Ideas to improve your businesses cash flow

Whether you’re growing a small business or managing your household budget, having cash ready when you need it is an essential precondition for financial well being. For small business financing, it’s what lets you keep the engines of your operation humming, gets you through difficult times and allows you to take advantage of any opportunities that may come your way.
Consequently, maintaining healthy small business cash flow is vital. Here are some small business finance tips to help keep your company running smoothly:
Start with your expenses

Knowing what you spend is an obvious place to begin. Evaluate the services you pay for at least once a year to see if you can find better-priced options. Often you’ll discover there are new plans or deals available. At the same time, look into offerings from other service providers to save. Finally, talk with friends and fellow small business owners about the services they use and any deals they receive.
Look at your collections

Invoice as soon as you can to keep cash coming in. Using electronic invoices can speed up the process. Offer various payment options, such as checks, credit cards or electronic funds transfer. Instead of putting “Due on receipt” on your invoices, include specific dates. Consider offering a discount for early payment.
Reexamine your pricing

Are you accurately accounting for all your expenses? Consider the cost of goods, utilities, rent, payroll and any other costs. If some products attract more customers than others you may want to price them competitively to draw customers to your business. At the same time, see if you can sell other items for higher profit margins.
Do you know your credit rating?

If you’re applying for small business financing, you can be sure your bank does. Part of ensuring a healthy small business cash flow means easy access to financing if you require it. Keeping up your credit score can help improve your chances of accessing additional funds if you need them and give you lower rates on those funds. To improve your score, pay bills on time, update your information and keep up with your score as reported by lenders.
Expand cash reserves

Unfortunately, unexpected expenses are part of running a small business. Dealing with them quickly and on your own terms can mean the difference between a highly successful bottom line and a disappointing financial outlook. Develop a plan to have money set aside to deal with the unexpected. Ensuring a strong small business cash flow is a vital part of a thriving business.

Gateway CEI Incubator Planning 500 New Jobs for Region

Officials with a new business incubator at GateWay Community College in central Phoenix say they hope to add nearly 500 jobs to the area within the next few years.

To accomplish that goal, they know they must carefully select businesses and startups with potential to grow and excel.

The Center for Entrepreneurial Innovation has 35 spaces available, but only two businesses have completed the center’s rigorous application process. The facility, which cost about $6 million to build, seeks to house and develop early-stage companies focused on biotechnology, clean technology, renewable energy, technology and software, and professional services.

“We provide a phenomenal amount of entrepreneurship service,” Executive Director Jeff Saville said. “All entrepreneurs see something shiny, and they will chase that for a while, but it’s our job to make sure they are staying focused.”

Phoenix has in interest in the development. The city contributed about $800,000 to the project — using 2006 voter-approved bond money — and it also helped leverage a $2 million grant from the Economic Development Administration, according to John Chan, Phoenix’s community and economic development director.

Chan said the city has targeted bio-life sciences and “young emerging enterprises” as industry sectors to focus on: “These sectors attract high-quality jobs and have high-growth potential.”

The Center for Entrepreneurial Innovation staff and mentors work closely with each of the budding businesses, both residential and affiliate. So far, only Voltmarc Technology Inc., a circuit tracing and monitoring research and development company, and Arbsource, a biotechnology company, have successfully signed on. An advisory board must approve all participating companies. Saville said they have about six more companies in the “pre-incubation queue.”

“I take pride in CEI being an incubator that advertises a high degree of selectivity,” Arbsource founder and CEO Mark Sholin said. “Resident companies have to have not only an excellent business model but also a strong network and sufficient financial traction to be able to support habitation at CEI.”

Arbsource, which deals with waste-water treatment in the food and beverage industry, was founded in August of last year. The company took up residence in the Center for Entrepreneurial Innovation in July, after leaving SkySong, the Arizona State University Scottsdale Innovation Center.Sholin decided the company had enough money to branch out and find a larger space with new networking opportunities.

“We went in with an open mind and had high expectations,” he said of the GateWay project. “CEI has the perfect mix of office space, lab facilities, mentoring, and business-development resources to complement what we have built so far with Arbsource.”

