How to collect financial resources for starting a business

01Starting A Business In Your 40s? How To Choose The Right Legal Entity

By Deborah Sweeney

Have you heard that the forties are the new twenties for entrepreneurs? The American Economic Review from the American Economic Association reveals that while observers believe younger individuals are likely to start successful new ventures, new data is revealing the contrary to be true. Today’s most successful entrepreneurs are actually middle aged. The average age of entrepreneurs founding the fastest-growing new ventures? It’s 45.

Further research reported in Forbes also notes that there isn’t any real evidence to suggest young entrepreneurs will always succeed. Middle-aged individuals are actually in their prime for entrepreneurship.

If you plan to incorporate, these legal entities offer fortysomethings the best ROI.

In “Age and High-Growth Entrepreneurship,” a 2018 working paper led by Pierre Azoulay from MIT, the authors note that several factors contribute to a middle-aged entrepreneur’s success. Most of these individuals have extensive employment histories within various industries, providing them with the necessary skills to make the leap forward with their own business. They also struggle slightly less with financial resources, as opposed to their younger counterparts who need help obtaining capital.

As a business owner who is also in her forties, I have to agree that many of these insights are indeed correct. Over the last decade, I have helped entrepreneurs of all ages incorporate their businesses—including a rising uptick of middle-aged entrepreneurs. However, whether the people I work with are young or middle aged, many question which entity formation is the best fit for their business.

The advice does vary a bit depending on company type and entrepreneurial stage. Through my experience in working alongside middle-aged entrepreneurs, I have found the following three entities provide the best return on investment:

1. Limited liability company (LLC)

An LLC is an entity formation that provides its owners (or members—we’ll cover that in just a moment) with liability protection. This type of protection creates a separation between the assets of the business versus the owner’s personal assets, including houses and cars.

Middle-aged entrepreneurs often have personal assets they would like to protect. If something unforeseen should impact your business, such as a lawsuit, then personal assets would be safe from any potential seizure.

Why would a middle-aged entrepreneur incorporate as an LLC?

Aside from the aforementioned liability protection, forming an LLC provides the owner (now known as a member) with flexibility. You may decide to form one of three different LLC structures, depending on your business needs:

Single-member LLC—You may run the business as its sole member.

Member-managed LLC—Would you like to own and operate a business alongside another member(s)? You may do so as a member-managed LLC. This formation ensures all members are treated as equals. No one member has more responsibilities or duties than another; all members work equally together.

Manager-managed LLC—Your LLC formation has its own board of managers under a manager-managed LLC. While this may sound as though you are giving another party control over your business, that is often not the case. Many entrepreneurs will form a manager-managed LLC for a series of reasons. Maybe they struggle to delegate duties to an LLC’s members, or need help running a business. The board of managers are able to step in and assist the LLC’s member(s) as needed.

Get your money right in 2020 with these tips and Tucson resources

If a financial resolution made it on to your 2020 list or vision board this list is for you.

We took a look at some common financial goals people make this time of year, asked a few local experts to share some of their best quick tips to help you jump start those goals and found several local resources that can help you learn more or help you stay on track.

Maybe you've heard some of these before, but sometimes a little reminder helps you remember that you've got this!

Goal: Make a Budget

The first step in working creating a budget it to track your expenses for a month or two to better understand how you're spending your money and where you can cut back, says Scott Bennett, a certified financial planner and executive director of 3rd Decade, a Tucson financial education program for adults in their 20s and 30s.

Getty Images/fizkes

There are lots of reasons you might want to budget your money. Maybe it's to save for a big expense like a trip, wedding, or new home — or you want to cut back on spending and focus on building your savings or paying down your debt. Whatever it is, your budget is your plan to help you get to those goals.

"The first step is to look at a cash flow analysis for the first couple months," says Scott Bennett, a certified financial planner and executive director of 3rd Decade, a local financial education program for adults in their 20s and 30s. "(Keep track) of what money’s coming in and how much you have to spend and what’s going out."

