Absolute Entrepreneurship Part 2: Funding Your Business | Jason Allen | Skillshare

Absolute Entrepreneurship Part 2: Funding Your Business

Jason Allen, PhD, Ableton Certified Trainer

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41 Lessons (2h 35m)
    • 1. Introduction

      5:11
    • 2. About Me

      3:27
    • 3. How Much Money Do You Need?

      3:02
    • 4. Determining Your Seed Money

      5:59
    • 5. One Time Costs

      4:11
    • 6. Ongoing Costs

      4:52
    • 7. Burn Rate

      2:16
    • 8. Fixed And Variable Expenses

      8:06
    • 9. Example Budget

      13:46
    • 10. What Is Equity Financing?

      4:58
    • 11. Friends And Family Round

      4:58
    • 12. Seeking Out Angel Investors

      4:43
    • 13. Venture Capital

      2:16
    • 14. Finding Investors

      3:11
    • 15. Warning!

      3:41
    • 16. What Is Debt Financing?

      3:10
    • 17. Lenders

      3:58
    • 18. The SBA

      3:55
    • 19. 21 QuestionsAndDocuments

      4:35
    • 20. 22 Terms

      5:37
    • 21. 23 FactoringInDebt

      1:33
    • 22. 24 WhatisAGrant

      4:27
    • 23. 25 ConsiderYourNiche

      4:04
    • 24. 26 FederalGrantOps

      4:28
    • 25. 27 StateAndLocalOps

      3:49
    • 26. Private Grants

      4:18
    • 27. Understanding The Source

      3:27
    • 28. Recycle

      2:28
    • 29. Bootstrapping 101

      3:35
    • 30. Consider A Co-Founder

      3:01
    • 31. Generate Cash Quickly

      2:49
    • 32. Be A Budget Ninja

      2:26
    • 33. Keep Your Day Job

      2:18
    • 34. Never Outsource

      1:31
    • 35. Learn To Build A Website

      3:15
    • 36. Partner, Partner, Partner

      2:22
    • 37. 39 WhatIsCrowdfunding

      2:58
    • 38. Pre-sell Your Thing

      1:28
    • 39. 41 RunningAnActiveCampaign

      3:04
    • 40. What Next?

      1:05
    • 41. SkillshareFinalLectureV2

      0:36

About This Class

This class isn't for hedge fund managers, capital investors, or bankers. This is a class designed for the average person who is ready to start a business.

Are you ready to get started? Do you have a business idea, and want to start with the basics? In this course, we will focus on the first steps of any business venture: Startup. We will use the real-world experiences of the award-winning instructor and university professor Dr. Jason Allen. But don't be worried - Dr. Allen is best known around campus for keeping things simple, accessible, and useful.

Dr. Allen is the founder of a number of successful businesses and is a top-rated Skillshare instructor. In 2017 Star Tribune Business featured him as a "Mover and a Shaker," and he is recognized by the Grammy Foundation for his music education classes. 

While a lot of business courses focus on getting rich quick, this is a course for those interested in starting and building a long-term business with a firm foundation. You won't find "get rich quick" schemes here - everything we will learn in this class is practical, useable steps to start a business that you will be able to hand down to your grandchildren. 

This is the second part of a multiple-course series. 

In this course, we will focus the entire course on the funding process. First, we will look at how much money a new company really needs (which is different than how much money you really want). Then we will look at the 4 big options for funding a new business: Equity Funding, Debt Funding, Bootstrapping, and Crowdfunding. Each one of those has some advantages and disadvantages. Here is a hint: If you don't have any money, and don't want to take on debt, Bootstrapping is the way to go. You can start a business with no money if you follow a few simple rules of bootstrapping.

By the end of this course, if you follow along you will have your business set up and ready to start bringing in revenue.

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Praise for Courses by Jason Allen:

⇢  "It seems like every little detail is being covered in an extremely simple fashion. The learning process becomes relaxed and allows complex concepts to get absorbed easily. My only regret is not taking this course earlier." - M. Shah

⇢  "Great for everyone without any knowledge so far. I bought all three parts... It's the best investment in leveling up my skills so far.." - Z. Palce

⇢  "Excellent explanations! No more or less than what is needed." - A. Tóth

⇢  "VERY COOL. I've waited for years to see a good video course, now I don't have to wait anymore. Thank You!" - Jeffrey Koury

  "I am learning LOTS! And I really like having the worksheets!" - A. Deichsel

⇢  "The basics explained very clearly - loads of really useful tips!" - J. Pook

⇢  "Jason is really quick and great with questions, always a great resource for an online class!" M. Smith

