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10 Posts authored by: Steve Strauss

“I've got to keep breathing. It'll be my worst business mistake if I don't.” – Steve Martin

 

Because mistakes and business are not uncommon, it is a fact that once you get started with your own business, you will make a few of your own. Mistakes are OK of course – they are normal and most of them have a solution. The trick is not to avoid making mistakes but to avoid major mistakes and learn from the ones you do make.

 

For small business owners, the real issue is that mistakes can cost money – money we don’t have. And the thing is, big money mistakes usually start as small money mistakes with good intentions behind them, but the business owner fails to correct them before they get too big to manage.

 

Here are the five most common money mistakes made by small business owners, and how to avoid them:

 

CLICK HERE TO READ MORE FROM SMALL BUSINESS EXPERT STEVE STRAUSS

 

  • Not controlling overhead. I used to practice bankruptcy law. Do you want to know the number one thing people going through bankruptcy had in common? They did not control their spending. This typically happens to business owners after they’ve had a comfortable amount of money consistently flowing into the business, only to be badly hit by an abrupt drought. Because they spent so much when money was good, they neglected to prepare for the downturn that would inevitably hit (such is the nature of business cycles).

 

The solution? Keep your overhead low. 68940255_s.jpg

 

  • Thinking small. Conversely, some small business owners are so careful with their budget, they end up delegating every task to themselves instead of to a qualified team. It is a good entrepreneurial habit to be resourceful and self-sufficient, but it is important to know how to develop your business and continue growing.

 

The solution? Don’t be afraid to get the help you need and make investments to land bigger contracts.

 

  • Not diversifying. One of the most important things you can do for your business is to have multiple profit centers, or multiple products/services that make money. Only having one main profit center is a lot like only owning one stock, which any educated investor would never dare to do. That one stock could go up . . . or it could go down. Diversification is the key to stability. That’s what having multiple profit centers does for you – it creates a financial safety net.

 

The solution? Think outside the box and come up with at least one new profit center.

 

  • Not incorporating. One frequent but easily correctable mistake a small business owner can make is running their business as a sole proprietorship/partnership rather than a corporate entity (an S or C corporation, or an LLC). Incorporating your business allows it to become a separate legal entity, which means that you as an individual cannot be personally liable for any problems that may arise. In short, this means that your personal assets are safe, no matter what.

 

The solution? Incorporate. Now.

 

  • Not separating business and personal credit. Finally, it is imperative for you to separate your personal credit from your business credit. Like incorporating, separating your business and personal credit will protect your personal credit as well as your personal wealth. This move is essential.

 

The solution? Create a separate business credit account altogether.

 

RELATED ARTICLE: How Your Personal Credit Impacts Your Business Credit

 

 

These five business money mistakes can become major financial issues if not dealt with in a timely manner. The good news: there are simple solutions for all of them.

 

 

About Steve Strauss

Steve 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: www.theselfemployed.com 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

 

Steve-Strauss.gifOne of advantages about being self-employed is that a lot of things that were not deductible as an employee suddenly become so once you start working for yourself. The tax code is chock-full of potential tax deductions for the self-employed. However, many of them can be easy to overlook or miss.

 

Here are the top 10 overlooked tax breaks for the solopreneur. Doing your taxes may never be fun, but at least this way you can hold onto a little more of your hard-earned money:

 

1. Startup Costs: In your first year of business, all expenses you incur before beginning operations can be deductible – as much as $5,000. The costs can be amortized over time if you spend more than $5,000.

 

CLICK HERE TO READ MORE FROM SMALL BUSINESS EXPERT STEVE STRAUSS

 

2. Health Insurance Premiums: Because so many self-employed folks pay for their own health insurance, this deduction is definitely one of the big ones. If you are self-employed and buy your own medical insurance on the open market, you can deduct 100 percent of what it costs to cover you and your family.

 

Simply, wow.

 

3. Medicare Premiums: Similarly, for the older freelancer, Medicare premiums – as well as supplemental Medicare policies – can be tax deductible.

 

4. Education and Training: The cost of taking training classes, buying books, putting on or taking webinars, subscribing to magazines or newspapers or websites, traveling to trainings, etc. can all be fully deductible. As long as the expense is related to business education or training, then this is a legitimate deduction.

 

5. Retirement Plans: Your contributions to IRAs and 401k plans typically make for the most profitable tax deductions. Here’s why: As of 2016, 401(k) contributions up to $18,000 and 25 percent of net income are deductible. As much as $53,000 can be deducted into a SEP IRA.

 

RELATED ARTICLE: WHAT IF I DIDN’T PAY ALL MY TAXES BY TAX DAY?

 

In essence, the government is trying to prompt and reward you for taking steps to plan for your retirement by not taxing you on it (that is, until you eventually withdraw it).

