Posts Tagged ‘Finance’

4 Tips to Achieve Your Personal Finance Goals Before Starting a Business

2-18 personal finance smallBefore you can commit to funding your new business, you need to take care of your own personal financial goals. You need to move into starting a business with a strong financial record, as well as money in the bank. This makes it easy for you to qualify for a small business loan, if you need one down the road, and keeps you from stressing over not having the funds to cover your expenses while you’re waiting to turn a profit.

1. Eliminate Personal Debt

Don’t start your business weighted under credit card debt. The average American household has about $15,000 in credit card debt, a staggering number if you want to bootstrap your own business.

Having zero debt frees up your credit capacity, so work on zeroing out credit card balances and paying off your car so that you can focus only on basic expenses such as your mortgage, phone, gas and electric, cable, and food. The leaner you run, the more you’ll have to put into your business.

2. Improve Your Credit Score

There will come a time in the all-too-near future when you need credit, be it in the form of a store credit or just credit from vendors you work with regularly. If your credit score isn’t good — say, under 750 — you might not get that credit or pay a much higher interest rate. Since your business will have no credit history to begin with, they’ll look at your personal credit score, so you need to focus on cleaning up your number if it’s less than ideal.

Don’t know your credit score? You’re entitled to one free credit report a year from one of the big three indexes. Get your copy here and start your plan to improving your score.

3. Set Aside 12-24 Months of Household Expenses

You will not make a profit instantly, so you’ll need to keep paying those household expenses in the meantime (another reason to lower your debt: you’ll have less to pay in expenses!). Having 12-24 months’ worth of money to cover expenses may sound drastic, but it’s better to have more than enough than to find yourself unable to pay bills in 6 months.

If you don’t currently operate with a budget for your household, now’s the time to create one. If, in the process, you find places you can reduce your expenses, such as cutting the cable cord, go for it.

Remember: if you’re quitting a job with health benefits, you’ll also need to factor in the cost for your health insurance. It will be significantly higher than your employer-sponsored plan.

4. Have Your First Year of Working Capital

In addition to your personal expenses, you’ll need to be able to cover your business costs until your business gets going. A year’s worth of capital should be sufficient. Again, start with a budget (even if you’re using guesstimates at this point) so you know what expenses you need to plan for.

Since you’ll have a pretty sizeable chunk of money in savings for your personal and business needs, consider opening a money market account or high-yield savings account so that you can earn a little interest while it’s sitting there.

If you get your money straight before starting your business, that will be one less things stressing you as you start your small business.

7 Keys to a Successful Barter Arrangement

1-30 Business Bartering smallCash flow is always an issue for entrepreneurs. It often seems to go out more quickly than it comes in.  So, how can you get creative with your finances?  Part of it boils down to using other currencies- aside from just money- to help you run and grow your business.  In fact, your products and services have great value that you can “spend” through barter arrangements.

Done correctly, you can use barter partnerships (shall we call them “barnterships”?) to meet your company’s needs without an excessive cash outlay, while building great relationships in the process. However, without proper preparation, you can also lose your shirt in a deal or even face unexpected tax bills.

Here are seven basics that you need to know before entering into your next barter agreement.

1. Pick the Right Partner

Make sure that your “bartner”- aka your barter partner- has a good reputation and shares your overall values. This means seeking out past business associates with whom you have a good relationship or seeking recommendations from others you trust. If you expect to barter regularly, consider joining a barter group that verifies or rates participants, or even a barter exchange that intervenes in negotiations.

2. Establish a Fair Exchange

Even in barter arrangements, the dollar remains the core standard of value, so both parties need to set (and agree to) a firm dollar value for the goods and services they’re exchanging.

Then, make sure that you establish an equal-value trade, such as a medical office entering into an agreement with a law firm: four free medical checkups in exchange for four free contract reviews, with a value of $1,000 for each party.

Think twice before entering into an arrangement that exchanges goods or services of dissimilar value or type. If your beauty salon tries to exchange free haircuts with a law firm, you may find yourself cutting the same head of hair until long after it turns grey in order for the exchange to equal out. 