Along with its 35 spaces, the center offers the resources of 85 mentors whose clients, both residential and affiliate, can utilize, according to marketing assistant Monique Jones.

“We lean heavily on our mentors to really help us manage the clients and help the clients,” Saville said. Mentors dish advice and provide support in areas such as human resources, accounting, public relations, social media and day-to-day activities.

The center also provides furnished offices, eight equipped wet labs, shared conference rooms and break room, and equipment needed for day-to-day office activities.

Although companies lease the space on a year-to-year basis, the incubation program takes from two to five years.

Despite Arbsource leaving SkySong for the Phoenix-based project, Saville said the center collaborates with all incubators in the area. He called the relationship between the incubators a “neat ecosystem.”

The National Business Incubation Association estimates there are 7,000 business incubators in the world, and typically 87 percent of companies that graduate from such programs stay in business three years later.

“What we want to get out of this is opportunity to get in front of investors and to grow the business so that we can create jobs here in Arizona,” said Mark Mahoney,Voltmarc Technologies Inc. founder and inventor. “This is a huge asset to our business, it really is.”

Saville said the center pursues companies that have a business plan that can produce jobs, and helps foster companies that are not yet ready to join the program. Saville’s goal is to add 500 jobs to the Phoenix community in three to five years, but he has 10 years to accomplish that goal.

As the center grows, Saville said the GateWay Community College campus, near 40th and Washington streets, and surrounding area will become a hub for entrepreneurial activity.

The center had a small-scale opening in October and began accepting applications in March. Jones said they will host a grand opening in the spring, following the completion of the remaining construction in December.

“I’m just amazed at the opportunities out here,” Saville said. “I’m meeting some of the best startup companies I’ve seen in a long time.”

Read more: http://www.azcentral.com/community/phoenix/articles/2012/08/16/20120816phoenix-gateway-incubator-business-growing-jobs.html?utm_source=dlvr.it&utm_medium=twitter#ixzz24HWMwH1I

Crowdfunding Taxable? Really?

The goal: $950,000. Instead, when the campaign ended August 8, so many gamers and game developers had pledged $99 (or more) to get the new Android-based Ouya that the company raised $8.6 million, making it one of the biggest crowdfunding success stories ever.

“We’ve been in the public consciousness for only 30 days, and we sold over 60,000 boxes,” Uhrman says. “There’s a good audience (on Kickstarter) for the product we’re trying to build, and it allowed us to move very quickly.”

But one important thing has been overlooked: taxes.

“We’ve been talking about that, but we have been so busy,” she says. “Luckily, we have good accountants, so they’ll sort it out for us.”

CROWDFUNDING GROWS

Crowdfunding on sites like Kickstarter or Indiegogo Inc is a relatively new way to raise funds. It allows an entrepreneur to get proceeds for a specific project, often offering “rewards” to those who pledge.

When Kickstarter began in 2009, crowdfunding was largely used by musicians, film makers and other creative types to raise small sums of money for projects that might not make any money. But as it’s grown — in some cases, becoming an alternative to venture capital — the dollars involved have gotten bigger.

Ouya is one of eight campaigns to raise at least $1 million on Kickstarter. All told, Kickstarter backers have pledged more than $300 million since its launch, while competitors like Indiegogo have also grown rapidly.

“Crowdsourcing is becoming a popular way for start-ups to raise cash, and the companies that receive the cash may not realize the proceeds are taxable,” says Murray Solomon, a tax partner at accounting firm EisnerAmper. “They may get a very unpleasant surprise when they build all their prototypes and spend all the money.”

In fact, if you raise more than $20,000 on Kickstarter from more than 200 people, you’ll get a Form 1099-K (a new tax form introduced in 2011 and required for third-party payments above that threshold), courtesy of Amazon Payments, which processes transactions for the site.

Indiegogo, which allows pledges by PayPal or credit card, notes in its agreement that users “shall have full responsibility for applicable taxes” on their projects’ funding. (Kickstarter and Indiegogo both declined to discuss tax issues.)