 

6. Interest Payments: Interest paid for business expenses (credit cards, loans) can be a great yet often overlooked tax deduction. Make sure to keep track of these things.

 

18022330_s.jpg7. Big Purchases: Large items that you purchase for your business (for example, cars or computers) can be tax deductible – up to $250,000. As long as these purchases take place within a single fiscal year, then there is no value depreciation involved.

 

(However, keep in mind that for an auto, if you do happen to claim any depreciation in any given tax year, you will not be able to switch back to claiming the standard mileage rate for the next tax year.)

 

8. Vehicle Costs: Keep track of all the driving you do for business – these miles can go toward your business auto expense deduction. A lot of self-employed people don’t know about this one, despite how often people drive for work. The miles driven not for personal use count as business expenses.

 

Keep a log, and at the end of your business miles log for the year, multiply that number by the standard mileage rate – $0.575/mile. If you’d like, you can instead save receipts for things like auto repairs and gas, but if you just stick to the standard mileage rate, your deduction will probably be bigger.

 

9. Self-Employment Taxes: Because being self-employed means you are both employer and employee, you can deduct 50 percent of Social Security and Medicare taxes on your personal IRS Form 1040.

 

10. Home Office Deduction: There are a lot of tricky catches to this deduction, which is probably why only about one-third of all self-employed individuals claim it. There are two main criteria that the IRS looks for:

 

  • A dedicated space in your home used as your primary place of business, AND

  • This space must be used regularly and exclusively for the business.

 

If these two criteria are met, then things like homeowner’s insurance and utility fees related to the space can be deducted. If you are able to, this deduction is well worth claiming.

 

Given all of the above, for the self-employed, keeping records, receipts, and logs is one of the most important tax habits one can adopt. As long as you are mindful of the deductions available to you and have the paper trail to prove it, you are good to go.

 

Doing your taxes may never be fun, but at least there are tricks to make it a little more rewarding.

 

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 also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.

 

Web: www.theselfemployed.com 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

There are all sorts of ways that business owners measure success. It could be the number of units sold, the amount of seed capital raised, increases in website traffic, more conversions, increased buzz about their business, or any other number of things.

 

In the end, there is only one real measure for success in for-profit businesses: profit. After all, if you don’t make a profit, no other metrics matter. Profit is a simple concept in theory – it is nothing more than the difference between your wholesale costs and your retail revenue. However, there is nothing simple about it.

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More specifically, the variance between what it costs you to buy or make a product and what you can eventually sell it for is called your profit margin. Ideally, that will be a fairly big number, expressed as a percentage. For instance, if you can buy a widget for $3 and sell it for $5, your profit margin is a healthy 40% (you make $2 on every $5 sale, 2/5 = 40%).

 

Some businesses, like restaurants or discounters for instance, typically have a very low profit margin (in the single digits). They make up for a low margin with volume sales. Other businesses sell less, but at a greater margin. Either way, the question almost all small business owners have, whatever their margin may be, is how can they increase their profits?

 

Here are three ways to increase your profits. They are:

 

1. Increase your prices: No, you probably don’t want to raise your prices, but take a look at the big picture: People are your customers for all sorts of reasons. There are things you do as well, or better, than your competitors. It might be your:

 

  • Location
  • Prices
  • Products
  • Value
  • Convenience
  • Selection
  • Expertise
  • Reputation

 

You will notice that price is only one of many different things mentioned in this list. The reason is because, unless your essential value proposition is that you are the least expensive (which is unlikely), then people choose your business for many reasons, price being just one.

 

Overall, while no one likes raising prices, and the fear of losing customers as a result of a price hike is a legitimate concern, it is equally true that all businesses raise prices. Consider this: When was the last time you stopped patronizing a business simply because they increased their prices? Right, that doesn’t happen very often.

 

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

 

So, if you want to make more money, and especially if you want to increase your profit margin, then consider charging more for your products or services. If you are still worried that it will turn-off your customers, test the new prices first before rolling them out across the board.

 

Celebrate-Article-Vert.gif2. Sell more: If you don’t want to increase your prices but still want to increase your profits, then your second option is simply to sell more. Selling more means you will make more. Yes, this is self-evident, but it is also a fact.

 

One way to do this is to do an 80-20 analysis. The 80-20 Rule states that 80% of your profit (or sales) come from 20% of your products or from the top 20% of your customers. So the question to answer is this: What are your top 20% products? Who are your top 20% customers? That small percentage of products and customers account for the vast majority of your sales.

 

Once you know the answer to that, then the path to more sales should be evident: Concentrate on those sorts of valuable products, find more of that type of customer, and you will make more sales that will make you more money.

 

3. Decrease your overhead: Think again about that profit equation I mentioned earlier: Profit is the difference between costs and sales. The first two ways to increase profit have to do with increasing sales. The other way relates to the first part of that equation – decreasing your costs. Selling the same amount at lower costs yields increased profits.

