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What are the biggest challenges entrepreneurs face when trying to obtain funding for their startup?

Most entrepreneurs have very little or no network in the financial investment community and have to build one from scratch. They also lack a deep understanding of how the startup funding world operates, or what appeals to investors, causing a learning curve that often leads to delays or worse.

What are the biggest challenges entrepreneurs face when trying to obtain funding for their startup?

The biggest challenge facing entrepreneurs when seeking funding for their startups is determining how much money they really need. Several factors play a role in this matter. Is this venture a small business where the needs are rather nominal, or is it a high-technology one where large sums of money are required in different stages for research and development and then testing? Investors always want to know two things: When will we get our money, and what will be the expected return on our investment? All sources of capital expect that entrepreneurs have made some investment in their venture besides sweat equity. This is why online sites like GoFundMe are popular for small businesses. They do not require any upfront investment from the founders. So, entrepreneurs really need to understand the financial and economic circumstances of their startups before seeking funding.

What advice do you have for entrepreneurs to keep their personal funds separate from business expenses?

All startup financials should be kept separate from the founders of the organization. Risk is the most important reason. There are many pitfalls that can affect a company’s well-being and market performance. Some are controllable, but many are not. Insurance is designed to address many of them. If personal finances are separate from the business, the personal financial risks can be greatly mitigated to prevent personal downfalls. If they are comingled, it could spell disaster for them. It also makes accounting and tax preparation much neater.

How would you expect the demand for business travel to change in the next two years?

Given the continuing advancement in electronic meetings (Zoom, WhatsApp, etc.) and because of the pandemic and all the uncertainty it brings, the impact on business travel will be a mixed one at best but overall will continue to shrink. The exception to this is conferences and trade shows where people need to interact. There will always be those conditions where people need face-to-face interaction, but overall, the trend will be negative over the next two years.

What are the biggest challenges entrepreneurs face when trying to obtain funding for their startup?

To qualify for traditional financing, small businesses used to be able to rely on the "three Cs," which are credit, collateral and character. It was common to walk into a bank and sit down with a friend you knew from high school, run a credit report, offer assets as collateral and off you went. As banks today have become a bit more corporate in their approach to lending, the face-to-face is really hard to make happen, even in smaller communities. Today it's really about "two Cs," which are credit and collateral. Banks lend to low-risk businesses, and that's really tough for startups, as most are higher risk by the nature of the early stage.

Today it is a must to find lending partners, local government-backed programs incentivized to lend to riskier startups, SBA guarantees, etc. The challenge then becomes that all of your assets are locked up — if cash flow becomes a later concern, your hands are pretty tied, and creativity will become the critical strategy.

What advice do you have for entrepreneurs to keep their personal funds separate from business expenses?

I see this as one of the most common reasons for small business failure. Think of the business as a completely separate entity. Name it. Name it after your favorite grandparent. Would you steal from your grandma? Putting yourself on the payroll definitely helps. If you are too early for payroll, scheduling regular draws as part of your expense planning might help. Early-stage startups simply cannot rely on the business to support personal expenses. The luxury of that comes after a bit of sweat equity — the carrot all entrepreneurs chase.

How would you expect the demand for business travel to change in the next two years?

Again, my focus is on Main Street, USA. These entrepreneurs aren't traveling; they are unlocking the doors in the morning and locking up at night.

What are the biggest challenges entrepreneurs face when trying to obtain funding for their startup?

Because the cost to launch and test an opportunity has dropped to a few hundred dollars (where it was millions during the dot.com boom), investors expect founders to have traction before they come and pitch. Having an idea is no longer enough. Today investors want true proof of concept, which I define as "turning on the light and having someone pay you to read under it." The light simply working is no longer enough to interest funders. Yet many founders believe that they must obtain funding prior to testing the opportunity. And that hasn't been the case for more than a decade.

What advice do you have for entrepreneurs to keep their personal funds separate from business expenses?

Being a founder of a startup can be all-consuming; you need to hedge your bets. You should make sure that while you are "all in," you aren't being dumb by putting all your eggs in one basket. I recommend that entrepreneurs open a business bank account and use a business credit card for all purchases. That will make bookkeeping really easy when it comes to tax time.

How would you expect the demand for business travel to change in the next two years?

I have no crystal ball, but I think the pandemic has made a lot more people think about working from home full time. Travel has become a luxury few firms want to invest in. In my humble opinion, I don't see travel returning to pre-COVID-19 levels for a long time. Firms will continue to use digital technologies to replace in-person meetings — not only for safety reasons but also for quality-of-life reasons and cost.

What are the biggest challenges entrepreneurs face when trying to obtain funding for their startup?

