Swimming in Shark-Infested Waters: Avoiding Entrepreneurial Scams
Are you an entrepreneur looking to get your startup funded? Be careful.
I suppose it’s no surprise that hopeful entrepreneurs are good targets. Too often we’re led to believe that getting investment money is the ultimate victory. Supposedly we’re all going to be successful as soon as some investor says “yes” and we get a big check. And that eagerness to get the money makes us vulnerable to sharks.
While you’re probably as alert as anybody to scams involving fake Nigerian royalty, or free weekends in resorts, your normal anti-scam radar can malfunction when you’re in startup mode looking to get financed. Keep your eyes open and stay safe.
Write a business plan. Don’t buy one.
Take, for example, the business plan writers who sell their services using the claim that the look and feel of a written plan will get you investment. That’s just not the case. Investors invest in the people, the business and future potential growth. But overpromising on results isn’t necessarily a scam if the business plan writers actually deliver a written plan.
On the other hand, people selling pre-written business plans with claims like “investor-ready business plans” for sale and “just fill in the blanks” know they are lying.
A lot of general and obvious rules apply. Deals that seem too good to be true are almost always just that – not true.
Real investors write checks – not invoices
Yes, it takes money to make money. But that’s about ideas, execution and working capital – not sharks. Beware of consultants, brokers, loans and offshore deals that collect your money as a step towards getting investment. For more detail and a good list, check out Martin Zwilling’s "Shortcuts to Entrepreneur Funding are Usually Scams" on Forbes.com. And Adam Roy of Gaebler Ventures has good related advice in a post called "Recognizing and Avoiding Business Scams." Here are some specifics:
- Fake investment brokers who contact you saying they represent investors, but require a retainer up front. You pay the money, and whoops, sorry, the investors disappear.
- Fake investors, often from overseas, interested in investing but only after you pay some fees to cover costs including due diligence.
- Offers of commercial loans, promising quick approval, but requiring stiff fees for fast processing. Then the lender vanishes.
- And of course you don’t fall for pyramid schemes, chain letter and other classic get-rich-quick schemes.
- Beware of businesses that don’t like written contracts and documents.
- Always check references and don’t settle for references they give you; do a web search and find your own.
Magic formulas, magic information
Be very careful with people selling names and lists for fat fees. For example, lists of commercial lenders, angel investors or venture capital firms are available free for anybody who can do a competent web search. But they are also sold as scams for hundreds of dollars, packaged as if they were magic formulas for easy money.
Turnkey start-your-own-business packages, often bundles of software and information you can use to set yourself up in your own business, are usually too good to be true. For example, you make money from home processing bad debts or insurance claims. But think this through: How many businesses are there that will actually work with software and a how-to binder? Don’t you have to know the business, and have the selling and administrative skills, before that would work?
It’s true that legitimate network marketing companies sometimes require a certain up-front investment for products, kits or educational materials. But the good ones provide money-back guarantees on several levels, and the best ones never promise any get-rich-quick results or disguise the reality of the hard work involved to make it to the top with their companies.
Angel investment pay-to-play
Many legitimate angel investment groups charge a fee for processing and submission to a screening process. For example, the group I’m a member of, Willamette Angels, is right now taking submissions for a May investment of six figures in local startup. We charge $125 to the startups that enter (if you’re a startup in Oregon and interested, here’s a link: Willamette Angel Conference). The fee goes not to us, the angel investors, but to the local chamber of commerce that organizes the event. And startups that submit get at the very least a real review and great feedback from real angel investors, worth a lot more than the submission fee.
On the other hand, you can find startup events that charge thousands of dollars to startups for a chance to pitch to a group of angel investors. And you can find some very vocal critics of these events, who call them a scam. How much is okay to pay? I think paying a hundred dollars or so to a local chamber of commerce is fair, and paying thousands to pitch is probably a bad deal.
Red flags to watch for
Think it through. Of course you should beware of any business that has only an online presence, with no physical address; or any scheme that has you sending money to a list of names; and a work-at-home business that requires upfront investment; or a company with no contact information beyond an email address or telephone number.
The more things change, the more they stay the same
Yes, you have to “spend money to make money”—but no legitimate venture capitalist invests in new businesses through oddball approaches such as phantom funding, “qualifying” you with cash or inviting you to join a long chain letter. What your gut tells you is still valid: even in the exhilarating world of entrepreneurship, if something sounds too good to be true…it probably is.
