Funding Your Startup Without Selling Equity

Writen by Sherman Mohr

If you sought near term investment returns that were lucrative and dividend paying, would you select a poorly performing stock, like that of GM? On the other hand, if you could experience a return on investment based on GM's sale of vehicles paying a little piece of revenue to you every time there was a car sold, an investment in GM may be quite profitable for you.

Our new company found this unique way of funding appropriate for it's launch phase. Through a creative funding consultant, our company found dollars for our start up by agreeing to share gross revenue with the founding sales force of our company. For every purchase of our primary product, a digitally delivered marketing package, the founding sales force receives a share of 5% set aside specifically for this purpose. Let me share a few significant advantages of this type of arrangement, some disadvantages, and then some qualities of companies most likely to benefit from this type of significantly different method of funding.

Some of the advantages include the ability to receive funding from "angels" without giving up stock or equity. Those people close to the founders who would have generally been interested in stock ownership discovered with this method that they could share in the gross revenue of the entire company without having to wait on profitability or annual accounting. A second advantage was the significantly reduced paperwork. Our company did not need to author a complex private placement memorandum meeting the strict legal requirements such documents require. A third advantage surrounded the unique nature of the relationship between the founding sales force and the company. By virtue of their understanding of our company's business model, they are now actively engaged in promoting the company, it's business, and all of it's sales reps. Since they have a stake in every product sold, they are proactive in their corporate promotion.

Disadvantages have been few but the first would be the double edge side of sharing a unique program with a traditionally minded professional. When one has spent his/her life in traditional business models, sharing corporate gross revenue on product sales is a very new concept. You have to be able to share the specific nature of your product, it's place in the market, why sales are likely to occur and why your company features the management team to pull it all off. Another consideration, do you want involvement? If you don't feel your company is a fit for a collaborative group of founding quasi-partners, this model may not be a fit. When you are not sharing equity in your company but still accepting cash in return for gross sales participation, you need to be ready to communicate, communicate, and communicate some more. What companies may be a candidate for this type of funding? I don't pretend to be an expert on this method of funding, having used it one time for my company. I can however attest to a common thread in the companies that have used this model. They feature adequate margins in their product lines to share the wealth. They have management teams in place that have deep relationships with people who have the ability to purchase this type of future revenue stream, without equity ownership. The executive team has to be equipped to communicate effectively with interested parties concerning this different method of funding. One could sum it up this way, you have to first become a student of that you wish to teach. This tool for funding was not invented by my company. We employed the expertise of a great consulting partner who had several of our type start-ups under his corporate belt. The experience has proven effective for our company. Great success to you as you begin your journey to launch.

If you would like to learn more about how Prosperity with a Purpose employed this unique method for funding Prosperity's national launch I would be glad to share more information. Call 800-682-3922 and speak with Sherman Mohr.

Bring Successreal Big Money Into Your Businesshow To Get Rich In Any Business Business Strategy

Writen by Pnk Guru

We have understood certain things very clearly.

Business is Activity:
Business is being active in any field of commerce, job or career, profession, occupation. In simple terms, we need to exert our efforts and work hard in business to gain success.

Success is Money :
Success, as far as entrepreneur is concerned, purely it is money and that too a big money. It is simply because only money will in turn bring all that required in business and domestic life.

Here and There:
We know business activity is with us while, money and wealth are with others. More appropriately, the business inputs or the skills for our profession are working in our business camp. However, the big money is lying with the people's campsite.

The money is available in huge quantity with a small number of rich people and in less quantity with large number of poor people. In total, money is available elsewhere; not with us.

Aiming too High:
We need to bring at least a portion of this huge money into our business fold. We should bridge the gap between our business and their money by certain means. It may seem to be too much greediness. We accept it. Aiming too high and taking efforts to achieve it will materialize into a comfortable result.

Strategy to Bring People's Money:
We call this extraordinary way of bringing people's money into our business fold as "Strategy". This special technique makes it happen quickly, easily, automatically and more certainly. However, the word 'strategy' is quite common in use; the true meaning of this is not clear. The real meaning of this word has now a special impact in success management.

History Explains "Strategy":
I need to tell about an historical event to explain the word "strategy" as done by my professor of statistics, Mr.Seshu Iyer.