The biggest challenge for first-time entrepreneurs is newness. If they don’t have any startup experience or particular, notable expertise in the area of their business, it will be difficult to get taken seriously. Many investors list the skills and abilities of the entrepreneur as their No. 1 consideration, and the potential of the idea comes second. Thus, in the absence of experience, an entrepreneur is playing from behind right away. The lack of experience usually also means that the entrepreneur is lacking in contacts. Who you know is indeed as important as what you know when it comes to funding a startup.

For an experienced entrepreneur, the biggest challenge is keeping equity. Investors will want as much as they can get, and it’s your job to hang on to as much as you can. It's a bit of a tug-of-war, but usually it’s better to grow slowly through cash flow while keeping control of your company than it is to pursue fast growth while only holding a minority stake.

What advice do you have for entrepreneurs to keep their personal funds separate from business expenses?

Do it! Before you open for business, you should have a business account that is separate from your personal accounts. Get a certified public accountant involved; it’s worth the money!

In your opinion, should businesses keep a close eye on their credit scores when providing business credit cards to their employees? Why or why not?

Yes, of course. Your business’s credit score will affect your ability to get future credit. Even if you think you won’t need credit in the future, you don’t know that. Better to have a good credit rating and not need it than the alternative. Put limits on your business cards and watch over them carefully. Whenever possible, pay off the balance every month. If you must carry a balance, watch those interest rates. They will eat away at your profits.

How would you expect the demand for business travel to change in the next two years?

A: While Zoom has taught us that not all meetings need to be in person, it’s also taught us that many are better in person. While not based on any research, I expect the demand for business travel to rebound to pre-pandemic levels in the next two years.

What are the biggest challenges entrepreneurs face when trying to obtain funding for their startup?

The biggest two challenges for entrepreneurs are having the correct legal structure and documents and having sufficient business credit. Most entrepreneurs lack the knowledge of the correct ways to establish credit and access to funding. As a result, they lack the ability to hire attorneys to create appropriate legal structures for their business.

What advice do you have for entrepreneurs to keep their personal funds separate from business expenses?

Entrepreneurs should have two separate banking accounts as soon as they start a business. A personal account to pay themselves a salary and a business account to pay the expenses of the business.

In your opinion, should businesses keep a close eye on their credit scores when providing business credit cards to their employees? Why or why not?

Businesses have a responsibility to monitor their employees because employees can act as agents in the business. An agent is someone that can create liabilities for the company including incurring debt, loans and credit. Businesses should limit access to credit cards to employees that are essential to their employment.

How would you expect the demand for business travel to change in the next two years?

Business travel will experience two new trends: 1) companies are going to continue to use virtual means to meet for local meetings and 2) travel for distance needs will return to normal or increased levels as vaccination rates increase. Virtual technology, including Zoom, has allowed companies to meet the needs of the business while reducing costs and increasing employee efficiency. The increased savings will allow businesses to invest in additional long-distance travel.

What advice do you have for entrepreneurs to keep their personal funds separate from business expenses?

One of the big mistakes entrepreneurs make is to comingle their private funds with business. If you are going to "start a business," you need to treat it as such. You should apply for an employer identification number (EIN) with the IRS, incorporate if you wish to have a corporation and register with your state’s corporate commission, and go to a bank (in person or online) and set up a business account. You should have a business plan to guide you through the process (the S.C.O.R.E. program is a good place to start), and you should institute a marketing plan so that you can promote your new business (hire an advertising professional to assist).

It is OK to give "seed money" to your business by making a temporary investment in the company. However, your business plan should include enough cash flow to pay off the loan within the first year. Additionally, you should keep your bookkeeping records separate from your personal records. If you are handling your own bookkeeping and accounting, make sure you use an accepted bookkeeping software package. If you can (and it is recommended), hire a professional bookkeeping firm or accountant to assist you with your finances. This will help you get monthly reports, give you access to cash flow and help when it comes time to file taxes.

It is tempting to comingle the personal and business funds because "what the heck, it’s just me." But the IRS will want to make the distinction between your personal income and that generated by the company. You should treat your new company as just that — a company. As if someone else owned it and that you were accountable to them for making sure the revenues are recorded and the expenses are documented every day, week, month and annually. This documentation will assist at the end of the year when taxes are due. If you are ever audited by the IRS, check with an IRS attorney, accounting firm or specialist that can help you navigate the waters of the audit. Having good records including for your loan and repayment will save you much time and grief in the future.

From time to time it may be necessary to loan the company additional money, and this should be recorded with every intent to pay back. You should write a contract with yourself and make a repayment schedule that the company can afford and stick to it. You may have to "not pay yourself" because you have other bills that need to be paid. In this case, you should again make documentation of this and record the amount due for your pay and try to recoup these funds when cash flow allows.

