Making It Legal:

Aside from the “two sets of books” scenario that provides the fodder for tabloid headlines and old movies, I tend to think of bookkeeping as, well, mundane (apologies to bookkeepers nationwide as well as to my own, Debbie, who’s a real firecracker). Not something sexy, just something that has to get done. Like brushing your teeth or doing the laundry. Ho hum.

But Lynnea Bylund’s May Intelligence Report made me think differently about it. (Lynnea happens to be co-chair of the President’s Small Business Advisory Council.) Just look at the legal (and other) problems that can emerge because of lack of proper bookeeping:

• Losing income because you haven’t kept track of who hasn’t paid you.

• Not qualifying for a business loan because you have nonexistant or insufficent financial statements.

• Over-paying taxes due to overlooked deductions.

• Not being able to sell your business because you have no measure of what the business is worth.

• Losing sleep from stress and anxiety.

• Setting prices at a level that you think is profitable, but actually isn’t.

• Getting into trouble with the IRS or state tax agencies because of missed or inaccurate tax payments, or the inability to provide supporting documentation.

• Deciding to rent and signing the lease for a larger office, but not being able to pay the lease after three months because your financial projections were inaccurate.

• Getting into legal trouble because you are paying someone as 1099 contractor when he or she is in actuality an employee.

• Not focusing on the work and growth of a business because you have no system to accurately monitor its financial health.

• Spending nights and weekends trying to manage the books yourself without sufficient training or software.

• Missing opportunities for business growth and development because critical information is missing or inaccurate.

Any time you accept money from someone else to help your business grow, you should put that relationship in writing. Many a lawsuit has been brought because of misunderstandings about (1) how much would be provided, (2) when the money would be provided, (3) whether there were benchmarks that needed to be achieved in order to receive more money, and (4) how and when the money needed to be repaid.

From Business Week online is this helpful post from Karen Klein on the subject. And make sure you bring in your attorney to wrap up the legal details.

It’s never easy being a small business.  It’s hard enough to qualify for venture capital funding . . . and yet receiving it could disqualify you from other small business incentives through the Small Business Administration and other government programs.  It’s a “damned-if-you-do-damned-if-you-don’t” conundrum.

According to a recent report in the New York Times, Jason Altmire, a member of the U.S. House of Representatives (D-PA) proposed the Small Business Expansion Act of 2007  to enable small businesses to qualify for federal research grants without being penalized for accepting venture capital money.  VC funds are crucial for companies in the biotechnology arena, for example, that typically take years to generate revenues, which means they often have difficulty getting bank loans.   Venture capital can mean the difference between survival and failure.  

The White House and the Small Business Administration are critical of the bill.  They cite the concern that the legislation will give VC firms “them the potential to masquerade as small firms and tap into billions of dollars in federal research grants and contracts” — which are supposed to be set aside for “true” small businesses.

The legislation passed the House of Representatives at the end of September.  It has been sent to the Senate, where it was referred to the Committee on Small Business and Entrepreneurship — which (go figure) has both a Democrat site and a Republican site (don’t get me started on why the American taxpayer needs to pay for two sites to the same committee).

Leaving aside whether women entrepreneurs ask sufficiently for the financing they need, the fact remains that you need at a least a little money to get your company off the ground.   Not everything can be handled for barter.   So where’s a gal to go for moola? 

Thanks to Anthony Cerminaro’s BizBangBuzz blog for alerting me, I now have a handy list of 25 alternatives to venture capital, conveniently set out in Business Fund’s aptly-named article, Top 25 Alternatives to Venture Capital.  Each of the alternatives has its benefits and drawbacks, so make sure to talk to your advisory team (accountant, financial planner, and lawyer) to confirm which might be the best option for you! 

Don’t ask me where the past week has flown.  It’s been a flurry of activity . . . and a flurry of comments on my post Why Women Entrepreneurs Don’t Get the Financing They Need.  Seems it struck a bit of a nerve on all sides with some proponents in the “small-is-smart-not-weak” camp (and yes, I agree, expansion for its own sake isn’t necessarily good growth strategy) and others in the “yeah, you got me” camp who are feeling the fear and doing it anyway (great book by Susan Jeffers, if you haven’t read it).  I’m just tickled that it has started a great discussion!  J 

There are a few steps that it helps to follow.  First step is to know how much money you need, why you need/want it, and how you intend to use it if you received it.  If you haven’t done one before, this is where putting together a business plan can really help.  Start to gather the financial information that you would need to complete one.  Do you have a solid handle on your company’s finances?  Are all of your P&Ls and balance sheets up to date?  For that matter, have you reconciled all your bank statements?  Do you know where your bank statements are?  If all of your receipts and company documents are stored haphazardly on our computer or in a Henri Bendel’s bag, it’s time to bring in a bookkeeper to get this sorted out and systematized!  If you can’t handle your $10,000 budget and operations smoothly, will you be giving your lenders or investors the confidence that you can handle a $100,000 budget (and their money) well?

Second step is to familiarize yourself with the different kinds of financing.  Our own Entrepreneur magazine website has a finance section with a lot of information.  Also check out Rosalind Resnick’s Vest Pocket Consultant blog and Money Matters column.   Michelle Anton’s Weekend Entrepreneur blog refers to Count-Me-In, which helps women-owned businesses get funding.   And don’t forget Springboard, too!  So you see, resource abound!

Third step is to network!  No doubt you’ll know people who have gotten financing, or who would make great advisors.  Ask about their experiences.  Did they regret the path they took?  What would they have done different?  Asked for more money?  Less?  Chosen equity instead of debt, or vice versa?  Did they give up too much control of the company for their liking?  All of those things will help you get comfortable with the deal terms you want to achieve.  They may also know of angel investment funds or bank representatives who “get itâ€?.  They can also give you insight into what it’s like to manage a larger company once the funding comes in and how you can (or should) keep bankers or investors apprised of your progress.

Final step (for now) is to get a team of advisors on board.  Whether it’s someone to look at your business plan, an accountant who can help you work out the numbers, an attorney who can help explain the legal responsibilities you’ll be taking on – this is a big step.  Don’t feel you have to go it alone – and good luck!