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by Karl Stark and Bill Stewart


Those of us who have large investments in private businesses aren't like typical savers. We need a different strategy for our personal investments.


Most personal finance experts tell a fairly consistent story about the need to build a diversified investment portfolio focused on long-term growth. But that type of investment strategy doesn't necessarily apply to entrepreneurs and owners of private businesses, especially high-growth businesses.


We are a unique lot. Our concentrated investment in a risky but highly attractive company means that our overall investment portfolio is skewed differently than the average investor. One business owner once told us, "My business is my retirement strategy." This perspective underscores the importance of building a plan that's unique to your risk profile and your appetite for entrepreneurial opportunities.

Here are seven personal investment principles we have learned to keep in mind when your job is growing a business:

1. Build a "no touch" portfolio.

When you invest in stocks, bonds, and mutual funds, put them out of reach by creating "no touch" portfolios in accounts that you will never access. This will reduce the temptation to dip into long-term investments to address a short-term need for a cash infusion if your business is struggling. You can create more protection by loading up your retirement accounts and your kids' education accounts. These are places where there is a huge financial penalty to accessing those funds, which will keep you honest.

2. Protect your assets.

Structure your investments--and your company--so that creditors can't reach your money if the business runs into financial or legal peril. In addition to structuring your business appropriately, this also involves transferring assets to spouses and children where possible and investing within retirement accounts and real estate, which in some cases are out of reach.


3. Diversify away from your business.

Seek investments in your portfolio that are counter cyclical to your industry and business cycle. Investing in commodities may be risky in general, but if your business is heavily linked to the broader economy or public equity markets, a counter cyclical asset such as commodities may be attractive.

4. Invest more conservatively outside your business.

Most investment professionals recommend a heavy equity portfolio for younger professionals and a larger fixed-income portfolio for older individuals. Given that an entrepreneur's business may largely cover her "equity risk," she may be better off with a more conservative portfolio outside of her business.

5. Build a cash cushion for future entrepreneurial ventures.

Most of us can't pass up a good deal when it comes along. That's why we became entrepreneurs in the first place. If you have the luxury of cash outflows from your business, put a sufficient amount aside so that you can keep some dry powder when new opportunities present themselves.

6. Make smart business investments.

The best way to protect your personal finances is to ensure that your business has a sound, balanced approach to investing its capital. Our recent column on a growing business's investment strategy discussed this in some detail.

7. Build a great business model.

Of course, the best personal investment strategy may be your business itself. After all, your business can be your retirement strategy if it's successful. Building your business should be what you do best. So focus your time and effort there and leave the investing to a professional.


We should note that although we advise private investors on investing in growth companies, we aren't investment advisers. We can share our own thoughts and experiences, but for more targeted advice you should seek a professional investment adviser.

Article provided by © Inc.

7 Investment Principles for Entrepreneurs | Inc. 5000


QAgarymilkwick_Body.jpgby Iris Dorbian.


Currently under debate in Congress, the Marketplace Fairness Act, which, if passed into law, would require all online retailers to collect sales taxes for the sales where they ship goods. Such a law may have considerable ramifications for small businesses that have an online reach. But how much? Recently, business writer Iris Dorbian spoke to Gary Mllkwick, vice president of, an accounting firm in New York City that works with small business clients nationwide. He also offers some tips on how small businesses should prepare themselves if the Marketplace Fairness Act is enacted into law.



ID: In light of the new Internet sales tax bill that may become law shortly, what should small business owners who have an online presence keep in mind? How will this affect them?

GM: The whole issue focuses on the relationship you have with a state to where the state has the jurisdiction to tax you. In the past, the laws have always been that if you have a physical presence (i.e. brick and mortar store) in a state and if you have employees in that state, then you, as a company, are responsible for collecting sales tax in those states where you have a physical presence.


However, when the laws were written 30 or 40 years ago, they weren’t anticipating the Internet. Now what this law is saying is that if you have more than $1 million in online sales a year, then you are responsible for collecting and remitting taxes to all states in which you are selling to—which is wherever the clients are purchasing or where the customers are located. That’s a big change. In the past, if you were operating an e-commerce business in California and you only had 15 employees there then all you had to do was collect sales tax on sales made to customers in California.


ID: Is this bill something that small business owners with an online presence should worry about?