It was during the Indian-Chinese war; the Chinese soldiers lined up all along the borders and intruded inside Indian Territory. The Chinese force was large and spread over the entire borderlines. The great-armed force of China was really a threat to India.

Small Army Is Strong: Indian army has a number of small battalions spread here and there on the border. The army is small when compared with that of China. How ever, each small battalion has strong soldiers.

Determined to Save Motherland:
The Prime Minister of India visits the border and delivers patriotic messages to motivate the Indian soldiers at the war front. Indian warriors understand the need to drive Chinese off the borders. They are determined not to depart even an inch of land to China. The disciplined and duty bound armed forces forge to fight for the sovereignty of their motherland.

Mobilize and Congregate:
They mobilize armed men; move military vehicles and materials to the front; they congregate into small forceful battalions at various positions. They strike hard at the weak positions of the enemy and become winning each place in the border.

Spread out-Become Weak:
The Chinese army spread out on the border was too weak to face. They start loosing and withdrawing at all the positions. The news of losing the battle spread out and influenced further more to weaken the Chinese forces. Consequently, India won in the Chinese war during 1962.

Indian War Management Strategy:
India won the battles with Pakistan also subsequently in the similar way. India won in the "Khargil" war too with the same kind of war management technique. Now, look into the meaning of "Strategy". The Oxford dictionary says that strategy is "war management".

Business War Management:
As well, the business strategy simply means the application of war management techniques in businesses to win in their respective battle. Every entrepreneur has opponents and challengers in business or even in job seeking and there is every need to manage and survive to become fit.

To gain massive victory in business, you need to adopt war management techniques or rather winning strategy.

Learn From The Master:
The author is an expert in designing such strategies for products, services, small businesses and securing good jobs too. To become an expert in application of business strategies, you need to follow him closely.

Strategy Brings Success-The Real Big Money!

The author is a keen observer of business activities in his vicinity. This article is a sample drawn from his experiences and knowledge. He is a business strategist guiding young entrepreneurs. He is writing an e book on 'Business Strategy for Success' in any business or job seeking activity. Please visit for more details: HOW TO GET RICH IN ANY BUSINESS?

Depreciation Recapture In A Business Sale

Writen by Dave Kauppi

As Merger and Acquisition advisors, our goal is to maximize our seller clients' after tax proceeds. The first step is to get the best price from the marketplace by presenting the acquisition opportunity in a competitive bid situation. Having several interested buyers is the most important factor in achieving the best sales price.

However, the nature of the balance sheet of companies with a heavy investments in equipment makes the form of transaction especially important. First rule of thumb in the sale of your privately held business is to have the corporation set up as an S Corp, LLC, or Partnership rather than a C Corp. The reason for this is that buyers prefer an asset purchase versus a stock purchase. If you are structured as a C Corp there is no such thing as long-term capital gains for tax purposes.

So if you have an asset sale of a C Corp, then your gains are taxed first at the applicable corporate tax rate and then taxed again as long term capital gains when the proceeds are distributed to shareholders. This can be particularly harsh to the seller because the sale will normally bump the corporate tax rate in the year of the sale to a much higher rate than it normally is for that company. Goodwill essentially has a basis of $0, so the entire portion of the purchase price allocated to goodwill is a gain. A C Corp, for example, might be taxed at a rate of 34% for the gain versus at 15% for the same gain for a pass through corporate structure like an S Corp.

Buyers prefer an asset purchase for two primary reasons: 1. They want to protect themselves from any hidden liabilities. When you do a stock acquisition, you inherit all assets and all liabilities. 2. The buyer gets to take a step up in basis on all hard assets based on the allocation of purchase price on the asset sale.

Many business sellers, with significant depreciable assets, however, miss a very important issue in transaction structure. They think that they have done everything possible to reduce their taxes because they are an S Corp and do not fight for a stock sale. This incorrect assumption could cost tens of thousands or even hundreds of thousands in after tax proceeds because of depreciation recapture. If your business is heavily equipment intensive and you have naturally taken depreciation, you are subject to depreciation recapture if you do an asset sale of your S Corp.

