Thursday, November 20, 2008

Business Plan Basics

Courtesy of Palo Alto Software, Inc.

The best way to show bankers, venture capitalists, and angel
investors that you are worthy of financial support is to show
them a great business plan. Make sure that your plan is clear,
focused and realistic. Then show them that you have the tools,
talent and team to make it happen. Your business plan is like
your calling card, it will get you in the door where you'll have
to convince investors and loan officers that you can put your
plan into action.

Once you have raised the money to start or expand your business,
your plan will serve as a road map for your business. It is not
a static document that you write once and put away. You will
reference it often, making sure you stay focused and on track,
and meet milestones. It will change and develop as your business

Do I need a business plan?

Not everyone who starts and runs a business begins with a
business plan, but it certainly helps to have one. If you are
seeking funding from a venture capitalist, you will certainly
need a comprehensive business plan that is well thought out and
contains sound business reasoning.

If you are approaching a banker for a loan for a start-up
business, your loan officer may suggest a Small Business
Administration (SBA) loan, which will require a business plan. If
you have an existing business and are approaching a bank for
capital to expand the business, they often will not require a
business plan, but they may look more favorably on your
application if you have one.

Reasons for writing a business plan include:

  • Support a loan application

  • Raise equity funding

  • Define and fix objectives and programs to achieve those

  • Create regular business review and course correction

  • Define a new business

  • Define agreements between partners

  • Set a value on a business for sale or legal purposes

  • Evaluate a new product line, promotion, or expansion

What's in a business plan?

A business plan should prove that your business will generate
enough revenue to cover your expenses and make a satisfactory
return for bankers or investors.

  1. Executive Summary--features the highlights of your plan and
    sells your idea in two pages or less.

  2. Company Summary--a factual description of your company,
    ownership, and history.

  3. Products (or Services or both)--describes your products
    and/or services and how they stand out from competitive products
    and services.

  4. Market Analysis-provides a summary of your typical customers,
    competitive landscape, market size, and expected market

  5. Strategy and Implementation-describes how you will sell your
    product, how you will put your plan into action, and establishes

  6. Management Summary-provides background on the management
    team, their experiences, and key accomplishments.

  7. Financial Plan-contains key financials including sales, cash
    flow, and profits.

What makes a successful business plan?

  • A well thought out idea

  • Clear and concise writing

  • A clear and logical structure

  • Illustrates management's ability to make the business a

  • Shows profitability

How do you write a business plan?

Sitting down looking at a blank computer screen as you prepare to
start your business plan can be daunting. You may want to look
at some alternatives that will make the process a bit easier.

Use Business Planning Software

A good business planning software package will provide you with
an outline for a well-developed, objective-based and professional
business plan. Software packages will remove the problem of
starting from scratch by structuring your plan for you. The
software should ask you the right questions that will pull out
the most important underlying concepts within your business idea.
Find out more about the leading software package on the market, Business Plan Pro.

Buy a Book

There are many good books on the market that will help you to
understand what needs to go into a good business plan. You can
read Tim Berry's newest book, "The Plan-As-You-Go Business Plan".

Sample Business Plans has 100+ free sample plans to help guide you through your "writers block". The sample plans available are in all types of categories from construction to retail, consulting to online businesses.

Hire a Professional

A professional consultant will create the business plan for you,
but you still have to be prepared to think through your business
and understand the underlying concepts in your business idea.
You will have to work closely with the consultant to ensure that
he or she develops a good plan that accurately represents your
business or business idea.

Wednesday, September 10, 2008

How To Make Money With a Private Placement (2 of 2 articles )

by Michael Davis

In the previous article we addressed what the different nuances that make up the entity known as a private placement. In this article we will address the pitfalls of a private placement and the all important means of making a sizable return with this investment vehicle.

Due Diligence

As mentioned previously, the way to make money with a private placement investment is with proper due diligence and diversification. Due diligence means the performance of an investigation of a business and its operations. It is the investigation into whether on one's personal inquiry into that company it is expected to be a success or failure.

The problem with personal due diligence is that one may not really have the expertise to do an adequate investigation into the company. The converse may also be true in that the individual doing the due diligence may pass on a favorable investment because they have not been able to evaluate the merits of the company due to a lack of knowledge in that particular business.