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Celebrating National Entrepreneurship Week: 10+ Business Resources for Millennial Entrepreneurs
Did you know that nearly a quarter of all new U.S. entrepreneurs come from the 20-34 age group? (source: Kauffman Index of Entrepreneurial Activity) And, as more and more millennials express enthusiasm about business ownership, this number is sure to rise. In fact, back in 2011, a nationwide poll of 18-34 year olds found that 54 percent wanted to start a business or had already started one. But faced with the stagnant economy of the time, many were holding back.
Now that that economy is rebounding, entrepreneurship is once again an exciting proposition for young people.
So, what better way to celebrate National Entrepreneurship Week (Feb 21-28) than to showcase all the great resources that help pave the way for the next generation of entrepreneurs, small business owners and job creators! Check them out below:
SBA’s Young Entrepreneur Guide
This one-stop resource includes information about getting started – including a free online business planning tool, training links and more. For example, this free online course Young Entrepreneurs: An Essential Guide to Starting your Own Business walks you through the steps of turning an idea into a business reality. It also outlines what it takes to get started – making sure your business is registered, structuring it legally, getting financing and more.
Get help – whatever your walk of life
There are numerous resources and opportunities that can help young entrepreneurs get the foot up they need:
- SCORE Mentors – Get advice, counseling and mentorship from someone who’s walked in your shoes. Whether you have a question that can be asked over email or could benefit from regular in-person, one-on-one mentoring, SCORE is an invaluable resource. With a network of over 11,000 mentors across the country (all of whom have run their own businesses), SCORE provides free advice that can help you get your business off the ground. SCORE also hosts regular workshops, webinars and all sorts of good stuff!
- My Brother’s Keeper – Despite the turnaround in the U.S. economy, many millennials are still struggling. One in four are currently out of work and people who grow up in underserved communities face very unique challenges, including higher poverty and unemployment and, in some cases, criminal records. In response to these challenges, the SBA and The White House partnered last year to launch a new initiative – My Brother’s Keeper. The initiative is still in its infancy, but stay tuned for educational in-person and online resources aimed at helping young people harness their talents and learn entrepreneurial basics and financial literacy.
- Other Resources – Small Business Development Centers, Veterans Business Outreach Centers and Women Business Centers all provide entrepreneurs with free business consulting and training services. Find one near you.
Get financial assistance
If you need capital to start your business, consider these options to traditional bank financing (which can be hard to secure – only 27 percent of small businesses get a loan this way):
- Don’t Qualify for Conventional Business Loan? Understand Your Options – From SBA loan programs to business lines of credits and small business friendly banks and credit unions, check out your options.
- Tips for Borrowing Startup Funds from Friends or Family – A surprisingly large number of small businesses get started with money from those they know well. Here are some factors to consider before you do so.
- Crowdfunding – SBA offers several resources to help you learn more about this growing source of small business funding including this Introduction to Crowdsourcing, a self-paced course on the SBA Learning Center, and Crowdfunding Sites: Top 3 Tips to Get Funding Once and For All as well.
Get assistance paying off student debt
If your student loan debt is holding you back from starting your own business, find out how the Income-Based Repayment Plan can help. Designed for federal student loans, this government program can help you lower your repayments.
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5 Reasons to Start a Home-Based Internet Business
According to Forbes, more than 52% of all small businesses in the U.S. are home based. If you're like most people who dream about starting their own business, now may be the best time to take the first step.
Starting a home based business on the internet has never been easier and the opportunities have never been greater. Kevin Systrom, co-founder of Instagram, says, “If you’ve got an idea, start today. There’s no better time than now to get going.” The internet is a store that never closes. It operates 24 hours a day, seven days a week and gives a business with an online presence a global audience.
It has truly leveled the playing field in the world of business; now home-based entrepreneurs have access to the same types of tools and marketing opportunities used by major corporations. Today, you don’t have to have a traditional brick and mortar business to have a profitable business.
Jeff Bezos founded Amazon.com in 1994 as an online bookstore and it was completely run out of his garage. Today it’s the world’s largest online retailer. The point is that everything starts as an idea. Every business has humble beginnings. So don’t think about where you start your business; it’s where you end up that matters.
Here are five compelling reasons to start a home based internet business.
