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A tale of two, polar opposite, crowdfunding entrepreneurs:


1. My friend Jeff wanted to make a movie. He bootstrapped $10k, created a very rough cut, and then decided to try Kickstarter for the remaining needed balance of $90,000. He promised his backers they would get “Associate Producer “credit in exchange for a donation of $250. When people went to his Kickstarter, they found an underfunded, frankly crappy rough cut of a movie, and little payoff for backing it. Jeff never raised the money and never finished his movie.


2. Jonah wanted to open a second food cart. His first was highly successful. Jonah put in $50k and needed another $50k. He offered great perks for different levels of donations, created an engaging intro video on IndieGoGo, contacted everyone he knew, marketed the heck out of his campaign, followed up, and was successful. He had skin in the game and treated the crowdfunding event like a professional marketing campaign.


Finding the money needed to start, run, and grow a business or launch a product is never easy and so yes, many entrepreneurs do indeed look to crowdfunding as a way to fund and launch their idea. Some of these campaigns do spectacularly well while others do not. What did the winners do right, and what do they have in common? Let’s see:


Coolest - The ‘21st Century Cooler’


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One of the most notable and highly funded Kickstarter campaigns of all time, the Coolest Cooler, sought to redefine the modern-day cooler. Ryan Grepper, the creator of the Coolest, initially tried a Kickstarter campaign, seeking $125,000. When the original campaign didn’t get funded, he regrouped, redesigned, and launched a second Kickstarter campaign 8 months later, seeking $50,000. That campaign went viral and went on to raise over $13 million dollars, becoming the most funded project on Kickstarter at the time.


But why was the Coolest so revolutionary? The amenities of the Coolest were unparalleled to anything on the market at the time. The cooler came with a rechargeable blender, embedded Bluetooth speaker, phone chargers, LED lights, and other items like plates, knives, bottle openers, and more.


Lesson: Have a great idea, execute on it, and don’t ask for too much money.


Screen Shot 2019-07-16 at 10.06.07 AM.pngThe original cure for figet-y hands


Although we all remember the fidget spinner craze that hit everywhere in 2017, the original Fidget cube was way ahead of the distracted-pack.


Mark and Matthew McLachlan had already tried four different Kickstarters before they found the success of the fidget cube. Raising almost $6.5 million over their modest goal of $15,000, they reached viral success few achieve via crowdfunding. The vinyl cube has 6 different sides, with each side featuring something to help stimulate each of our five senses. Clearly, this toy resonated with more than just its crowdfunders, as it inspired thousands of knockoffs.


Lesson: These entrepreneurs created a funny, clever intro video. Their marketing was very professional. They had a great idea and product. The levels of donation were all reasonable and not too expensive.


Let the honey flow


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“Gentle for the bees, and easy for the beekeeper.” The Flow Hive was a revolutionary way for anyone, and they mean anyone, to have their own beehive and collect their own honey. Stuart and Cedar Anderson spent over a decade creating and testing different honey harvesting techniques, and eventually came up with the Flow Hive honey extraction, and then its progeny, the Flow Hive 2.


The method of honey harvesting was simple and allowed the masses to start harvesting their own honey. Clearly, this idea resonated with a lot of people, raising almost $15 million dollars, the Flow Hive and Flow Hive 2 sold over 50,000 units were delivered to 130 countries.


Lesson: Be unique. Solve a problem. Innovate.


The world’s best travel jacket


The Baubox Travel Jacket solved a critical problem for travelers: storage. Instead of carrying on a heavy, bulky backpack, they could use a slim, organized jacket for everything. Not only were the jackets hailed as supremely comfortable, but their big sell was the many pockets embedded within the coat. It had a pocket for a tablet, passport, ID, earphone holders, a place for a neck pillow, gloves, and an eye mask; it even had a pocket to put a drink in.


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The initial campaign launched in 2015 with a goal of $20,000. They raised over $9 million.


The Baubox Travel Jacket was so successful, it even came back for another run. In 2018, the Baubox 2.0 campaign was launched, and raised another $4.4 million for the updated version of this popular coat.