Let's say that your assets consisting of operating equipment plus office equipment is on the books with accumulated depreciation of, for example, $2,000,000. Then this depreciation that you received as a tax benefit is recaptured in your asset sale and treated as ordinary income for tax purposes. This will most likely push the seller up to the maximum individual tax rate for this portion of transaction value.

If the sale had been a stock sale of the S Corp, there would be no depreciation recapture and the entire gain would be at the individual long-term capital gain rate of the seller. For discussion purposes, let's say your personal income tax rate were 30%, then the asset sale would cause you to pay an additional 15% (difference between personal income tax rate and long term capital gain rate) on the recapture amount of $2,000,000. You would realize $300,000 in additional after tax proceeds by structuring the sale as a stock sale.

So, if your business is an S Corp or an LLC, you have taken the most important step in maximizing your after tax proceeds from your eventual business sale. The next most important step is to get a premium from an asset buyer over a stock buyer to compensate you for after tax proceeds based on depreciation recapture.

Given the impact of taxes in the sale of your business, it is a very sound idea to get your tax accountant involved in the planning process before you start getting offers. You need to be able to compare the different proposals with an eye towards after tax proceeds.

Dave Kauppi is a Merger and Acquisition Advisor and President of MidMarket Capital, representing owners in the sale of privately held businesses. We provide Wall Street style investment banking services to lower mid market companies at a size appropriate fee structure.

Expansion Amp Exit Getting The Best Out Of Your Golden Parachute

Writen by Eric P. Barnes

Need to expand your non-US firm in order to exit gracefully with a large nest egg?

For most entrepreneurs and business owners, there is a desire to expand their company to some point of success, then retire. Or move on to another business.

The Usual Solutions

There are generally two solutions: (1) Sell out directly or (2) do an IPO - the traditional Initial Public Offering - hope you raise some capital, wait a few years, then sell your stock... if it's worth anything.

Selling out a privately held company usually results in a price 150%+ of profits. If you've been doing $1 million, look for about $1.5-4 million for your golden parachute. Minus taxes, of course. Not a terribly exciting prospect after all those years of work.

Solution #2 is daunting as well. You'll spend close to $3 million doing an IPO. Much of your time, up to a year actually, will be spent doing "dog and pony" shows for prospective market makers and institutional buyers, often ignoring your business in the process. Your chances of raising your targeted funds are about 50/50 at best. And 98% of all small companies going public are not in business five years later. Doesn't sound too promising either.

However, the major advantage to becoming a public company, among many others, is that your company is valued at a multiple of its price to earnings (P/E) ratio, normally far above sales. If it were possible to become such a company, raise needed expansion capital and build your stock value towards a major retirement nest egg - *without* having to do an IPO - you'd have a sane answer to your problem.

The Better Solution

It's possible. There's a Solution #3.

The key is to find a group willing to invest the amount needed for solid expansion, without giving up control of your company.

One such group, represented internationally by Capital Funds Group, does precisely this. It provides a simple and inexpensive method to bring you into the public sphere. It provides you with the SEC-required number of qualified shareholders. It also works with an offshore investment pool which will guarantee to purchase enough of your new shares to fund your company with enough to capitalize a major expansion. You will, however, need to follow their expansion strategy.

The group does more than just fund you. They will teach you how to make your stock support program work effectively...and inexpensively. They will guide you in expanding onto other markets internationally. They will protect you from short sellers. They will advance more funds as necessary if you're following their expansion strategy. And much more.

Benefits to the Business Entrepreneur

Before taking such a step, consider the benefits of becoming a public company.

a. Private placements are easier if you are a public company, as the investors can trade their stock on the open market.

b. When it comes time to sell, your company is priced on its share value times the number of issued shares, generally far exceeding the balance sheet value of a private company.

c. Banks prefer public to private companies when considering loans.

d. It's easier for a public company to expand into the Global Village.

e. You will become more attractive as a potential acquisition or merger target.

f. You will have sufficient funds with which to market and distribute your goods or services nationally or globally.

What Kinds of Companies?

What kinds of companies are being sought? These would be the general parameters:

1. Investment (or sales) of at least $500,000 in the company, net assets of $500,000 and a pretax profit of $300,000 (reinvested in the company).

2. In business for one year or more. (No startups.)

3. Manufacturing and/or service industries, high tech, biotech, internet, etc.

4. A major potential national and/or international market to be expanded into. If you are already in the international marketplace, all the better.

