (2016) noted was that business owners and investors may not be able to obtain their financing back if a business uses the liquidation exit strategy and does not have large enough assets and property to liquefy to repay debts owed. McCarty (n.d.) noted that retail inventory liquidation can be challenging and markdowns of merchandise must be determined. These are just a few pros and cons of using liquidation as an exit strategy.

References

Exit strategies – Examples, list of strategies to exit an investment. (2019). Retrieved August 29, 2019, from https://corporatefinanceinstitute.com/resources/knowledge/strategy/exit-strategies-plans/

Maguire, A. (2016, November 23). Cashing out: Understanding different exit strategies. Retrieved August 29, 2019, from https://quickbooks.intuit.com/r/business-planning/cashing-out-understanding-different-exit-strategies/

McCarty, D. (n.d.). Liquidation as an exit strategy. Retrieved August 30, 2019, from https://www.bizfilings.com/toolkit/research-topics/running-your-business/exit-strategies/liquidation-as-an-exit-strategy

Ohnesorge, L. (2019, June 12). Dillard’s leaves Cary Towne Center. Retrieved August 29, 2019, from https://www.bizjournals.com/triangle/news/2019/07/12/dillards-leaves-cary-towne-center.html

Rogers, S. (2014). Entrepreneurial finance: Finance and business strategies for the serious entrepreneur. Place of publication not identified: McGraw Hill Education.

Grants:

A Source of Funding For Small Business…

Financing a new entrepreneur venture is imperative for the success of the venture. New entrepreneurs often wonder where to begin. Saberwal, author of the article “Supporting Start-ups” (2017), mentioned certain entrepreneurs as being “…a different breed: highly educated, assessing large amounts of money from diverse sources, growing their teams and dreaming of creating high-end products or services (p. 195).” This description sounds both exciting and motivating. Yet, new entrepreneurs must decide on where to begin in the process of accessing small or large amounts of available funds. Zarenzankova-Posevska, author of the article “Most Favorable Financial Instruments for Entrepreneurship Development” (2017), noted that without funding, new business ideas cannot grow or prosper. One of the most important parts of a new business is, without a doubt, funding. Grants are one source of funding that new entrepreneurs should consider. Grant funding is available (without requiring repayment) when businesses meet certain criteria for individual grants.

Types of Grant Funding:

  • Federal Government Grants

Federal grant eligibility for small businesses, depends on the size of the small business. This size determination is made by the U.S. Small Business Administration. Grants.gov is the perfect place to start. This website contains a plethora of information regarding the grant process including basic information about grants, who is eligible to apply, and allows users to search a grant database. Users can filter available grants and apply for those of interest.

  • Non-federal entity Grants

These entities include for-profit businesses and nonprofit organizations that provide funding assistance. Several links are available for non-federal entity grants at grants.gov.

Applying for Grants:

Once grants are located, small businesses should consider how best to apply. Hiring an experienced grant writer could be an important choice. Experienced grant writers have the skills to create a successful grant application. Grants are highly sought after; therefore, the overall quality of the grant application is extremely important to beat out the competition. Roszkowska and Konopka (2016) recommend keeping in mind several factors when applying for grants that those giving the grant may consider. These factors include the professional experience of the business founder, evaluation of the start-up’s business plan, and credit history of the applicant (Roszkowska & Konopka, 2016). Making sure to meet all grant requirements is also important. Attention to detail is key.

Where to start looking for grant funding:

Check out the Grants 101 page at the following link:  https://www.grants.gov/web/grants/learn-grants/grants-101.html

Educate yourself on eligibility requirements at the following link:

https://www.grants.gov/web/grants/learn-grants/grant-eligibility.html

Determine if your small business size qualifies at the following link: https://www.sba.gov/document/support–table-size-standards

Best of luck Grant hunting!