Lesson: Build a better mousetrap.




About Steve Strauss


Steve Strauss Headshot New.pngSteven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business SuccessSteven D. Strauss


Web: or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here


Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice. Bank of America, N.A. Member FDIC.  ©2019 Bank of America Corporation

As the old saying goes, all good things must come to an end. Even your business and career. Even so, maybe it’s not surprising that entrepreneurs go about retirement differently than most folks, just as they go about work differently than most people.


According to a recent Manta survey, small business owners generally plan to wait until they are over 65 before retiring. Even then, according to the survey, one third plan to look for new work opportunities.


This begs the question – if you do in fact own your own business, what are you going to do with it when the time comes to move on? Essentially, you have three options. You can:


  • Close up shop
  • Sell the business, or
  • Give it to your kids53069262_s.jpg


Let’s look at each.


1. Close up shop: While it would be great if you created a business that can be sold or shared with loved ones, that is not always the case. If, for instance, you have been self-employed and are a one-man (or woman) band, it is often difficult to transfer that ownership to someone else because you are the business.


In that case, closing up shop is “simply” a matter of communicating with customers about the upcoming change, paying outstanding invoices, selling assets, closing accounts, and literally closing the doors.


2. Sell the business: According to that same Manta survey, about one in five small business owners plan to use the sale of the business to fund their retirement. If this describes you, then there are a few things you need to do ahead of time to ensure a lucrative sale:


Spruce the place up: Just as you would want to increase the curb appeal of your home before selling it, you would want to do the same with your business.


Figure out what the business is worth: There are a few different ways to value a business.


      • You can add up all assets, subtract liabilities, and go from there.


      • You can use a “multiplier.” That is, sell it for three times profit. This is a common method, but know that different industries use different multipliers.


      • The final option is to get an independent valuation. This is usually best. A professional valuation will give you an expert analysis of what the business is actually worth. That way, not only are you dealing with all the facts, but that valuation will carry weight with any potential buyer. Valuations can be obtained from business brokers, accounting firms, or banks.



Get your books in order: Buyers will want to see at least three years of financial statements and tax returns. One thing they are buying is certainty; they want and need to know how much they can reasonably expect to make if they buy your business.


Speak with your financial team: Before any sale, it would behoove you to know all tax and legal implications of any sale.


Stay profitable. Don’t let your business performance decline because you are too focused on either retiring or selling the business. Buyers buy businesses because those businesses make money.


3. Give it to your kids: One likely reason you started a business is that you wanted to create an asset to pass on to your children. This is both noble and good, but know that it doesn’t always work out as planned. Your kids may not want to go into your business. There may be squabbles over who gets how much or who will do what.


Personally, my dad left his successful carpet warehouse to my siblings and me, but when dad unexpectedly died, none of us were ready or old enough to run it. We ended up selling the business  to the store manager, and only after a lot of hassle.


So the key here is communication. Let your offspring know what you want to do with the business, and make sure everyone is onboard.


Once you do that, get ready to say aloha, or ciao, or adios – whatever and wherever your grownup retirement wanderlust takes you.


Related content: The Importance of Succession Planning for Your Businesses

The Importance of Succession Planning for Your Businesses      Putting The Success In Your Succession Plan



About Steve StraussSteve Strauss Headshot New.png

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.


Web: or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here


Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.


Bank of America, N.A. Member FDIC.  ©2017 Bank of America Corporation

The U.S. Small Business Administration (SBA) maintains a wide variety of loan and other assistance programs that can be valuable resources to all types of businesses. SBA programs offer excellent flexibility and loans that are “built to last,” says Brian Burke, national SBA lending director at Community Reinvestment Fund, USA, a nonprofit organization that works with banks and other lenders to bring development capital to underserved areas. However, finding and securing the best SBA loan for your business requires effort and diligence.


“SBA loans do involve more upfront effort, due diligence, and paperwork, but patience and positive attitudes are rewarded with excellent terms,” Burke says. You can boost your likelihood of approval for an SBA loan by knowing your numbers, or at least having a trusted advisor who can help you present all aspects of your business, especially the all-important financial characteristics. “Plan your work, and work your plan. Vision and execution are key drivers to long-term business success,” he adds.


