Looking to Secure Business Financing? Check Out These 3 Approaches
In a country that prides itself on creativity—and rightfully so—people are constantly thinking of new business ideas. Some of them are truly novel and practical but they need capital to get off the ground. This is the first obstacle that the entrepreneur must overcome.
When business people with a fresh idea hit the pavement in search of financing money, they have a few choices available. There is the bank. There is crowd founding through websites like Kickstarter and GoFundMe. There are also cash-advance companies who promise funding within five days and then find ways to compromise your enterprise. The loans from these types of companies usually cost 30 to 40 percent in interest. They end up siphoning the small profits that a nascent company makes.
According to Raoul Davis, writing in Forbes, there are three lesser-known strategies to secure business financing.
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1. Create Alternative Loan Arrangements for Friends, Family, and Business Partners
Traditionally, entrepreneurs have asked people for money in exchange for equity. Equity does not have the appeal it once had, however. If the company isn’t profitable, the annual profit share is just a fraction of their investment.
What investors are looking for is a worthwhile ROI. One thing you can do is offer a revenue share to pay them back. For a $20,000 loan, offer a 3 percent revenue share at a payback of 20 percent. This means they get 3 percent of your revenue until you pay them back a total of $24,000. This is much better than equity because your investor sees money every month and they get a decent ROI.
2. Use Term Insurance to Secure a Small Business Loan
What banks usually want from a small business owner seeking a loan is a life insurance policy.
Quoted in Forbes, Brian Greenberg, CEO of True Blue Insurance spells out how having term insurance is a good thing for small business owner. “I have seen business owners struggle to qualify for insurance and pay a huge amount of premium to secure a much-needed business loan. If business owners already have term insurance, they can use it to secure small business loans or construction loans whenever the need arises. When the business owner has a large policy, they can simply assign the required benefit to the loaning bank in order to get the loan.”
3. Accept That Entrepreneurship Is a Full-Time Job
You need to deploy all your personal skills and resources to making your business work. This is what Meisa Bonelli, Managing Partner of Millennial Tax, did. As described in Forbes, “[she] used her savings and tax savvy to make the leap from employee to business owner. When Meisa started her first business, a vacation rental business in New York (pre-Airbnb), she did it with savings and recouped her investment through tax refunds. This is the type of strategy that requires a formal plan and diligent record keeping in case you’re ever audited by a tax authority.”
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You may not have savings and be as tax savvy as Meisa, but you have your own skills and abilities nonetheless. Understanding that entrepreneurship is a full-time job means learning to put your gifts to work until you get the desired result.
Neither business nor getting your hands on capital is easy, but it’s not impossible either. Davis asks us to also be careful, however. “Sometimes capital isn’t what you need. Instead, you need a better business model that produces revenue faster. Don’t let seeking capital become your crutch.”
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.