Also, stay clear of lopsided arrangements that seem to benefit you. You don’t want the other party to do a lousy job or feel like they are being taken advantage of- that can impact the quality of the trade and the relationship.

3. Start Small

Successful marriages commonly begin with a first date over dinner before moving on to more … uh … interesting activities. Keep your first barter with a new partner like first date – small and low-risk.

This is not the time to bet the farm. Even if you both have honorable intentions, things can go south, often due to different contract language interpretations or lack of follow through. Until you know that you can really work with and trust this partner, keep it small.  Start with a small exchange and build upon that over time if it works out.

4. Put it in Writing

The idea of bartering typically brings to mind a hand shake over the fence. A hand shake is technically a legal contract, but try proving it in court. A barter agreement is just as complex as a cash-based arrangement. You need to identify every possible detail, write it all down and sign on the dotted line.

Document every detail thoroughly. And if you create a product or service collaboratively (such as working together to create an email list), specify what happens at the end of your agreement. If your barter partner takes full ownership and you can no longer use it after a defined time period, perhaps you should agree to supply fewer names than your partner.

5. Establish Clear End Dates

Your agreement may last for a week, a month or longer, but not forever. It absolutely needs a defined end date. Even if you enter into the identical arrangement many times in the future, it’s best to create a new contract each time. If your first agreement worked well, creating the next one will be a simple matter. But, if you discovered that some provisions didn’t work as expected, you can tweak the next version the next time.

6. Communicate Frequently

Don’t wait until the final deadline date to find out how things are going. Define key milestones with your partner and check in on those dates to ensure that you’re both on track and maintaining appropriate quality levels.

Naturally, when unexpected issues arise, don’t wait for a milestone date to speak up. A setback on one side can affect the other side. Plus, an informed partner may have a solution to fix the issue.

7. Educate Yourself on Tax Consequences

As long as you trade goods or services with a cash value, the taxing bodies generally want their share. So, do not enter into a barter agreement before checking with your accountant.

At the very least, the IRS typically requires that you report barter arrangements on your tax forms. If you exchange like goods or services, however, you gain and lose valuable assets. So, you may not need to pay excessive (or any) additional taxes if you properly track both sides of equal-value exchanges. But, the IRS valuation rules can be complex. It’s worth repeating that the advice of a knowledgeable accountant is essential.

Using your know-how as a currency can be a big boost to your business, but take it one step at a time and do your homework upfront so that you reap the full benefits and minimize the risks.

5 Strategies to Bootstrapping Your Business

1-28 Funding Options SmallAs you prepare to become your own boss, you need to get your finances in order. You’ll need enough money to cover 6-12 months of business and personal finances before you even launch your business. That being said, you have a few options to consider in terms of where that money comes from.

1. Savings

If you’re lucky enough to have a well-padded savings account, kudos to you. This should be your first option for funding your business. Note: don’t jeopardize your own future by taking the money out. If you have a savings account to cover “rainy day” home repairs, the last thing you want to do is take that money out, and then find you need a new roof!

Consider leaving your money in your savings or money market account, and just taking what you need. That way, your money continues to earn interest.

Benefits: Using your savings account keeps you from having to take out a business loan, which many entrepreneurs are reticent to do. If you have less than stellar credit, you can purchase a Certificate of Deposit and use it as collateral for a loan while earning interest.

2. Bank Loan

The Small Business Association (SBA) is set up to help businesses get the money they need to start a business. There are banks that cater to small businesses just like yours that can help you find a great rate. Start with your own bank, or look for one that does small business lending.  Look for alternative lenders as well, such as Women’s Business Loans. Note: banks don’t lend to startups, so you’ll need to be in business two years prior to applying for a traditional bank loan.

Benefits: The SBA provides a guarantee for business loans, which means applicants with challenged credit score still have an opportunity to get funding.

3. Your Retirement Fund

You can borrow against your 401(k) to start a business. With this option, you essentially use your own money to fund your company, then pay yourself back. Just make sure you pay it back! Sometimes there can be penalties for borrowing funds, so you want to make sure you are aware of them before you take this option.