It’s also important to keep in mind that the SBA doesn’t actually make loans itself; rather, it guarantees loans made by banks and other lenders, points out Michael K. Menerey, a partner in CFO Edge, LLC, a provider of outsourced financial and operational solutions to businesses. “In seeking a loan for your business, you need a bank that can be a trusted partner. This is especially true in the world of SBA lending, where knowledge of the various loan programs is critical,” he says.


Among the SBA programs of most interest to many small businesses are:

  • SBA Microloans, which provide short-term loans of up to $50,000 to small businesses and some not-for-profits. Proceeds can be used for working capital, inventory, supplies, fixtures, and equipment but not for repayment of existing debts or purchase of real estate.
  • SBAExpress loans, which offer expedited processing, generally range from $50,000 to $150,000, and can be used to launch a business or to assist in the acquisition, operation, or expansion of an existing business.
  • SBA 7(a) loans, which go up to $5 million, are the agency’s most common product for helping small businesses obtain financing. They are also the most flexible, says Rohit Arora, CEO of, an online small business loan matchmaker. The SBA can guarantee as much as 85 percent on loans of up to $150,000 and 75 percent on larger loans.
  • SBA disaster loans, which are low-interest, long-term loans for physical and economic damage caused by a declared disaster. Small businesses and most private, nonprofit organizations that suffer substantial financial damages may be eligible for an Economic Injury Disaster Loan of up to $2 million. The proceeds can be used to meet necessary financial obligations related to expenses the business would not have incurred had the disaster not occurred.


“The type of SBA loan you choose depends on the amount of money needed and the use of the money once you borrow it,” Arora says. “Each business’s situation is different, and that will dictate the type of SBA loan for which you ought to apply.” A great resource for helping you find the SBA loan program that is right for your business is the federal government’s BusinessUSA AccessFinancing wizard. The tool walks you through four simple steps related to the purpose of the loan, ownership of your company, areas where you do business, and the industry in which you operate. A results page presents the best SBA options and other government-backed finance programs to meet your needs.


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Content created exclusively for Bank of America.



My business recently sent off a tax payment to local authorities and it reminded me of an incident not long ago that I think contains a valuable lesson for all entrepreneurs.


For years, I did my personal and corporate taxes on my own. This was mainly because I thought that my legal background afforded me the knowledge to do so. And for a long time I was right… until I wasn’t.


It was April 14th a few years ago, and I was struggling with my tax return when I finally concluded that I needed expert assistance. So I filed for an extension, put out some feelers, and interviewed a few accountants. The first two were competent, but nothing special. Then I met David, the guy I hired.


I hired him for a few reasons. Yes, he was every bit as smart and experienced as the other two people I had spoken with, but the difference was two-fold:


  • First, he had a way of explaining things that was neither jargon-y nor condescending. Indeed, his delivery was friendly and understandable.
  • Second, he made me feel comfortable.


That second fact is not unimportant. I was hiring a professional because I needed professional help. There was money at stake, I was unsure of the outcome, and the IRS was involved – all of which are reasons to feel a little uncomfortable.


But David’s easy-going manner evoked confidence in me right from the start. He cracked jokes and laughed easily. He was sharp. I liked him and believed that he could help me. And I was right. Not only did he do his job superbly, but even when delivering what could have been uncomfortable news (“You owe such and such”), he did so in a way that made it easy to digest.


Certainly my experience could have been different. Another CPA, one less emotionally intelligent, might have done the same competent job, but I probably wouldn’t have left the experience wanting to refer them business as I wanted to with David. Indeed, I have since recommended David to several friends and colleagues.


That’s the lesson. There are all sorts of professions that require the professional to have a good bedside manner. Healing entrepreneurs come readily to mind – therapists and nutritionists and acupuncturists, for instance. These folks definitely need to have a calm, confident, easy way about them given the job they do. If they do, they will get more business than if they don’t.