Transcripts

1. Introduction: everybody has their thing. Whether you make things, sell things, build things, play things. We all work hard in our things. Well, some of us are happy to do our thing on someone else's terms. A lot of us feel the need to forge our own fat. I'm a musician by training. I even earned a PhD in music in the early two thousands while the record companies were collapsing, I was teaching myself to start companies. I'm now a college professor with a number of successful companies and a few flops. I'm excited to share with you how I've learned what I know and all my experiences along the way. My job is to share what I've learned in a simple, understandable way because I believe anyone can turn their thing into a successful business . This is absolutely wonderful. - Six months over six months. That's $18,594 for the reason we have this six month thing here is that we're still thinking startup costs, right, So we're gonna try toe, start up with six months of not making a single sale, we're gonna assume that the worst case scenario happens, not a single sale for six months. You have to be super super tight on money. I remember when we first started being on the phone with my bank about like a $5 bank fee. I spent an hour fighting about why we were charged. That and eventually I got it taken off the account because every dollar matters on. I don't like equity financing other than it's a mountain of paperwork and it's fairly tedious. You're going to give up a lot of your company. You're gonna give up control of some amount of control of your company by selling it off. There are a lot of predators out there that will make something look like a grant when it's actually alone or something worse, a really bad loan. So be careful. The best place to go is just Hey, everyone, welcome to entrepreneurship Part two. In this class, we are focusing entirely on funding, getting your company off the ground with some money. This is probably one of the most of you list using and frankly, dangerous things that a company is faced with, and it's really unfortunate that we're faced with it right off the bat, you know, like right when your company get started, you've got to either go in debt or sell off shares of your company or find another way. My preference is to find another way. I specialize in getting companies moving off the ground by being lean and efficient and not taking on debt and not selling equity. However, I'm gonna talk about all the different options in this so that you know what's out there and you could make a good choice. Also gonna send a lot of time talking about what I've done in my companies and how I like things to go. So we'll drop from my personal experience quite a bit. So we're gonna talk about all the start up costs that you need. Then we're gonna talk about equity financing. That's like selling off shares. We're gonna talk about debt financing, that sticking on loans. We're gonna talk about grants. That's sort of free money. But let's bring attack. Uh, we're gonna talk about bootstrapping, which is my favorite. Talk about crowdfunding a little bit, which is harder than you think. And then we're gonna put it all together, and I'm gonna tell you how I like to do so. I hope you decided to join us in this class is gonna be a lot of fun. I had a lot of fun filming it. I think you'll have a lot of fun taking it. And I think you'll finish this class, Uh, with the ability to get your company off the ground and everything you need to build inventory, open your doors and be ready for day one. Join me inside. Let's get started. 2. About Me: All right, let's get started. Now. Um, as we learned in the intro video, this is going to be a class about funding your business. So, um, I'm assuming you've already taken my first class in this sequence, which is about business type types and establishing your business, so ah, little bit about me before we go on. If you watch that first class, do you know a couple things about me already? You know that I've launched a number of businesses, have done reasonably well at it. I've made some mistakes and I've done some good stuff. And when it comes to funding, I've been through both of kind of the big ways that we fund a company. Actually, all three now I think about it. And kind of the Big three are equity financing, debt financing and bootstrapping. So equity financing means that you're selling off equity in the company for start up cash or just operating cash. In other words, selling stock in your company Essentially, that's what that is a fancy term for that equity financing. If you watch Shark tank and all that stuff you know about equity financing, that's what they're doing. They're trading equity for cash in that show and any kind of investor situation. That's equity financing. So debt financing is taking out loans just straight up, taking out loans. I've done that too. And then bootstrapping this kind of my specialty slam academy is all funded via bootstrapping. What bootstrapping means is you don't take out any debt, you don't take out any ah loans and you don't sell any equity in the company. You don't have any investors. You just make a little bit of money, and then you reinvest all of it, and then you make a little bit more money and then you reinvest and you make a little bit more money. We're gonna talk about how that works. But I am a firm believer in bootstrapping, Which is why I don't think you need loans to do to start a business and get it off the ground with loans or with investors. You can do it Ah, whole lot faster, But we'll talk about that in just a second. I'm supposed to be talking about myself. So Slam academy, my main company is all bootstrapped. Another company I have is equity financed and the equity process, the process of going through that is is tedious. I found it to be reasonably painful. Um, I didn't enjoy it, but we raised a lot of money. Um, like in the order of $10 million to get things off the ground. Um, it was a more expensive company, so we needed to do that. So I guess it was worth it, but it probably would have taken us 10 years to do a bootstrap model on that. So I guess it depends on what you're doing. But I think in many cases, bootstrapping is a good way to go. So that's kind of my specialty when it comes to funding is I really love helping a bootstrapped business because you don't want debt. You don't want to start off your business with a bunch of debt, you know, But a lot of times you have to so really, about all of that in this class. So let's dive in to the next thing 3. How Much Money Do You Need?: Okay. How much money do you need? This is the big question. Now, when you think about how much money you need to think about the difference between how much money do you want and how much money do you need? So it's best to come up with two different budgets here, one as kind of a fantasy budget and one as a downright essential budget. We'll talk about this. Ah, little bit more. At the end of this section, we're gonna do a little recap on what's essential. So when we started Slam Academy, we made a budget and it came out to be around $150,000 that we thought we needed for start up. And we thought, How are we going to get this? We don't know anything about getting loans. We don't really know anything about anything. So I went to a business, a friend of mine who became a trusted adviser, and he essentially ripped it up and threw it out and said, This is also if you want. This is all stuff. None of this you need to get started. You can get started in your business with very, very little. So keep that in mind. Um, what you absolutely essentially need and what you'd like to have a good example of that is for us. You know, we teach classes in electronica music. That's our business. So we thought we needed a computer lab. But after we thought through it a little more and got a little clever about it, we thought, You know, almost anyone who's really interested in electronica music has a laptop. So what if we formatted everything is kind of like a bring your own laptop, Then we don't need to buy a computer lab, which means we don't need all kinds of extra pieces of hardware, which means we don't need to support a computer lab. We don't need I t people. Then things suddenly get a lot cheaper. And then once we had money, we stuck to that because it turned out to be kind of a cool niche where people would come into classes, not use our gear, but they would use their own gear, which students ended up liking and looking forward to. So this initial financial barrier became, uh, kind of, ah, a trademark in a way of the company. It's interesting you know, it really worked out. Now we do have a little arsenal of laptops, but we only use them for, like, our kids programs and things like that, things where it's maybe not necessary to expect that students have a laptop on the room, so keep that in mind as we go through this. Don't get freaked out. When I start talking about loans and equity, you don't have to do that. We're gonna talk about loans and equity first. So I want you to remember that there is a solution coming up at the end of all of this when we're gonna talk about bootstrapping, which is a way to do it without loans, without equity takes longer, but it could be worth it. 4. Determining Your Seed Money: Okay, so first, let's talk about ah, seed Money for seed money is if you imagine. You know, when you plant a seed and you need it to grow into something, right? So what do we need to plant in order for it to grow, which is essentially, you know, an analogy for how much money do we need to get off the ground? So when you think about how much seed money you need, here's things to think about. What seed money typically is used for is initial salaries, including the founders and basic staff. So what that means is the founders and the staff should be paid. I mean, you definitely have to pay your staff. You're gonna find that paying your staff becomes more important than paying yourself. But if you're thinking of an ideal situation, which is kind of what we are right now in the amount of seed money you want, you want to include money for yourself, not lavishly. Don't give yourself a lot of money, because that will end up being kind of silly. But pay yourself enough not to be super poor in order to be focused enough enough money to be focused on the business. That's what we care about. So enough so that you're not starving. Your family is not starving and all that stuff. So you know what you need. If you have a partner or something like that, you need to factor that in, too. They need the most minimal amount of money to keep them focused on the business. Okay. And how? How much of it do you need? Depends on what you do and how long it's gonna take you to turn a profit. You think in an ideal world, I would put this at six months. So you want six months worth of staff salaries in the bank? In the real world, let's say ideal world her ideal less good three months reality one month. So, ideally, you'd have six months of salary in the bank. You'd be fine with three months of salary in the bank, and most companies actually start up with one month of salary in the bank. It's a little riskier, but ah, how most people do it. So another cost for seed money or another thing that seed money usually goes towards its things like licenses, etcetera Depends on what you do, you might need special licenses like let's say you're a bar. You're going to need a liquor license that's expensive and all these things. So that number three, let's say, space office space, retail, space, rent. And, um, let's say rent and utilities, Internet phone etcetera. OK, I was blown away when we started slammed that I needed a phone line. I thought, no one gonna call me. They're gonna email me anything like that. But now people wanna call. Still, I don't get it, but you know, they want to text us even more. So we have a phone line that you can text is very easy. Way to do that. We'll talk about that in a future Class Number four ah, things that we use seed money for advertising. Startup, in other words, leads depending on how you plan on advertising. If you're going to go direct to customers, you need leads. Um, there's ways of getting leads. There are other advertising things, but you need a plan to advertise your business right away because you could get all the money in the world and set up your shop and everything is gonna be great. But no one's gonna know about it. So some kind of advertising launch. Let's call this launch rather than start up. So it's not confusing out. To me, it means leads. Another thing we use seed money for is any travel expenses related to getting the company off the ground. Another thing is events. So going to trade shows, Let's say etcetera, things you need to do like that. Ah, software licenses. Um, that kind of falls into utilities, but any other kinds of subscriptions that you're going to need to keep the business going. Any consulting fees if you hire a consultant for anything to get your company started Ah, something like this class would probably account for that, in my opinion. Ah, and then last I'll say insurance, accounting, banking, etcetera. So any kind of fees us tablet or you get from setting up from buying initial insurance. Ah, an accountant setting up your bank accounts, all that stuff. All of this stuff is good things to categorize as seed money. Don't forget about these things. You're gonna encounter them, so keep an eye out for those. So put those together in your budget for initial seed money and remember separated include two columns, essential and ideal. Okay, let's go on to talk about. Once the business is up and running are one time costs. 5. One Time Costs: okay, after seed money we have are our one time cost. These are more for things that you can think about for. Let's imagine, a year from now, your business is up and running. Ah, what do you have that you had to buy in order for the business toe happen but are not repeated expenses. Most of the one time costs are covered here. These are mostly one time costs. So if we don't have to do them again, let's not list them again. Some of these are recurring costs, though travel expenses might be events might be software licenses might need to be renewed . Space rent is a recurring cost. Licenses might be a one time cost and might be a recurring cost. Initial salaries Salaries are always a recurring cost, but anything else that we did not cover here, and I can think of one manufacturing, and this might may or may not apply to you. Um, if you make something you might need to make the thing that makes your thing. If that made any sense at all I other words, let's say you make shoes. Um, I'm really into the shoe analogy, so you're starting up a shoe store, but you sell shoes that you make. You make the shoes, so you need ways to make those shoes. So you need to buy sewing machines. Um, you need to buy, however, whatever equipment you need to make the souls some kind of rubber press thing, I guess I'm not sure whatever you need to do to make the laces thing. So you need the equipment to make your product. That would be in here. If you are a pizza shop, you need ah, ovens, union knives you need. You mean those are That's your manufacturing equipment? Essentially. So those are gonna be a one time cost. However, I'm gonna make a note here later. You're gonna want to create a sinking fund for these. What a sinking fund is is replacement cost fund. So let's say we're at our shoe shop and you have ah, sewing machine that you've bought. And it's a really nice song machine. I don't know. I don't have any idea what a sewing machine costs. So let's say a really nice sewing machine cost $5000. So you have this $5000 sewing machine. If it's like anything else that exists anywhere, sooner or later, it's going to need to be replaced. So what you're gonna do is you're gonna have this thing we call a sinking fund, which is basically a little pile of money, and you can throw a little bit into it every month, just a little bit every month. And that money is not invested. It's just going to sit there until you need to replace something. Um, it's basically to rescue anything that's losing value and usefulness. So we create these for, like, websites like if you have ah, big website and sooner or later you're going to need to rebuild and replace your website just because it's gonna be out of style or whatever. So it's good to always have a sinking fund going so that you can, so that when it comes time to rebuild your website, you're not like, Oh my gosh, I need $30,000 to make this website out of nowhere. You can say no. I've been saving for that, basically, So keep that in mind with one time costs is that we call them one time costs, but they're kind of not one time cost because sooner or later, they're going to need to be replaced. They're kind of like once a decade costs. We hope that's the only one time cost that I can think of that we didn't address in our seed money list here. Okay, lets go onto ongoing costs. 