1) Very little risk – Starting a home-based internet business doesn’t require the high costs of a traditional brick and mortar business. You don’t have to dive into your savings. Get Business Lines Of Credit or borrow from friends and family. You can get started right away without breaking the bank. Whether you decide to operate from a spare bedroom or a garage, your new business can be up and running quickly and with very little risk. According to FranchiseHelp.com, 70% of home-based businesses survive at least three years, compared to just 29% of non-home based ventures.
2) Flexibility – Working out of your home provides much greater flexibility and control than starting a conventional business. With an internet business, you can choose when you want to work and where you want to work. You’re not confined to a single location; you can be on beach or in a plane and still be able to work. “In a way, the Web is like your Hollywood agent: It speaks for you whenever you’re not around to comment,” says Chris Brogan, CEO of Owner Media Group, Inc.
3) Earnings potential – With an online, home-based business, your income potential is unlimited. You can reach a very large market, directly, quickly and affordably, no matter the size or location of your business. For example, Kelly Lester, a stay-at-home mom, built a very successful million dollar online business that came straight from her kitchen table. She’s built her brand by working closely with bento bloggers and other diehard fans of her product, EasyLunchboxes.
4) Financial independence – When you learn how to generate profits online, you’re teaching yourself how to become financially independent. As you start selling products online successfully you can scale up your business. By repeating this process, you have the potential to create multiple streams of income. With an internet business, your income isn’t dependent on the number of hours you work. “To be successful online, you have to be nimble and evolve where the opportunities are. You have to layer revenue streams,” says Angelo Sotiro, CEO and founder of DeviantART.
5) Personal fulfillment – Running your own business online can be a very rewarding and gratifying experience. No matter how big or how small your idea is, by doing something you’re passionate about, your journey to success can be much easier and fulfilling. Ben Silbermann, co-founder and CEO of Pinterest says, “If Google teaches you anything, it’s that small ideas can be big.”
To improve your chances of success in business, it’s essential that you do your homework and research your business idea. Identify your target market and analyze the competition. To find a profitable niche for your home-based internet business, you have to find the crossroads between what people want and what you’re passionate about. John Jantsch, author of Duct Tape Marketing said it best: “Bring the best of your authentic self to every opportunity.”
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6 Home Business Ideas That Can Pay Off (+ Tips for Getting Started)
Home businesses are a booming! In fact, 52 percent of all small businesses are home-based, according to the latest data from the SBA Office of Advocacy.
It’s no surprise; home businesses afford the luxury of being your own boss and can be started with relatively little investment.
But what types of businesses thrive in the home environment? Here are six ideas to explore (plus some tips on getting started).
According to a 2014 survey by Elance.com, 34 percent of the U.S. workforce – that’s 53 million Americans – is now freelancing. In fact, freelancers are the new normal, contributing $700 billion to the U.S. economy.
Freelancers take many forms – tax advisors, bloggers, accountants, graphic designers and more – and with advances in mobile technology, the remote office has made it easier than ever to become one. Those who hire freelancers understand the benefits too – freelancers have a lot of experience with different businesses, don’t require training or benefits. Plus, they get things done fast.
Freelancing as a career is finally gaining the respect it deserves and the potential for earning is increasing. Elance reports that three times as many freelancers expect their hours to increase in the next year.
If freelancing might be for you, here are a few resources that can help:
- Starting a Freelance Business – How to Take Care of Legal, Tax and Contractual Paperwork
- How to Calculate and Negotiate Your Hourly and Project-Based Pricing
- 8 Steps to Becoming a Consultant at 50+
- 5 Ways to Become an Indispensable Freelancer and Earn More Money From Your Clients
Monetize your creative skills and hobbies
Doing what you love is a great incentive to get out of bed in the morning. What better way to do this than finding a way to make money out of your hobby?
If you’re crafty, you could start small with an online store on Etsy. If cookery is your thing, home-based food production businesses are a great option, but remember to consider the laws that govern any food-handling business.
Be a professional organizer
From bridal consultants to travel agents, if you have passion and experience in a certain field, consider becoming a home-based professional organizer or consultant. Other ideas include business coaching, virtual assistants (companies hire you to help manage their email, appointments, etc.), life coaches and event planners.
Whether you are washing, walking or sitting pets, the pet industry is huge and people are always looking for a trusted sitter. Like so many other home-based businesses, this is one you can do on your own or work freelance for an established company. You can also offer your services through online portals like DogVacay.com or Rover.com
Personal trainers affiliated with gyms don’t always get paid well as employees and the work is often infrequent, so the incentive to going it alone can be strong. Convenience, flexibility, and the knowledge that you earn what the client pays (less any overheads, of course) are some of the benefits of starting a group or one-on-one home-based fitness business. Your customers benefit too – no gym fees, privacy, one-on-one attention, results-focus, etc.