Then you can look at areas where you can cut spending, Bennett says.

Bennett says participants in the 3rd Decade program are advised to use a plain, straightforward Excel spreadsheet for tracking and budgeting, but it’s important for you to find the system that works best for you.

"There are a million different things and its not one size fits all," he says. "Don’t be afraid to try different tips and tools and see what works for you… if you’re hating every second of it, the chances of you keeping up with it isn’t really going to work."

When designing your budget, Bennett recommends following the 50/20/30 rule, a common budgeting practice.

This method suggests that 50 percent of your income should go to necessities (rent, utilities, etc.); 20 percent should go toward your financial goals (paying down debt, or saving for a vacation for example); and the remaining 30 percent is your discretionary spending (eating out, shopping, all the fun things).

Goal: Pay off credit card debt

Your best option for paying down credit card debt is to work toward paying down your balance on your card with the highest interest first and then the card with the next highest interest rate after and so on, says Scott Bennett, a certified financial planner and executive director of 3rd Decade, a Tucson financial education program for young adults.

Getty Images/Farknot_Architect

If you're ready to say 'goodbye' to some credit card debt this year, the first thing you need to do is take a hard look at your bills and understand what you owe and what you're paying.

"A lot of people think 'I'm paying my minimum on my credit card bill and that's good enough,' when it's not," Bennett from the 3rd Decade program says.

You'll want to look at your interest rates and see how much of what you're paying is going toward interest and how much is going to the actual principal.

There are two ways to approach paying down your balances, Bennett says.

"The back of the book, straight forward answer is to pay off the highest interest credit card first and then focus on paying the others," he says.

But, he also acknowledges that for some people using the "snowball method" is more motivating.

It works like this: you focus on putting any extra money toward your card with the lowest balance while paying the minimums on all your other cards and then once that's paid off and rolling over that money to pay off the next highest card and so forth until they're all paid off.

Goal: Save money

Establishing clear goals for your savings is one of the most important things you can do to ensure your success, says Scott Bennett, executive director of 3rd Decade, a Tucson financial education program for young adults.

Getty Images/eskaylim

If one of your 2020 goals is to spend less and save more, the sooner you start the better.

"The younger you can start saving and thinking about that stuff (like retirement), the better you'll be in the future," Bennett says.

He advises establishing clear goals for your savings as one of the most important things you can do to ensure your success.

"Budgeting should be the first step and then that budget is going to relate to those goals and having something to work toward, not just saying 'I'm going to save as much as I can,'" he says.

Bennett's top tip though involves re-thinking how we spend and save.

"Most people get a paycheck and then spend and then save what they have leftover, when that idea should be flipped on its head," he says. "It's the No. 1 thing people can do when they want to get serious about saving."

There are some simple things you can do like making sure you're fully maximizing your employer's retirement contributions and setting up automatic deposits into personal savings accounts so that money is stashed away before you even see it.

Personal finance resources

Here are a few places you can find personal finance workshops and courses where you'll dive deeper into the three topics mentioned above.

The 3rd Decade Program has been offering its free financial education program for adults in their 20s and 30s since 2015. The course covers topics like investing, housing, insurance, budgeting, and debt and upon completion you'll receive a contribution to a Roth IRA. Classes fill up very fast and there is a waiting list. Go here to learn more about the program and eligibility requirements.

The Primavera Foundation offers free financial empowerment and education classes for qualifying individuals. There is a general course and one for single mothers and their children and another for grandparents raising grandchildren. Go here to learn more.

The YWCA of Southern Arizona in partnership with Score offers free financial literacy courses in English and Spanish covering topics like creating a personal budget, taxes, basic financial planning and emergency funds. Go here for the calendar of events and to learn more.

Goal: Start a business

The Womens's Business Center at the YWCA of Southern Arizona offers business coaching, courses and workshops like the DreamBuilder Bootcamp.

Courtesy of the Women's Business Center

So you’ve got a one-of-kind idea and you’ve always wanted to be your own boss? Now what?