If you purchase something on behalf of your new company with your personal debit, credit card or cash, make meticulous notes and place them with the receipt when the expense is recorded so that when you are paid back by the company, that expense can be notated. This is especially the case when you pay for entertainment and dining — make sure that you record the person(s) you dined with, their proper spelling of names, day, date and time, and make a note of the purpose of the business discussion. It would seem you could just "remember" these details, but even a week or two later it is difficult to remember exactly why you had a meal with someone, what you talked about and why it could be considered business. So be meticulous and record your receipts every day (at least weekly) to ensure that you have the proper records.

Loaning yourself money from your personal accounts to your business accounts is acceptable, but make sure you record the transaction in as much detail as you can, include a payback schedule and adhere to the contract. If you must miss a payment or skip several payments, make a clear and concise record on the agreement to amend the agreed-to contract so that you stick to it and make the payback as soon as you are able. It is good to be able to have the resources to help the company, but you should look at it like you are loaning a good friend money rather than yourself. How would you want to be paid, when, and how much would you be willing to loan?

If the company you create is not a moneymaker, and if you go for some time not making any profit and you continue to fund the operation, it will not be long before your dream company becomes your nightmare and you lose not only the company, but all the personal money you contributed. Be loan-wise, be payback-focused and keep your eye on making a profit so you do not have to loan yourself money.

What are the biggest challenges entrepreneurs face when trying to obtain funding for their startup?

There are several challenges entrepreneurs must overcome to obtain startup funding.

First, some context. There are always investors or lenders willing to invest in a good idea that can solve people’s problems or improve the quality of life for users of a product or service provided by a company. However, these investors or lenders are seeking to generate revenues and a reasonable rate of return for their investments or loans.

On the other hand, there are entrepreneurs with reasonably good ideas seeking a loan or an investment. The challenge is bringing these two sides together and finding common ground. The difficulty lies in finding this common ground. The list below identifies some of the biggest challenges/barriers to uncovering this common ground.

What advice do you have for entrepreneurs to keep their personal funds separate from business expenses?

Develop a system that works for you. This can be a set of inboxes within your email application or in some cases two shoe boxes. It is not important which system you choose to deploy, but that you have a system and you are willing to strictly follow the system. Keep business purchases and expenses separate from personal expenses. Some entrepreneurs have two separate bank accounts, debit cards and credit cards. One for personal use and one for business use. This is a good idea.

Whatever the case may be, get into the habit of identifying personal expenses and business expenses and tracking them. If you do not have a business credit card, try to get one. There are excellent resources available to help you get a business credit card.

Use your personal credit card for personal expenses/purchases and your business credit card for business expenses. For example: Say you are meeting someone to determine which social media campaign you should choose for your company. The money you spend on your campaign is a business expense and so are travel, meals and incidental expenses. You should use your business credit card for these expenses.

You decide to go shopping after this meeting. For personal shopping/expenses such as buying shoes or clothes, use your personal credit card.

In some cases, individuals end up buying personal items using business credit cards. Avoid this bad practice. It is best practice not to mix personal and business expenses.

In your opinion, should businesses keep a close eye on their credit scores when providing business credit cards to their employees? Why or why not?

The short answer is yes. Keep a very close eye on the business and personal credit scores. In most cases, employee business credit cards for small businesses and startups are tied to the entrepreneur/owner’s credit history.

Employee credit cards issued by the business and how these expenses and payments are managed in terms of frequency of payments and balances impact the business and personal credit of business owners. Some employees end up using these cards for personal expenses. This is not OK.

As a matter of policy, companies usually do not allow personal expenses on business-issued credit cards. If there is no such policy for your company, it is recommended that you establish such a policy ASAP. Personal use of business-issued credit cards by employees is problematic and should be avoided.

Example: If an employee is traveling and wants to use the business-issued credit card for meals and Uber and hotel stays, that is fine. It is not OK, however, to go shopping for personal items and use the business credit card to pay for them. Employees should use their personal credit cards for shopping. Managing this practice carefully will help improve credit ratings for business-issued credit cards.

How would you expect the demand for business travel to change in the next two years?

The demand for business travel is expected to pick up over the next two years. Compared to pre-pandemic levels, there are several signs that business travel will be picking up. However, it may not go back up to pre-pandemic levels.

There are several reasons to believe that the demand for business travel may not go back up to pre-pandemic levels. Business meetings using online platforms like Zoom, Webex and similar applications have become normal over the past several months, and the savings achieved by businesses by not traveling in terms of the amount of time, energy and monies spent on local, regional, national and international travel are impacting travel decisions.

Overall business travel will pick up over the next two years. By how much remains to be seen.