6. Ongoing Costs: okay. Ongoing costs, also sometimes called sustaining costs, also sometimes called burn rate, although burn rate is kind of like the same number but applied in a different context. I like talking about burn rate because it's just more fun to say than ongoing costs. Ah, it just sounds sexier. So, um, these are gonna be anything that occurs monthly or annually. It's a monthly or yearly so and these are gonna be duplicated from up here, some of them because they're ongoing costs like salaries. Right. Salaries happen every month. And let's right monthly. So let me get through this and I'll talk about burn right? Really quick taxes annually or monthly, depending on the type of tax insurance that can be that could actually be quarterly or annually. Or it could be monthly to actually, um, depending at how you do it. And with insurance, I'm talking about health insurance. If you're providing health insurance for your employees, which you can do, um, in a start up, you probably won't because, uh, it's expensive, but it you'll surely not have trouble hiring people. If you are, um, good people. If you are providing insurance, it's a great perk. But also you have to pay. If you have employees, you have to pay Workman's comp insurance, which is relatively cheap. I think I pay about 100 bucks. No, about 1000 bucks a year, I think is what I pay. I'm not totally sure. And then, ah, insurance on your space and your equipment basically, which is really high for us because we have a lot of equipment. Ah, rent obviously, is a really big one. That's gonna happen every months unless you own the building and then lucky you, security is something to think about in here. Do you need a security system? If so, it's gonna have ongoing costs. It's up to you advertising. How much are you spending on advertising? Office supplies, office supplies? Sounds stupid. It sounds like you know, a stapler here in, ah, thing of paper here, but you would be surprised at, you know, like we we have to devote a good $100 or so a month just to normal. Everyday office supplies. It's It's death by a 1,000,000 cuts kind of thing. It's all these little you know, $5 for this, you know, $5 for that kind of stuff. It adds up really quick. You'd be surprised. Any utilities, banking and credit card fees, any licenses you need to carry for your particular business certifications, anything like that. And then probably the biggest one is inventory. So what costs? Ah, if we go back to a shoe analogy and you're making these shoes Ah, you constantly need to be buying more supplies to make those shoes. That's gonna be an ongoing costs. And I want to add one more here just because I think it's interesting this definitely falls into the non essential. But, um, in an ideal world, you would have some ongoing cost of education. And what that means is train yourself and your staff. You know, I think it's a great thing when I see ah, something come up online that's like a a local workshop on social media marketing and the person who does my social media marketing. I say, Do you want to go to this? Um, you know, it cost 200 bucks to go, and it's a day, so I lose them for a day. I have to pay 200 bucks, and I have to pay them their normal salary for that day. But, ah, if they're gonna come back with more skills, it's great. And often employees like it. They like getting out of the office and meeting new people, so it's good all around, so I like having that as an expense. Um, it's a nice perk for your employees, and it's good for the company. So just some general ongoing costs to consider in your budget. 7. Burn Rate: So the cool thing about ongoing costs is that this burn rate thing, what that means is, if you take all of this money, if you say, you know, adding all of this together, it's going to equal. Ah, you know, $10,000 than what that means is you have a burn rate of $10,000. It costs you $10,000 a month to run your company. That's what burn rate means. You burn through $10,000 a month if you do not sell anything. If you do not make any money, you still have spent $10,000 just for the right to exist that month. So we think about this a lot. We think about, um, what does it cost me to exist? Essentially, Um, and that's all of this stuff put together. It's our burn rate. So you obviously want that to be a slow as possible, because you're because what this tells me is that this is a company that needs to be making at least $10,000 just to break even, not dig themselves out of any debt. They may have occurred from this stuff just to break even so I would expect this. Companies should be making around 20,000 month in order to pay back some of this if they have any debt from it, and then hopefully bank some money for the future. But this is Ah, and 10-K is not insane for a burn rate. Um, flam academy is about 12 k right now of a burn rate, so Ah, and I think that's relatively low for what we do. Um, and we have some months where we don't make it. We have to dip into savings. And we have some months where, you know, we do 50 k So, um, but that's what savings accounts are for, right? Because some months are good and some are about, um and it all evens out in the end, is what we hope. Okay, let's move on to slightly different kind of cost fixed and variable costs 8. Fixed And Variable Expenses: Okay, let's talk about fixed costs and variable costs. Now these air costs that we've already talked about. But I want to focus in on whether they are fixed or variable eso things like rent. This is a fixed cost, and the way we differentiate between fixed and variable costs is one key word will get you there. And the word is volume. So what that means is, does the cost of of the thing go up as your volume goes up, or does it stay the same if it goes up? It's a variable cost if it doesn't fix cost. So, for example, let's say rent. Ah, no matter what our volume is, rent is thes. Same with maybe an extreme exception of we need to rent another warehouse space or something like that. But more or less, um, your rent stays the same. No matter how much sales you're doing, right, your rent is your rent. So rent is a fixed cost. A variable cost would be something like supplies. Ah, and I'm not talking about office supplies here. Although office supplies, to some extent is a variable cost. Let's think about something like stamps, you know? Ah, If you have to mail out invoices and mail out bills, then variable costs would include something like stamps because you're gonna need more of those for the more sales you're making right, so that becomes a variable cost. It's gonna go up if you're making a lot of sales, but it's not necessarily bad. Variable costs aren't bad. It just means that, um, you need to file those away as costs that will expenses that will grow with your company is the way to think about him. So, um, let's write down the stamps example here. Ah, let's also say the biggest one is the cost of your goods. Let's say manufacturing costs, because let's go back to our shoe store analogy. If we're making our own shoes Ah, we have to buy. But say the leather for our shoes. If we're selling 10 shoes a month, we have to buy 10 ah, chunks of leather, I guess, Um, and let's say that costs I don't know, $100. If our sales go up and we have to buy, we're now we're selling 100 pairs of shoes a month. That s o. R. Sales multiplied by 10. Our costs for those products multiplied by 10. Also. So now our cost is $1000 just for that leather. So that's a variable cost. It went up with the as the sales went up, but, um, ultimately, this could be a good thing, right? Because it means you're selling a lot more. So you're making more money. If you're ever looking at how to trim down on variable costs, it's actually quite difficult because you've set up your business in a way to run. And then as the business grows, these costs follow you. You know, like you're always chasing these er, these costs are always chasing you is more accurate, so you might get to a certain point with your business. And you might say, I'm just not making enough money here. I don't have enough room to bank the amount of money I want enough profit, right profits was what's left over after you pay your costs. So getting these variable costs down is tricky. Um, and this is when we look at our suppliers. So, um, the variable costs, often especially in manufacturing, comes down to your suppliers. Where you getting this stuff from? Can you reduce your variable costs by buying in bulk. Sometimes you can you get to a certain point. Let's go back to our leather analogy where we say, Okay, now I'm gonna buy 1000 chunks of leather. Um, and maybe I'll buy three months worth instead of buying the one month worth of 1000 I'm gonna buy 3000 worth, but because I'm buying so much Ah, the supplier gives me a bigger break on the price. That could be one way to reduce the variable cost. Another way can simply be to find another supplier. That's cheaper. Um, these are things you have to think about with variable costs. So this doesn't necessarily go into our start up costs so much, because with our variable costs, we really kind of want to think about what we need right out of the gate or what do we think we're gonna need? Let's anticipate, um, liberally our sales estimates because we don't wanna undervalue that we don't want toe anticipate selling less than we actually can afford to. So with our fixed costs were going to guess what? It's gonna be our average sales in a month. Um, and aim relatively high on that number. Let's hope for the best so that we know we have enough money to cover the expenses needed to sell those things. So that's what you want to do with any variable costs. So again, these are not new costs that we haven't talked about. Um, let's just go through and think about what is a variable cost, not salaries. Salaries will be a fixed cost, Um, unless you have to hire more people as things grow. But the actual salaries themselves shouldn't be affected too much by the volume that you're doing. Not licenses, not space and retail era rent and things. Advertising could be a variable. Cost probably is a variable cost. Um, because you're gonna want to advertise more for the more you're selling, but it doesn't have to be. It depends on how you decide to run your business. I suppose. Travel expenses of pretty fixed events and trade shows, fixed software, license subscription to be fixed consulting fees, probably fixed insurance, accounting and banking. Ah, insurance. I would call fixed accounting. Ah, probably variable. The more sales you have, the more ah, work here. Accountant is gonna have to do so that could cost you more banking could cost you more. The more checks you're cashing, the more money coming into your account you might be seeing a little bit more bank fees piling up. Um, that's a small cost, but it's definitely a cost. So manufacturing, these are the big variable costs. Um, these ongoing things, some of same stuff we've talked about. Taxes are variable costs if you sell a taxable thing. Um, insurance is pretty fixed, depending on what business you're in. If you're in retail, insurances is pretty much the same. Ah, security advertising, office supplies. We've talked about utilities or fixed banking. Credit card fees could be a little variable licenses. Inventory is just like manufacturing. That's gonna be a big variable cost, depending on how you how's your inventory education? And I'd say it's probably fixed, so keep that in mind. Some costs are fixed and some are variable 9. Example Budget: Okay, so, um, let's get started on. Let's just take a look at this. So Ah, I downloaded this template from vertex 42 dot com. Um, this was just a quick template. I found that I liked the look of it, and it looks good. So let's use it to get started. Now, I'm gonna give you this template in the next, um, uh, the next segment here so you can go there and download it if you want, and then come back and watch this or just watch this and then go download it. That's probably better. Just watch this and then download it and do it yourself. So what I'm gonna do here is I'm gonna go through. I'm not gonna worry about this funding part right now. We'll do that next. Ah, but for now, I'm gonna look at my costs. So they have listed on a lot of stuff here, things that I didn't even think about. Um, which is why it's great. So ah, let's look at our fixed cost first. So this estimated and actual what they've set you up here to do is we're going to fill in the estimated column this is what we think it's going to cost us. And then we're gonna fill in the actual column. Once we actually pay for those things, so are fixed cost. These are gonna be one time costs advertising for opening. Let's just I'm just gonna fill in some members. Oh, let's say $1000. We're gonna do a big, like hurrah Grand opening thing. Basic website. Ah, we're gonna talk about this in a future class. You should not spend thousands of dollars on a website. I'm gonna teach you how to spend nothing on a website other than hosting. So let's say zero on that, because you can do that for free brand developments. Let's see what it says. Creation of a name, logo and theme name you can come up with on your own, um, logo and theme. I don't know what they mean by theme here, but a logo is actually quite important. And, ah, I would advocate hiring and designer to make a really cool logo. Um, that could be done for, let's say, $500 building down payment. I guess this would be if we're buying a building purchasing of land, we're not gonna buy a building, building improvements, remodeling. Let's say we don't need that business cards. Stationery, depending on what you're in. Business cards can be good. I just ordered business cards. Um, what did I pay? I think I spent about 250 bucks on him. Business entity. Creation of the business. Ah, and the type of business. So we just looked in the previous class of those costs. Ah, let's just round 250 bucks there. Licenses and permits. So you're going to need, um, you know, this is looking a license, safety license, whatever you need for your particular thing. In my world, I don't really need anything something. Say zero computer hardware. You're gonna need some computers, maybe an iPad. Let's put $1000 there. You should do this little more scientifically than I am decorating. You're gonna want your space to look kind of nice. So let's put let's do that on the cheap franchise. Startup fees were not gonna open a franchise. We're gonna do this on our own Internet set up deposit. Um, 50 bucks, probably more, but security deposit for release. Let's say it's one month's rent, which is around 1500 depending on where you live. Legal professional fees. That's put something there. Machines and equipment. So this was probably manufacturing is what we're talking about here, let's assume you need something. Office furniture. Uh, put $1000. They're a good trip. Dichio will do you well operating cash. Um, so just cash that you should have on hand for stuff. Um, let's say 2500. Ah, point of sale pos system. Um, you can do this. Actually, this basically means a cash register and things like that. Um, you could do this really cheaply now with, ah, an iPad and some software. So let's go to 3000 or so insurance. Um, insurance is cheaper than you would think, but let's go 500 public utilities deposits. Not much reserve for contingencies. Some money, just in case. Put 1000. That security system installation. Um, let's go with 120. It's what I paid on mine, but I have a cheap one. But whatever insulation and consulting fees, I hate paying consulting fees. So it's zero sign edge. You're gonna need to have some good signs made inventory that might be more expensive than you think. Let's say 3500 telephone to get set up tools and supplies. Uh, say another 100 bucks. Travel zero. Do you need to buy a vehicle or you Can you use your own for a bit? Ah, I would recommend using your own for a bit. So let's do that. And nothing in other for now. Okay, so it's gonna cost us $18,000 to get this started. Wow, that's a lot. Um, what can we pinch on? Right. So the next question would be what we really need here. Do I need advertising for a grand opening to for $1000? I bet I could get creative with social media and do that for $100 brand development. I need a good logo, but do I know any designers? Can I hit them up and get that down to? Maybe 100 bucks? Probably business cards. I could wait on business cards. Um, but that might be important. So let's leave it business entity. We definitely need that computer hardware and software. Can I just use my own laptops for a while? Um, I have a laptop. Do I need to buy computers? You'd be surprised at most people that you would hire probably have their own laptop, and it's not terrible to ask them to use their own for, at least for a little while. So it's not that down to 500. So I think we could make it work. Decorating. Let's get a little creative and go down to 2 50 We need that. Probably need that legal and professional fees. Let's probably need that. Machines and equipment. Yeah, let's assume we need that office furniture. Another thing we can skimp on. Let's get a little creative, find some used stuff. Search craigslist, um, search from warehouse deals and let's see if we can get that down toe 300 operating cash. That's kind of a luxury to have 2500 and just extra cash. Ah, and what do they specify this as cash reserves for normal business operations? Ah, this would be like, let's say, if we have to give change to people so we could probably get away with doing having 250 on hand. It's not great, but it will be okay. Point of sale hardware. We might need that Insurance Utilities reserve for contingencies. Let's leave that security system installation sign. Ege starting inventory. Let's shave that down to 2000 telephone tools. Okay. All right. Now we're down to 11,000. Ah, let's see if we can get this down to an even 10. Um, from a little off there point of sale hardware, let's go second hand on that, and I bet we can get it down to 1000. Okay? No, we're at under 10,000. Start up costs. Not bad. Okay, now we have our monthly costs, so these are gonna be recurring costs that are going to come up. So how much do we want to spend on advertising? Well, if we're just getting started Ah, let's go low. Um, and grow this budget. So it's 100 bucks business insurance monthly. This is gonna be monthly expenses of business insurance. Um, it's probably won't actually be that much, depending on what you do. Vehicle insurance, Nothing. Employeessalaries if it's just you for now, you don't need to pay yourself anything right away. Um, so let's plan on that being zero, but hopefully we can make it be something, but we're trying to be really realistic here. Equipment leases. Let's hope we get away with doing nothing. Inventory, raw materials and parts remember monthly different than our start up stuff appear. So this is variable, remember? So what are we gonna need every month to sell our thing that we're going to sell? Let's say, to start off 500 bucks franchise fee. Nothing. Health insurance don't have any employees. We don't need that. Even if we do have employees, we don't need that. It's nice, though. Internet Connection. Our Internet bell That's going about 100 bucks loan and credit card interest and principal . Let's try not to get in that whole right away. Legal and accounting fees. It's good to set aside some money for that every month. So let's set aside 50 bucks for that every month. Merchant account fees be like our credit card processor, probably for doing that PayPal thing. It's not very much Let's go with 50 miscellaneous expenses. That's tuck away 50 for that mortgage payment. Nothing but the least payment. That would be our rent. So that's gonna be somewhere around there. Probably salary for yourself. Oh, they have this set up a separate thing. So let's put something here. Let's say 500. We're gonna pay ourselves 500 a month to get started. That's not much, but we're going to suffer a little bit to get this off the ground, and then we're gonna build it up. Payroll taxes and self employment tax. Um, we've talked a little bit about taxes in the previous class. Um, let's set aside a little bit for that now, um, and hope we don't need to do with it all that much. At least not until we have employees, postage and shipping costs. Um, if you need to mail stuff, you need to plan on this. Um, if you don't need to mail stuff, you have to worry about it. In my business, I don't have to mail stuff. Hardly ever. So, um, I'm gonna say zero security system, monthly payment, monthly costs and your security system lines. About 25 bucks. Miscellaneous supplies, Staplers, pens, pencils. I don't know. Let's say 25 bucks a month. That's kind of a lot if you think about it, um, telephone. So my telephone bills about 80 bucks, But that also includes my security system and my internet. So let's say 40 travel not going to any right away. Public utilities All told will say 50 bucks website hosting in maintenance. This should be about $9 a month. It's really just the hosting that we have to worry about. We're gonna do the maintenance ourselves. 