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This episode is about business coaching specifics of how to raise money from angel investors.

Results-Focused Training, Tools, and Workshops from Expert Business Coaches.

Featured Coaching Excerpt - Notes & Transcript, Part 1
  • Lesson Nugget: Angel investors will give you their wisdom and connections, but if you do not get along with them it can be difficult to run your business.
  • 14 Ways to Get Capital: 8. Retirement Rollover (401k or IRA) Method
  • Guidant Financial: A small business financing company offering self-directed IRAs and alternative small business financing solutions.
  • Definition Magician: Rollovers as Business Startups (ROBS) - A way to optimize the use of money in your retirement account as a funding mechanism to start a business. It works if you have a 401(k) or other qualified retirement plan account with a balance that's sufficient for your funding needs and you adhere to the tax rules. - US SBA

 

-Tell us about the business coaching pros and cons of angel investment when your wanting to start a business.

-The pros of angel investing is it you land their advice, their reputation, their introductions. Example. Let me do a business coaching example here.

-Go.

-On a small level, when you moved to Tulsa from San Diego, I can say to you, "This is Caleb Taylor. He's worked very diligently and you should hire him to work with your company." And as a general rule, the consulting clients I worked with were like, sure, we should bring him on to help us in some capacity. It wasn't a big thing.

Now imagine that on a big, big scale. Imagine that I was Michael Jordan and I said, "Hey, I'm Michael Jordan. This is Caleb Taylor. I really think you should put him in charge of your bank. I think that you should invest money in him. I think you should promote him to manager. I think"-- -It's just like that introduction from a big shot--

-The validation.

---is unbelievably validating. So that's like the biggest thing in my mind. And then the capital. there's no bureaucracy. You're dealing with one dude. Now the con of that is that this type of funding is very hard to get, and you're going to be tied to this dude, this angel investor. And what if you don't like him? What if he loves Shark Tank? What if he's like, hey, why don't you come on over, Caleb? We're gonna watch Shark Tank.

-Or the movie Noah.

-Yeah, he says, let's watch the movie Noah and then Shark Tank. I've got then both on my TiVo here. So we're going to watch that--

-Like a repeat.

-It's like a medley. And then we'll watch soccer. And let's say you're not into Noah, soccer, or Shark Tank then you're like, oh, this is going to be a long day. Now if you love Noah, Shark Tank, and soccer, he's your guy.

-He's your guy.

-But the thing is, it's like you're married to the dude. And I'm just telling you think about it. Don't you like, well, this person's kind of a toad, but I guess I could take his money.

-I think you just described Andrew Bird, one of our ideographs here.

-I don't know why you would say that, and I feel like Andrew Bird and I are both offended and will unite against you in victory.

-OK. Good to know there.

-Goal!

-That's something that we experience a lot with Thrive, though with some of these investors. I know you talked about how you spoke with one, you made a connection with Sean Copeland, and he's a guy that you're excited to partner with. You've got the same values. But he opened the doors to many other people that he knew and validated you.

-Each person on the team, each investor, has introduced us to other people. But the thing was there's about six people so far, maybe seven, that wanted to invest and I said nope. And that's because I didn't want to see them more often. And you just have to be asking yourself that tough question before you take angel investments dollars.

-That's huge. Business coaching for method number eight here. This is the retirement roll over, the 401(k) or IRA. Approximately 15% of franchisees have used this method, Clay. Explain it to me.

I'm going to read you a lot of stuff here. I'm going to try-- so don't glass over here. Maybe they can put a picture of like a dolphin in the background while I'm reading this so it keeps the energy high. A dolphin that's aggressively navigating the waters, the tricky waters of entrepreneurship.

OK, so here we go. According to the United States Small Business Administration, "Rollovers as Business Startups (ROBS) are a way to optimize the use of money in your retirement account as a funding mechanism to start a business. Real quick. If you have money in your retirement account, the system has been created so you can use that money. "It works if you have a 401(k) or other qualified retirement account plan with a balance that's sufficient for your funding needs and you ad here to the tax rules."

What are those rules? I'm not going to tell you because I'm not a certified financial planner, but you need to see one. Business coaching information: Now here's how the ROBS operates. "You incorporate your new business and have that corporation set up a qualified retirement plan (usually a profit-sharing plan permitted under the terms of the plan to invest in employer stock. Then you roll over your 401(k) or other retirement account up in your retirement plan the rollover is tax free). That plan that then buys shares in your corporation."

And long story short, very complicated, very difficult, very litigious. Do not do this on your own. Business coaching tip: You need a certified financial planner. There's a company called Guidant Financial Planning. We can put it up on the screen. And Guidant is a company that can help you through this.

But all I'm saying is I helped sell franchises for years, and a lot of the franchises that we worked with were people who had some money in their 401(k), they had some money saved, and they were able to take the money out. But to do that you have to form up a company, another company that this other company works with your funds, and it creates this elaborate profit-sharing company to basically loophole your way through the IRS tax system.