 

The challenge is figuring what to cut, and then how to cut it in such a way that it doesn’t eat into sales. Cutting overhead must be done with a scalpel and not a cleaver. Be judicious. See if you can find a cheaper supplier, or if you can reduce labor or insurance costs. Buy in bulk. Give employees an incentive for keeping costs down.

 

Increasing your profit is certainly possible, but it will require keeping close tabs on your margins and finding ways to alter the profit equation to your advantage.


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


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

Jerry (opening a mail package): “Hey, what happened to my stereo – it’s all smashed up!”

Kramer: “It looks like it was broken during shipping. But I insured it for $400.”

Jerry: “So we’re going to get the post office to pay for my new stereo now?”

Kramer: “It’s a write off for them.”

Jerry: “How’s it a write-off?”

Kramer: “They just write it off.”

Jerry: “Write it off what? You don’t even know what a write off is, do you?”

Kramer: “No. I don’t. But they do.”


Many people don’t understand the ins and outs of the tax code and it’s not surprising. Federal, state, and local taxes can be very complicated (write-offs included.) Nevertheless, it’s true that when it comes to taxes, you as a small business owner have two duties:

  1. To pay whatever it is you owe, and
  2. To figure out how to legitimately reduce your tax bill to the extent you legally can.

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Here are our top tips that help you do both of those things:


1. Deduct all expenses that are “ordinary and necessary”: The higher your expenses are, the less you will show as income, and the less you show in income, the less you will pay in taxes. Some tax expense deductions are obvious – advertising, labor, rent, and so on. But others are less so and thus are even more important because they can be overlooked:

  • Home office deduction: By some estimates, less than half of the eligible small businesses run from home take the home office deduction.
  • Business debts
  • Startup costs: Expenses incurred before you open the doors can be deductible.
  • Trips that combine business and pleasure.

 

2. Make sure you pay all taxes for all employees. More than almost any other tax, the IRS comes down hard on missed employee-related taxes. These include:

  • Withholding.
  • Matching.
  • Unemployment tax. You need to also pay federal and state unemployment taxes.


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


3. Make sure to pay all sales taxes to all entities. Where I live, a giant mattress chain store just went out of business. Why? They didn’t pay sales tax to the next-door state where many of their customers came from. Having what the IRS calls a “presence” in a state is the rule. 


4. Get your quarterlies in on time. The self-employed have estimated taxes due four times a year: April 15, June 15, September 15, and January 15.


5. Charitable Contributions. Charitable contributions typically “flow through” to the individual tax returns of shareholders (unless yours is a C corporation.)  These are the basic charitable giving rules:


6. Avoid the dreaded audit: No one wants an audit. Here are a few tips that can help you avoid one:

  • The charitable organization must typically be a non-profit. See “exempt organizations.”
  • In general, donations of property can be deducted only for their fair market value.
  • Pledges to give cannot be deducted until the contribution is actually paid.
  • Avoid payroll tax problems at all costs. Payroll tax debts are taken seriously by the IRS and must be avoided if you want to avoid an audit.
  • File on time
  • Don’t over-deduct: This is a red flag. If it’s not “ordinary and necessary” don’t deduct it.
  • Don’t do your own taxes: At some point, most small businesses outgrow do-it-yourself tax planning and software. A good accountant and/or bookkeeper is a necessity.

 

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


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


New entrepreneurs are a hearty, impressive group of people. Typically full of enthusiasm, optimism, and a willingness to do whatever it takes, they will jump into their new adventure sure of many things, unsure of a few others, and sometimes with an unwillingness to admit the difference.

 

And while that can-do attitude is great to have when you leave a job and start a new business, some things simply cannot be overcome by sheer force of will, and one of those things is the nitty-gritty analysis needed to figure out just how much it is going to cost to get your new venture up and running.

 

This info is critical to know because:

  • It will establish how much money you need to raise before you get started
  • It will help you figure out a budget and timeline for getting to profitability

 

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So, just what are those startup costs actually going to entail? They can roughly be broken down into two broad categories: Assets and Expenses. Let’s look at each:

 

1. Assets: You need to make a list of what you will need to buy to launch this business, and then estimate (to the best of your ability) what each one of these assets will cost. For example, if you are going to start a nail salon, you will need to account for the cost to build the stations, purchase the nail polish and other inventory, the cost for signage, and so on.