00 Okay, so 3000 bucks in monthly expenses. Not that That's our burn rate. Right? So now we have to make $3000 a month in order to cover our expenses. Hopefully, we're gonna make more that we can inch this up every month and we can chip away at any debt we took out to get started, which we'll talk about next. So what they have here is average monthly costs, and we're going to calculate this over a certain number of months. So it's a six months, so over six months that $18,594. So the reason we have the six month thing here is that we're still thinking startup costs. Right? So we're gonna try toe, start up with six months of not making a single sale, we're gonna assume that the worst case scenario happens not a single sale for six months. This is how much money we need just to keep the business open. So our total start up costs is gonna be $28,000. Um, that's great. Um, that's not too much. That's not nothing, though. So we could If we're thinking about worst case scenario, we could take this down to one month. Then we actually only need $12,000 to get our business started. Um, cool. That can be done. Let's put this back to six. Just because we want a plan for the worst so that we're always happy when the worst doesn't happen. Okay, great. So do this worksheet. We're gonna fill in the actual as it comes, and we're gonna hope the actual is less. Ah, Then what we planned on. But this is a good way to get us started. All right? So fill this out. Just take a guess. So this document is in the next ah segment. Download it and play around with it. Um, And then let's talk about how to get some money started 10. What Is Equity Financing?: Okay, let's talk about getting some money to start your company. So there's there's kind of four different things you ca ndu on A. I've talked about this a little bit already, but their equity financing, debt financing grants and then bootstrapping Um, so let's talk about equity financing first, and I'm not gonna lie. This is my least favorite, and I'll explain why, Ah, at the end of this segment. So what is equity financing so equity means Ah, who owns the company? So right now, if you just started a company, you own 100% of the company, you own all the equity in the company. What equity financing does is we break it up into little pieces, and then we sell essentially pieces of the company, and we do that to raise money. So if you've ever watched like Shark Tank or something like that, and you see the discussions going like someone says, I'll give you a $1,000,000 for 20% of your company. That's equity financing. That 20% is ah, they're buying for a $1,000,000. In that case, they're buying 20% of the company, and we do that to raise money to get the company started. Now, why doesn't investor do that? Um, the reason the investor does it is that they're making a bet. They're making a bet that they're 20% of the company is going to be worth more than what they paid for it in the near future. So if you're just getting started and you're opening a new company and you go to an investor and you say I'll give you 10% of my company for, ah, $100,000 then what the investors going to do is they're gonna look over your company and all the details, your business plan, everything you've got and they're gonna look at it and they're going to say I think this company could blow up. I think this could be a really valuable company. So sure, I'll give you $100,000 for 10% because I think and this is the investor talking that that 10% is going to be worse. Um, a $1,000,000 in a couple of years. Once this thing really takes off, they're banking on your company being really successful, and then they can sell back, or they can try to sell back their equity in the company for that new value. But it could go the other way, right? They could say, Okay, I think this is gonna be really successful. I'll give you $100,000 for 10% and then your company could totally flop, and then they've lost all their money. That's it. You know, it's not alone. It's just They bought a piece of the company and the company didn't do well. They lost their money. That's the way it goes. So ah, you have to find people who are willing to take that risk. But you are selling pieces of your company. So at the end of the day, you are giving up some control of the company. Um, you are You no longer own 100% of the company. You might be the boss, and you might still be running the company. But if somebody has 40% of your company and you have 60% of the company, that 40% person has a lot of sway. You know, if they take their money and leave, then you're in trouble. So you have to listen to what they say they are a partner in the business. If somebody has more than 50% if somebody has 51% of your company, they own the company. They are running the company, not you. So don't ever give up 51% to any single person. Um, so that's what activity financing is. It's selling off little pieces of your company in hopes for money to get it started. Or a lot of people do this with already successful companies, where they will do a round of equity financing just to raise more money to do something new . So let's say you've been in business for 10 years, and the business is going really well, and it's worth a good amount of money. But now you say, I'm gonna launch a new product into the market, and in order to make this product, I need a $1,000,000 upfront in order to make this happen. So they do another round of equity financing, sell a little bit more of the ownership of the company to raise that $1,000,000 to ultimately make the company more valuable. That's how equity financing works. Um, so there are kind of three main places that we go to for equity financing. Eso Let's go into those in the next three videos and we'll talk about kind of where to start. 11. Friends And Family Round: Okay. The first place we always start with equity financing is friends and family. So we call. Each of these are around and in equity financing. There's a whole bunch of different rounds, and there's a lot of technical stuff. If you really want to set up equity financing properly Ah, you really, really need to go through a lawyer. You have to have this really set up. You can kind of willy nilly do it a little bit, um, by this kind of making promises in writing out contracts. But you really should if you're going to go to investors like we're gonna talk about the next two videos, Um, you really need to have a lawyer set this up for you. There's a lot of legal things that need to be squared away, and it takes some time to get this all set up. So it's interesting that to do equity financing and actually cost you a little bit of money you need to have some money in order to set up equity financing because you're gonna have a pretty hefty legal bill just to do, um, the front end of it. So the first round, um, is almost always friends and family. So when I've done equity financing with our companies, it was painfully obvious that no hard core serious investor is going to be interested unless we, the company, were able to get our friends and family interested as well. So what psychology, Right? The the big investor who maybe we don't know it all is going to say, Well, if you couldn't get your friends and family to believe in this company, then there's no way I'm gonna believe in this company. Those closest to you wouldn't invest in your company That says a lot to an investor. So you start with friends and family. Ah, and it's awkward and socially weird, but it's really kind of expected. So you do a round of, you know, earmark maybe 10% and say, That's even maybe high, maybe 5% and say, I'm going to go try to sell 5% of my company to my friends and family. You don't have to raise a lot from your friends and family, but, um, try to raise as much money as you can go to your wealthiest uncle and say, I'll give you 1% of this company. That's gonna be worth a lot of money. Someday I'll give you 1% for $5000. Let's see if they'll give you $5000 for 1%. Um, so go to everyone. You can think of any friends, any family, any wealthy person down the streets any anything. Ah, you can dio. If you want to do equity financing, keep in mind if you're thinking to yourself, old man, I don't want to do that. Uh, keep in mind, this is only one route to financing and we're going to go into some other routes to financing as well. The other ones don't involve this. Once we get into that financing grants and bootstrapping, they don't involve bugging your family and friends, although it never hurts. Um, you could always take money from friends and family if they're willing to give it. But in equity financing, that's where we start. You do around of trying to raise money from friends and family, and if your unsuccessful, you're probably not gonna be successful with the bigger investors. Um, who we will talk about next. If you want to get started with equity financing, you can start with friends and family in order to raise the money that you need to do all the legal paperwork to bring on a serious investor. So without doing any legal stuff, go around to your friends and family and say, Will you invest in my company making agreement for what they will give for what percent you can kind of write them basically an IOU and say, This is what we're gonna dio then ah, get their money. And then and then with that, you can take that money to your lawyer to get everything else set up. Um, presumably your friends and family trust you that you're actually going to do that and they'll get some legal documents later that says exactly what they get for their investment . What their equity stake is, So we call an equity stake means how much of the company they now own. So, um, it's common to do kind of handshake deals right away with friends and family, and then get them their official documents later, and that will get you the legal costs. You need to get everything all set up if you're going to do full on equity financing. Okay, After you do that. Um, if you're really gonna go all out, then you will go after some angel investors. So let's go to a new video and talk about angel investors. 12. Seeking Out Angel Investors: Okay, Angel investors, these are annual investors are, um, about as common as actual angels. They're rare, Um, is what I'm trying to say. And but if you find one, it's pretty fantastic. If you get one interested in your company, what an angel investor is is it's either a person or a group. There are groups of like, ah, lot of times you'll see investors get together and kind of start like an investment club to be angel investors. Angel investors come on early to a company, which is what you want, and they come on big, their their big risk, big reward kind of people. Um, So if you're going after an angel investor, you're typically talking around 20 to 40% of your company is what they're gonna want. If you go to him with, say, you know, 5% of your company for X amount of money, they're not gonna be interested. They want a lot. They want a lot of your company 20 or 40% eyes, the range that they typically live in. So you're gonna you could potentially give up 40% of your company. Think about that. That's a ton of your company, but, um, Angel investors are also super rich, so you might get a lot of money for that. Ah, if they think you're company is really gonna go somewhere. The other thing that angel investors tend to do is when they invest their money, they also often not always, but often invest their time as well. So they will lend their expertise. And these are usually really smart business people, um, into your company. So again, the shark tank thing, those air basically angel investors, they want to lend their their time. And their resource is to your company, not because they really care about you all that much. They're not, like, interested in you. Usually what they want to do is protect their investment. They're gonna give you a bunch of money for a big chunk of your company, and then they're gonna devotes from resource is to make sure that your company is going to be successful and they're gonna get their money back. And they're going to make a good amount of money off your company. So ah, angel investors, you get money and you often get Resource is so it's great. It's really great. There's nothing bad about having an angel investor in your corner, except they're going to take a huge chunk of the company, which is scary. And, um, you're not gonna get the interest of an angel investor without having all your ducks in a row in terms of your business, plan has to be spot on. Perfect. Ah, your legal stuff has to be all sorted out, and even then, it takes a long time. So an angel investor is gonna want to do their homework. So if you get an angel investor interested in you, then they might say, OK, I'm interested. But then they're going to study up on your company. They're going to make sure that the market that you're promising is riel. Like, if you say I can own 50% of the market in this area, then like let's go back to our shoes store analogy. If you say, uh, in my town, I'm gonna be the second biggest shoe store in the city. If that's the promise you're making, they're gonna do some homework and see if that's realistic. If they think it's not realistic, they're not gonna invest. But if they think it's realistic then they might. So that's an angel investor. They're great. Ah, there. But it's rare. To get one, you can find them. You confined organizations that list themselves as angel investors. And a lot of time, they'll have, ah, ways that you can submit a proposal to them. Um, but if your plan is to wait to start your company until you get money from an angel investor, the odds are you will be waiting for a very long time. Think of an angel. Investor is kind of like linnet winning the lotto. If one comes knocking. If you find one and they want to invest, probably a good idea to take it. Um, but don't wait for one. Ah, because you're gonna be waiting for a long time. Okay, let's talk about venture capital. 