5. Proven management.

6. A NON-US company.

7. A desire and willingness to work the process through for five years.

Well, you knew there had to be a catch. What's that about? You have to agree that all your insider stock - which, by the way, constitutes the controlling interest in your company - will be pooled and not traded for a full five years, or until an offer of buy out or merger is tendered by an industry giant. There will be no dilution of stock value by insider trading. In this way, the Investors and Merchant Banker can help you control and maintain the growth of the stock in the marketplaces, ensuring a positive result for all investors and, not incidentally, a powerful one for the hardworking insiders who stand to make $60-80+ million at buyout time. (It should be mentioned here that the Merchant Banker's shares are also pooled and vaulted along with yours. Thus, they have a vested interest in your success.)

The Program Goal

I asked the man whose contacts and expertise created this expansion concept, what his overall goal was?

He said, "The premise is that everyone should win. The business consultants get their reasonable fees. The Merchant Bank gets its reasonable fee. The company gets enough money to ensure success. The Investors make a profit. The insiders profit in 5 years (or less) when the company is taken over by an Industry Giant. The public profits because the share price remains strong (no insider selling or unjustified dilution) and makes money from periodic upward moves in the share price."

Four Risk Factors

And what about the risk factors? There are four of them to be considered, any one of which could stop the process.

1. The Dow collapses in the middle of the process. If no one is buying at the top, no one will buy at the bottom.

2. There is a material misstatement of fact in the client's business plan. Both the Merchant Bank and the investors will do their due diligence, and should such misstatements be found, they will end the process at that point and any fees paid up until that time will be forfeited.

3. Loss of key personnel. This can, if not provided for, effectively stop your business in its tracks.

4. SEC denial of the NASD application. It should be mentioned, however, that as long as you meet all the requirements, and you will, this virtually never happens.

The Cost

Yes, I can hear the background question you've been asking all through this article. What's it gonna cost me? The total cost will be under $200,000, or somewhere less than 1/10th of what such a normal process would be, with guaranteed success if your firm is accepted into the program. (The time? Two to three months.)

Step One

What's the first step? If you feel your company can qualify, contact Capital Funds Group.

© 2005 Capital Funds Group

Mr. Barnes is President & General Manager of Capital Funds Group Ltd., a Canadian based consulting firm specializing in Putting Companies and Money Together. They also work with non-US companies to take them public rapidly and inexpensively, then getting them funded. Visit our Web Site Email Him

What If You Started Your Own Oil Company To Lower Gasoline Prices

Writen by Lance Winslow

If you're like most Americans you were tired of the high gasoline prices, but you feel rather helpless, as you know there is nothing you can do for you and your family. Perhaps it is crossed your mind that you could start your own oil company. I had considered this scenario recently for a fictional work. And the synopsis goes something like this;

The folks would try to start their own oil company with lots of money, they would be mostly all liberals, they would eventually see they could not raise the money or get any of it done. So they would re-design the car and find that there are too many class action lawyers, regulations, unions and in the end fail. Then some Billionaire entrepreneur would bail them out and some big oil companies diversifying assets and profits would fund a new revolution in cleaner cars, as part of their program. Meanwhile you could have civil conflict, news reports while the entrepreneurs are at home of Middle Eastern Conflicts, war with Israel, china taking Taiwan, N. Korea making ethanol. Riots at the World Bank, Davos, Capital, G8 Summit on the TV too, International terrorism, Mexico city earthquake, problems with shale to oil, over capacity rail and pipes, environmentalist over drilling, whales, natural gas, etc."

Then I thought to myself well that would be interesting wouldn't; take the liberals thru the process and hoops so they can see what they are causing due to over regulation. It would be an Ayn Rand story in modern times, new genera. And it would be for the liberals showing that they can over come and also conservatives would love it. Everyone wins and we move this country forward.

The Novel or story or even a short micro-media film that I am talking about would be bathed in American entrepreneurship, beating your head against the wall, winning in the end, Rocky story of business and small group of people who refused to give up an win, they start out as liberals end up realists and then find themselves after all they have been thru attacked by complainers, protestors and rioters just like they themselves were who clearly do not understand. Considered as in 2006.

Lance Winslow