Which Shoulders Do Angel Investors Want To Sit On?

Angel InvestorsCincinnati is not an area that is growing its population like in the south and southwest that stoke small business activity. However, it is home to Queen City Angels, the second ranked group of angel investors in the United States by CB Insights.

Forbes has named Ohio as the 11th best state for small business and number 1 for quality of life. And in a recent survey by consumer research company Value Penguin, Cincinnati placed seventh out of 200 U.S. cities in a report on the Best Cities for Small Business.

There is access to capital, a low cost for office space, and a good talent pool available. In a conversation with Queen City’s executive director, we learn about what’s required to start a business and attract angel investors.

WHAT YOU’LL LEARN FROM SCOTT JACOBS OF QUEEN CITY ANGELS.

AT WHAT STAGE OF DEVELOPMENT SHOULD AN ENTREPRENEUR SEEK ANGEL INVESTORS?   (2:53 in)

In Scott’s words – We like to engage as early as possible. We have a farm system.  (mentoring program, bootcamp,) We’re looking for customers who have a paying customer or two.

Insight – Connecting with entrepreneurs as early as the idea stage is useful in evaluating the viability of a potential investment in the company.

ASIDE FROM HAVING CUSTOMERS, WHAT PART OF A BUSINESS PROFILE ATTRACTS QUEEN CITY ANGELS? (6:35 in)

In Scott’s words – Friends, families and founders. We like to see them have a little skin in the game. They’re not just looking for our money to move their idea forward. We want people completely dedicated to this business.

Insight – Developing a business part-time on nights and weekends will not interest them. Having a good management team that is coachable is key too.

ASISE FROM PASSION AND DEDICATION TO THE BUSINESS, WHAT OTHER QUALITIES ARE IMPORTANT IN THE BUSINESS LEADERS? (8:15 in)

In Scott’s words – Emotional intelligence and the ability to manage the stress.

Insight – Awareness of their own weaknesses and strengths is important..

WHAT ARE COMMON MISTAKES ENTREPRENEURS MAKE? (9:05 in)

In Scott’s words – They’re overly optimistic about the strength of their idea. Companies don’t know the amount of money they need to raise.

Insight – Because multiple rounds of capital are usually required to fund a growing company, over valuation of a company’s worth in its early stages of development can hinder the ability to obtain capital.

FROM THE INVESTING SIDE, WHY DO PEOPLE GET INTO ANGEL INVESTING? (13:52 in)

In Scott’s words – It’s fun. It’s intellectually stimulating. They want to hear about new ideas and they want to help.

Insight – To be an angel investor you enjoy shepherding companies and investing your time and expertise as well as your money.

WHAT SHOULD THE EXPECTATIONS OF RETURN BE FOR AN ANGEL INVESTOR? (15:20 in)

In Scott’s words – We’re in for the long run. The year in which most exits occur is year eight.

Insights– Angel investors are usually putting in five hundred thousand to a million dollars in the first round of financing.

ARE ANGEL INVESTOR GROUPS AT A DISADVANTAGE TO VENTURE CAPITAL GROUPS IN SEEING IDEAS? (17:30 in)

In Scott’s words – No not really.  they need is more like practice management. What types of things should I look at to get to the next level….renewing that motivation

Insights – You’re wasting money if your sales training dollars are spent on standardized training for everyone in the sales organization.

WHAT TYPE OF COMPANIES ARE QUEEN CITY ANGELS LOOKING TO INVEST IN? (18:39 in)

In Scott’s words – Technology based companies, life science, IT oriented, the internet of things. 

Insights – They’re seeking companies that others want to acquire instead of creating the product or technology themselves.

What Accountants Know About Business Survival and Failure

Business Survival
Business Survival

Eight out of ten entrepreneurs crash and burn within the first 18 months of starting their business according to Bloomberg News. On the other hand, 51% of small businesses are surviving after 5 years.  The federal government’s Small Business Administration says this is the highest rate since 1994. Here’s the difference between business survival and failure according to two long time CPA’s who work with small and medium size businesses.

WHAT YOU’LL LEARN FROM CPA’s MARK REDER & SCOTT WIESNER

WHAT ARE SOME COMMON CHARACTISTICS OF CASH FLOW PROBLEMS?  (2:03 in)

In Scott’s words –   Without sales no cash is going to come in the door. The business owner has to monitor collecting receivables.

In Mark’s words – A lot of businesses don’t do budgets when they get into business. They have to be prepared, some clients won’t pay them.

Tip – Prepare for the lag time between the period to generate the sale, complete the work or produce and deliver the product, invoice, and be paid. Business survival requires that you make sure resources are available to handle the lag time and receivables that you may not collect.

IF A COMPANY USES QUICKBOOKS TO DO ITS BOOKKEEPING, WHEN DOES IT NEED AN ACCOUNTING FIRM? (3:15 in)

In Scott’s words – A business owner needs to determine how much time he is spending doing the work. It doesn’t generate sales.

Tip – Use an accounting firm to teach you QuickBooks and streamline the process so it doesn’t hinder running the business. With access via the cloud, an accountant can collaborate on any journal entries that need adjustment and compiling statements.

WHAT ARE THE ADVANTAGES/DISADVANTAGES OF RECORDING FINANCIAL TRANSACTIONS IN THE CLOUD?  (5:15 in)

In Mark’s words –   Being in the cloud hopefully offers some better backup.  

Tip – Having financials in the cloud allows for easy accessibility while travelling. Assistance from your accountant is faster. If your server or in house backups fail, you have an additional safety net.

WHAT DO WE NEED TO KNOW IN CLASSIFYING SOMEONE AS AN EMPLOYEE VS. AN INDEPENDENT CONTRACTOR?  (10:25 in)

In Scotts’s words –   They (the IRS) is going to look at control, control over the employees.

Tip – Check out the IRS 20 factor list at IRS.gov that defines the appropriate business relationship to have with an independent contractor.

WHAT ARE SOME TRAITS OF SUCCESSFUL BUSINESSES?  (11:54 in)

In Mark’s words –   You have to have goals set out and budgets in place. What you can measure you can manage.

Tip – Monitor the financial picture according to what impact changes in staff, products and prices have on how the business performs. Use your accountant to model business variables like price changes, inventory changes, impact of new hires, etc. Business survival is much more likely implementing these practices.

WHAT SHOULD BUSINESSES NOT IGNORE FOR TAX PURPOSES BEFORE THE END OF THE YEAR?  (14:54 in)

In Scott’s words –   Take the 179 Section tax deduction on equipment purchases. Defer income, accelerate expenses.

Tip – Don’t forget retirement contributions too.

WHAT RED FLAGS WOULD TRIGGER AN AUDIT?  (16:05 in)

In Mark’s words – (The IRS) They have such a large database. They are comparing you to industry norms. Any category that is out of the norm, the more of those you have the more likely you are to be audited.

Trend – Fewer numbers of small businesses are being audited.