13. Venture Capital: Okay, Venture capital venture capital is usually a firm, so it's a company who's entire job is to finance other companies. That's their business. That's what they do. Um, so you can go to a venture capital firm and say, you know, would you give me $100,000 for 10% of my company? Uh, and it might. They work a lot like Angel investors in that, um, they'll do some homework, they'll make sure it's a good bet, and then they might give you money for equity. The difference in venture capital is that the less often fund start ups so it's less likely to get money from venture capital if you haven't proven that you can make money, Um, whereas angel investors are kind of the big risk big reward venture capitals are going after low risk, big reward. So they at the end of the day, venture capitalists want to make money. That's their job is to make money from your company so they're going to invest on Lee. If they see very little risk and a lot of potential reward, you will like angel investors. You will often with venture capital, get additional resource is with their investment money. But what they really want to see is that you your company, is going to grow fast. Um, so right out of the gate, you're gonna be in business for a year, and you're gonna be worth twice as much as when you started. They want to see very fast growth. So So you really need to impress them with that fact if they're going to come in as equity holders. And again, venture capitalists are unlikely to get really excited about a startup company. Unless you have, like, a number of patents or something like that that might That tends to get venture capitalists excited. Um, but also angel investors get excited about patents, but again, it's good money, if you can get it. 14. Finding Investors: Let's talk really quick about finding these investors aside from friends and family, which you already know. Um, how do you find angel investors or venture capitalists? Well, it's actually quite easy. Um, I'm just going to search the interwebs for venture venture capital, Minnesota, which is where I am now. Venture capitalists like to typically stay in their own region or their own field. Now the own field means that there are some venture capitalists that will focus specifically on technology or ah, medical devices or something like that. Medical devices is a big thing where I live. So there's a lot of start up capital for, um, medical devices. So when when I just look for venture capital Minnesota, Google tells me there's one here called Oak Investment Partners. They manage about $8 billion in assets. Right now, that means they have $8 billion in equity out. That's a lot. Here's some other ones. Here's Ah, Venture Capital Association. Thes people actually have a meet up that I've been to before, where they this this conference thing, where they kind of talk about what they're looking for and different people speak. It's actually really interesting. Um So you probably have something like this where you are. Um so just look around online and you confined resource is that these people have Similarly I can look for angel investors in Minnesota and find Twin cities. Angels is an organization that focuses that start up, go for angels. Another one in our fair city. Um, here's an angel investor meet up, um, Twin cities Angels. There's a lot of different things. Um, let's look at Ah, Twin Cities Angels. So this is an organization that funds startups here. They're listening. They're criteria what they're looking for and how to apply so you can apply for money from these people. Ah, this is what they need. And if you're willing to jump through these hoops, you might be able to interest them in your company. So but be sure to read ah, what they look for because you might not even be eligible. Ah, if these investors are looking for Onley medical devices than my shoe store is not gonna be interesting to them at all. So keeping I keep keep that in mind. But, you know, just searching around online, you can find these people. They're not mysterious. people. There's an idea that an investor is hidden behind a cloak of secrecy and that you could never find these people. Now they're out there like they want to be found with the right opportunities. So, um, search around, you'll find him. 15. Warning!: Okay, One last thing about equity financing, a warning? The reason I don't like equity financing other than it's a mountain of paperwork, and it's fairly tedious. Ah, is that you're going to give up a lot of your company. You're going to give up control of some amount of control of your company by selling it off . But the biggest thing is that you're going to be taking on these investors as partners, which means your vision for the company is no longer the only vision at the table. And sometimes it's worth taking on these people as partners in order to uh, have the resource is that you need to really do what your vision is. However, if you take on an angel investor, for example, and they give you money, they are now a partner. If you want to get rid of that partner, you have big problems on your hands. It's very, very difficult to get rid of an equity partner, someone who owns equity in your company. If you no longer want them anymore, you can't just go to them and say, OK, I'm going to buy back your equity now and give them money it doesn't work like that. They have to agree to sell it. It's like property. You gave him something. Now they if they want to sell it back, they can. If you agree to buy it back. But it's theirs, they own that part of your company. You can't force them to sell it back. There are some situations where that can happen, and I've done that. And I'm in the middle of one now, actually, of buying back equity from a partner that I didn't want any more. It's painful and it involves a lot of lawyers and it essentially results in a lawsuit in some ways or another. Um, but it's really tricky to do and you don't wanna have to do it. So don't take on partners if you are not going to be the perfect partner for you, and these investors are coming on board as partners and you have to keep that in mind. That being said, if you need a ton of money to start up your company, then this is probably your best route. All the other things we're going to talk about will get you the startup costs you need. But in the order of thousands or tens of thousands of dollars. If you need hundreds of thousands of dollars or millions of dollars to get your company off the ground than equity, financing is your best bet. So equity financing will get you the most amount of money. But it will also let you lose control of some of your company. So it's a trade off, right? My personal philosophy is we don't need millions of dollars to get our company off the ground. We're gonna think small, and then we're gonna build big. And by doing that in the long run, we're going Teoh, make more money from our company. Like I said at the very beginning of the first class I made, I don't think of running a business as I'll get rich quick scheme. Running a business is a long term thing, so we're gonna If we're in it for the long haul, then we can start smaller and grow and keep all our equity to ourselves. That's where the other forms of financing coming to play. So let's move on to the other forms of financing 16. What Is Debt Financing?: all right. Debt financing. Um, another avenue. You can go down. Um, this one is in many ways easier than equity financing. I would say it's actually a lot easier than equity financing. Equity financing is a pain in the butt. Um, you have to find investors and court them, and it's a whole ordeal. Debt financing is basically ah, fancy way to say it's alone. You go to the bank, you get alone. However, ah, getting a loan for your business is a little bit different than getting alone for yourself when you're financing your company with debt. What you're doing is you're taking out a loan from the corporation. Now, remember, if you set up your company as an LLC or a corporation, any of the different types of corporations, then your company is legally more or less a person. And that person has a credit score and, um, can take out debt. It totally can, however. Ah, just like a newborn can't take out a mortgage. Neither can a very new company take out a whole bunch of debt. Um, not only is that a bad idea, but it's also very hard to get a bank to say, Oh, your brand new company and have no history of anything and no money. Sure, we'll give you money. Why not? Um, that's unlikely to happen, but it can be done if you're willing to jump through a couple of loops. So So let's talk about how that process works, and you can decide if you want to go down that road. In my experience, I've never done debt financing. I have taken out loans. So one of my companies, we did straight up equity financing. Another one of my companies, my main companies, Lamb Academy. We've done bootstrapping, which will talk about soon, however, at Slam Academy. Um, not that long ago. Just about a year ago, we took out, um, a bit reasonably big $40,000 loan to Dio. Ah, a really big advertising push. So that's not the same as debt financing. That was just alone to do a new thing. And I only did it because, um, I knew that we could pay it back in four or five months, and we did so that's all paid off now, But, um, taking out a loan to grow your business is different than starting your business off by taking out a loan, because the main difference is that it was easy for Slam Academy to take out a loan because we had a credit history by that point, we have been in business for about four years, so that's three years is kind of the magic number for that. But we'll talk about that in just a second. Okay, let's dive in and talk about the nitty gritty of debt financing. 17. Lenders: Okay, let's talk about lenders. So lenders are the people that are gonna give you the money, and the most obvious one is banks. So you go down to your local bank. Many banks are friendly to small businesses, and they advertise, you know, small business loans, and you can go down there and look at their terms. Now the best thing to do is to go down to your bank and talk directly to a banker. I mean, look at their terms of their small business loans, but ah, it's usually at any respectable bank. You can talk to a banker and just say, This is my situation. What's my best plan here? And they will be totally honest with you. They don't work on commission, so they'll say, You know, I can't give you a loan based on what you got, But there are other lenders that exist, and you can get a little creative, um, people, and let's go back to friends and family. You can borrow money from anyone and remember, this is not equity. You're borrowing money that you will pay back. You're not giving anyone any equity in debt financing ever at all. Um So what you could dio is Well, basically, the reason someone would loan you money is that you're going to pay it back with interest. So that could be through a bank. Or it could be through an individual if you know someone, um, who is willing to invest in your company, but you don't want a part with equity, Then just say, Hey, how about you give me alone? Um, give me $10,000 I will give you, um, $12,000 in a year. You know, if you think your business is going to be successful, then that's pretty good deal, so you can sometimes make that happen. So anyone who has money can alone you money. That's totally fine. You don't have to give them equity. You can give them interest, which is what a bank will want. Now, speaking of banks, if you go into a bank and your brand new company, you don't have any credit history. Ah, the company doesn't have any credit history, and it doesn't have any money, and it doesn't have any history. Then, uh, the bank is probably going to say I can't give you alone because I have no way of knowing if I'm gonna if it's going to be paid back because that's how a bank makes money, right? You pay back the loan with interest. So what might be required is that you personally guarantee the loan, which basically means, uh, even though your company is kind of its own person, you're gonna essentially co sign the loan as yourself. So you're going to say to the bank, Okay, it's a new company. But, um, if you give this company alone and the company cannot pay it back, I will be on the hook for the loan. So you're kind of taking away some of your, um, liability protections that you have in being a corporation or an LLC by saying by putting your own money on the line, But, you know, risk and reward, Right? So that's the risk you take with banks. Now there's are some places that are designed exactly for what you need, organizations that give loans to new companies that don't have much history. And that would be, ah, the S B, a small business authority, that Small Business Authority administration. Sorry, This is a government run organization that's sole purpose is to help small businesses get off the ground. So let's go to a new video and talk about the SP a little bit. 18. The SBA: Okay, so here we are on SB a dot gov. So this is the federal, um, small business administration website. You might have a state small business administration website as well. That has, uh, other programs. But let's just really quick look at the federal one. So if I goto loans and grants, um, I can look at S B A loan programs. So they have a lot of programs that are really designed for just this thing. Okay, so, general small business loans, disaster loans, loan programs, real estate and equipment loans, and a micro loan program Microloans are small loans that need to be paid back quick. Um, let's look at a general business loan. So they call this the seven A loan program. And let's just look at the eligibility requirements really quick. Okay, So let's just look at the who is eligible. Okay, so this bulleted list is who is is eligible. So you have to, uh, operate for profit. That means you can't be a nonprofit. You have to be small as defined by the Small Business administration. Um, you're probably small. You can read that, though, if you want to be sure, be engaged in or proposed to do business in the United States or its possessions. Okay, Eso you have to be us have reasonable invested equity so that I think that what they mean here is that you the person applying for the program must be a large equity holder in the company. So you so probably have over 50% of the equity. So if you've already given away over half of your equity, this is not a good plan for you. Use out turn. It'd financial resource is including personal assets before seeking financial assistance. So I think what they're saying here is that you have to have tried to, uh, get a tradition alone before coming here. So have a bank turned you down is pretty easy. Be able to demonstrate a need for the loan proceeds. So basically, you need to tell him what you're gonna do with it. Use the funds for a sound business purpose. Ah, it can't be like I want to start a business to, um, try to communicate with aliens on Mars. It's unlikely that they're gonna fund that, um, not be delinquent on any existing debt obligations to the U. S. Government so probably what they mean here. Ah, reading between the lines is you can't be. Can't owe any taxes. You've got to be up to date on your taxes and stuff. Ah, and then there's a big, huge list of who is ineligible, Um, which you can go over. So these loans typically have a reasonably low interest rate, but they still have interest. Um, but a reasonably low interest rate. Um, and there are a little bit easier to get if you don't, um, have much credit history. But you have a good plan. Um, and a good, well thought out business. So it's worth looking at. I've never done this, s o. I can't say how painful or painless it is, but it's really worse exploring 19. 21 QuestionsAndDocuments: Okay, let's talk about some of the questions and documents you will need to be prepared for. Ah, when you're applying for a loan for your business? Um, a couple things. How much money do you wanna borrow? That's gonna be an obvious thing, But, uh, you gotta think about that. Their strategy Here. Do you ask for as much as you possibly can, Or do you ask for the smallest amount that you actually need? Um, that kind of depends on the loan, but, ah, in my opinion, you should ask for the smallest amount, the actual need, because you don't want to be carrying a lot of debt. A zoo, Long as you have debt, you're not making profits, cause all your profits, Most of your profits will go to paying back debt. So take out the most minimal amount that you need. Um, they're gonna ask you how you're gonna use the loan. Ah, they're gonna ask you how you plan to repay the loan. So they're gonna need to see ah in your startup budget and your recurring expenses. Ah, line that says, ah, loan payment. Right. So they need to know that you're gonna pay this back, Collateral. Do you have collateral that you can put up for the loan? So that means does your company already owns some stuff of value that you can use to guaranteed alone. So do you have 12 computers? Do you have equipment? Do you have a car, a company car, anything like that that the company owns that you can, um, se if I can't pay it back, you can take these things. Essentially, that works. And then the big one, Are you willing to personally guarantee the loan? Meaning if I can't pay it back? Ah, you can come after. If my company can't pay back, the bank can come after me personally for the loan. And if you have good credit and you, like, own a house or own some property or a car, then Ah, that will really help you get the loan. Um, hopefully it will never come to that. Right, Because your business is going to be successful and you're gonna pay back the loan. But if it's not, then, um, the bank needs to know it's got a Plan B, basically. Ah, documents. You should be prepared to have, um, a business plan if you have one. Ah, the certification documents that you got from the state when you created your company, they're gonna want to see those just to make sure you're all legit. Ah, tax returns for the last three years. This is something that banks love to see. Tax returns for the last three years. It shows how much money you made, uh, how much money is spent. But ah, if you're just starting your company, you definitely don't have tax returns for the last three years for your company. So, um, if you don't have those, it's not a deal breaker. It's just makes life a lot easier if you do have them. In absence of tax returns for the last three years, you can often provide ah, profit, profit and loss statements. We call that a P and l statement. It just kind of says how much you're making and how much you're spending. This is not a government document. It's, ah, usually an excel sheet. Or if you're using some kind of accounting software like QuickBooks or something, uh, it can spit that out for you. Um, and if you're just starting out, that's fine. you still have a P and L statement? It might not have anything on it yet, but, um, that can help to show kind of how you're spending money. And that might be all the documents that you need. You're gonna have to fill out a formal application and stuff like that. But, um, if you're putting up personal collateral, they're going to need some personal stuff from you. Um, but that will get you out the door with alone. As long as the bank likes everything it sees. Remember, there's a little bit of discretion here from the bank lender that they will say, I can do it or I can't do it. And sometimes it's obvious why. And sometimes it's not. Sometimes it's just a bad day for banking, and they don't want to do it. Okay, let's talk about some of the terms of these loans 20. 