Benefits: 401(k) financing actually has lower risk than an SBA loan. If things go badly, you still have to pay for the loss, but the 401(k) provides before-tax money, reducing the effective cost. Plus, there are no credit implications and your house is not on the line as collateral.

4. Home Equity Line of Credit

If you own your home, borrow no more than 80% of your home’s value through a home equity line of credit to avoid having to purchase private mortgage insurance.  You’ll increase your chances of getting approved for one if you have great credit and good payment history. Make sure to pay attention to what current interest rates are before deciding on this strategy. And remember: you’re putting your house on the line, so if your business fails, you risk losing it if you can’t pay the loan.

Benefits: Funds are easy to access once you’ve been approved. The interest is tax-deductible, since it’s mortgage interest.

5. Friends and Family

Having a friend or family member who’s willing to invest in your business idea is a real boon. Some may want to be involved in the business in exchange for the investment, while others may hand you a check and say “pay me whenever.” Either way, make sure you’re clear on payment terms (and offer interest) and how willing you are to have someone involved in helping you make the business decisions.

Benefits: If you have a family member who can afford to loose the money they invest in your business, this means they could be more patient with letting you build your business.

5 Tax To-Dos to Wrap Up Before Year’s End

12-17 Business-Taxes smallThis time of year zooms by, and before you know it, it will be January. Waiting until then to get your business tax affairs in order can put you in a time crunch at the start of the year, so get started now to ensure you’re ready for 2015. Here are five things you can do now to ensure you get off to a great start on New Year’s.

1. Make Sure Your Corporation is Compliant

If you’re incorporated, it’s imperative that you remain compliant. That means you’ll need to file your Statement of Information and update any information that has changed in the last year for your corporation. You should receive notification of when your paperwork is due, but it’s a wise idea to keep that due date on your calendar to ensure you don’t miss it.

2. Pull Together Your Accounting Records

If you are one of those business owners who had been putting off doing financial statements all year, you are out of time. In addition to your receipts, you also want to make sure you have all your invoices, bank statements, credit card statements, and your records from anyone you pay online pulled together so that a bookkeeper or tax professional can help you get you accounting records in order.

3. Prepare Your Profit and Loss Statement

While you’ll need to wait until the year has ended to actually run your profit and loss statement for tax purposes, you can start the preparation by logging into your accounting software and making sure all your expenses are appropriately categorized. Match them up to tax categories to ensure that, come tax time, it’s easier to get a clear picture of what you’ve spent and what you’ve earned.

4. Examine Your Budgets

Remember those budgets you set at the start of this year? Now’s the time to see where you stand with your budget projections versus what you actually spent. If, for example, you still have money in your marketing budget, decide how you can spend what’s left in a way that will best help your company before the year closes out. If you’ve got a surplus, consider sharing the wealth with your staff as a holiday bonus, or spending it on a party to celebrate all their hard work throughout the year.

5. Get Your Tax Form Information Ready

Again, you’ll have to wait until the year’s up to file, print, and mail tax forms to your employees and contractors, but you can still get everything lined up. January 31 is the deadline for sending out W2 forms to your staff, so you won’t have much time to take care of them once 2015 rolls around.

Additionally, you should decide now whether you want to DIY your own business taxes or hire a tax professional to help you before the March 2015 deadline. If you’re a solopreneur, you may be able to handle doing your own taxes, but if you have a more complex business, it is worth it to get professional help.

What Should I Give Away When A Customer’s Unhappy?

One of the most common and emotionally fraught questions I encounter is this: "How should I compensate a customer for a service or product failure?

No matter how superb your product or service is, everyone in business eventually needs to find the answer to this question.  And the answer to the question is this: It depends. Customers have diverse values and preferences, varying even from day to day as well as from customer to customer—so your employees working with disgruntled customers need to be given enormous discretion.