NEED TO KNOW

If you’re planning to crowdfund, here’s what you need to know.

If it’s a sale, it’s taxable.

Say, for example, a startup uses a crowdfunding site to raise money to develop a new iPhone accessory, and offers “rewards” — as these campaigns typically do — of those accessories in various combinations for different pledged amounts.

“That’s the most common situation, and it’s taxable because you get something in return,” says EisnerAmper’s Solomon.

Even funds below the 1099-K reporting threshold remain taxable, says Solomon.

This spring, Pizza Delicious, a New York-style pizza place in New Orleans, raised $18,300 on Kickstarter for a new pizza oven, offering pizzas, bumper stickers and T-shirts to those who pledged.

“We thought it would be a cool way to get people excited and drum up support for projects,” says co-owner Greg Augarten. “It’s taxed like any other income, but it’s still worth it.”

Just because the funds are taxable, though, doesn’t mean you’ll actually owe tax on them. If your business expenses are higher than the money you bring in, you may not owe anything.

Michael Guenther, a certified public accountant in Sacramento, who works with video game companies and has three Kickstarter clients, says most such startups would not owe tax in the first year because of the combination of business costs and tax benefits, such as the research and development tax credit.

“Most Kickstarter companies would use nearly 100 percent of their Kickstarter funds to build whatever it is they’re looking to build,” he says.

That’s generally the case for musicians and other creative types raising small sums for specific projects.

Ken Thomson, a Brooklyn-based composer and saxophonist, raised $2,665 last December for a new album. Most of his 89 backers paid $25 and will get the CD when it’s done.

“It casts a wider net, and we were able to get more pre-orders,” Thomson says.

But the idea that he’ll owe taxes after spending at least $10,000 to produce the CD makes Thomson laugh. He figures he won’t owe taxes since he expects his expenses to dwarf the money he raised.

“I dumped the entire amount of money I got from Kickstarter into the studio, and then I have to figure out how to give everyone CDs,” he says. “When you make a record, you assume you are going to lose money on it.”

NON-TAXABLE EXEMPTIONS

There are situations in which crowdfunded pledges may not be taxable. Some may be considered gifts, others donations. Once the JOBS Act, which allows startups to solicit investors online as a way to encourage funding of small businesses, takes effect, some contributions may be considered “capital contributions,” and not taxable when they’re received.

In general, a gift is a contribution in which the giver gets nothing in return. Gifts are not taxable to the recipient, and gift givers are allowed $13,000 a year per recipient tax-free. A recent do-gooder campaign on Indiegogo raised more than $700,000 for a bullied school bus monitor to take a vacation.

“That’s the perfect example of what would be a gift,” EisnerAmper’s Solomon says.

Charitable donations, to a registered 501c3, are another exception. Donations may be both tax-free to the non-profit and tax-deductible to the donor.

With crowdfunding still a niche business, accountants are puzzling over the lines between different tax situations. As EisnerAmper’s Solomon puts it: “I think it’s so new that there are going to be some gray areas.”

(This story in 8th paragraph, corrects description of eight $1 million-plus efforts to campaigns, because they were not all start-ups.)

(Editing by Chelsea Emery and Dan Grebler)

Think and Act Like a CEO

While CEO is most commonly used to describe the person in charge of a business operation, the essence of what a CEO does is also applicable to being in charge of ourselves and our lives.

For example, a CEO is someone who optimally manages ever-changing resources to achieve objectives. In business, many of these resources represent well-established people networks, processes and technologies. For example, visit BUZGate.org to help your small business clients to connect with and leverage the expertise of government and nonprofit organizations, such as yours, that will work with them on most any aspect of venture start-up, growth and profitability at no-cost. Also, help them to learn about and connect with high value, cost-effective small business Best Practices.

In life, however, processes for ensuring progress are often less clear and yet even more important. After all, if an individual is not in charge of who they are, it’s hard to be in charge of where they are going! Below are three easy processes to help you help your small business clients to get and stay on track in this regard.