References

(n.d.). Retrieved August 30, 2019, from https://www.sba.gov/funding-programs

Find. Apply. Succeed. (n.d.). Retrieved August 30, 2019, from https://www.grants.gov/web/grants/learn-grants/grants-101.html

Roszkowska, E., & Konopka, P. (2016). Application of the Mars Method to the Evaluation of Grant Applications and Non-Returnable Instruments of Start-Up Business Financing. International Workshop on Multiple Criteria Decision Making11, 153–167. https://doi-org.lopes.idm.oclc.org/10.22367/mcdm.2016.11.10

Saberwal, G. (2017). Supporting start-ups. Current Science (00113891)113(2), 195–196. Retrieved from https://lopes.idm.oclc.org/login?url=http://search.ebscohost.com/ login.aspx?direct=true&db=a9h&AN=124280375&site=eds-live&scope=site

Zarezankova-Potevska, M. (2017). Most Favorable Financial Instruments for entrepreneurship development. Vizione, (28), 337. Retrieved from https://lopes.idm.oclc.org/login?url=http://search.ebscohost.com/ login.aspx?direct=true&db=edb&AN=125123582&site=eds-live&scope=site

Harvesting…

Hello again Blog readers! I will be continuing to use Amis’s and Stevenson’s (2001) information regarding angel investing in their book, Winning angels: The seven fundamentals of early-stage investing. I will be sharing valuable information in this Blog from Amis and Stevenson (2001) about Harvesting.

Crawford (2017) notes that, “The purpose of the harvest strategy is to allow for equity investors to be repaid. Before making their investment, they will need to know the method of repayment and how long they will have to wait. The waiting period is normally three to five years. The actual length of time depends on the complexity of the company and the nature of its industry” (para 3).

Amis and Stevenson (2001) state, “Harvesting is the endgame of early-stage investments, the financial score by which you will measure your success. It is not as controllable as the decision to write the first check, but with advanced thinking and strategic action by both you and the entrepreneur, the likelihood of success can be increased dramatically” (p. 287).

What are the Types of Harvesting?

According to Amis and Stevenson (2001) there are seven different types of harvesting which include the walking harvest (taking cash out as it is earned), partial sale (the investor sells shares to management or to new investors), initial public offerings, financial sale (the company is purchased by a buyer with cash), strategic sale (the business is purchased by someone that knows the value of the company and is willing to pay for that value), bankruptcy, and Chapter 7. The last two types of harvesting of bankruptcy and Chapter 7 are negative and not what either the entrepreneur or the angel investor are ever hoping for. However, the better choice of the two negative harvesting methods is bankruptcy. (Amis & Stevenson, 2001).

Harvesting Should be Included in Your Business Plan:

Crawford (2017) notes, “When a business plan contains a harvest strategy, equity investors and lenders are assured that the owners intend to develop the business and eventually sell it, either to public investors or to another company. Management’s challenge will be to run the company correctly and turn it into an attractive investment candidate for others when the time comes for the exit event” (para 5).

The full article by Crawford can be found at the following link:

https://smallbusiness.chron.com/harvest-strategy-business-plan-52874.html

Points to Keep in Mind Regarding Harvesting from Amis and Stevenson (2001):

Think about harvesting from the beginning

At times, negative harvesting is your best option!

Let’s hope your end harvest is a happy and successful one!

References

Amis, D., & Stevenson, H. H. (2001). Winning angels: The seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

Crawford, C. (2017, November 21). What Is a Harvest Strategy in a Business Plan? Retrieved May 23, 2019, from https://smallbusiness.chron.com/harvest-strategy-business-plan-52874.html

Supporting…

Welcome Blog readers! I will be continuing to use Amis’s and Stevenson’s (2001) information regarding angel investing in their book, Winning angels: The seven fundamentals of early-stage investing. I have shared information in previous Blog posts regarding Sourcing, Evaluating, Valuing, Structuring, and Negotiating. In this Blog post I will be sharing valuable information from Amis and Stevenson (2001) about Supporting. So let’s get right to it!

Who will support your new business? Perhaps and Angel Investor?

O’Flynn (2018) says, “Believe it or not, there are angels out there. For real. Not just the cosmic beings we often read in books and holy manuscripts, but real people who are ready to lend a hand, or a few thousand dollars, if you’re talking about business” (para. 1).

Angel Investors are people that are willing to invest and support entrepreneurs they believe in (O’Flynn, 2018).

Five Roles on Angel Investors:

The five roles of angel investors include being a silent investor (finances only), being a controlling investor (by taking control), being a coach (provides supports), being a team member (working within the new business either full or part time), and being on the reserve force (willing to help when asked to do so) (Amis & Stevenson, 2001).

What Types of Supports can Angel Investors Provide?

Amis and Stevenson (2001) note several types of supports that angel investors may give to new businesses including but not limited to:

Advice regarding strategy

Advice regarding product

Assistance with networking

Coaching

Mentoring

Monitoring

Evaluating

Value Events…What are they and what do they do?