Still: There are principles that almost always apply:

  1. Most customers understand that things can and will go wrong. What they don't  understand, accept, or find interesting are excuses. For example, they don’t care about your org chart: Your mentioning that a problem originated in a different department is of no interest to them.
  2. Don’t panic. With most customers and in most situations, customers’ sense of trust and camaraderie increases after a problem is successfully resolved, compared to if you had never had the problem in the first place. This make sense, since you now have a shared experience: You have solved something by working closely together.
  3. Avoid assuming you know what solution a customer wants or ‘‘should’’ want. Ask. And if a customer makes a request that sounds extreme or absurd, don’t rush to dismiss it. Even if it seems on its face impossible, there may be a creative way to make the requested solution, or something a lot like it, happen.
  4. Dont strive for ‘‘fairness’’ or ‘‘justice.’’  Creating, or preserving, a customer’s warm feelings for a company isn't about fairness or justice. It's about being treated especially well.
  5. Learn from customer issues, but dont use them as an opportunity to discipline or train your staff in front of your customer. This may sound obvious, but it happens quite often. Watch out for this flaw, especially when you’re under stress.
  6. Dont imagine youre doing something special for a customer by making things how they should have been in the first place. Time cannot be given back—it’s gone. The chance to get it right the first time? It’s gone. So re-creating how things should have been is just a first step. You need to then give the customer something extra. If you aren’t sure which ‘‘extra’’ to offer a particular customer, just make it clear you want to offer something. If the customer doesn’t like red lollipops or doesn’t eat sugar, she’ll let you know. Then you can decide together on a different treat.
  7. …And always, always, keep an eye on the lifetime value–directly and as a vocal supporter–of having a loyal, engaged customer. A loyal customer is likely worth a small fortune to your company when considered over a decade or two of regular purchases, not to mention that customer's "network value"–the value of her or his recommendations online and off.

Perhaps in your business this number is a few thousand dollars, or perhaps it's hundreds of thousands. It's well worth figuring out that number and keeping it in mind if you ever feel that temptation to quarrel with a customer over, say, an overnight shipping bill.


5 Funding Options for Small Businesses

12-3 Small biz funding smallWhen it comes to financing your small business, you need options that will help you grow your business. Sometimes you can’t do that when you bootstrap on your own. Whether you’re launching a business or ready to take an established business to the next level, you have options. Browse the following five funding options and see which one’s best for your biz.

1. Traditional Small Business Loan

Whether you need $5,000 or $100,000, a small business loan backed by the SBA might be what you’re looking for. You can apply for an SBA loan through your existing bank, or through other organizations that provide small business resources in your city. Some organizations cater to specific niches such as women and minorities (check out your local Women Business Development Center or the Minority Business Development Agency). Business loans have a lifespan of several years — typically you have five to seven years to pay the loan back at the agreed-upon interest rate and payment schedule.

2. Line of Credit

If you’ve been in business two years or more with positive cash flow, a line of credit could be what you need. This is an especially good option if you’re simply looking to have working capital available (so you can pay your vendors and staff while waiting for slow-paying clients to pay their invoices.) You can pull from the line of credit when you need the money, and can even use a debit card for transactions from that account. But be warned, interest accrues daily, so you won’t have years to pay it back. It’s a solid option if you need a cash injection now, and can repay it promptly.

3. Investors

Another financing option is to seek investment from venture capitalists or angel investors. In exchange for the cash, you’ll give up a percent of the ownership of your company. That can be a perk, since you’ll get the advice and insight of someone who knows your industry and can make suggestions for improvement, but that can also be a drawback if you like having total control over your business decisions.

If you go the investment route, position yourself to get a “yes” by putting yourself in the investors’ shoes. What would be appealing about your company? What makes it a strong financial investment?

4. Crowdfunding

Not only can crowdfunding get your cash flowing for expansion, but it can also help you attract new customers and rabid fans. Using sites like Kickstarter, you develop a crowdfunding campaign to tell your brand’s story as well as explain what you want the money for. The site will take a percent of what you raise, as long as you hit your target amount. (If you set your goal for $20,000 but only raise $18,000, you’ll get nothing).