GM: It depends on how big they are. For the mom-and-pop companies that maybe have $10,000, $20,000 or $100,000 a year in revenue, it’s not going to affect them. In one version of the bill that passed, the threshold that you would have to comply with the law is more than $1 million. My understanding is that some people in the House want to increase that to $10 million because even if you’re a business with a $1 million in revenue, that doesn’t mean you’re generating much profits. And if profits decline, [this bill could hit small businesses hard] due to collecting and remitting sales tax from different states. The people who are most worried right now are those who are in the $1-million to $10-million annual sales bracket.


ID: So the bill could actually benefit qualified small business owners?

GM: While it is true that the law does create some additional reporting
 requirements, it may actually make the scary process of collecting and
 paying sales taxes much easier than the business owners expect. The bill
 passed by the Senate and now being considered in the House includes a
provision that states have to provide free software that calculates the sales tax on items sold in the state, and files the required reports for the business owner. There
 is also a safe-harbor provision in the law that protects small
 business owners from penalties if they collect the wrong sales tax amount 
because of a problem in the software they use. 


Also, in the bill passed by the Senate [there’s a provision that] will force states to simplify their sales tax collection process. In particular, each state will only be allowed to have a single point of contact for sales tax. Right now, some states, such as Alabama, require separate payments in each county. So the law could reduce the number of sales tax jurisdictions from hundreds (maybe thousands)
 to just 50 (one for each state).


QAgarymilkwick_PQ.jpgID: Have you been getting calls from small business clients about this bill?

GM: Yes and we expect to get more calls as news 
stories about the law continue to appear. I think business
 owners are going to be quite relieved once they understand what the law actually says. The key is to be prepared for the change. The proposed 
legislation has broad bipartisan support and it's a pretty good bet that
 it will pass in some form. Business owners who are prepared can continue to 
profit from online sales, while those who wait until the last minute may have to 
scramble to comply. 


ID: As a small business tax expert, do you see any problems with the bill?

GM: Not necessarily. I kind of see it from both sides. I think for our clients, they would like to see a higher threshold of $10 million to $50 million because that $1 million threshold is pretty low. The margins are so thin they’re not making very much profit on a million dollars in online sales.


ID: Based on your experience and insight, how should small business owners who have an online store or e-commerce site prepare themselves if this bill becomes law? What should they do and what should they not do?

GM: Make sure they have good reporting systems in place and they have a plan for being compliant. The worst thing is if they aren’t prepared and don’t begin collecting the sales tax. Then you run into serious penalties and interest. Figure out a way to be in compliance—whether that’s [small businesses] doing it internally or whether it’s hiring someone else to do it.

Disclaimer: The opinions expressed are solely those of the author and interviewees. 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.

Payments-Fraud-Cover.jpgPayment fraud is the crime that never goes away. While advances in technology are creating new ways to combat it, those same advances are also creating new ways to commit it. And since it’s constantly evolving, small business owners need to be more vigilant than ever.  Click here to download our resource guide on preventing payment fraud.


Payment Fraud is part two of a series of informational resource guides designed to help small businesses understand more about fraud and how to stop it before it starts.

For more information on preventing other types of business fraud:

Also, find out more by viewing the Small Business Fraud is Big Business Infographic (Link).

PaymentFraud_Body.jpgby Robert Lerose.


No one likes to get ripped off. Some small business owners, though, are under the impression that their size makes them less of a target than large corporations. The numbers, however, tell a different story. According to a recent Guardian Analytics study, most small and medium-sized have not implemented effective fraud prevention practices for their online financial and merchant processing accounts.  Guardian Analytics says 74 percent of businesses suffered losses due to fraudulent ACH, wire and other transactions. What's worse is they were only able to recover lost funds about 39 percent of the time.


"When you're a small organization, you're basically a handshake away from the customer," says Larry Ponemon, chairman and founder of the Ponemon Institute, a co-sponsor of the study. "Sometimes that's not good enough in today's world because the bad guys are focusing on the weakest link—and the weakest link is usually a small organization."


Enhance your security

Fraudsters seem to have an unlimited capacity for finding new ways to circumvent the system and steal. Ponemon reports that one type of payment fraud that a small business might be vulnerable to involves business logic abuse. Essentially, this is when a website is poorly designed, leaving flaws or openings for the criminal to exploit and cause harm.


For example, a criminal can buy a list of credit cards with personal information on the black market, go to your business website, and punch them in to see which numbers are active and which are closed. As the business owner, it's likely that you wouldn't know if this is a potentially criminal act, because some legitimate customers could have more than one credit card in their name.