22 Terms: okay, There's a couple things that you should expect to see in the loan terms. Let's go over a couple of them. Not all but a couple of interest. Obviously, that's the biggest one. So it's gonna be an interest rate. It's if you're going to a reputable bank, it's not gonna be crazy. It's gonna be pretty much in line with the federal interest rate at the time, so it's gonna be what it is. It probably won't be insanely high. However, There might be some additional fees just right up front, and you might incur some additional fees as well. So let's think about that. So the bank might have some fees that it charges you to get the loan, Which sounds crazy, right? Because they're going to give you money and you're gonna give a little bit of it right back to him. But it's a Waco sometimes, so make sure that those you're okay with those. Read the fine print on that, and then you might be incurring some fees just by taking out a loan, meaning you might have to pay your accountant to help you with the loan. You might have to pay your attorney to help you with alone. In my experience, I haven't needed an attorney to help me with alone. Um, however, if you have an attorney that you like, anything you sign is it's not a bad idea to run that past your attorney, but, um, certainly, if you need a second set of eyes on the terms of the loan, your attorney is a good person, but you're gonna have to pay your attorney. So keep an eye out for that Look. For payment terms, grace, period and pre payment are the things that I always look out for. So, grace period means Ah, your monthly payment is due on the whatever the 10th of the month. How long do you have to actually pay that? Do you need to make sure the check is there on the 10th or do you have, um, the month to pay it Basically, also, you might get a grace period at the beginning where they give you the loan, and then the first payment isn't due for six months. If that happens, see if interest is accruing in that 1st 6 months. If it is, you're better off starting to pay it right away, in my opinion, and then pre payment comes down to Is there an early payoff penalty? So when I take out a loan, I like to pay more than my payment. Ah, I like to pay as much as possible because I don't like to have a lot of debt on my books, So I want to get that thing paid off its fastest possible in some loans. There's a penalty for doing that. So if my loan is set to be paid off over five years and I pay it off over one year, I might get stuck with a bill for the remaining interest for five years. It's possible I've seen loans like that, Um, and that might be fine if you have. If you're someone that doesn't mind carrying debt like that, the last loan, the big loan that slam academy took out, I just kind of earmarked in my budget. 1/3 of every dollar that comes in is going to pay off that loan until it's gone. So that was a really, really aggressive schedule. Um, I just said we're just gonna knock this out as fast as possible, and so we just had to tighten up our spending on everything for, um, a couple months while we knocked that out. But we did it. We knocked it out fast. Um, and that loan had no prepayment penalty. Um, so it's gone. It was good. Everyone was happy. Um, other terms might be the use of the loan money. How can you use it? They might have stipulations like they don't want you to use it for rent. There might be something called a capital expense. Um, stipulation in their capital expense is usually defined as a single thing over $5000. Um, at least in my world, that's how it's defined. But the bank might define that differently. So what they're saying is they don't want you to buy like a car with it. Um, they want you to use it to run your company, but not by you can buy stuff. Um, totalling over $5000. That's fine. But you can't buy a single thing that's worth $5000 because that would be a capital expense . And they don't want you to do that. I'm not saying all loans have that stipulation in them. Some loans do, though, So look for if you need to buy a capital expense if you need to buy a machine, that's $10,000. A single thing. Make sure you don't have limitations against buying capital expenses. Another thing to keep an eye out for in the terms of the loan is, Ah, what happens if you default? Not something you want to think about. But what happens if you can't pay it back? Do they just come and take your house? How does that work? Um, that's something that will be spelled out in the loan documents, but also that's a conversation you should be able to have with the banker because, remember, the bank doesn't want to do that. They don't want to come and take your house. Um, because that's a big pain for everybody. They want you to just pay it back, so they're going to have some things that happen. If you can't pay it back before they just come and take your house, because that's what they want you to do. They want you to pay it back. So keep an eye on for all those things. There's gonna be more things that come up in a that in the terms of alone, But those air kind of the big things that I always look for. 21. 23 FactoringInDebt: Okay, so I'm back in our start up costs spreadsheet here. Um, and I just want to point out one other things. So what we have here is a section for loans. So let's say we got a $10,000 loan. Great. Now I have 10,000 bucks, right? Well, we actually 25 because this figures owner one is going to contribute 10,000. Owner to is going to contribute 5000. Get rid of those if we wanted. Okay. Now we only have 10,000 bucks. Don't forget about this line down here, which doesn't automatically fill right here loan and credit card interest in principle. That's your monthly payment. So if you need to pay back Ah, this $10,000 alone in terms of 250 a month, If that's what you want to do, be sure you factor that into your average monthly costs. It's gonna be a fixed cost. Um, it's not gonna go up over time, but in a way, it will go down over time, right? Because it's not gonna gradually go down. You're gonna pay whatever you pay. Let's say 250 every month until that loans gone but sooner or later, that's going to go away. But for the foreseeable future and definitely for these six months that we're calculating here, it's gonna be there. So don't forget to factor that in tow. What? You're actually to your monthly expenses. Cool. Okay, let's move on and talk about grants. 22. 24 WhatisAGrant: All right, let's talk about grants. So grants are fantastic. And no matter what kind of funding you're doing for your company, you should always keep an eye out for grants. Um, because if you have a good opportunity to go after a grant, you should you should seize it. You should go after it. Um, so what is a grant? Ah, Grant is money that you get that does not need to be repaid. That makes it sound like it's free money, and it's kind of free money. You can think of it more like it's free money with strings attached. It's not just that you ask for money from someone, and they say, Sure, and they give you money. Usually to get a grant, you have to go through a fairly UM, not long, necessarily but specific application process. So they're gonna ask you very, very specific questions because they have very specific things that they give money to. You have to go through this application process. It's usually very competitive, which means there's a lot of people applying for not a lot of money. If you get it, then they just give you the money. It does not need to be paid back. There will be restrictions on how you use that money. You do have to use that money for the things that you say you're going to use it for, and you're going to have to in most cases, prove it later. So grants usually have what's called a grant period. So it will either be like a year or two years or sometimes four years, something like that. So let's say you get a grant that has, like, a two year period to it. So at the end of that period, you will probably have to provide a report, which means you'll have to write up a couple pages and they'll give you outlines on what exactly they want to see in the report. It's not like a stressful thing, But, um, you have to provide a couple pages, and you you might need to provide also documentation that says what you use the money for, how it affected your business and things like that. So there are some strings attached that different grants only fund different things, so you might find like a technology grant that will help you buy some new computers or you might find just like a general startup grant, that's possible. And they do exist. It will look at some in just a minute, but more times than not, they're going to be more focused. So Ah, you don't need to pay him back. There is some tax things that you need to think about with grants. They are often taxed as income, which is, uh, catches a lot of people off guard. So if somebody gives you a $10,000 grant to the I. R. S, you just made $10,000 you have to pay taxes on that. So when you get a grant first thing, you should always do call your accountant and say, Is this taxed? And, ah, what's my best route to make the taxes as little as possible on it. And then if he says, okay, you're gonna have to pay 2/3 of that or not 2/3 that would be insane. Um, you know, 1/4 of that is gonna have to be paid in taxes than set 1/4 of it aside right away because you don't want to spend the whole thing and then get a tax bill. Okay, so, uh, in this section, we're gonna talk about, um, going after some grand. Some techniques. I've done a lot of grant work in the art and music world. Grants are the main thing. So I've written hundreds of grant applications I've been on, uh, maybe not hundreds but close to 100 grant panels where we select who gets the grants. So I've seen this from both sides, inside and out. I know this process really well. So we're gonna talk about some tricks for not tricks, but some strategies I should say for getting grants, places, defined grants and what to do when you get a grant or when you don't get a grant. Okay, so let's go into the next video now, and we're gonna start talking about considering your niche and a couple other strategies for getting grants 23. 25 ConsiderYourNiche: a great strategy for getting grants is to can what I call consider your niche. This is, uh, not always a great thing. This doesn't work in your benefit all the time. Um and you can have different opinions on what I'm about to say, and that's totally allowed. But I'm just gonna tell you how it is. There are a lot of grants for specific niches, and by niche, I mean a type of business. So if you're in the nonprofit sector, definitely there are a lot of grants. Holy smokes. There's a lot of grants if you're in the port for profit sector, um, there are less grants, but there are still some good start up grants. There are grants for different types of people. If you are a woman starting a business, there are specific grants that Onley fund women run businesses. If you are African American, there are specific grants for that toe. Help you out. There are if you are a Native American, there's specific grants for that. Um so consider if you have something in a cash. I hate to say it this way, but consider if you have something you can take advantage of, um and see if there are grants specific for that because there likely are, um and you know, I'll just defend this for just a second. There are good reasons that a lot of those grants exist. Um, historically, it's been harder for an African American to start a business for women to start a business . There are less of them. There are less businesses that are run by African Americans and run by women. Ah, and that's not okay in our society, in my opinion. So there are grants to help even out the playing field. Um, so ah, those grant programs are fantastic. In my opinion, they don't benefit me at all, But that's OK, so keep an eye out for those. Another thing I want to point out is that grants. In my opinion, the best way to apply for a grant is Teoh do this kind of set it and forget it kind of mentality grants in many ways, air kind of like the lotto. Um, I think I've talked about the lotto, uh, in the past, but what it is is you can spend all that use, but all year, just applying for grants grant after Grant after Grant and my strategy has always been apply for the grant to everything you can to make the best application possible and then get it in the mail or send it off and then forget about it. You will either get a letter that says, Sorry you didn't get the grant. At which case you will have totally forgotten about that Grant and you'll read the letter and you'll say, Oh, yeah, I forgot about that one. OK, well, whatever. And it won't affect you, um, 99% of the time, that's letter you're gonna get, because remember, these are very competitive or you'll get a letter that says you got it. Here's a bunch of money and you'll be like, Oh, I totally forgot about that. This is also so Ah, your best bet is to not stress every day about checking the mail to see if you got that grant or not, because remember these air super competitive. The odds are you didn't get it. So put your best foot forward. But but don't count on getting it because you know ah, they're tough to get. They are. But if you get good at it. Ah, and it is a skill. Applying for grants is a skill, and if you get good at it, you'll start to get that more and more and more. Okay, let's talk about a different kind of three different types of grant opportunities that exist. 24. 26 FederalGrantOps: Okay, let's find some grant opportunities. So here's what you're gonna do. The first thing you're going to do is you're going to say you're going to search for small business grants, right? And what you're going to see as a whole bunch of garbage, Uh, you're going to see, you know, here's one of this federal government grants dot net si dot net with that makes it not really. If you see free in the title anywhere, then it's a little dubious to me like, uh, where to find free money. Um, want free money? I don't think those are legit. Um, you want serious riel stuff because there are a lot of predators out there that will make something look like a grant when it's actually alone or something worse. A really bad loan. So be careful. The best place to go is just Grant Stock of these were gonna be our federal grants. We're gonna look at a couple different kinds, so federal grants to start up your company. So let's go to search grants. Okay, there's tons of them. Here's 2050 grants. So let's just narrow our search here a little bit. Um, forecasted means upcoming and posted. We don't want closed ones, those ones where the deadline has passed. Deadlines are really important when it comes to grants. Ah, all funding instruments. It's just look for grants, eligibility. Let's see what our options are here. Cities or governments were not a government for profit organizations other than small businesses. That's not us school districts. We could be individuals, Native Americans, nonprofits, others, private institutions, public small businesses. Let's turn off individuals for now and just be a small business. Okay, categories. Um, there's special stuff for agriculture, community development, education. That's me. So I'm a small business in the education field. So let's leave that and then agency. Who's giving the money? Um, Department of Defense or Department of Health and Human Services? Let's just leave that on all So even in my little niche, I have 431 um, options. Uh, let's just look at one innovative molecular analysis. Technology development for cancer research doesn't really fall into what I'm doing. Um, can I? Let's search for a keyword. Let's see if there's anything for music. I really doubt there is. But oh my gosh, why don't I know about these already. Okay, Um, public engagement with historical records, I might be able to find something that works with that. So let's look at it. Okay, So what we're gonna need to do now is read this description and really think about Does this fit? Um, with what I do, Can I put together a proposal for this that I really want to do? Don't put together a proposal just to get money, because if it's something you don't really want to do, you could get the money and then you have to do that thing. And I've been in that situation where I just applied for something cause I wanted money, and then I got it. And then I was like, Oh, now I have to do this thing and I don't really want to do it. So, um, this one looks like they want me to do something with historic records, which I could think about, but this grand stock Gove's dot gov website is great. Gives you tons and tons and tons of grant opportunities. They're all gonna be legit. They're all going to be good. And can you apply through this website a lot of grants are now online application. So this we have to go to another site to get the final application rules. But but when it comes to federal stuff, this is the best best place to be. 25. 