A well-strategized crowdfunding campaign can result in everyday people supporting your company through donations. In return, you give them perks, such as early access to your product, samples, t-shirts, or interactions with your brand. That’s a small price to pay for such a great financial resource!

5. Credit Cards

While not ideal for funding a small business, credit cards do serve a purpose. For one, they’re easy to use and provide instant payment to your vendors or purchases you need to make. They can also help you build up credit under your business’ name. Do your homework. Make sure you use a credit card with great rewards or cash back on purchases. Just be wary of charging more than you can pay off in a reasonable amount of time. Those credit card fees can rack up over time!

The 10 Most Common Accounting Mistakes That Cost Big Money

There is money flowing out of your business right now as a result of simple accounting mistakes. Here are the top ten and how to fix them:

  1. Not balancing your bank statements. All sorts of strange deductions can happen from your cash accounts at your bank. For example, checks and direct transfers can be cleared for the wrong amount. Checks can be cleared in your account that are not your checks. A transaction may be recorded for $63 when it is supposed to be $630 or worse, it could have been entered twice. Solution: Balance the checking accounts every month. Have it done by a different person than the one that pays the bills to add an increased level of security. Have an accountant check it quarterly.
  2. Letting customers pay with 30, 45 or 60 day terms. Every day, you don’t collect money from customers for an outstanding bill is a day you are acting as their personal bank. Solution: Ask to get paid at time of purchase or no later than 30 days. You will be amazed how many customers will agree to do this.
  3. Not following up to see if invoices are received and scheduled to be paid. Many small business owners’ mail or email invoices, but never check to see if they were received by the customer or when they are scheduled to be paid. Solution: Establish a strict follow up schedule. Call to see if the invoice was received and when it is to be paid. If payment is not received by the promised date, follow up again.
  4. Not checking invoices and vendor statements against products that are received. Did the vendor bill your company only for products ordered? Did you actually get the products that you wanted and were billed for? Solution: Match every bill against a purchase invoice. No exceptions.
  5. Not balancing checks against invoices. Are all the invoices for real products the company legitimately ordered? Creating phony invoices for imaginary vendors is the biggest way employees steal from companies. Solution: Carefully control the ability to create new vendors in the accounting software.
  6. Keeping track of cost of goods sold. What was actually paid for the product? What was the gross profit on it? Too many times, the small business owner is unaware of both of these answers. Solution: Practice a careful accounting method of LIFO or FIFO for managing inventory.
  7. Not the right amount of inventory. If there is too much inventory, the small business burns their cash flow. If there is not enough inventory, the customer fill rate is too low and the company can lose customers. Solution: Carefully track inventory turns, fill rates, reorder points and reorder quantities.
  8. Over paying on bank fees. Since the Great Recession, there has been an explosion of bank fees. Small business accounts have monthly maintenance, merchant accounts, wire transfer and minimum balance fees. Solution: Negotiate with your bank  for lower fees or find a community bank that may be more flexible.
  9. Capitalizing research and development instead of expensing it this year. Many companies depreciate capital expenses over a long period of time which increases their profit. Solution: New permanent tax laws enable small businesses to write off up to $500K in a single year.
  10. Not keeping track of all your business expenses. Small businesses owners get lazy and don’t keep track of all their expenses to write off. Solution: Implement a system like Shoeboxed to take photos of expense receipts when they happened for easier filing.


What Is the Ice Bucket Challenge for Small Business Owners?

Doing_the_ALS_Ice_Bucket_Challenge_(14927191426)Have you taken the “Ice Bucket Challenge”? It challenges friends to put a bucket of ice over their head or donate $100 to the ALS Association. The rules state that within 24 hours of being challenged, participants need to video record themselves by accepting the challenge followed by pouring a bucket of ice over their head. The participant then challenges others on that video. As a result of this viral phenomenon, the ALS Association has received $31.5 million in donations during the past month. 

What would the small business version of the Ice Bucket Challenge? Consider these for yourself:

“The Cash Flow” Challenge: You only have $1000 in the bank on Monday to keep running your business until Friday. Help to beat this challenge: Learn how to read a cash flow statement every month so there are no surprises.  If cash is low, isolate the expenses that need to absolutely be paid or it will drive you out of business. Be direct to vendors and employees about when they can expect to be paid.