Beefing up the security of your website is a necessary first step. At the very least, Ponemon says, make sure that any personal information entered on your site from the customer is encrypted using SSL, a security protocol for Internet communications. Another option is to use a third-party payment processor, such as CyberSource.


"You want to be careful and understand the reputation of the online payment companies," Ponemon says, noting that PayPal is the most commonly used, but that others, such as Google Wallet are emerging.  Joining an association like the Merchant Risk Council—an advocate for e-commerce merchants—can add to your knowledge and awareness.


PaymentFraud_PQ.jpgTake pro-active steps

Small businesses need to be as resourceful and dogged in protecting their interests as criminals are in trying to undermine them. That should include employing both external and internal controls to slash risk.


Jack Craven of John F. Craven, CPA, a New York-based accounting firm, recommends the following steps that every small business should seriously consider adopting:


1. Limit the number of people authorized to sign checks.


2. Have the small business owner personally open the check statements from the bank to keep tabs on what is being paid.


3. Consider using an independent or outside CPA to reconcile any statements from the bank.


4. "In general, I think it's a good thing to have a budget in place at the beginning of the year and track [transactions] by month," Craven says. "If there's stuff going through that's inappropriate, it might stick out in the budget process."


5. Have a clear process in place to check out and approve the introduction of new vendors into the accounting system.


6. "There's something called positive pay, where you send a list of checks that were drawn by the company to the bank and they match them off against what the bank pays," Craven explains. "This is really a control against somebody who prints up a check that looks like an official company check. If it wasn't on the list, the bank wouldn't pay it."


7. Material for official signatures—both signature plates and stamps—should be kept locked up with only a limited number of people who can access them.


"Another important thing is separation of duties, where the person who writes the checks shouldn't be the person who's reconciling the bank account or preparing the checks or mailing out the checks," Craven says. "It's a good control to have different people involved in the process."


Take nothing for granted

It goes without saying that being the victim of a fraud is emotionally unsettling and financially perilous. While there are official law enforcement channels at your disposal, the reality is that the burden of going after stolen funds often rests heavily on the small business itself.


That was the case for Lifestyle Trimco Viaggio, a leading manufacturer of mannequins in the United States. The privately held, New York-based firm with 200 employees ran into trouble in May 2012 when the controller wasn't able to access their bank online to send out a wire transfer. The initial diagnosis was a computer virus, which was cleaned up the next day—or so it was thought.


"The controller printed out the activity of the prior day, which is normally done early morning. We found that $1.2 million had been siphoned out to different banking locations, both domestic and offshore," recalls Lloyd Keilson, Lifestyle's CEO.


Keilson's financial institution confirmed this. Retrieval notices were sent out immediately, and the domestic transfers were stopped. However, the transfers that went through a bank in China proved more troublesome. According to Keilson, it was only through his own contacts in China—not through the FBI or the government—that he was able to get a lead on his missing funds. The cyberthief's identity was never publicly established, though.


Eventually, he retrieved all but around $150,000 of the $1.2 million. "Ultimately, the FBI decided that the $1.2 million didn't merit their attention because it wasn't a sufficient sum," he says. "The retrieval came through the efforts we put out."


The company has since changed their security procedures, of which they understandably choose not to discuss specifics. "When you take the human element out of a transaction and you leave it to mechanisms, those mechanisms can be duplicated by people who are much smarter and much more clever than we are," Keilson warns. "There's nothing a small business owner can take for granted."

Fraud-Guide-Cover-v3.jpgData breach fraud can happen to you. A data breach occurs when an encrypted database is broken into or hacked. All it takes to be classified as a security breach is a viewing of the information, but if it is taken and distributed, the results can be disastrous. Because in today’s digital world, once information is out there, there’s no bringing it back.



Cyber Security: Preventing Data Breach Fraud is part one of a series of informational resource guides designed to help small businesses understand more about fraud and how to stop it before it starts.



For more information on preventing other types of business fraud:

Also, find out more by viewing the Small Business Fraud is Big Business Infographic (Link).

Thumbnail.jpgThe popular notion is that fraud happens to large companies much more often than small businesses. But nothing could be further from the truth. According to a Zogby International poll, sponsored by Symantec and the National Cyber Security Alliance, nearly half of all cyber attacks are aimed at companies with less than 500 employees.

Find out more by viewing the Small Business Fraud is Big Business Infographic (Link).

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