1. Power Notes: While simple in concept, power notes are powerful in application. Power Notes are brief notes that you write to yourself and place where you will see them often to remind you of a specific task, goal or objective. In business, for example, a power note might be to make “x” number of calls each day to close sales.

2. Power Symbols: Like Power Notes, Power Symbols are frequent reminders of a goal or task that is important to you. In business, this might be a keychain of a dollar symbol to help you stay focused on growing sales. Feng Shui is an art that encompasses the use of symbols to bring about specific outcomes in a wide range of areas including professional pursuits.

3. Reality Check: This is a 60 second exercise where you draw a circle in the middle of a piece of paper to represent you. Next, write around the circle all of the things going on in your business and life and then draw an arrow between you and each topic. Point the arrow toward you if you view the topic empowering, and point it away from you if you view the topic as a challenge. Look for balance. Too many arrows pointing out and not in may indicate too much negative stress and not enough peace of mind.

The objective of these tools is to get your ideas where you can see them. The very process of doing so equates to action and action leads to results!

Kaufman Study Shows Motives For Startups

Need proof that interest in entrepreneurship is alive and well in the United States and around the world? Consider the 5,000-plus individuals who have already taken the “Are You An Entrepreneur?” survey, adapted from a Kauffman FastTrac questionnaire and posted on forbes.com since June 1, 2012.

While most survey respondents rated themselves high on many of the 17 personal characteristics, traits and skills that bode well for taking an entrepreneurial plunge, the results also clearly indicate areas in which aspiring entrepreneurs see themselves “needing improvement” – and underscore the perception that entrepreneurship is very much a social enterprise. The top five attributes to hone before starting a business, according to those surveyed, are:

  1. Networking – 19%
  2. Persuasiveness – 16.3%
  3. Market awareness – 15.6%
  4. Business knowledge – 13.5%
  5. Self-discipline – 9.1%

On the other end of the scale, the traits in which founder-wannabes felt they needed little to no improvement included ethics (1.7%) and accountability (3.2%). In other words, they feel well equipped with honesty and integrity, and they take responsibility for their own performance.

“Passion to be an entrepreneur” is the top reason for wanting to start a business for nearly half (48.5%) of those surveyed. Following at a distant second and third are “I want to be my own boss” (29.5%) and “I have a great idea/innovation” (17.4%). Surprisingly, only 1% say their interest was driven by a lack of success in finding a job.

So, with interest in entrepreneurship high, what did survey respondents see as their barriers to entry? Money, money, money – and figuring out how to get started. Topping the responses to a question about the “biggest obstacle to starting my own company,” 36% of aspiring founders cite financing, followed closely by “knowing where to begin” (34.7%). Much farther down the scale of concern are fear of failure (10.1%) and finding a partner (6.5%).

It’s encouraging to find that many, if not all, of the reasons holding back the thousands of respondents can be readily addressed through training, education, mentorship and connecting with other entrepreneurs who have ‘been there, done that’ and now are succeeding in creating jobs and building global economies.

Kauffman FastTrac®  is the leading provider of learning curricula that equip aspiring and existing entrepreneurs with the business skills and insights, tools, resources and network to start and grow successful businesses. Kauffman FastTrac was created by the Ewing MarionKauffman Foundation.

Five Things Congress Can Do To Increase Small Business Startups

A just-released Kauffman Foundation study found that fewer than 8 percent of all businesses in the U.S. were new businesses in 2010, continuing a steady decline in startup activity since the 1980s.

That’s bad news for the economy and the job market, since Kauffman also has found that startups create more jobs, on net, than existing businesses.

So what can policy makers in Washington, D.C., do to get the great American startup machine cranking again? Here are five ideas:

1. Give a green card to foreigners who earn post-graduate degrees in science, technology, engineering and mathematics at U.S. universities.

Today, many of these foreigners are taking their talents back to their native countries because of the difficulty in obtaining permanent visas in the U.S.