“The Customer Satisfaction” Challenge: Your top customer is dissatisfied and is threatening to leave your business. Help to beat this challenge: Listen fully to what the customer has to say. Ask them what the best solution to the problem is. Follow through to a resolution and report back to them on the results.

“The Key Employee Left” Challenge: A key employee just quit and now you have to replace them in 24 hours. Where do you look to replace them? Help to beat this challenge: Always ensure that your employees are cross trained so if one leaves, another can do that job for at least a short time.

“The New Version of Your Product Doesn’t Work” Challenge: You announced a new product, but the latest test show it does not work. You have thousands on backorder. Help to beat this challenge: Isolate what is wrong with the product and what can it be fixed in a reasonable amount of time. Take any other functionality out and notify backorder customers when a product can be shipped.

“The 16 Hours of Work Needs to Get Done in 24 Hours” Challenge: You have a huge pile of work to get done today that will take a lot longer than you have. Help to beat this challenge: First decide what not to do. How will it really affect the business if the work was done tomorrow instead of today? What two things must get done today that are critical to the company?

What would your small business challenge be?

How You Can Grow Your Small Business to 7 Figures

Stocksy_txp1c8dcf91CD8000_Small_201077So many entrepreneurs I meet think too small. They’re concerned about paying today’s bills, and give little thought to where they’d like to take their business down the road. That’s an obstacle to success, but one that can be overcome with a little planning and strategy. But the most important thing to making more money is to believe that you can. So let’s get started! It’s time to stop struggling and start thriving in your business.

First, Visualize What You Want to Achieve?

Don’t be afraid to unleash your imagination here. Think big! Would you like to run a $5 million company? Sell it in five years and then retire and travel the world? You can’t hope to grow to any level of success if you don’t first establish what your goals are.

Write these goals down and develop a vision board. No matter how pie-in-the-sky they seem at first, if you think it, it can happen. It’s not your job to judge your desires, just to record them. Seeing these goals on paper or a poster will help you get the right mindset to start believing in those goals.

Next, Figure Out How to Get There

You wouldn’t leave for a major road trip without a map. It’s the same as a business owner. You need a plan for how you’ll get to the destination (those goals you set). It may be overwhelming right now to consider becoming a $5 million company, but if you break that goal down into smaller ones, you’ll actually be able to achieve them.

Maybe the first step is to hire a salesperson or expand the area you service. These are small and simple tasks. Continue your list of action items that will help you reach your goal, and assign timeframes to them. You could even list tasks to complete each quarter to lead you to your goal.

Find One Thing You Do Really Well

This might be a superior product. Or your insanely fast delivery time. Whatever that characteristic that makes you different (and better) than the competition, own it. And use it in your marketing material. You want people to know what makes your company unique from the second they discover you.

Hire the Right People

Few solopreneurs are able to reach that 7-figure goal without a little help. And there’s no shame in hiring people who are smarter than you! Find professionals who can complement your skill set with other qualities, and hire help to fill in the gaps with those tasks you simply don’t have the bandwidth to do yourself.

Another note on hiring: it’s important that you create a company culture that makes all your staff — whether they’re full-time or freelance — feel like part of something bigger than themselves. They’re going to be key in helping you hit those 7-figures, so make sure your company is inviting and that they want to work hard for you for years to come.

Refine Your Sales Process

The smoother your sales process is — and any other process in your company, for that matter — the more sales you can make. Automate what you can, from letting people easily make purchases online or sending an email after a purchase, and put personal attention where needed. This is where having sales staff can make a huge difference. You want every single customer to feel like he has the support and access he needs should he have questions or want help.

Lather, Rinse, Repeat

Success doesn’t happen when you keep doing the same thing over and over. It happens when you pay attention to what’s working and do more of it, and cull what’s not working. Be constantly diligent to ensure that you’re firing on all cylinders and moving closer to that 7-figure goal.

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