Click here to read more articles from small business expert Steve Strauss


But the list of businesspeople that need to have a good ‘bedside manner’ does not stop there, in fact, it only just starts there. Let me suggest that almost every entrepreneur needs to have their own version of ‘bedside manner.’


For instance, an interior designer has to let potential clients understand that she knows something about color, design and furnishings that the client does not. She has to share this knowledge in a way that is inspiring, not sales-y, and makes the client to want to hire her, not be intimidated by her keen eye.


Or take a successful salesperson – he has to have a relaxed presentation style that lets customers know that he is as interested in helping them solve their problem as he is in making the sale, even though we all know he wants to make the sale. The best salespeople usually have a friendly, comfortable, positive manner that is more about getting to know the person than diving into the product or service at stake. They are the opposite of pushy.


What new customers want from you when they come into your business is something similar. They want to know that you are there to help them, not sell to them. The harder you try to sell them, the less they will want to buy.


Of course you want to acquire new customers, that is a given, but what I learned from David is that you only land that larger volume customer when you don’t scare them away.

About Steve Strauss

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest,The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss.

You can read more articles from Steve Strauss by clicking here


Make Your Business Less Taxing

Posted by Inc. Apr 3, 2014

Tax law is fundamentally nondiscriminatory, and the federal government does not offer many direct tax breaks to women- and minority-owned businesses, says Mike D’Avolio, a senior tax analyst at Intuit’s professional tax group who is both a CPA and an attorney. “However, the tax code offers many incentives to all business owners, such as enhanced depreciation deductions, the credit for small employer health insurance premiums, and the credit for research and development expenses.” A comprehensive listing and discussion of allowable business expenses and deductions can be found in IRS Publication 535.


One of the few areas where federal tax code does provide direct tax breaks for diverse-owned businesses is incentives for businesses on Indian reservations, including accelerated depreciation and the Indian employment credit. For property used in the active conduct of a trade or business within an Indian reservation, the tax code provides for shorter depreciable lives and, consequently, larger depreciation deductions. “For example, five-year property can be depreciated over a three-year period, and 10-year property can be depreciated over a six-year period,” D’Avolio explains. The federal tax code also includes an Indian employment credit that applies to businesses that hire individuals who live on or near an Indian reservation. In general, the credit is equal to 20 percent of current wages and employee health insurance costs, up to a limit of $20,000.


Many states offer direct or indirect tax breaks and incentives to minority- and women-owned businesses, says Judith H. McQuown, author of Inc. Yourself: How to Profit by Setting up Your Own Corporation (Career Press Inc.; 10th edition May 2004), which is coming out in its 11th edition in 2014. “In New York State, for example, START-UP NY offers 10 tax-free zones to new businesses.” While the program is not exclusive to diverse-owned businesses, the generous tax breaks it provides are particularly appealing to them. They include:

  • A state tax credit that would eliminate any state tax liability for businesses with 100 percent of their assets and payroll in a tax-free area.
  • Exemption from the state organization tax, license fee, and annual maintenance fee.
  • Credit or refund for sales and taxes paid for goods and services used or consumed by the business’ operation in a tax-free area.
  • Exemption from the real estate transfer tax for leases or real property to approved businesses in tax-free areas.


Many other states offer programs that provide significant tax breaks and/or incentives to diverse-owned businesses. “The best way to find out about these programs is to contact your state’s Small Business Administration (SBA) office or Department of Economic Development,” McQuown advises.


Whenever tax incentives are offered to diverse-owned (or any other) businesses, they are typically accessed by claiming them in the company’s tax return, with no need for additional filings, says Jonathan Barsade, founder and CEO of Extractor, Inc., a developer of end-to-end solutions for secure tax sales recordkeeping and compliance, based in Wynnewood, Pennsylvania. However, successfully claiming them requires diligent recordkeeping and close attention to detail. “The most common reason businesses are denied tax breaks, such as exemptions, is because of the absence of proper supporting documentation,” he says. “Exempt transactions are red flags for auditors. The absence of sufficient support is enough to deny the tax break and place the seller on the hook for taxes owed as well as fines and penalties.”