27 StateAndLocalOps: okay. Your state and city Jurgen Ah might and probably does have their own list of grants for small businesses to find it. For me, it's this eman dot gov slash grants. Uh, if you want to be sure you're on the right thing, we sure it's got a dot gov in there somewhere. That's gonna be where this stuff all is. And these might not all be government grants. The federal ones, too, that we just looked at. They might not all be money that comes from the federal government or the state government . They might be just grants that the federal or state agencies are endorsing as saying, These are legit. Um, so it might not all be tax money, essentially, but a lot of it will be here. I am on my state government grants site, and it's also really good. Let's look for Let's Look at education again. So adult education, education services, vocational tech schools, Department of Ad has some grants. Department of Employment had some grants. Um, you know, there's there's a lot of options here. Let's look at what Department of Ed has. So these this is just a whole other list of available grants, so there's a lot of state and local grants as well. Now, one tip I can give you about applying for grants is that I'm noticing here that there's a contact listed in an email address. Reach out to those people like I'm dead serious. Uh, whoever is in charge of this Grant wants to give you the grant. Think about it like that. They want to give you this money so they want to be emailed and asked questions. That's their job. That's their whole job. And in most cases, they love doing it because they have a great job. They had to give away money. So if you're working on this grant, email that person and say, Ah, I have a question, you know, is this better or is this better? Um, do they want to see this, or do they want to see that? You can ask that question. Um, in some cases, they might not answer it. They might say, I can't really tell you that, because that gives you an advantage. But most of the time they will, though they'll give you an answer. Um, you can even in a lot of cases You can email your completed grant application if you have time, meaning there's a deadline. But if you're ahead of that deadline and you have it all done with, like, two weeks despair, email your whole application to the person listed as the contact and say, Could you possibly review this for me and just let me know if I'm missing anything? Um, they will. Ah, lot of the time. Not always, but a lot of time they will, and they're not gonna. They're not going to respond and say, This looks great. Ah, you're going to get it They're not going to say that because there's a whole panel and the whole process to giving these grants. But what they might say is, this is in line with what we're looking for. A lot of the judges like to see more of X, y and Z. They might say you should beef up this section because that's what the the panel really looks for. They'll give you tips. They'll help you out because they want to give you the money, especially if you're really nice in your email. So reach out to these people. Huge, huge tip. Okay, going into something a little more nebulous. Let's talk about private and non traditional grants 26. Private Grants: okay for private and non traditional grants here. What we're talking about here is most big companies like big, big companies do give grants to people for are two other businesses for doing stuff that's in line with either their mission or something that they think might help them in the future. For example, um, let's just search for grants from Google. So Google is a monstrously huge corporation. Um, they give grants. Here it is. Ah, google dot com slash grants. They have their business, like all businesses, has, ah, certain mission. And they have their own nonprofit that they used to give away money. Lots and lots of big corporations do this. Now it looks like what we're seeing here is only their nonprofit giving. So, yeah, I think this is only for non profits. And if you're a business, you are a for profit. But there are places Google does give some money to for profits. Um, we would just have to find it. Try Google giving helping organizations changing the world. Sure, So I don't know for sure, but this might be you might be eligible as a for profit business, but they want specific niches they want people who are doing impactful stuff around the world. Disaster relief, global impact academics. So I might look into it community stuff so they have their own little niche. But let's say you're in the technology sector. A great thing to do is think about what's the biggest technology company in your state. So for me, that would probably be three m. So three m is ah, here in Minneapolis, just outside of the city. Ah, they're a huge company. Um, let's see what they have three m gives. Great. So they're going to give money Teoh their cause, but also people developing interesting technology. So some of this might be equity stuff, but most of it is probably gonna be a grant because they don't want to get too involved. Grants, matching gifts. Ah, nonprofits, employees in retirement, matching gifts. That's a little different than what we're looking for. But a lot of them do. Another big company for me in my state is target. Um, target. Ah. Grants target corporate grants. A lot of these companies are giving away money. So, um, if you're wondering who in your area is giving money and it kind of doesn't matter regionally to some organizations like Google. Google doesn't care if I'm in Minnesota or California. Um, for the most part, a good way to find out what companies in your local area are giving away money is Check out the list of funders for your local museums and symphony orchestras. That's what I always do. Um, there's gonna be a lot of individual people listed. Those people are nearly impossible to go after, but, um, a lot of times you'll see, you know, when I go to the symphony, it says, you know, sponsored by Target. So, you know, targets giving money Now the symphony and the museum is a nonprofit, but that means that they have a charitable wing and they might have some grants for a for profit. Um, so keep that in mind. Um, private grants do exist 27. Understanding The Source: Okay, One more tip about, actually, two more tips about applying for grants. Keep in mind where the money comes from, so Ah, this is an important thing. And in the art world, I do this all the time because I'm usually going after nonprofit grants. But in the for profit sector, it works kind of the same. So let's say we're going after one of these. Um well, actually, any of these. So ah, Department of Employment and economic development. Sure, Let's look at that grant. So where is this money coming from? This is a state grant. So the money from this is coming from taxes. It's coming from state taxes. So at the end of the day, what this grant needs to do is show that the money is benefiting the citizens of the state . It's because it's tax money, right? It's tax money, so it has to benefit the citizens of the state. So I need to keep that in mind when I'm writing my application right, because I can get it to benefit me. But they needed to see that it's benefiting the most people in the state, so I wouldn't apply for a state grant to do something in Egypt. Right? Because the state's going to say, Well, that doesn't benefit the state of Minnesota and its tax money. So, um, that doesn't fit what we need to do. What if I applied for a grant to open up a shop that that sold, um, books about Egypt? Um, that's okay. And to the to the people on the panel, they're probably going to say Okay, well, that's fine. We don't really care what you're selling. Um, what they're gonna care about is probably how many people I'm employing. That's gonna be a big factor if I'm employing a lot of people. If I am serving a lot of people, meaning that this is something that needs toe happen. Ah, Does my area have a bookstore devoted to Egyptian literature? And do we have a lot of Egyptian people? I don't know why I picked Egypt in this right now. Um, if we have a population of Egyptian folks Ah, and there's no Egyptian bookstore, then this might be seen as a need that tax dollars could fund. So keep that in mind, even with the private grants. Um, if you're looking at target uh, who does Target want to benefit with their money in one way or another, they probably kind of they're not gonna come out and say this, but they kind of want to benefit people that shop at target or wheel shop at target. So, um, and that could be anyone because targets, you know, huge. So just keep in mind the source of the money where the money comes from, Um, and let that influence the way you write the grant. A lot of people when they're going after a grant, forget about that. And they just say, I want to do this awesome thing. But the people who set up that grant, that's that wasn't what they intended their money to go towards, So keep that in mind. Source of the money is really important. 28. Recycle: Okay, Last tip about grants if you get into the grant game, as I call it, Meaning you're looking for grants, and you're occasionally applying for grants. Ah, recycle. What that means is, every time you apply for a grant, keep everything that you submitted everything you had to write. Um, Because if you apply for one Grant, you're gonna have to write a statement that says, you know, the question is gonna be something like, you know, write two pages about your personal ah, goals for your business or something like that. And you're gonna like tediously right these two pages, right? Keep that handy, because the next time you write a grant Ah, and you're in the application process. That same questions gonna come up and you can just copy and paste that sucker right in there. Um, maybe you tailor it, um, for the specific grant. But check it out. This is my grants folder, and I have, like, hundreds and hundreds of documents in here. This is only a very small part of it that's open. So Ah, when I am applying for a grant, the first thing I do is I go into that folder and say, What was a similar grant? Ah, And where have I written this same stuff already? Can I just pace that in there? I've gotten grants before that I don't even really remember applying for because I saw it come through. Actually, this one that I just did. So this summer Ah, I was in the Arctic Circle on a ship. Ah, on like our residency. It was totally bizarre, and it was beautiful. And when I got the email saying I had been accepted to this program Ah, I didn't even remember applying for it because I saw it come through. It's like, you know, here's a grand opportunity to go to the Arctic Circle, live on a ship for the summer and, you know, just do amazing things. I was like, Sure, and I just copied and pasted from other grant applications. I probably spent 15 minutes on it, Um, because I thought would be a fun and weird thing to do, and it was, and it was amazing and beautiful, and I shouldn't make it sound like I'm not grateful for that opportunity, but it was super weird. So recycle your grants, but taylor them every time, just slightly to fit this situation. Um, pro tip 29. Bootstrapping 101: Okay. Finally. Let's talk about bootstrapping. Now, this is my favorite way to fund a company. This is what I did with Slam Academy. A lot of successful companies have done bootstrapping. Um, bootstrapping requires no investors. You keep all of your equity. It requires no loans, but, uh, it is slow. It's a long game. Um, what you do with bootstrapping? Essentially, Um well, the term bootstrapping ah, is kind of a fun word because it both goes back to like, pirates. And, um, computer programmers use it to mean something. Um, it shows up in a lot of different, different things. But what it goes back to is like the idea of pulling yourself up by your bootstraps, right? So? So if you're standing up in your wearing boots and they have a little strap on him, imagine grabbing those straps and lifting yourself up, right, Like it's impossible. But the idea is you can get to a higher place without any other help. Um, by grabbing your own bootstraps and lifting them up yourself, that's where it comes from. So what it means essentially at the end of the day what it what it means is we're going to do the most minimal amount of investing we can to get our company off the ground, Um, in its smallest possible form, like it's just a baby of a company and it's essentially nothing. But we're gonna do exactly like, the most minimal amount that we have to do to make a dollar right, that we're gonna take that dollar and we're going to reinvest it into the company. And then we're going to try to make $2 and they were going to reinvest all of that into the company. And then over a long enough period of time, we're going to grow this into a big company. So when you get started with a bootstrapped company, you've got to be very lean. You've got to be very small, and you've got to be willing toe wait for the money to start coming in. What's great about this is that not only do you not have any debt, but you also get to test the market as a bootstrapping company or a bootstrapped company. What that means is, if you start selling something like, let's go back to the shoe store thing again, let's say we get our shoe store off the ground, and it's maybe just ah, little stand out on the sidewalk and we're selling a pair of shoes that we made that he's our shoes that we made. And if nobody wants to buy him, maybe we rethink this company. And if we do rethink this company and we decide not to do it, we have essentially nothing lost, right? We don't have debt, We don't have investors. We can turn around and walk away and try something else. Um, but if people are buying our shoes, we say Great, let's make more shoes than we sell more And then we take that money, we say, Great, let's sell more and then we sell more. And then we say, OK, we've got enough money to rent a space and then we you rent a storefront and you sell more . Um, and then you grow and you grow and you grow. So that's kind of the general idea. It takes longer, but the results are worth it. In my opinion, if you've got time on your hands, go the boots draft method. You keep all your equity. Ah, you don't make much money at first but in the long run, you'll make more money. So, um, I'm kind of a list of tips that I have for bootstrapping, so let's go through all of those right now. 30. Consider A Co-Founder: All right. Rule number one for bootstrapping. Consider a co founder. Now. What that means is, um we're gonna be doing just about everything on our own when we're bootstrapping. We don't want to use outside people. We don't want to hire people. We don't want to do anything that we can't do ourselves because we don't want to spend money on anything right away. Eventually, we do. But ah, to get us off the ground, we need to be able to do it all ourselves. So, uh, if you don't have any money to spend, so a co founder can be a great asset. But not just any co founder co founder who could do some of the things that you can't do. Let's say you're company. Let's say our shoes store that we've been talking about forever. I promise. The next class, I'll pick a different ah scenario. But let's say our shoe store is going to do online sales, and that's gonna be a big part of our company is online sales. So Ah, I know how to make shoes really good, but I don't know how to set up a website, and I don't know how to do e commerce stuff, right? Like that's not my bag. So in that case, finding someone who might be interested in coming on board is a co founder who does know how to build a website, manage an e commerce website and make sure it's still running is a great idea. Um, in this case, you do lose some equity because you would have a co founder. But it can really help you in the long run to be working on this together with someone else who has theocracies it. Skill set of as you who can help you grow this company so that you don't have to hire people to do stuff. Um, we're gonna talk about more about hiring people to do stuff in a minute, but a good co founder can, uh, be really valuable in a bootstrapped company. Flam Academy does have a co founder, um, and we complement each other very well. But again, with your co founder. Don't just get someone who's your buddy who can do the same things that you can dio. You need to strategically get a co founder, someone who could do the things that you can't do. Uh, who will be in it for equity understands the bootstrapping method and that you're not gonna make a lot of money at first. Another thing is kind of emotional support, because bootstrapping can be tough and it can be easy to walk away. Um, when you know, you're working 12 hours a day on this business and you're not making any money because that's gonna happen for a little while. Um, so a co founder could be good emotional support. Ah, essentially. So, uh, consider a co founder very important. You don't have to do it. If you think you can do everything yourself. That's just great. Um, but consider it. 31. Generate Cash Quickly: Okay. Tip number to generate cash quickly. Generate cash quickly. Um, so the bootstrapping thing doesn't work for all types of businesses If you are designing a new technology. Ah, this might not work because you're not gonna be able to get your thing to market without some significant capital. Um, maybe you can get clever and find a way to do it. But bootstrapping works best when you can find a way to generate. Ah, cash pretty quick. So for us at slam academy, we had our first class in the basement of an old shoe store. Um, people, uh, people heard about it through word of mouth. They showed up, they brought cash. I walked out of that class and we taught it ourselves. Um, I walked out of that class with a couple 100 bucks in cash and I thought I was rich. It was amazing. People showed up and handed me money. It was wild, so we didn't have a space. We don't have anything, but we had something that we could do that made money fairly quickly as long as people heard about it and they knew that we were good at it. Then they would come and give us money to do our thing. We didn't need to make stuff. We didn't need to do anything like that. It was essentially just our brains was our only asset, cause we're teaching a class. So that was a model that worked well, because right away, our first thing we did, we made money profit. It was profit because we had no expenses, No expense is pure profit. So we can reinvest that money into the into the project and build it up. So from that couple $100 in my pocket, we ended up, you know, doing pretty solid half 1,000,000 a year. Only five years later, right? And we were on salaries, and we've got employees and insurance, and I like that stuff. So it's not like you're gonna be doing this for your whole life Before you make any money, it can go fairly quick, but see if you can find ways to generate some money as quick as possible. Um, you need to get your thing that you do out there and for sale as fast as you can. Um, I don't mean fast. As in, like, tomorrow. I mean, like a soon as you're ready to go, you're going, you know, And you're gonna make some money, and then you're going to stop, take a breath, figure out how to take advantage of that money you just made, and you're gonna do it again, and you're gonna make some more money. Stop! Take a breath. It's baby steps. Right? Generate cash quickly. 