-Business coaching lesson: So you're saying there's three companies. There's your company you're starting. There's a company used to worked for. And there's a company for the financial reasons.

-Yes. It's a lot paperwork, a lot of things have to be filed in a certain way. I'm just telling you it is a possibility. If you're watching this and you have a 401(k), you have some money saved, then do it. And if not, just

fast-forward.

Learn how to raise capital and how to start a business on Thrive15.com

Featured Coaching Excerpt - Notes & Transcript, Part 2
  • Lesson Nugget: This method is a difficult process which could get you in trouble with the IRS, so make sure you hire a firm to help you through this process.
  • 14 Ways to Get Capital: 9. Business Lines of Credit Method
  • Lesson Nugget: Be wary of relying on credit line too much, the bank can demand that you pay it back in full at any time.
  • Action Step: Build up cash reserves so that in the event of emergencies you can cover anything not covered by insurance.
  • Definition Magician: Line of Credit - Any credit source extended to a government, business, or individual by a bank or other financial institution.

[MUSIC PLAYING]

 

-And this is something I think you've said. Business coaching tip: A lot of people who get laid off in their jobs have built up that 401K. They are able to go and start a business right there. But again, this is our warning. This is very tricky waters. You have to have somebody helping guide you through this or else there can be some serious consequences.

-Yeah, and Guidant Financial is the only company that I have worked with that I can say-- not that there's not other good companies--

-Yes.

--but Guidant Financial is a company that I know specializes in helping people do this. And would recommend you find somebody in your local area or Guidant Financial themselves to help you through this process.

-So what are some of the pros and cons here of this option?

-Well, the pro is that you can tap into your 401K savings right now.

-Right.

-So that's pretty cool. I mean, you have money you've been saving for retirement and all of a sudden you find yourself unintentionally retired. Maybe you got laid off. Maybe you decided I should buy a boat. You move to Belize and you're like, I don't have any money. So you want to-- you need an income. So you are able to tap into your savings and do that. That's neat. The con though is that you have to follow these rules strictly, otherwise you could really get in a world of hurt here. Business coaching advice: And nothing is worse than getting in trouble with the IRS.

-OK.

-I've done that before. My agent-- her name was [INAUDIBLE].

-[INAUDIBLE].

-And her and I got together, and we had a lot of good conversations.

-You guys became really good friends.

-Very good friends. I spent enough face time with her to get to know her well, and I don't recommend you go through that same course. You know what I mean?

-That makes sense. I feel like what we're doing here is presenting you with a lot of different options. You might not have thought of this one but we're eliminating this excuse. I don't have capital. There's no capital out there.

-Business coaching truth: Anybody on the planet with a pulse who wants to gain capital can do it. Anybody.

-This is just another option.

-14 rocks to turn over, baby.

-Boom.

-Boom.

-All right, business coaching for method number nine-- business lines of credit. 18 months no interest credit cards. Talk to us about this, Clay.

-Well, here's the thing. Some people view a credit card with no interest as a credit line, and what we're trying to do is let you know that is a form of credit. That's a credit line as well, so there's a little bit of overlap with the credit cards. But then there's also this thing just called the line of credit. Business coaching lesson: And what this is is any credit source extended to a government or a business or organizations or an individual by a banker or financial institution.

So let me give you a business coaching example. If I owned a bank, I might say, Caleb, you can spend as much as you want up to $10,000 at any time.

-OK.

-So every month with your catering company you by $6,000 of chicken and vegetables and these different things you buy, and every month you pay off the credit line and then you get another $6,000. So it's like a revolving cash flow. You borrow the money you need to buy all the supplies at the first of the month and you collect payments from the clients, and at the end of the month you pay it off and make a profit. So it's a credit line. Now, the pro with that, the good thing about that, is that you don't have to have a ton of money then to go out there and run your catering company.

-Right.

-You have this line of credit. So you could start a business with very little cash on hand and use that line of credit to make payroll, the money comes in-- That's something you can do.

-OK.

-The bad part about that, though, is that at any point that bank could [SQUEAKING] shut off the spigot. You're done.

-So compared, I guess, directly to the credit card method, what is the difference necessarily there?

-Well, with the credit card method that distance consists of a credit card and the credit card company. A credit line is where you typically go to the bank and the banker says, I will extend the $30,000 credit limit on that but don't get on the long end of that. I mean, don't get like 29 and 30. This worst case scenario I'll cover you up to this much.

-Right.

-Now, you need to pay that back each month, and at any point I can shut it off.

-OK.

-And so when you notice the financial crisis happened when-- this happens all time through American history. The economy is very cyclical and it goes through cycles where it's contracting or expanding. Well, when the economy was recessing with the recession, what was happening is that some of the banks were calling in their capital saying, whoa, you guys are too far extended on how much money you owe us. We're just going to call it all due right now. We're going to say, no more credit for you.