Before you do, weigh the cost-benefit ratio carefully. What equipment will you need to buy? Do you need to make any renovations?
It’s a good idea to have a strong body of clients established elsewhere before starting out. That way your reputation will take care of that much-needed start-up marketing. Be sure to invest in liability insurance. You’ll also need to insure your premises and any equipment as well.
If you don’t have the business savvy to do it on your own, you could go the franchise route. You provide the classes, but the franchisor takes care of the backend business like marketing, a centralized website, booking system, accounting, and even coaching.
Home childcare businesses offer a potentially lucrative and long-lasting business opportunity. A home environment is often appealing to parents and once their kids are settled (and assuming you are doing a great job), then it’s likely you’ll have that business until they are old enough not to need care.
Special consideration for starting a home business
Starting a home business is much like any other business venture. You’ll need to ensure you comply with certain legal and regulatory requirements (yes, even home businesses need various permits and licenses), most of which are listed in this guide: 10 Steps to Starting a Business.
If you’re not sure what applies to your business idea, give your local Small Business Development Center a call. You might even benefit from the advice of a mentor, which you can get this for free via email or in-person from SCORE.
In addition, look into buying insurance (even if you operate as a freelancer). Check with your homeowner’s or renter’s insurance if you intend to work with customers in your home. Liability insurance, as mentioned above, is also a wise investment. Read What Kind of Business Insurance Do You Need? for more information.
Finally, contact your local planning and zoning office to see if there are any restrictions on home-business activities and what permits you’ll need. If a homeowner’s association (HOA) administers your community, read over the HOA documents to see whether there are any restrictions on certain types of home business (especially if you intend to have people visit your home and park in the street).
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How to Guesstimate Your Starting Costs
How much will it take to start that new business you’re thinking of? Use these simple steps to develop a good estimate. You don’t get to know for sure, but if you have the discipline to break things into meaningful pieces, and then research each of the pieces, you’ll have a good idea.
Starting costs for any new business are a matter of two simple lists. The first is expenses.
Step 1: List Expected Expenses
Some common startup expenses are always associated with starting up. For example, legal expenses related to setting up the company, or expenses for fixing up a location, designing a logo, signage and so forth.
Other expenses are normal running expenses, like rent and payroll, which take place before launch. Lots of startups need to rent the location and pay some employees before they launch. While these are the same as running expenses later, they belong on the startup expenses because of timing.
All these expenses create a formal accounting loss at startup. In the example here, the loss at startup is $16,000. That loss won’t matter to taxes until there’s a profit, and at that point it can be deducted against taxable income.
The value of the list is that you can estimate items one by one. What will the attorney cost? How much do you need to send on computers? Each of these estimates is the result of calling and asking and finding out.
Step 2: Assets You Need to Buy
Your next list is what you need to buy to own, such as starting inventory to stock the store, or office furniture, vehicles, land or equipment. These are assets, not expenses. You won’t be able to deduct them from income later, but you will be able to depreciate them as an expense at some point.
As with those starting expenses in the first list, make this one a list of educated guesses. Call people and ask and get good estimates of what things will cost.
The starting cash you need in the bank is also one of those assets, but leave that one for the next step.
Step 3: How Much Startup Cash
People will say you need six months or even 12 months worth of expenses before you start, but those who say that probably never had to raise money for a startup. Unless you have your own funds to use, having some arbitrary cash stockpile is not realistic. What you want to estimate is how much cash you need, not how much you want.
For that, make two lists. Both have months on top, one after the other, as columns. The first has your sales forecast, month by month. The second has your spending budget, month by month, for the same months. Make as many months as you can reasonably expect it to take before your startup sales cover its spending. The vast majority of startups have a period of deficit spending before they start to break even with sales and expenses.
After you’ve made those lists, calculate the total cumulative deficit you have to manage before the business breaks even. Round that number up to the nearest thousand, or ten thousand, and that’s what you need to put into your starting assets as starting cash.
So that, in a nutshell, is your estimated starting costs. It’s not a definitive list, of course. And it’s not certain. But at the very least, you should have a fairly good idea of how much money that business you want will require to get going. And a good idea is better than a wild guess.
(Image: courtesy of leanplan.com)
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