Securing Investors

During the business plan phase I quickly realize that I was going to need more money than we had to invest in the business. Instead of assuming the risk of a business loan I chose to transfer the risk to investors. This made sense to me because I had just resigned from my job and planned to stay at home with my daughter. I had every confidence that Bot Tots was going to be a success, but SBA loans were down by 40% and most were going to high tech businesses, so I new my chances were slim.

I consulted with my SBA coach who gave me some great advise. After reviewing my financials he suggested that I create projected profits for at least three years under different scenarios for my investors. One very interesting thing about financial projections like profit and cost projections, is that although they're based partly on research in the industry you are trying to break into, but they're really just a best guess. I determined that I wanted to secure .05% of the aggregate children's apparel market. That may seem small, but it equaled a large annual profit when successful. The great thing about the children's apparel industry is that it is highly fragmented with its biggest competitors only securing about 20% of the aggregate market.

So my financials were reviewed and approved by my SBA coach. The next step was to determine what kind of return I wanted to offer my investors. I initially came up with the idea of 1% for every 1,000 dollars invested. My SBA coach suggested that investors get rewarded for growth of the company (since they really weren't traditional investors in that they didn't actually own a portion of the company, but were just given a promise by myself that I would share a portion of my profits during the time period indicated in the investment agreement). So it was determined that investors would receive an increase of .25% of profits for every 10% the company grew after the first fiscal year.

So with my business plan done and printed, my financials in order, and my offer to investors I sent about ten packets out to people who had expressed an interest. Most were impressed with the business and invested!!

Currently, I have a secret number that I know Bot Tots will reach. I already have the checks written out to all my generous investors and I cannot wait till I am able to send those checks. My investors will be happy to see all those zeros!

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The First Step

So the concept of Bot Tots was born and the partnership with my talented childhood friend was formed. We agreed that she would be responsible for anything creative and I would be responsible for any business. I was so new to this that I had to do a ton of research about what it meant to become a business. It was so overwhelming that I sought advise from the Small Business Administration and secured a SCORE coach. If you are thinking about opening your own business of any type I highly recommend a SCORE coach!! They are amazing, experienced, and wonderful people who want nothing more than for you to be successful. You can begin by clicking on the link above and then go to the tab "Services" and scroll down to "counseling and assistance." When you click on this link the first section you will see is "SCORE."

My SCORE coach helped in so many ways. First, he suggested I become an LLC. LLC's are a type of business formation in the United States. LLC stands for Limited Liability Company. The cool thing about the formation is that for tax purposes the IRS sees LLC's as a non-entity which means that you're really just taxed under your social security number. But, in the eyes of the law you as an individual have limited liability when it comes to your company. This simply means should you get sued or worse your assets are separate from those of the company. In the state of Arizona LLC's are fairly simple to file. You file your Articles of Organization which list who is owner, member, manager of the company. You pay a very small fee, I think around $50.00 and 30 days later you get a letter from the Arizona Corporation Commission regarding your application. Oops I forgot one thing...make sure your business name isn't already taken in your state, nationally or even internationally. You need to do this because you will more than likely want to trademark your name. OK...back to the LLC process. So the final step is to publish your articles of organization in the county you filed. I am a military family so I had my mom make herself the "Statutory Agent," so I published the Articles of Organization and there you have it...Bot Tots is an LLC.

DISCLAIMER: I am not an attorney, legal professional, accountant, or of any other profession pertaining to business formation, etc. I do not profess to be an expert in any of the above Fields, nor do I advise you do anything I did without seeking professional counsel. I am not liable for anything you've done or will do as a result of reading this post or any other post.