Well, that can shut a trucking company out of business right now. That could shut a restaurant down right now because they don't have enough cash reserves on hand. So a credit line is a great way to get started, but my recommendation is you build up enough cash in the bank so that you have your own credit line. So for me, I get nervous if I have less like $300,000.

-Right.

-You know what I mean?

-Yeah.

-So if bad things happen I just have a lot of insurance and I'll just pay it.

-You're not at anybody else-- the mercy of anybody else.

-Correct.

-With this, like you said, the bank can just say, OK, thank you. That's it. I'm done.

-And a lot of times that happens.

-Right.

Featured Coaching Excerpt - Notes & Transcript, Part 3
  • 14 Ways to Get Capital: 10. Home Equity Loans Method
  • Definition Magician: If you're a homeowner, you can borrow against the value of your house through either a home equity line of credit (often called a HELOC or a line) or a home equity loan (often called a HEL or loan). - Lendingtree.com
  • Lesson Nugget: Don't get capital if you are not sure if you will be able to pay back the amount borrowed.
  • Lesson Nugget: If you have equity in a home, this is a great way to use your home essentially as collateral for the cash you need.

[MUSIC PLAYING]

 

-Business coaching story: I know of a builder who, I'm sure he did something weird to cause this, but all I know is he was being a builder for about 20 years, and next thing you know the bank called his credit lines due. They said, you have to pay back everything that is out on credit right now, immediately, and we're done with your credit line. And all of a sudden he's like, uh. So he went out of business. And I've seen those things happen.

-Yeah, it makes sense. But again the credit line works. When you're starting out, you don't have the cash. Again, there's no excuses. You can use this credit line, but then you want to build up that cash, so you're not at the mercy of somebody else.

-Absolutely.

CO HOST: Cool. All right. Now let's go to business coaching for method number 10 here. Number 10, home equity loans.

-Yeah, let me go ahead and read you the definition from lendingtree.com. They say if you're a home owner, you can borrow against the value of your house through either a home equity line of credit, often called HELO--

CO HOST: HELOC.

CLAY CLARK: --or a line or a home equity loan. Long story short, let's say you have a house that's worth $100,000, you paid off $30,000, now you can go ahead and get equity out of the home, $30,000 of equity on a loan from the bank. So you go to the bank, you say, my house worth $100,000, I've paid off $30,000, I would like a $30,000 equity line that I can use to grow my business. And they'll let you do it.

-Gotcha. That's good. And I always thought a HELOC was like a monster. It's not, actually.

-Yeah, that would be like the Loch Ness monster.

-Oh.

CLAY CLARK: And that it's a common misconception.

-I always get those mixed up.

-Yeah, now did you go to public school?

-No. I didn't, I went to college.

-Oh, that's probably where that comes from.

CO HOST: I think that's where they--

-You probably had misconceptions.

CO HOST: --led me astray there.

-Now here is a business coaching lesson, one thing about the HELOC is it allows you to draw funds up to a predetermined limit whenever you need money. So it's kind of like when you have a HELOC, you can say, I have a $50,000 home equity line of credit available. I don't have to use it, but I could.

Business coaching advice: Now the danger of this is that most small business owners choose to consistently pull money out of their home equity over and over and over. So they're never actually paying off their house, they're never actually saving up any money, and if you're not careful they'll retire after 40 years of business with cash savings.

Business coaching tip: So a home equity line's a great way to get money to start or grow your business, but be careful, be mindful, make sure that you don't look at this as an endless source of funds.

-OK, so the pro is it's good to start initially, but again, you don't want that, that should be more of an emergency last resort?

-Well, also, if you Jack up, if you mess it up, you make a mistake, if you do not pay them back, they'll take your house.

CO HOST: Right.

-So that's a sweet deal for the bank, kind of, isn't it? It's like, well you just paid off your house, now you can borrow some money, and if you don't pay us off, we can not only-- so say that your house was worth $200,000, and you have all that paid off but $20,000, and you run out of cash, now the bank can go sell your house for $200,000.

CO HOST: Wow.

-So, it's a deal where you gotta be careful with that. And the con, though, is that, obviously, if you don't pay it back, it's bad. But the good, the pro is that you definitely can tap into your home's equities.  Business coaching truth: There's some good stuff there, but I would argue that no matter if you're in business and you're trying to get capital, again, if you are in business and you're trying to get capital, don't get capital unless you think you can pay it back.

CO HOST: Right.

-And don't be delusional about thinking you can pay it back. Face reality as it is, not as you wish it to be or as you hope it to be, but face it as it is. If you can pay it back, take money out. Do it. Burn those boats, baby. No method of retreat.

CO HOST: No turning back.

-Boom.

CO HOST: I love it.

 

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