32. Be A Budget Ninja: Okay, Number three be a budget ninja. In other words, be a penny pincher. So, uh, go to the bank, Starting account for your business. Ah, checking account. And everything you do for the business comes out of that account. So you and you're going to keep a super close eye on that account. Especially have business partner who has access to it to you guys have to be on the same page about what you're spending money on, Um, for example, my business partner early on and still wants to take people who could be valuable to us out for drinks all the time. And in most cases, it's OK now, but when we were starting out, my answer was always, Yeah, take him out for a beer. But you got to pay for it. Like you can't use company money for that because we don't have it. Like in an ideal world. Yeah. You could use company money to take someone important out for a beer, but we don't have it. So you can't do that. Um, you have to be super super tight on money. I remember when we first started being on the phone with my bank about, like a $5 bank fee. I spent an hour Ah, fighting about why we were charged. That and eventually I got it taken off the account because every dollar matters. Um, I'm not gonna have these dumb little bank fees piling up when I'm not getting paid anything . So why should the bank it paid something that they didn't earn? I mean, if the bank charges us a fee that we agreed to and we knew was coming, that's one thing, but but you've gotta watch everything. So you're gonna have put everything into one account, and you're gonna keep an eye on every penny coming in and out of that account, but in particular coming out of that account, Um, and doing this creates good habits. So I still do this. I still go through every business account we have every week and scrutinize every penny spent because, um, I don't want to be wasteful. So I've learned from my period of not having any money here, uh, how to make the most of the money we have, which is, I think, how we've been able to grow the company so efficiently. So be a budget ninja 33. Keep Your Day Job: Okay, Number four, Keep your day job. What? Wa you can do this. So I have a very unrealistic expectation of how people spend their time. And this is something that I have to work with with my employees. Because are my employees have to educate me usually because I think, you know, if there's 24 hours in a day, there's no reason we can't be using every 20 every one of those 24. Not everyone works that way. But you can keep your day job and run your business. If you're gonna do a bootstrap thing, you can do it. Ah, you're gonna have to cut back on your social life. And that's okay. Um, if you really want this business to succeed, um, you could make this work. So, um, when we started Sam Academy, I had a day job. Everyone did, uh, my partner did, um, everyone that was working for us did because they didn't get paid. Hardly anything. You might work 9 to 5 and then devote 5 to 9 to your business. That's OK, but remember, you don't necessarily have to do it that way. Remember what we said in generating cash quickly. What you might be doing is kind of quietly working on your next step and thinking about, OK, the next time I go out to sell my shoes, where am I gonna go? How am I gonna make the most money? How am I gonna sell out? You're gonna plan that for a week or two weeks, and then you're gonna do it unlike one day and you're gonna sell out, and you're gonna make that money, You're gonna reinvest it. So that didn't require working every single day for two weeks. That required a couple hours of thought and one day So as things are slowly ramping forward , um, keep your day job so that you can afford to feed yourself. Um, because when we reinvest this money we're not paying ourselves. Do not take a penny from this company until you have at least a couple months of comfort zone in what you can do. So keep that in mind. You don't have to keep your day job to do this. Um, but it makes life a lot easier if you dio 34. Never Outsource: three more. Um, number five. Never outsource. Learn. So what that means is, um if something needs to be done, your option should not be to hire someone to do it. You will not hire someone to do it. Um, because you don't have any money. What you'll do instead is you're gonna learn how to do it yourself. Ah, and it might be temporary. Ah, it might be that you have to build the website for your company and maybe you know, a teensy tiny bit about how to make a website. Ah, that's fine. Mika. Mika. Dumb website. Uh, it will get you through the first little bit. Once you have more money, you can invest in your website, but do everything possible to avoid outsourcing. The default should be that you will do it yourself and you'll figure out how to do it. Ah, you have the Internet and the Internet is full of great tips on how to do stuff. And you already know how to learn how to do stuff because you're watching this class, so I know you could do it. Learn how to do stuff. Don't hire people to do stuff you could hire him to do things later. But consider hiring someone to do something a luxury and you don't have room for luxury. You have room to learn how to do it. You have time. You don't have money. Time means learn. 35. Learn To Build A Website: all right. Number six learned to build a website. This is kind of what I've just talked about. But, um, there's There are two reasons for this one. Is that what I was just saying before? You don't have money to hire someone, learn to do it yourself. Uh, it is shockingly easy. Um, there are all kinds of tools that make having a website really easy. Go to Squarespace, get a squarespace website. You know, it's like 50 bucks or something and it's like Dragon drop. Ah, you don't have to know anything about programming. There's a lot of services out there that make it really, really simple. To build a good looking website, it'll let you take a credit card. You can do everything you need to do. So that's reason number one reason number two is that you need to know how websites work and what it takes to make a website. Because once you have money, you can hire people to make your website. But ah, I've seen a lot of companies get taken advantage of by people being hired to build their websites. The last Web site that we had built, I could make a website just fine on my own. And But we decided, Let's get a professional to come in here and do something really great. So we put out a call for proposals. Um, we got someone to come in and build exactly what we wanted and in the end, ah, they wanted, Ah, $40,000 which is relatively cheap for a big website in terms of what a firm will charge. And I said, This is utter nonsense. I will not pay $40,000 because I not being a programmer. I could put this together if you gave me two weeks to do it. Um, but I see people pay 100 $200,000 for a website, and it's ridiculous. If you know the first thing about building a website, you know that you shouldn't be paying that much. There are people out there that build websites for a living that pray on the fact that you don't know anything about websites to overcharge you, so don't fall victim to that. If you start off by making your own website, you know what goes into it and you know how much to pay for that Once you have the money to do it. So in that case, when we were doing that thing of, ah, hiring someone and they came back at 40,000 I said, No way. And I built a website myself. Um, every single one of Sam Academies, websites I built myself, and that includes the e commerce stuff that includes everything. And I'm not a particularly brilliant Web programmer by any means. I've learned how to do what I know how to do so by watching some videos and reading some books. So, um, but at this point, I just kind of don't want to give it up. I don't want to give it to someone else because it seems like a waste of money, because it's so simple. So I know what goes into a website. It will payoff in the long run. 36. Partner, Partner, Partner: Okay, Last tip, partner, Partner, Partner means partner with other companies and other organisations. This is a great strategy toe. Elevate your small bootstrapped startup company to the level of this other company. For example, Um, I'm making my shoes. I want to sell my shoes. Ah, great thing for me to dio would be to go to an already existing shoe store and try to sell my shoes of their see if they'll let me set up a little booth. If I'm competing with them, they're probably not gonna let me do it. But if I had something unique that they don't have, ah, they might let me do it. They might just be a partner. Um, that doesn't mean I have to give him any money. Although you could, um, you could give them a percentage of what you get, but you can also advertise. And you can do this for free, just with social media that you will be at this particular shoe store and that might be interesting for the shoe store. So the shoe store gets something out of it by having this unique thing happening, and you get something out of it by selling shoots. You might also partner with something totally opposite like, Ah, I don't know your local sports team. You know, put them in a pair of your shoes, Um, and have, um, tweet about it or Facebook about it or something. Ah, you can get a lot of free stuff just by partnering with other organizations that are already successful and other businesses that are already successful. So, um, look for people who can help you and get creative about it and be really nice to them. Show them that you can help them buy them. Helping you. That's what you need to convince them of. And it's easier than you think. Ah, lot of businesses are totally open to partnering on some kind of event or promotion or something with where no money needs to change hands. It's mutually beneficial. You have to get creative about it, but, um, there are ways to do it 37. 39 WhatIsCrowdfunding: okay, I would be remiss if I didn't mention the existence of Crowdfunding. I don't love crowdfunding is a way to start a business. It's a It only works in specific cases. Um, although it's really popular right now. Ah, lot of people want to do it, but you should know that it's not as easy as it looks. That being said, um, Crowdfunding is fantastic, and I love supporting crowdfunding campaigns, but when I've run them myself, it's been kind of an insane amount of work. So let's talk about what it is really quick. Crowdfunding is basically getting the crowd getting an audience to give you money to start your company, and they don't give you money for equity, although that's that's becoming a thing that's creeping up where people are giving away equity. Um, but it's really new, and I wouldn't do it yet. Um, so people give you money for a reward. So, um, usually it works if you're making a thing, and you can pre sell that thing. So you basically say I'm gonna make this thing and it's gonna be great and you convince everyone is gonna be great and they say I will buy that thing from you once it exists, and I will give you the money for it. Now, that's kind of the most common way that crowdfunding works. Um, although you can get a little creative about how it works. Um, about what you give for that reward. There's a bunch of different platforms that you can do this sound. The most popular is Kickstarter Kickstarter dot com, and I just kind of looked at a random one here. So this one is unique. Ah, table wear, plates and stuff you can see here that they they pledged to raise 52,000 almost $53,000. That pledge is basically a goal. They've said. That's how much we need to make to do this. And crowdfunding is usually all or nothing. So they if they don't make $52,000 they don't get anything. Um, yes. You don't hear all or nothing. Um, so they have to break this, and in this case, they did. They've raised $97,000 from 778 people. So the idea here is that each person gives just a little bit, you know, 10 or $20 and then it becomes much more affordable for to get your company off the ground because each person has only given a little bit. But you do that with, you know, upwards of 1000 people and you've got a significant amount of money. So let's dive into some of the kind of ins and outs of how crowdfunding works. 38. Pre-sell Your Thing: So, like I said, the most common way to do this to pre sell your thing. So let's look at what happens if we support this project so you pick a reward. Um, this one is £10. If you support it at £10 you'll get a limited edition print, and that's it. If you support with £22 or more, you'll get a cup like one of their things. £32 or more. You'll get a plate, one of their plates, 52 or more. You'll get a plate and a cup $80 or more. You'll get a set of four cups 120 get set of four plates, £195.4 cups and four plates. And then it goes up to some other clever things. £4000. Make your own plates and a tour like a private tour of of where they make stuff that's common, so people get pretty creative about these rewards. Eso Even if you're not selling a thing, you can do stuff where you're going to give people like a. I've seen people fund albums this way, like making out music albums where they like. They'll say for a certain amount of money will put your name in the credits for even more money. We'll give you a shout out in a song, you know, like all kinds of stuff like that so you can get creative about, uh, these reward levels. 39. 41 RunningAnActiveCampaign: So the thing about Crowdfunding is that you have to run an active campaign. Ah, lot of people think that they write up some stuff, make a cool video and then they throw it on Kickstarter and money will flow in. That's not really how it works. Um, you really have to be devoting time to these every day. Ah, and like checking in and advertising in advertising it, there are not a lot of people who just go to the Kickstarter website and say I'm looking for ways to spend money. I'm looking for things to support right now. There's not a lot of that. Most of these 778 people are people that were found through social media or some kind of advertising that Ah, these people did. Um, so the money just doesn't just come because you're on Kickstarter or one of the other platforms. You still have to advertise the project. Kickstarter is just a platform for people to be able to give you money, but they're not gonna find the people for you. The other thing is, you have to make a video, and the video is have to be like, really good looking right. Like this is pretty high quality video, as in 2015 barbecue make five places on the mobile. So making a video like this often requires, like, ah, hiring a videographer and editor to make a really stunning video. If you have a really low quality video here, you're not going to get any traction because they really expect a really high quality video . Um, really good pictures. So crowdfunding can be a good way to raise money. If you have a situation like this where you can basically pre sell the thing, um, that you that is the tenant of your business. Um, but it's a lot of work. Crowdfunding is a ton of work and it's quite hard actually. So I don't have a ton of experience doing it. I have done one crowdfunding campaign that honestly was unsuccessful because I was expecting it not to be as much work as it Waas. I'm not afraid of hard work. I just didn't, uh, plan for it. So ah, you know, we put together a video and all the text on some pictures, and then I threw it online and said, Cool, let me know when I've got my money. And it never happened because we didn't advertise it. We didn't have a plan. Um, it requires a lot of marketing to really get it right. So look into it if you're interested. Um, but just know that it's harder than it looks. It's a lot of work. 40. What Next?: we reached the end of this section of the class on funding your company. Ah, start up funding. And specifically Ah, I hope you got some good ideas. I hope we gave you some good information on what you need. Ah, in different ways to go about getting it. Um, it could be a little scary. I get it. Starting a company is scary. Ah, and taking up debt is scary. Ah, selling equity is scary. All of it is scary. But it's with all the risks. Comes a reward. Don't forget that everything is about risk and reward here. So, um, you've got to take some risks in order to get the reward. So I hope you're having a good time in these so far. Um, so please search for that now. It should be that that next class should be out and available now. So I'll see you there. Ah, a couple more things, though. Don't go away. Um I want Teoh give you some bonus stuff for hanging out with me all the way to the end. 41. SkillshareFinalLectureV2: Hey, everyone want to learn more about what I'm up to? You can sign up for my email list here, and if you do that, I'll let you know about when new courses are released and when I make additions or changes to courses you're already enrolled in. Also check out on this site. I post a lot of stuff there and I check into it every day. So please come hang out with me and one of those two places or both, and we'll see you there.