If you're used to running a car dealership you probably don't know much about geological reports or online businesses. However, if the investment makes sense and the numbers are sound an investment into a private placement is an appropriate speculative endeavor to round out one's portfolio. If the investment contemplated is of a sizable amount then an independent advisor with experience in due diligence evaluations should be brought into the picture.

When doing your due diligence what makes sense? First and foremost look at the use of proceeds and the cost of raising the money by the company doing the offering. I've seen private placements done with a load factor up to 80 or 85% of the money raised. If the promoters are doing a drilling program drilling 1 well to a depth of 800 feet and their money raise is for $2 million or more chances are it's not going to work out for the investors. It's like the movie "The Producers" where Max Bialystock raised $2 million for a flop and expected to pocket 95% of that. If most of the money for the venture is going into someone's pocket and not the operation it's probably a scam and should be avoided.

Legal Aspects of Private Placements

Most private placements are exempt from registration with the SEC by means of what is called a Regulation D filing. These are broken down into Rule 504 offerings (limited to $1 million raised in a 12 month time frame) Rule 505 offerings (limited to $5 million raised in a 12 month time frame and only 35 non-accredited investors) along with a Rule 506 offering (again limited to 35 non-accredited investors, a $7.5 million cap for 12 months but with additional disclosure of the company's finances required). The complete details of the criteria for exemptions may be seen on the SEC website at

Even though the offering maybe exempt from registration with the SEC proper forms must be filed with State Security Boards and the SEC to maintain that exemption. Many companies fail to file these documents with the intention of raising the money fast and closing up shop before they are investigated. The quickest way to find out if an investment is legitimate is to see if they have filed their Form D with the SEC. To do this simply do a search of that company with the SEC on their website. This from If nothing shows up they probably haven't filed the necessary paperwork and should probably be passed on also. However, the SEC does not comment on the merits of the investment but rather simply reports if the company has filed the necessary documents.

You should look at what is the nature of the people selling the investment. For a company to maintain its exemption from registration the security can only be sold by registered broker dealers or bona fide officers of the company. This eliminates and forbids the use of an independent sales office (ISOs) or other boiler room tactics to fall in the legal guidelines to sell the investment. If the offering is being sold this way it is also something to be avoided. If you're talking with the President of the company or other officer about the investment don't think "why is he wasting his time raising money" but rather think that they are selling the investment legitimately.

Management Team

Of particular importance is the management team of the startup you're investing in or contemplating investing in. Do they have a positive track record with other startups? Are they competent in their field. Are they in their field? It doesn't make sense to expect someone that has worked all their life in retail sales to be successful in a new bio-medical company nor for a physician to be successful in something outside their expertise.

This is extremely critical if the startup only has 1 or 2 people. Hopefully the company can make up for limitations of the key people with the knowledge and expertise of others involved. Management and a sound business plan are usually the cornerstones to success of the startup company. These are probably the 2 most important concerns in evaluating the merits of the investment. It is what the venture capital companies look at first and foremost in their due diligence.

So all that said why would anyone want to invest in a private placement. With proper due diligence and knowledge these can be great investments. Imagine buying into a company when it is a startup for $1 a share. The company goes public five years later at $18 and immediately jumps to $32 a share. Imagine also if you had done that with EBay, your return would have been about 250 times your original investment.


However I have always told my clients the key to success in the financial arena is with diversification. "Don't put all your eggs in one basket." is more than true here. With private placement investing out of 10 well researched companies expect 4 or 5 to completely fail, 3 or 4 to have moderate success and 2 to be the home run you're looking for. With that in mind a 50% or more return on your investments is reasonable. Diversify but don't be stupid. This should be investing not gambling.

How Do I Cash Out?

In a corporation there are several ways to an exit strategy. The company may become a public company and you can sell your stock on the open market. The corporation may become the target of an acquisition and all shareholders will either receive cash or stock in the acquiring company. Lastly the corporation may declare dividends and return profits back to the shareholders. This last one is limited since most new companies invest most of the money back into the company for further growth.

An LLC or LLP will pass profits back to their investors in the form of distributions on a quarterly or monthly basis. This can be substantial and almost immediate for a successful company. In addition tax advantages in the form of write-offs or tax credits can be passed-through to the members or partners. As in the above, the company may also be acquired by a larger entity and the investors will realize a return on this.