There are lots of organizations in Tucson dedicated to helping aspiring entrepreneurs turn their dreams into realities, if you’re ready to put in the work.

Francisca Villegas-Braker, director of the Women’s Business Center at the YWCA of Southern Arizona, shared her top three tips for anyone looking to start their entrepreneurship journey.

"The first thing you need to do is to identify what it is you want to do. Do some research, what are you good at? What do you have experience in? What’s your background?" Villegas-Braker says. "A lot of times we want to start a business because other people are doing it and just because this other individual is doing well doesn’t mean that you’re going to do well. It has to do with your experience, your background and your passion, because it’s a lot of work and it’s not easy."

Assess your personal credit

There's a good chance you're going to need additional funding to help with startup and other costs associated with launching a business, so making sure your personal finances are in order is important.

"If you’re trying to access capital, your personal credit will be the credit of the business," Villegas-Braker says. "Go to the free annual report website (find that here) and get a free credit report. You can see your FICO score and if things are reported accurately."

"There're a lot of requirements that you need and you don’t know what you don’t know," says Villegas-Braker. "You want to be in compliance. You might need a City of Tucson license, you might need a Pima County license, you need an EIN number. (There are) all of the requirements to be in compliance with all these different government entities."

Plus, you're going to need a business plan which will help you get funding, structure and grow your business

"A lot of people don’t want to spend time working on the business plan because it’s boring..." Villegas-Braker says. "But it will save you a lot of headaches in the long run."

Here are a few places that will help you work on that business plan, get coaching and connect with other entrepreneurs

Women’s Business Center at the YWCA of Southern Arizona hosts a few different programs in English and Spanish to help all entrepreneurs launch and grow their businesses. Programs include frequent orientation sessions to help get you started and consider if starting a business is the right move for you, one-on-one business coaching and workshops like the upcoming DreamBuilder Bootcamp, a series of 13 classes in which you’ll create a complete business plan to help you gain access to capital. Many of the WBC’s programs are free, and although some do have a fee, scholarships may be available. Go here to learn more about the WBC’s programs and find the full schedule.

Pima County Public Library has a whole range of workshops and services to help with aspiring and current business owners and nonprofit organizations through its Ignite program. Free sessions are hosted at four different libraries in the community and include topics like "Want to Start Your Own Business?"; "Simple Steps for Starting your Business: Financial Projections"; and one-on-one mentoring from the SCORE program. Follow the Ignite page on Facebook here to see all the offerings, or the library’s calendar of events here.

SCORE Southern Arizona offers free one-on-one business consulting and mentoring services and workshops. Mentors are volunteers who are dedicated to helping entrepreneurs succeed. Upcoming workshop topics include marketing your business, financing your business and turning your idea into a viable concept. Go here for details.

Startup Tucson has a number of business education courses, coaching and networking events to connect you with mentors and other entrepreneurs. Learn more about their programs and events here.

Goal: Become a homeowner

Jim Davis / Arizona Daily Star

Buying a home is a major life milestone and if 2020 is the year you hope to find a place of your own you'll want to spend less time watching HGTV and more time looking for the right lender to help you along the way.

Elia Jaime-Bracamonte, producing branch manager with Sunstreet Mortgage has worked in the banking and mortgage industry for more than 14 years. She says that before you start looking for the home of your dreams, you first need to look for a local lender you want to work with.

"Talking to a lender is the very first step you have to take to learn if you are ready to qualify, what program options you have and what is it going to take to get there," she says. "Unfortunately, I have sat down with buyers that come to see me after they have fallen in love with homes only to find out that the payment and down payment required for that home is out of their range of qualifying for or affording."

She says there are several local and federal programs that offer down payment assistance available to home buyers who qualify for those programs (usually dependent on income and location you are purchasing in) and working with an experienced lender can help you understand what all your options are.

You can find a lender by asking for a referral by someone you know and trust, or do some online research to find someone you want to work with.