That not only deprives U.S. companies of the highly skilled workers they need, it also depletes what had been a rich pool of potential entrepreneurs. A study conducted in 2007 found that 25 percent of all engineering and technology companies started in the U.S. between 1995 and 2005 had at least one key founder who was an immigrant. Now many of these would-be founders are leaving the U.S. “after we train them in the best university system in the world,” said Giovanni Coratolo, vice president of small business policy at the U.S. Chamber of Commerce    U.S. Chamber of Commerce Latest from The Business Journals Follow this company .

“We should welcome them with open arms and use their skills to foster innovation and job growth in this country,” he said.

2. Continue efforts to make capital more accessible to startup companies.

That means quickly implementing the provisions of the Jumpstart Our Business Startups Act, which was signed into law last month, particularly the provision that enables businesses to raise capital through crowdfunding.

The Securities and Exchange Commission    Securities and Exchange Commission Latest from The Business Journals Best Buy loses fourth high-ranking executive Dave Deno to parent of Outback SteakhouseShopNBC and ValueVision CEO Stewart has pay cut by a thirdBody Central reports first quarter earnings Follow this company also needs to refrain from heavyhanded regulation of crowdfunding, which allows businesses to obtain small investments from lots of individuals through Internet intermediaries.

“The SEC needs to give this new industry the opportunity to cost-effectively help small businesses access capital, not undermine it from the beginning,” said Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council.

The National Small Business Association contends startups also would benefit from legislation that would allow credit unions to make more business loans. This bill, however, faces an uphill battle because of strong opposition by the banking industry.

3. Preserve some health care reforms, particularly the ban on insurers discriminating against people with pre-existing conditions.

This ban may not work if the U.S. Supreme Court strikes down health care reform’s individual mandate, because premiums would go up for everyone unless more healthy people, as well as sick people, join the risk pool. But something needs to be done to end “job lock” — the phenomenon that forces people who would be great entrepreneurs to continue working for somebody else because they can’t get or can’t afford health insurance on their own.

Many small business advocates think Congress should start over with health care reform because it failed to make insurance more affordable. Health reform advocates, such as Small Business Majority, contend insurance will become cheaper for individuals and small businesses in 2014, when health insurance exchanges bring more competition to the market.

4. Expand tax incentives for startups.

Startups, like other businesses, would benefit from simplification of the tax system, because the complexities of the current tax code cost businesses too much time and money. But until the elusive goal of tax reform is achieved, Congress could consider more robust tax breaks for startups and their investors.

Given a so-so economy, “the incentives for startup entrepreneurs need to be far more dramatic,” Kerrigan said.

She suggests cutting income taxes in half for startups during their first three years, and expanding the capital gains tax exclusion for investments in small business startups to all startups, not just C corporations.

Even less dramatic tax breaks would be helpful. The National Federation of Independent Business    National Federation of Independent Business Latest from The Business Journals 5 things Washington can do to boost startupsKnow when to start your own businessMaryland Business wants to be voice for small business Follow this company , for example, is pushing legislation to allow startups to deduct up to $20,000 of their business expenses during their first year, up from the current startup deduction limit of $5,000.

5. Boost confidence by showing Washington is up to the nation’s challenges.

Entrepreneurs, by nature, are optimistic — otherwise they wouldn’t take the risk of starting their own businesses. But the inability of policy makers in Washington, D.C. to solve the nation’s most pressing problems has got to be taking a toll on business confidence.

It’s an election year, so don’t expect miracles, but if Congress could agree on more bipartisan measures such as the JOBS Act, that just might encourage more would-be entrepreneurs to take the plunge and start their own businesses. For example, some of the ideas here already are included in a bipartisan bill known as The Startup Act. Congress would send a powerful signal to entrepreneurs if it would take up that bill, debate it thoroughly, modify it if necessary, and then pass it.

Congress’ current course — pointing partisan fingers at each other and waiting for the results of the November election — won’t inspire anyone to start a business.