In a note or debenture the investor will usually receive interest payments for the term of the note and return of their investment on maturity. Tha return is usually less than the above two but conversely is usually not at as much risk.

As in everything in life there is no guarantee of success. There are however other pluses to investing in a new startup. It maybe the satisfaction of helping a new company working in an area you find good about or socially helpful. It maybe the thrill of being with an up and coming company that succeeds from their outset and seeing them grow. Or it maybe back to the basics of making a good return on your money.

My personal preference to investing in a private placement is that of an LLC. The return maybe not as great as private stock in a private company but the return is usually quicker and the writeoffs can be taken usually immediately.

Here's to your success and good luck.

Michael Davis is a former Series 7 and 24 NASD broker, finishing certification for CFP and the president of, a private, third party consulting company dedicated to helping investors with due diligence and discovery of investments.

How To Make Money With a Private Placement (1 of 2 articles )

by Michael Davis

Chances are if you are reading this article you are familiar with the concept of a private placement. If you are not familiar with the terminology an explanation of what it is would be in order.

What is a Private Placement?

A private placement is where a company sells a portion of its assets to an individual or investment entity usually in exchange for operating capital. The private placement may be issued by a publicly traded company that sells restricted shares which may be sold after a specific period of time, usually 12-18 months. However a private placement is usually done by a privately held company to individuals that purchase a piece of a startup. Unfortunately for investors, these oftentimes don't work out and the investors lose a portion if not all their money. It has been estimated that 80-90% of all private placement investments result in losses for the investors.

Why Invest in a Private Placement?

So why would someone choose to invest in a private placement? The answer is to make money. With the odds against the investor how can they get a return from this investment. That answer is also simple. Diversification and due diligence.

Forms of Private Placements

First of all let's examine the form of a private placement and the underlying company. Most private placements are LLCs (Limited Liability Companies) or LLPs (Limited Liability Partnerships). Both of these entities are very similar in that the liability a member of the LLC or LLP has is limited to their original investment. In other words their personal assets beyond their original investment are safe.

An LLC is a hybrid between a corporation in which the shareholders are only subject to loss of their investment and a partnership in which the availability of write off loss or income gain is passed-through to the members of the LLC. That advantage of tax write-offs is a major reason for the popularity of this type of investment particularly in the Oil & Gas Exploration business and Equipment Leasing Partnerships.

There is a distinct difference in the management of an LLP and an LLC. In an LLP the partners have the right to manage the business directly. In an LLC the members elect a Manager that runs the day to day operations of the company. Usually in both of these entities the management control is directly related to the percentage ownership.

The LLPs and LLCs will typically pay a disbursement to their partners or members on a quarterly basis sometimes monthly. These disbursements can be sizeable particularly in successful operations in which a member or partner can recoup their total original investment within the first few months of operation and anything after that is pure profit. Unfortunately, many of these companies never produce a penny in profits and the investors don't see any return. We will address that in our next article.

Another form of a private placement would be that of common or preferred stock in a private or public corporation. This stock is thus ownership in the company itself. The positives of this type of investment would be if the company becomes very successful the value of the investment multiplies tremendously.

Imagine if you were able to buy stock in Google or Microsoft when they were fledgling startups. A $10,000 investment then would be worth tens of millions today if not more. It is difficult to find another Google or Microsoft and most startup companies end up failing. However, there is a company out there right now that may surpass these two in growth over the next 20 years, finding it is the key to success. We will also address this in the next article.

A third type of investment maybe that of a direct loan or some form of a Debenture or Convertible Debenture. In a Convertible Debenture it usually takes the form of a loan or note for some period of time to be paid upon maturity with interest. The interest rate can be very good - sometimes in double digits.

At maturity the note maybe convertible into common or preferred stock or simply result in return of the original investment. The terms would be laid out with the original investment. This is a subject that can also be very influential as to whether the investment becomes a success or failure.

If the investor makes 24% on their money plus can convert the original investment into buying $5 stock for $1 a share in two years that was a good investment. However, if the company results in failure or collapse in those two years, cannot pay the interest and the $1 stock is now worth a penny or nothing, that investment was not so good.