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Content created exclusively for Bank of America.


The federal government sponsors a number of programs designed to help minority-owned enterprises succeed in their business, and one of the most extensive is the Small Business Administration’s 8(a) Business Development Program. The program offers a broad scope of assistance to firms that are owned and controlled at least 51 percent by socially and economically disadvantaged individuals, and its stated goal is to provide such businesses with “access to the economic mainstream of American society” by helping them gain a foothold in government contracting. It is a nine-year program, with participation divided into a four-year developmental stage and a five-year transition stage.


The main benefit of the program is that 8(a) certified businesses gain exclusive access to sole-source contracts of up to $4 million for goods and $6.5 million for manufacturing per contract, says Jean Kristensen, president and CEO of Jean Kristensen Associates, LLC, a New York-based consulting firm that provides tools and resources to small, minority, and women-owned firms seeking to increase revenues through government contracting, certification, and innovative business strategies. “As an 8(a) graduate, I can attest to the fact that certain sole-source contracts provided my firm with the ability to gain experience with government contracting, human capital management, and regulatory compliance that increased our ability to bid for competitive contracts in my industry,” she says. “Many government agencies do require that firms have strong past performance and experience in working with government agencies as a precondition to winning government contracts, and the 8(a) program allowed us to get that experience.”


Exclusive access to those sole-source contracts is surely one of the most important advantages of 8(a) certification, but there are others as well, says Rick Otero, president and CEO of Tampa, Florida-based Cloveer, Inc., which has helped more than 1,500 businesses navigate the 8(a) application process. Among them are:

  • Limiting your potential competition. Larger firms that might otherwise compete for the same contracts do not have access to them, and there are fewer than 10,000 8(a)-certified business concerns in the entire country.
  • Making you more attractive to larger federal government prime contractors. Since businesses not considered “small” by the SBA definition for this program do not have access to 8(a) contracts, certification makes your company more attractive for teaming, joint ventures, or mentor/protégé relationships.
  • Making it easier for federal agencies to purchase your products or services because 8(a) set-aside contracts require less time, paperwork, and bureaucracy than other types of federal contracts.
  • Faster start times, because 8(a) contracts take less time to be awarded than most other procurement methods.


Applicants to the 8(a) Business Development program undergo a rigorous screening process designed to ensure that only the most qualified firms receive certification, Kristensen says. The general eligibility requirements are:

  • The business must be majority owned by an individual or individuals, and they must be American citizens by birth or naturalization.
  • The business must be majority owned and controlled/managed by socially and economically disadvantaged individual(s), and they must meet the SBA requirements for both social and economic disadvantage. Social disadvantage eligibility is presumed for members of certain groups, including African Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans. Applicants are presumed to be economically disadvantaged if they can provide documentation proving their assets, income, and net worth fall below these threshold levels: $4 million, $250,000 averaged over three years, and less than $250,000, respectively.
  • The business must be a “small” business by SBA 8(a) standards, a designation that is subject to a range of variables.
  • The business must demonstrate potential for success.
  • The principals must show good character.


Obtaining 8(a) certification requires a high level of involvement on the part of the applicant and the willingness to commit to a nine-year process, during which time all eligibility requirements have to be maintained. The SBA recommends that potential applicants start by taking an online training and self-evaluation course. If you do not meet the key eligibility criteria in the self-assessment test, you will be directed to other SBA resources deemed most appropriate for your business at its present stage of development.


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Equipment: Lease or Loan?

Posted by Inc. Mar 27, 2014

One of the most common cash-flow considerations business owners face is making the right choice between leasing or buying equipment. There are plenty of good tools available to help you analyze the decision on a dollars-and-cents basis—such as this Excel template and this online calculator, but often there are non-financial factors that must be considered as well.