"If researching online, social media — Google, Zillow or LinkedIn — would be good sources to see what their previous clients reviews and testimonials," Jaime-Bracamonte says. "While you're there take a look at their bio, if it is available to see their experience on the field."

Then it's on to the next step.

"Once you meet with a lender, then you can meet with a local realtor that will sit with you to learn what is that you are looking for in your home… then the fun part begins — house hunting," she says.

Here's a couple of local resources offering home buyer education and info about down payment assistance programs:

Family Housing Resources offers free comprehensive home buyer education classes, down payment assistance options and pre-purchase counseling which includes viewing your credit history, disputing errors, creating a plan to eliminate debt, determine which loan is best for you and other counseling services to help you through the process. Go here to learn more about the courses and services.

The Primavera Foundation offers free home buyer education courses for families with low-to-moderate income to learn how to find a lender, get a safe loan and find down-payment assistance. Learn more about this program here.

Pima County has a collection of the many different down-payment assistance and first-time home buyer programs on its Home Buyer Resources page. Go here to find a bit of generic info and links to the Tucson/Pima County HOME Down payment Assistance Program, Pima County Community Land Trust, Mortgage Credit Certificate and Pima Tucson Homebuyer's Solution Program. These programs each have their own eligibility requirements based on income levels and the location you're looking to buy in.

A group of realty, insurance, title and mortgage companies hosts a First Time Home Buying Class every month at the Catalyst Arts & Maker Space at Tucson Mall, 4500 N. Oracle Road. The class happens every second Saturday of the month from 10 a.m. to noon and helps first-timers learn more about the home-buying process. The next class is on Feb. 8, go here for more information.

Innovate, Adapt, Overcome: How to Beat a Recession with Idea Management & Continuous Improvement

In the precarious economic climate, a global recession is an ever-present danger. However, by developing an innovation strategy that anticipates a downturn, you can help your enterprise weather the storm and even uncover lucrative ways to gain a competitive edge. Read on to discover how you can transform a recession into a rejuvenation.

U.S job losses skyrocketed during the peak recession years 2008-2010

Given the devastating impact of the 2007-08 financial crisis, it’s little wonder that companies worldwide are sensitive to omens of a new “great recession”. It’s estimated that a loss of more than $2 trillion in world-wide economic growth occurred between the second quarter of 2008 and the first quarter of 2009. In the U.S alone during the initial ripples of the crisis, the economy lost more than 2.5 million jobs and saw the fall of 25 federally-insured banks.

While the jury is still out on whether 2020 will be a recession year, it’s guaranteed to bring plenty of challenges for large organizations across every industry. In the interests of futureproofing your enterprise, it’s important to ensure your innovation strategy can accommodate the privations of turbulent economic times. As we saw in 2019, the business landscape is sufficiently volatile and disruptive even when the market is relatively stable. If your company’s innovation strategy isn’t propelling you forward in these conditions, it likely won’t be able to keep you afloat during an economic downturn.

But don’t panic just yet. By analyzing how you can marshal existing assets to drive creativity, engage employees, and keep innovations customer-centric, you can help your company emerge from a recession stronger than ever.

“Improvise, adapt, and overcome” is a mantra coined by the U.S Marine Corps and popularized by survivalist extraordinaire Bear Grylls. Businesses looking to discover how to beat a recession with idea management and continuous improvement would also do well to adopt it. In this article, we’ll cover five field-proven strategies your business can adopt to arm your innovation strategy for ‘recession conditions’ – empowering you to transform a catastrophe into a catalyst from growth.

1. Keep Calm with Kaizen: Making the Most of What You Have

Plato once said, “necessity is the mother of invention.” This holds particularly true when it comes to figuring out how to beat a recession with continuous improvement. You’ll need to undertake a thorough analysis of your internal processes, see where wastage can be eliminated, and creatively use essential assets to streamline your workflows.