There are other forms of investment into a company but these three are the major ones in play now. There are advantages and disadvantages in each one. In our next article we'll address exit strategies and I'll give you my preferences and recommendations. Again, the key to success in investing in a private placement is Diversification and Due Diligence.

Michael Davis is a former Series 7 and 24 NASD broker, finishing certification for CFP and the president of, a private, third party consulting company dedicated to helping investors with due diligence and discovery of investments.

Sunday, April 27, 2008

Bird-Dogging - Getting a Start in Real Estate Investing

Are you anxious to get a piece of the wealth that is to be found in real estate investing? Until now, if you didn't have experience or cash it would be very unlikely that you'd be successful since real estate investing carries enormous risks and high startup costs. New investors with a lack of knowledge have lost all of their savings from a bad investment.

How can you prepare yourself to take on this lucrative market, especially with no cash?

The buzzword among investors for those making a start in this field is "bird-dogging". Don't forget it.


Bird-dogging is a system which allows those who are interested in real estate investing to gain experience AND income with no risk.

Bird-dogging combines the enthusiasm of the new investor with the money and experience of successful investors. Bird-dogs search out properties that are abandoned, lacking attention or are in disrepair and attempt to contact the owners about their interest in selling. The idea is to find home owners who are anxious to sell. This may also include owners with foreclosures, divorces or a death in the family.

Bird-dogs then show the property to the investor. If the investor is interested or closes the deal they pay a 'finder's' or 'referral' fee to the bird-dog for the service of locating the property.


Your first step would be to find a company who advertises on signs or in the newspaper that they buy houses, or take over payments.

Tell them what you'd like to do and ask them which areas they'd prefer you to look at. Drive around the area and look for 'For Sale by Owner' signs, rental homes and boarded up homes.

You will develop a sense of what individual investors are looking for over time. This is the learning phase. You will pick up what experienced investors consider 'good' or 'bad' deals based on working with them. Expect your finds to be turned down at first as you learn.


Fees paid vary from $500 to $5000 depending on the investor or the cost of the deal. Some businesses will also pay you a standard fee if you bring new investors into the business.

You can make living as a bird-dog or save your new found wealth to invest yourself when you've mastered the art of spotting the perfect deal!

Wednesday, January 2, 2008

Nerves of Steel

Investing in todays financial markets takes at least a bit of control over your emotions. Some say it takes nerves of steel. It is certainly true that last months market turmoil has rattled investors. Consider many of the big boys having to write off billions due to bad loans. What does that mean for the smaller private investors?

Of course to a very large extent it depends on what type of investor you are. Are you a traditional Buy and Hold type of person? In that case the current market slide probably won't stir you that much. You may view it as a nice moment to get some bargains and add some friendly priced stocks or mutual funds to your portfolio. The only slightly difficult thing here is that seemingly hard to grasp phenomenon known as market timing. Who knows what a good price is? Is it good today just because it was higher yesterday? If so, will you still consider it good tomorrow if tomorrows price turns out to be even lower? Of course fundamental analysis can give you some guidance on what a good price could be, but these days P/E ratio's don't always carry the same meaning as they used to.

Of course to someone who is more of a trader the last few weeks have probably been pretty exciting. Whether or not that is positive or not depends on the way that they have managed their risk. What is an exciting, but perhaps bumpy, ride for one could be a nerve-wrecking slide for someone else. For many private investors risk management is easier said than done. If you lack the discipline to put risk management in place and act on it when called for it easily lead to an unpleasant situation. A serious drop in market value could have an immediate effect on the buying power of your portfolio. And if you've used margin, for instance by shorting uncovered stocks, that leverage could quickly start working against you. In that case you'll probably need a bit more that just a little control over your emotions.

Nerves of steel could help you sleep better in a situation like this but when push comes to shove it won't pick up the check. It is good to the extent where it keeps you from becoming too jumpy and making decisions driven by fear. It can be very bad when it makes you become cocky, thinking your cool will save you when markets continue to fall. It won't. Nor will it stop a margin call from your brokerage firm. It's great if you don't panic when the markets don't do exactly what you, or everyone else, expected. Much money can be made if you can keep your act together in a situation like that. But it's even greater if you've got your risk management in place so that your nerves aren't put to the test when things take an unexpected turn.