Making the right buy-vs.-lease decision requires an understanding of some basic characteristics and how they affect cash flow and asset management, says Tim Lemmons, a business consultant and educator at the University of Nebraska-Lincoln. Leasing generally entails a smaller initial outlay of capital than buying does, and lease payments are often lower than traditional installment loan payments, resulting in less liability on the balance sheet. However, when you buy a piece of equipment you gain asset value on the balance sheet, and that value may be used as collateral against other loans. Owned equipment does not require a security deposit as leased equipment often does, so capital that would have been tied up for the duration of the lease is available for other purposes.


There are three major kinds of leases: financial, operating, and sale/leaseback.

  • Financial leases
  • Operating leases
  • In a sale/leaseback scenario, often used for buildings and other commercial property, you sell an asset you own to another party and immediately lease it back for a set period of time. The capital that would otherwise have been encumbered by the asset is freed up for use elsewhere in your business.


In most head-to-head scenarios, buying equipment usually ends up costing less than leasing it, as long as you can take advantage of associated tax benefits, particularly the Section 179 deduction, which essentially allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. However, two of the most attractive aspects of Section 179 expired at the end of 2013. Unless Congress acts to change the law, the limit on capital purchases eligible for the 179 deduction and the maximum deduction allowed drop from $2 million and $500,000, respectively, in 2013 to $200,000 and $25,000 (plus an adjustment for inflation) in the current tax year. In addition, the 50 percent bonus depreciation allowed for tax year 2013 has also expired.


The least-vs.-buy decision is one that can only be made on a case-by-case basis, and making that choice is only the start of the process. If you decide leasing makes the most sense, you need to choose your leasing company carefully. Choosing the right financial partner if you decide buying is the best option is just as important.


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Content created exclusively for Bank of America.



Opinion remains sharply divided on whether the Affordable Care Act (ACA) will turn out to be good, bad, or inconsequential for American businesses, but it is now the law of the land and has an impact on businesses of all sizes. Those least affected by tax, regulatory, and reporting issues are businesses with fewer than 50 full-time equivalent employees (FTEs), although they do face additional requirements in reporting and tax withholding. Companies with fewer than 25 FTEs also face minimal additional duties from ACA, plus they may be eligible for significant tax credits if they provide health care coverage for their employees.


The Small Business Health Care Tax Credit may be the most interesting aspect of ACA for companies with fewer than 25 employees, says Jeffrey Ingalls, president of The Stratford Financial Group, an insurance consulting and brokerage firm, and author of Healthcare Reform Made Easy. In order to claim the credit, a business must cover at least 50 percent of the cost of single (not family) health care coverage for each of its employees, and those employees must have average annual wages of less than $50,000, a figure that will be adjusted for inflation beginning this year. Additionally, employers will have to purchase insurance through the Small Business Health Options Program (SHOP) Marketplace to be eligible for the credit for tax year 2014 and subsequent years.


Businesses in states that have set up their own exchange sites can purchase qualifying insurance coverage through those sites (click here to see if your state has a site). Launch of the federal government’s SHOP Marketplace for businesses in states that don’t have their own site has been postponed until November, but businesses can still qualify for the 2014 credit by enrolling their employees in coverage through an agent, broker, or insurer that offers a certified SHOP plan and has agreed to conduct enrollment according to Department of Health and Human Services standards.


While ACA does not mandate businesses with fewer than 50 FTEs to provide health care insurance to their employees, it does impose notification requirements on any employer covered by the Fair Labor Standards Act (FLSA). (In general, any firm that has at least one employee and at least $500,000 in annual dollar volume of business is covered by the FLSA.) Those businesses must provide notification to their employees about the new Health Insurance Marketplace where employees can obtain coverage on their own. Most people are required to have basic health coverage as of January 1 of this year or be subject to a penalty. Businesses covered by the FLSA must also inform their employees that they may be eligible for a premium tax credit if they purchase coverage through the Marketplace, and they must advise employees that if they purchase a plan through the Marketplace, they may lose the employer contribution, if any, to any health benefits plan offered by the employer. A sample notice for employers who do not offer a health care plan is available here; as is one for employers who do offer a health plan is available.