So, what’s the most efficient way to do this? Although there are a variety of methodologies, “Kaizen” is particularly useful. This is because the process involves systematically assessing a workflow or model and then making cooperative efforts to adjust it to generate maximum productivity. The simple, scalable, and inclusive nature of “Kaizen” makes it perfect for recession conditions, as it can be actioned rapidly to great effect.

This infographic from TechTarget shows how a Kaizen cycle can help boost continuous improvement within an enterprise.

Fittingly, the Kaizen system emerged in Japan during the immediate post-war period – a time when the country was recovering from economic and infrastructural desolation. Translated as “change for the better”, Kaizen is credited as playing a significant role in Japan’s economic miracle – which saw the country rise from the ashes, reorganize its corporations, and implement American production techniques to become the word’s second largest developed economy.

The Kaizen approach is divided into five ‘S’s’:

1. Sort: Eliminate unnecessary tools or components within a workflow

2. Set in Order: See how the new ‘stripped-down’ workflow can be arranged for greater efficiency

3. Sweep: Make certain that all elements necessary to facilitate the workflow are ‘waste-free’ and primed to operate in the long term

4. Standardize: Ensure all employees are aware of the new workflow and their obligations within it

5. Sustain: Continuously review the workflow and scale as needed

This system offers an efficient, repeatable way to analyze what resources you can best leverage to drive innovation. If used strategically, it can help drastically reduce external R&D costs, as well as increase your company savings – which could make all the difference during a financial crisis. Even during stable economic times, it’s worth implementing a Kaizen system to prime your continuous improvement strategy for long-term business success.

2. Amp Up the Value: Balancing Austerity with Creativity

When most business leaders see a recession on the horizon, their knee-jerk reaction is to ‘batten down the hatches’ and brace for disaster by cutting costs and reducing expenses. While this is often necessary, it should not be the only course taken – particularly as your competitors are likely doing exactly the same thing. To gain that all-important edge, it’s advisable to survey the marketplace – through crowdsourcing projects, portfolio scouting campaigns, etc. – to see where disruptive innovation efforts could best be concentrated.

The opening of Hermès first men’s only store in Madison Avenue – an innovative move that saw the company reap major financial rewards.

Luxury goods manufacturer Hermès serves as a great example of a company that innovated daringly during the recession – instead of cutting prices – and achieved major dividends by doing so. In 2010 – a time when many fashion companies were still reeling from the economic crisis – Hermès opened its first and only men’s store on Madison Avenue.

Though the store emphasised the fundamentals that had always been synonymous with the brand – expensive, high-quality products and apparel – it did so in a striking new way that appealed to recession demographics. Men proved willing to spend more on big-brand items that would last them a lifetime, rather than seasonal selections.

It’s important to remember that although a large-scale, daring innovation project has the potential to give your company even more disruptive clout during a recession, you also run the risk of falling further should it miss the mark. As such, you should conduct a thorough risk analysis of all new innovation projects before proceeding. This will help you keep threats to your ROI as low as possible.

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3. Muster Morale: Maintaining Employee Confidence in Your Mission

Once news of a recession hits, employee job loss anxiety will inevitably follow in its wake. Even more disturbingly, employees may be made hypersensitive to signs that your company won’t survive the crisis, and thus look to leave what they perceive to be a sinking ship.

Establishing a culture that encourages innovation, and rewards intrapreneurship, is a powerful way to counteract this effect. It will let your employees know that their contributions are valued, and also show that the company is actively responding to the crisis with creative solutions – rather than simply ‘trimming the fat’ or rolling over to accept defeat.

A study undertaken by social organization ‘Engage for Success’ found that engaged and motivated employees are 59% more likely to contribute towards innovation. In addition, companies with high employee engagement rates have a 40% lower turnover rate than organizations with low engagement. It seems clear then that, over the course of a recession, companies should do all they can to boost engagement levels in order to maintain the necessary innovative output and retain core talent.