Tuesday, January 1, 2008

Eight Steps to Building a Solid Stock Portfolio

Are you an investor looking to build a brand new stock portfolio? Or maybe, you have managed investments or a retirement plan and you are now looking to maximize your investment portfolio? This report will help you build your stock portfolio to generate "real" wealth.

Easy access to investing information and the availability of online trading has made life much more enjoyable and less costly for do-it-yourself investors. The Internet has brought the "trading" desk to millions of households and it is now possible to buy and sell shares, options, warrants, interest rate securities and managed funds from your own home. All you need is a computer and an internet connection. In addition, you can do your own research on a particular company or fund manager as well as finding out what some stock brokers are recommending to their clients. Much of this information is free or available at a reasonable cost and you can save yourself hundreds, or even thousands of dollars in fees and commissions every year via the internet. Rather than go through a full service stockbroker or investment advisor, why not give it a try?

When building your own stock portfolio, here are some pitfalls you need to avoid!

While you can find a plethora of good information on stocks, you can also find very poor information. Each website claims to have the latest hot picks or the "top ten" stock buys and often they contradict each other. Who do you believe and what about the scams?

You will undoubtedly come across websites and chat rooms that give investment advice or tips about investments, but many of these are not qualified to do so. The information may be wrong or misleading and some websites even repeat incorrect rumors.

There is overwhelming evidence that you will not become rich by listening to the advice of others. As an investor you need raw information, not recommendations. You would not buy a car just by looking at it...nor should you buy a company's stock without doing significant research. There is no point trying to take control of your finances if you are going to rely solely on a "tip" from a newspaper or a broker or an internet chat room. It is true that someone may know more about a particular company or stock than you, but they could easily be wrong - so do your own homework!

You need to be certain that you have sound reasons for investing in a particular company. Does the company have an instantly recognizable name? Do you understand what the company does? Do the products or services of the company stand a good chance of being in high demand in a 10, 20 or 30 year time frame? Does it have a management team that moves with the times and is innovative, yet keeps a firm grip on the company's finances? Most of this information is available in a company's Annual Report, but make sure that you read it with a degree of skepticism...most reports are written to promote the company.

In the Annual Report, the financial statements, the balance sheet, the profit & loss statement and the cash flow statements are very important. They are important because they will help you assess if the company is providing value for your money. You are going to be buying stocks at a certain price and you will want to make sure that you are not paying an excessive amount. The financial numbers give you a snapshot of the financial structure, strength and growth rate of the company. This type of analysis is often called fundamental analysis, and also includes analysis of the economy and industries related to the company.

Keep in-mind that the historical and present prices of a stock hold clues to the future price. In practice, most analysts use fundamental analysis for short and long term buy/sell decisions and use technical analysis to confirm the decision.

Internet websites are a great place to collect information about companies. Naturally, a company owned website will attempt to portray the company in the most sympathetic light. Depending on how serious you want to be about investing, it is advisable to either visit or subscribe to investment research websites. Research websites are valuable tools for any investor and provide company reviews, give general investing information, market updates, stock pickers, stock ratings, watch-lists, portfolio managers, charts, share indexes, newsletters, alerts and model portfolios.

So, how can you structure a stock portfolio to maximize your wealth, ensure your peace of mind, give you total control of your investments, be easy to manage and give satisfaction? Here is a recommended strategy that has worked well for many do-it-yourself investors:

1. Subscribe to a well respected investment research website dedicated to analyzing financial information for investors. They are independent from companies they list, do not receive commissions or brokerage and rely solely on investor subscriptions for income. They have to give their subscribers quality information to maintain subscriber confidence.

2. Look for the model portfolios they have developed and study the methodology they have used to create and maintain each portfolio.

3. Read the research reports supplied for each stock and study the graphs supplied for price movements and trading volumes. Get a good feel for both the long term and the short term trends of the stock.

4. Test each portfolio within a designated test period i.e., one month, one quarter, one year etc. Depending on the website, you can set up each of the model portfolios in a free portfolio manager provided on the website with unlimited stocks. Set a starting date for a test period where you "buy" stocks listed in the model portfolio at the closing price for that day. Make sure you include brokerage as it is part of the cost base for the stock. The website should either maintain up-to-date or 20 minute delayed stock prices, so a running balance can be maintained for the profit/loss for each stock over the designated period.