Another new thing: Peer to Peer Marketplaces

Interesting to note from below the point that email is being underused….that it is more intimate….get’s more results than social media in some circumstances…

Peer-to-peer (P2P) marketplaces have put the “hot in hot” for the startup scene this year at the South By Southwest Interactive conference. Spurred on by the success of Airbnb—the grand master of so-called collaborative consumption sites—venture capitalists want to make money while they reinvent market behavior. The hype was on full display today at a SXSWI panel today in Austin, Texas, where one of the cofounders of Airbnb talked about the scaling of sharing with the founders of the sites Task Rabbit and thredUP. To succeed in this space, the panelists agreed on some key points—focus on a unique product and educate your community. But here’s one somewhat counterintuitive notion: don’t rely on social media for conversations, instead go old school with email. The panelists called email much “more intimate,” saying if you really like something and send an email proclaiming how great your find was, the person getting that note tends to trust the suggestion more. For Leah Busque, the founder and CEO of TaskRabbit—a site that connects people with chores and task with those who will complete them for a fee—developing the business took time. Her own brood of worker rabbits sat pat in Boston and San Francisco for 20 months working on the product, getting it to where it is today—in eight cities on a zip code-by-zip code basis, with expansion plans this year. Busque said she and her team waited and tried something not seen in other attempts at collaborative consumption. The new thinking was about what if? What would happen on the ground in individual neighborhoods if they just tossed out the platform? Every time one of her rabbits posted a service, they were going to get bids and all that activity could all get potentially get very messy. Busque methodically measured the activity at the neighborhood level, and soon enough she said TaskRabbit had increased the trust levels in the homes of the towns they’d arrived in. “It just snowballed, and the company growth rates grew even faster,” said Busque, adding that 75 percent of TaskRabbit’s activity now comes from word of mouth and public relations. James Reinhart, a co-founder and the chief executive of thredUP, said a big issue for P2P sites is how to differentiate what they do. Just this month, thredUP announced it was switching from being a site that helped parents swap childrens’ clothes to being a site that sold kids garments on consignment. Reinhart said he learned early that there are all kinds of communities out there in the P2P-universe. Each one of them is based in some kind of consumer passion and mutual, collaborative trust among consumers. The key to building a successful company is keeping laser sharp focus on an existing unique consumer need, and maintaining that focus. “We didn’t seek out a community that was passionate about swapping books. Instead, we focused on a little problem for families—kids clothing,” he said. “If people sense that your site is trying to be a bunch of different things, it dilutes the power of the hue in your unique space,” Reinhart said. Read more: http://www.portfolio.com/business-news/2012/03/13/peer-to-peer-marketplaces-catch-fire-at-sxsw#ixzz1pC3xM8oN

Colorado bankers and lenders unveil website to help small businesses find loans

Colorado bankers and lenders Wednesday unveiled a consortium effort aimed at helping small businesses navigate their way to critical funding sources by way of a newly created website.

Claiming it to be the first time nationally that private and public agencies have worked together to help small businesses obtain financing, Colorado Bankers Association chief executive Don Childears said SmallBizLending.org was the brainchild of happenstance.

“It was at our board meeting in November that someone brought it up,” Childears said following the announcement at the Capital. “I suppose we merely presumed people knew how to do this, that they understood how to get financing for their business.”

The approach is unique in that it doesn’t set aside a pool of money designated for small business lending — as typically occurs to spur growth — but pools resources to help those companies find funding that already exists.

The website brings together about a dozen organizations — the Mile High Community Loan Fund and the Federal Reserve Bank in Denver among them — whose objective is to hold the hand of small businessmen seeking much-needed loans to not only grow their operation, but to fuel job growth and hiring.

Gov. John Hickenlooper relayed his experience as a small business owner — when he started up the Wynkoop Brewery in the forgotten section of Lower Downtown — and the difficulty he and his partners had in acquiring financing. Help in cutting the process short would have beem appreciated, he said.

“We got turned down by 33 banks when we started the brewery,” Hickenlooper said. “And it took a lot of time just to get turned down.”

SmallBizLending.org is intended to point business owners to the right funding sources, places where they’re likely to succeed in acquiring loans rather than meet long periods of endless red tape, only to learn they’re in the wrong place.

“I wish I had this website when I started,” said Brandi Paik, 29, co-founder of CandyGrind, a Denver-based sports apparel company that started in a basement and now ships to Asia and New Zealand.