Here are a few ways you can improve employee morale and encourage greater participation in innovation during a recession:

1. Designate Innovation Ambassadors: Choose one or several senior members of staff (C-suite executives, members of the Board of Directors, etc.) to champion the innovation initiative. These ‘Innovation Ambassadors’ should lend their authority to convey to all employees how the project will help the company stay afloat. This will help reinforce that innovation is a vital activity, and not something frivolous.

2. Build the Hype: It’s important to sustain constant communication around new projects by developing ‘innovation narratives’ You could do this by creating a newsletter showcasing a ‘performer of the week’ or an outstanding story associated with a project. In addition, you could send out periodic emails updating staff on new developments, or even launch “teaser” campaigns for upcoming projects. By of new innovation projects, employees are likely to feel more positive about contributing.

3. Cultivate Collaboration: This could include enabling employees to comment on new initiatives online or allowing them to ‘upvote’ ideas they think will best benefit the company. By encouraging greater interaction, you can also help break down the departmental silos that can stifle innovation.

4. Recognize the Big Achievers: To sustain morale, it’s vital to give employees something to aim for. This could be a simple acknowledgement of their talents, or substantial real-world prizes. For example, you could highlight an individual or team that created a lucrative idea on the company newsletter, or launch competitions to uncover creative insights.

The collective intelligence of your workers is one of the most valuable assets at your disposal during an economic downturn. By combining the four approaches outlined above, you can retain the talent and expertise that could help keep your enterprise viable over the course of a recession.

4. Intensify Your Impact: Keeping Innovation Customer-Centric

When a recession hits, consumers tend to be far less willing to open their wallets. If you’re innovating to develop new products or services for a hyper-competitive marketplace, it’s vital that they perfectly align with customer needs. Although customer-centric innovation is also pivotal in economic boom times, during a recession it could spell the difference between business success or failure.

One of the most effective ways to continuously align your strategy with the requirements of your customers is to involve them directly within your innovation pipeline through an open innovation campaign. This could involve approaching your customers – via dedicated portals, surveys, competitions, and more – to crowdsource insights which can improve your offering.

In addition to opening a wellspring of growth-driving ideas, open innovation lets your customers know that you care about them – thus promoting the kind of loyalty that can be extremely useful to your company throughout this critical time.

An particularly relevant example of a company leveraging open innovation to thrive in the face of adversity is provided by Starbucks. During the 2008 financial meltdown, the coffee shop giant launched its “My Starbucks Idea” platform. This provided customers with a secure online environment in which they could post suggestions for enhancing virtually all aspects of the Starbucks experience – from new products, to store layout improvements, to charitable projects.

Matthew Guiste, Director of Global Social Media at Starbucks, discusses how the “My Starbucks Idea” program helped the company leverage open innovation to combat the effects of the 2008 financial meltdown.

The initiative generated more than 70,000 ideas in the first year alone, and over a decade later, the “My Starbucks Idea” platform continues to be used by the company to cultivate invaluable customer interactions.

5. Scout the Landscape: Pinpointing Tech and M&A Opportunities

During a recession, sustaining innovation via a repeatable, growth-generating process is more crucial than ever. To gain support for overcoming the obstacles this critical period can present , it’s important to scout out new commercial opportunities – whether they come in the form of technology, talent, IP, or start-ups as a whole. Reinforcing your innovation processes by harnessing external talent could give you that all-important competitive edge, particularly as other businesses are likely to be more insular at this time.

While a recession is underway, it’s likely that the best deals for securing new technology, startup investments, and M&A opportunities will arise. In fact, according to a study by BCG, M&As that take place during a financial downturn have a higher chance of creating value for shareholders than they do in favourable conditions – long-term returns generally exceeding 50%.

A 2019 study by BCG found that M&A deals made in weak economies tend to outperform those made in strong ones significantly.

As we have seen, adaptivity is an essential attribute your company must possess to innovate effectively during a recession. By aggressively scouting for external talent and technological capabilities, you can infuse your innovation strategy with the flexibility needed to overcome the biggest challenges the crisis can throw at you.

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