

Ask HN: Recommended ways to get capital for a "non-startup" IT consultancy - cookiecaper

I've run a consulting business for a little bit over a year now. We have 3-5 solid, repeat clients, so we have some cashflow history (though we are by no means "raking it in" -- still only make barely enough to support myself and my family). and I am getting to the point where some capital would be really helpful in both handling what we have now and in growing to handle more.<p>What's the recommended way to get capital in this situation?<p>Banks are sketchy and questionable, I don't trust them at all. And I don't really want a loan because if things turn south I'd rather not be walking around with a huge debt over my head.<p>I also don't really want to deal with a bunch of financial formalities like stock, mainly because I don't have time to study or set up all of that.<p>I understand that I will probably have to do at least one of these anyway. Which is better? I am not an accountant or lawyer and have limited experience in loan-getting, corporate registration, private stock transactions, etc., and would like this to proceed with as little interruption or distraction as possible.<p>Where can I find some benevolent businessmen who would be interested in investing something, so I don't have to try for a loan right away? I live in Utah and my marketing materials are very Utah-centric. I know an investor here but I think he is a bad dude and want to stay as far away from him as possible.<p>Again, this isn't really a startup in the HN sense; this is a normal IT consultancy, we mainly do custom development but have some IT/admin stuff too. I do have plans for product-based startups, but I am trying to bootstrap with consulting because it is a much more straightforward endeavor. Once I have this sufficiently established that it is generating a good, relatively-passive salary for me, I will be interested in expanding into other businesses.<p>In my opinion this should be a pretty straightforward, typical business development deal. We have a cashflow history and have existed for a short while (slightly over one year) and the business could expand significantly if I had a bit of capital to hire some more contractors, etc.<p>All advice appreciated.<p>EDIT: This post is meant to be exploratory and help catalog options available for people in similar situations -- a small business that is starting to get pretty busy and would like to expand and have some additional cash-on-hand so that we can take better care of our current customers and garner up some new ones.<p>The two replies thus far seem to have read in a much more self-entitled tone. Sorry, my intention was not to sound self-entitled or naive; I am fully intent on compensating any investors either via stock or interest, I just want to know what the experienced business community here at HN suggests as the best resources to find interested parties, whether it's a bank, investment group, incubator, whatever, and how to go about the deal in a way that is least likely to disrupt or distract from the primary business.
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eggbrain
I'll be honest, I am very concerned with this posting.

You don't want a loan, and you don't want stock, you want some benevolent
businessman to... Give you the money? Those normally don't exist, you know.

As for your business, how many consultants do you have? Are the consultants
working 40 hours/week with these 3-5 clients you have? If they are, how are
you having cash flow problems? If they are not, you have to focus on getting
more clients before you get more contractors. You may want to expand rapidly,
but you can't just throw money for more contractors and hope the clients come,
because when the money runs out you'll be in the same place before, but now
with a bunch of debt over your head.

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cookiecaper
It's not that I don't want to give stock, I just don't want the hassle of
setting it all up. From the outset, it looks like a big PITA filled with lots
of paperwork and formalities involving consultations with accountants and
lawyers. That is the downside to taking private investment in exchange for
stock -- a loan is a much better plotted course with far fewer legal,
organizational, and financial vagaries, but a loan also seems to have a much
higher personal risk.

As I acknowledged in the OP, I will probably have to either go through the
paperwork and get the stock all filed/configured or take out a loan from a big
bank. I am merely looking for HN's advice as to whether it is better to get a
loan or trade private investment for stock.

I am happy to give stock or pay interest in exchange for investment. It's just
all the attached overhead in one of these situations that I'd prefer to avoid.
So I don't want free money, I just want money in the most expedient and least
disruptive way possible.

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eggbrain
What about my other question, regarding how many consultants you have, and how
much work they do?

If you go to a bank and ask for a business loan, they are going to want to see
that you have sustainable positive cash flow. If they see things like
consultants not working full time, they will want the fat trimmed (lose a
consultant) or meat added (more clients) before they invest money, as they
want to make sure you will be able to pay off the loan.

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bradleyjoyce
There is absolutely no reason you should raise money from outside investors
for this type of business. You grow this business with sales, with more
customers paying you for your services. If you think, yeah but if I had $500k
of investment I could hire two sales people and two more techs blah blah blah
then my guess is you will ending up wasting a lot of money and failing. Grow
your company with the people and skills you have. Be frugal. Put cash in the
bank... then when you're at the breaking point, hire a new person.. rinse and
repeat. Then you still own 100% of the company, you have cash in the bank and
can eventually afford to take some risks on your own products.

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michael_dorfman
_I understand that I will probably have to do at least one of these anyway.
Which is better? I am not an accountant or lawyer and have limited experience
in loan-getting, corporate registration, private stock transactions, etc., and
would like this to proceed with as little interruption or distraction as
possible._

So, let's get this straight: you are not registered as a corporation, and you
don't have an accountant?

It sounds like you want to hire an advisor to walk you through this. Do you
have any contacts (among your clients and colleagues, perhaps) who could put
you in touch with an advisor? Failing that, are there any business incubators
nearby, or the Small Business Administration?

One more thing: if you think that "banks are sketchy and questionable" and you
don't trust them at all, I wouldn't be putting my hopes into finding "some
benevolent businessmen."

~~~
cookiecaper
I am registered as a corporation (LLC) and I do have an accountant. However,
my accountant is a consultant I retain for a few hours every few months to go
over tax filings, and I am assuming that stock configuration and dispersion is
a bit more complex than registering a LLC. Maybe I'm wrong.

This is still very much a small business, "mom-and-pop" thing. I would like it
to grow to something a little less "mom-and-pop"-y, and additional liquid
assets would assist greatly in doing that. Having some cashflow history and
not going out of business in the last year, I thought that this might be
possible at this point. If you don't think it is, that's fine, please let me
know that I still have a while to go before anyone would want to invest.

~~~
eggbrain
IANAL, but I don't think you can have stock as an LLC, You'd need to be a C or
S corp.

As for wanting to make it something bigger than a "mom and pop shop", that's
fine, and you not going out of business last year is great, but you WILL go
out of business if you try to expand with money from loans or stock if you
don't have the clients to back it up. You are cash flow positive right now,
work on getting more and more clients. Once you are at capacity for the work
you can do, add on more contractors.

You won't (and shouldn't) get loans to try to boost up your business, you get
loans by looking at trends in your cash flow (I am growing by 3 clients a
month, but I don't have the ability to work that much), and getting loans
based on that (Example: I've been making a steady $2k in profit each month for
24 months, growing at 500/mo. Based on that, I'm going to get a loan for $50k,
and pay it back over the next 5 years.)

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philiphodgen
You are describing any service firm. Like a law firm. Aside from a line of
credit to smooth out cash flow lumps you get capital by doing work and getting
paid.

You don't have a capital problem. You have a client problem. Go get better
clients. Ping me privately by email. I have first-hand experience with this
situation.