Trained in fashion design, not business, Paik said that although she met several sympathetic and helpful lenders that helped grow her company, it came at the price of time and confusion.

The website includes a matrix of lenders and flowchart of the lending process to help business owners determine their best course.

David Migoya: 303-954-1506 or dmigoya@denverpost.com

Read more: Colorado bankers and lenders unveil website to help small businesses find loans – The Denver Post http://www.denverpost.com/breakingnews/ci_20070695#ixzz1ns57G2M2
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Why the SBA’s Early-Stage Innovation Fund Won’t Help Startups Access Capital (Opinion)

The Small Business Administration’s $1 billion matching program aimed at supporting young companies will kick in this year. But the question is, will the venture capital community on which the program relies be eager to participate.

Last year, President Barack Obama announced the creation of “Startup America,” the White House’s sweeping public-private effort to bolster high-growth companies. As part of the effort, the SBA unveiled two $1 billion programs that attempt to help small businesses and entrepreneurs by matching private venture investments. In the first program called the Impact Investment Fund, the SBA will match the private capital invested in startups located in economically distressed areas up to two to one. The second, Early-Stage Innovation Fund, offers to match private investments one for one and caters to early-stage companies outside of the startup hot spots of California, Massachusetts and New York.

The SBA is trying to compensate for what it considers to be market failures: Businesses in distressed communities and startups often struggle to raise funding. To that end, the agency is selling bonds and investing the proceeds in startups if they can raise capital from private investors. Although all this sound peachy in theory, after digging into some of the details, it now seems as though the SBA’s efforts — while harmless enough — likely won’t help businesses much after all.

Why not? The answer is simple: The returns to venture-capital firms have barely kept up with the rate of inflation. And as a result of this terrible track record — which clearly doesn’t compensate investors for the risk of betting on a private company someday becoming the next Facebook — venture capitalists are loath to throw their hats into the ring.

The companies that are being targeted by these SBA programs are unlikely to provide venture investors with that kind of return. If they were that compelling, the startup’s founders wouldn’t need any assistance from the government. The private-capital market would be more than delighted to pour money into it.

And that’s the big challenge that these SBA programs present for company founders. They create the illusion that private investors will be enticed by the opportunity for the government to provide capital next to their money to invest in the startup.

But the reality is that if these startups are good enough to attract any private capital, they are good enough to raise all their capital privately. And if they are not good enough to raise 100 percent of their capital privately, then a government match will not alter the private capital providers’ decision-making process.

In short, a startup seeking to raise capital needs to provide an overwhelmingly compelling argument to private capital providers that it can pass two tests with flying colors:

  1. It is targeting a market opportunity that is currently very small but will become enormous in the next five years.
  2. Its CEO has the industry knowledge, vision, recruiting skills and ability to meet ambitious performance targets that will lead that startup to be the dominate player in that emerging market. If a startup can do that, it will easily raise capital to finance its growth. And if it can’t, no SBA sweetener will make any difference.

Congress Cooperates on Small Business Jobs Bills

Washington, D.C. (February 29, 2012)
By Michael Cohn, Accounting Today

In a rare sign of bipartisanship, Congressional Republicans and Democrats are moving forward with a group of widely supported jobs bills, aimed at improving capital formation for small businesses and spurring the growth of startups.

Eric Cantor

House Majority Leader Eric Cantor, D-Va., introduced the JOBS (Jumpstart Our Business Startups) Act on Tuesday, a legislative package of several bills that have already been approved by different committees and in some cases the full House.

Cantor announced the package with a group of lawmakers and small business owners. “It is a compilation of bills, some of which have been voted on the floor of the House with heavy bipartisan support,” he said. “These are bills which also reflect the work of the President’s Jobs Council. Today, the White House has said we need to get started jumpstarting our business startups, and that is exactly what the bill does. Many of the members who are here have bills in the package. The bills range from increasing the ability for small businesses to access capital, to bills which reduce the regulatory burden on startup businesses and allow them to flourish and grow. That’s what we believe is the secret to the success of growing this economy, it is to get the small business engine started again.

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