ACA also requires any business, regardless of size, that offers a health insurance plan to its employees to provide employees with a standard “Summary of Benefits and Coverage” form explaining what the plan covers and how much it costs.    Likewise, all employers are responsible for withholding the increased portion of Medicare Part A Hospital Insurance that ACA imposed on employees with incomes of more than $200,000 for single filers and $250,000 for married joint filers as of January 1, 2013. The law increases the employee portion from 1.45 percent to 2.35 percent on wages in excess of those thresholds, but the employer portion of the tax remains unchanged at 1.45 percent.


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“Capital structure” is a phrase that often comes up when professional investors, analysts, and pundits discuss the current state and future prospects of publicly traded companies. But every business, no matter how large or small, has a capital structure, and it’s important for business owners to understand this concept and what it means for them. Simply speaking, capital structure is about the ratio of different types of capital being used by a business. Debt and equity are the two most common sources of capital for most businesses, but a third type, hybrid securities, combines some aspects of the first two.


Debt financing involves a contractual agreement between a company and a third party that calls for payment of a predetermined claim (interest) regardless of the company’s operating performance. Interest payments are generally tax-deductible, and debt has a fixed life. Bank loans, commercial paper, and corporate bonds are examples of debt financing. Equity financing is permanent because it involves exchanging a share of ownership in the business in exchange for capital. Examples include owners’ equity, venture capital, and common equity (stock. It often provides for the payment of dividends, which generally are not tax-deductible. Hybrid securities share some characteristics of both debt and equity, with the most common type being a convertible bond, which can be converted to equity at a predetermined time and conversion rate.


The optimal capital structure (OCS) for any business is a mix of liabilities and equity that meets all its business objectives at the lowest cost to the business while adhering to all regulatory requirements and allowing for the adoption of relevant industry best practices and appropriate risk management. Formulating OCS can be a complicated undertaking for large, diversified organizations, but the basic steps involved in the process are the same for any business:

  • Define the capital needed and the business objectives. This is necessary to determine whether there are any elements of the business plan that may dictate parts of the capital structure.
  • Identify regulatory restrictions to make sure the capital structure you are planning will be in compliance with all applicable rules and regulations, both local laws affecting all commercial enterprises and industry-specific ones affecting the field in which you operate.
  • Identify risk restrictions, including liquidity (your ability to meet maturing obligations as they come due), interest rate risk on debt that does not have a fixed rate, and exchange rate risk if you operate in more than one country or plan to.
  • Identify the range, amount, and cost of funding instruments available. Many variables can affect the options available to you, including the legal structure of your company, the market(s) where you operate, and the regulations to which your business is subject.
  • Build the optimal capital structure, that is, fill any capital need identified with the lowest-cost funding instruments available to you as determined in the previous step.
  • Analyze the total financial cost of the OCS by estimating its weighted average cost of capital (WACC), which is the sum of each funding instrument’s after-tax cost multiplied by the percentage of the total capital structure it represents.


OCS for most growth-oriented companies will focus on internal over external financing, says Iqbal Ashraf, CEO of consulting firm Mentors Guild. “In general, avoid external funding, and if you have to raise external funding, get as much debt as you can service through at least one year of bad business.” Debt is easier to raise and cheaper than equity, and it leaves control of the business intact with the owners. The main risk of high debt is repayment when cash is tight, which can give you sleepless nights, lower the possibility of further financing, “and may even put your business at risk,” he says.


“Try equity after you are leveraged to your board’s comfort level or the industry average, whichever is higher, and get it from those who bring more to the table than just cash,” Ashraf adds. “Get ready for scrutiny, CPAs, and lawyers, and be prepared to share your profits in perpetuity.”


Optimizing capital structure can be a challenge even for those with a sophisticated financial background, but getting a grasp of the fundamentals is important for any business owner. A great resource that provides an easily understandable dissection of the concept and the process for achieving it is Optimizing Capital Structure Toolkit, a step-by-step guide with sample spreadsheets created by Women’s World Banking.


Disclaimer: Since the details of your situation are unique, you should always seek the services of a qualified CPA, tax advisor, and/or other financial professional.


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