5. Compare each portfolio's published results with the results that you have achieved in the portfolio manager. They should agree with each other when the same stocks are compared over the same time period. Your testing should develop a level of confidence in the model portfolio.

6. Determine the best model portfolio for you to use. You can do this using the last the last three months of stock price history or perform a trial evaluation for the next three months of future prices. You can use one of the existing model portfolios or create your own from the stocks selected.

7. Subscribe to an online share broker website and begin trading.

8. Monitor stocks daily and review the performance of your actual portfolio against the model quarterly.

You should take care to evaluate the methodology used by the research website to develop the model portfolios. These portfolios are designed by research firms to provide sensible medium-term portfolios that make it easy for investors and financial planners to replicate. You need to understand the research methodology and develop a level of confidence in it rather than just blindly accepting the published results of each portfolio. You do not need to become an expert in methodologies.

Building a share portfolio that meets your investment objectives will substantially build your wealth over a period of time. You can also save money in commissions and fees, have peace of mind, total control over your investment and gain a real sense of satisfaction.

As a final word of caution...nothing is for certain in this world except for death and taxes. This also applies to the stock market. Be prepared for some ups and downs and be ready to sell stocks to cut losses. If the core of your portfolio is made up of stocks that have strong capital growth and a reasonable dividend you will do well overall. Have "at it" and good investing!

Be A Winner Everytime

Just imagine placing a bet with the knowledge in advance that there is a 100% certainty of being a winner.

Visualize all that lovely money pouring into your bank account.

Pipe dream? No! Just guaranteed profit time after time.

You can make risk-free profits simply by carefully monitoring and reacting quickly to the differing odds offered by online bookmakers and betting exchanges.

Financial transactions that make profits without incurring any risks are known as 'arbitrages' and have been used for some time in the world of finance.

Sportsbooks ideally like to have a balanced book. This means that if the odds on offer were converted to percentages and then added together, the total would amount to more than 100%. Therefore, there is a built-in percentage favoring the sportsbook. The higher this percentage is, the more advantageous it is for the sportsbook.

For the punter to make a guaranteed profit, he needs to have the percentages in his favor. If the total book percentages totaled 80%, then a guaranteed profit of 20% would be available to him whatever the result.

Unfortunately, no sportsbook is going to allow their percentages to add up to less than 100%.
The good news is that the outcome of an event is a matter of opinion and different sportsbooks sometimes have differing views.

For example, say a tennis match where Player 'A' is given odds of 1.50 by one sportsbook and Player 'B' is given the same odds by another. The odds of 1.50 = 40%, so both odds totaled give 80% which results in an arbitrage of 20%. By staking $400 on Player A at the odds of 1.50 and $400 on Player B at the same odds, there is a risk-free guaranteed profit of $200.
The workings of this arbitrage are:

Player 'A' - Stake $400 @ 1.50 = Potential return of $1000
Player 'B' - Stake $400 @ 1.50 = Potential return of $1000
Whichever player wins - Profit = $1000 minus Stakes $800 = $200.

$200 profit without any risk whatsoever and the good thing about arbitrage trading is that you can go on doing it day after day.

Arbitrage trading may be risk-free, but it is not work-free. Before you can trade, you have to first find an arbitrage opportunity.

This involves careful scanning of sportsbooks searching for odds that afford an arbitrage trade. The internet, with its ever-increasing number of sportsbook sites, makes this task much easier.
Events to look at are those with two or three possible winning outcomes. Some examples of these are: tennis, golf, American football, soccer, snooker, boxing, basketball, baseball, ice hockey and politics.

It's best to have a minimum favorable percentage of 5%. If odds from betting exchanges are being used, do not forget to include the exchange's percentage commission when calculating.
Comparing all the odds on offer for numerous events across the vast number of sportsbook sites in operation can be very time consuming. In addition, favorable odds need to be located quickly or the arbitrage opportunity will disappear. To make this task easier and much, much quicker, there are various software programs available that can be employed.

If making guaranteed profits without any risk is appealing, then arbitrage trading could be the business to be in. This is risk-free, guaranteed profits at their very best.