Angel investors can really contribute to small business growth by helping with value events. Amis and Stevenson (2001) say, “A value event is essentially anything that brings a heightened level of excitement” (p. 254).

Value Events:

Help businesses to succeed

Increase success

Types of Value Events according to Amis and Stevenson (2001):

Marketing

Financial

Organizational

Operational

Production

Strategic

Hall (2015) notes that there is much value to in person marketing events noting that much effort is placed in online marketing but one should not forget that in person events are still important contact points noting that “…face to face interactions…” strengthen interactions. In other words, entrepreneurs should not forget the value and purpose of “in person,” “face to face” interactions with customers and potential customers. In addition, Hall (2015) notes that the entrepreneur should be present at planned events so that trust and respect can be established with the attendees. Be prepared to devote your time and effort to any events planned so that both your angel investor and your attendees/customers/potential customers realize your commitment to your company and to them. The entrepreneur remains at the forefront of making sure that the new venture is a success.

The full article can be found at the following link:

https://www.forbes.com/sites/johnhall/2015/04/12/the-value-of-events-in-a-marketing-world/#3302f0993d4c

While angel investors may be very helpful in supporting your new venture by organizing Value Events to promote your product, YOU are still at the center of your success so plan to show up and make an impact!

References

Amis, D., & Stevenson, H. H. (2001). Winning angels: The seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

Hall, J. (2015, April 12). The Value of Events In A Marketing World. Retrieved May 23, 2019, from https://www.forbes.com/sites/johnhall/2015/04/12/the-value-of-events-in-a-marketing-world/#3302f0993d4c

O’Flynn, D. (2018, November 16). Angel investing: The new way of supporting small businesses and startups. Retrieved May 23, 2019, from https://born2invest.com/articles/angel-investing-new-way-supporting-businesses-startups/

Negotiating…

Hello Blog readers! I will be continuing to use Amis’s and Stevenson’s (2001) information regarding angel investing in their book Winning angels: The seven fundamentals of early-stage investing. I will be sharing valuable information in this Blog from Amis and Stevenson (2001) about Negotiating.

Why is Negotiating important?

Let’s say you have pitched your new venture to an angel investor and they appear to be interested in your venture. You want to be sure that you close the deal and to close the deal it may take negotiating.

The article, Negotiating with Angel Investors (2019) states, “…negotiating with angel investors becomes a very important and prime feature in a business environment” (para. 1). There are several considerations that new entrepreneurs should be made aware of which include: entrepreneurs should use their pitch to an angel investor to target the immediate goal, your conduct is being evaluated by the angel investor, giving an angel investor 20% of your company is reasonable, entrepreneurs should be able to show company value, and an angel investor may want to be on your board of directors (Negotiating with Angel Investors, 2019).

The following is a link to the complete article which may help you understand negotiating with angel investors:

Now that we know some points that entrepreneurs should be aware of let’s discuss the point of view from the angel investor. Amis and Stevenson (2001) note that some investors negotiate and some do not.

Negotiating approaches include direct negotiation, one-shot offers, and negotiation led by an outside party. For those angel investors that do not negotiate several factors come into play including: the price, terms, investment, and role (Amis & Stevenson, 2001).

Amis and Stevenson (2001) point out that “Determining a negotiation strategy requires consideration of your (the angel investor’s) preferred role, time availability, preferred relationship with the entrepreneur, whether you are the lead investor, and the amount of capital you intend to invest” (p. 225).

One thing to be sure of, if you have an angel investor interested in your brand new entrepreneurship venture, then take the time to appeal to what they are looking for…if you want to obtain their funding. From reading back through previous Blog posts, readers will remember that the entrepreneur must be at the top of their game plan in all aspects of their venture. Investors are looking for competent entrepreneurs who are on top of their game. The entrepreneur is being evaluated in every arena. Therefore, entrepreneurs must be prepared in all areas including when it comes down to negotiating. Be sure to take a look at the full article at the link posted in this Blog for ideas already mentioned in this Blog along with other ideas to prepare for negotiating. Preparation is a key to success. You want and need for your venture to be and remain successful over the long haul. Obtaining an angel investor or two could just be what you need to push your new venture into success and to keep it there.

References

Amis, D., & Stevenson, H. H. (2001). Winning angels: The seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

Negotiating With Angel Investors. (2019). Retrieved May 23, 2019, from https://www.angelinvestorreport.com/negotiating-with-angel-investors/