 

Assets businesses might find on this list include:

 

  • Computers and printers
  • Displays
  • Office supplies
  • Desks, chairs, filing cabinets, office furniture
  • Product packaging

 

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

 

2. Expenses: There are two types of expenses to account for when you start a business – one-time startup expenses and ongoing expenses. For this analysis of startup costs, they need to be treated differently:

 

One-time expenses:

 

  • Legal and accounting expenses
  • Licenses and permits
  • Website creation
  • Remodeling / decorating
  • Deposits

 

Ongoing expenses:

 

  • Marketing, advertising, and related materials
  • Rent
  • Taxes
  • Insurance
  • Debt repayment
  • Utilities, Internet, phone
  • Wages
  • Salary of owner
  • Supplies

 

Once you have all of these numbers, the real trick is figuring out how to put them together in such a way that you really know what it is going to cost to get started.

 

The first few categories are pretty straightforward. Simply come up with a grand total for the assets you need to buy, as well as for your one time-expenses. For the sake of argument, let’s say that assets will run you $10,000, and that your one-time expenses are $10,000 too -- $20,000 total.

 

The real trick is that last category – ongoing expenses. A good rule of thumb is that it will take you at least six months after you begin your venture to start turning a profit. Of course, it could be more or less, but that’s a good figure to play with as that is how long it may take to market and advertise your business, get some customers, generate income, and get paid.

 

As such, you need to estimate what your ongoing expenses will run you for the first six months. Let’s say that it will cost $5,000 a month to run your business. That means that your startup expenses will break down like this:

 

Purchase of assets:                     $10,000

One-time expenses:                    $10,000

Six months ongoing expenses:  $30,000

 

Total:                                              $50,000

 

$50,000 is how much money you will need to open the business, outfit it, and have enough money in reserve to pay yourself and keep the doors open until you turn a profit roughly six months later.

 

Word of warning: Don’t underestimate these numbers. One of the worst things you can do is start a business and run into a cash crunch a couple of months down the road because your forecast was too rosy. Be conservative.



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.

http://www.smallbusinessonlinecommunity.bankofamerica.com/people/Steve%20Strauss/content

You can read more articles from Steve Strauss by clicking here





The first few years in business can be challenging for many reasons, including money. It may take a while to learn about your industry’s business cycle for instance, or to figure out which promotions will bring in reliable income, or how to budget, and so on. Many small businesses go out of business early in the game because of such money issues and money mistakes. Learning how to deal with the finances of your business is a new – and critical – skill that you must master if you are to become an established, long-term business and a successful business owner.

 

Here are the five most common money mistakes new entrepreneurs make and how to avoid them:

 

Mistake #5: Investing in marketing without a plan. Back in the day when I was still practicing law full time, I had a client with a big problem. He had created a new, improved back support. Ergonomic, comfortable and affordable, it really was a “better mousetrap.” So my client raised some money, hired some friends, created a partnership, and away they went.

 

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One day, the VP of Marketing got an idea – if they advertised in one particular national magazine, their sales would go through the roof. The partners didn’t like it, but the VP was adamant. One day, on his own, he signed a contract for a $60,000 full-page ad.

That one decision almost put them out of business.

 

The problem was that the idea had no merit standing alone. Sure, it might have worked as part of an overall marketing strategy, with different elements that supported the ad, but that wasn’t the case. The moral of the story is that you need to create an overall marketing strategy before you sink any of your precious capital into one particular idea.

 

Mistake #4: Hiring people you don’t need. Many entrepreneurs will hire staff they can’t afford and don’t need because they think it’s necessary in order to look successful. That’s a big mistake. Labor costs can cripple any business, especially a new business.

But, that said, there are ways to bring in the help you need, affordably:

  • First, if you really need an assistant, hire a virtual assistant and only contract them for specific tasks.
  • You should also consider using independent contractors for projects rather than direct hires. You can always go back and offer a job to someone you used as a contractor if he or she was truly spectacular and if your revenue can support their salary. 
  • Along the same lines, a recent trend in business is to hire someone full-time as a temp employee, on a trial basis. If the employee passes the temp test, then you can bring them on on a more permanent basis.

 

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

 

Mistake #3: Not hiring an accountant. Most entrepreneurs stay away from even consulting with an accountant in the beginning because of the cost. This is the one area where you should not be cheap. Having an accountant on board will help make sure that the books are set up properly and that you meet all of your tax obligations.

 

Additionally, your accountant can help set up your accounting software system, such as QuickBooks. He or she can also give you some pointers about how to best use the software. Thereafter, because most software is now stored in the cloud, you can share your books online with your accountant, thus saving you time and money.

 

Hiring an accountant doesn’t cost, it pays.

 

Mistake #2: Spending too much on overhead. One of the first pieces of advice I ever got when starting my first business was, “keep your overhead low.” It remains one of the best pieces of advice too, even now. For instance, don’t rush to rent office space or equipment that you can’t afford as it will do nothing more than create a strain on your budget. A shared office (like Regus, for example) will still give you a great space, with affordable access to assistance and equipment.

 

And the No. 1 mistake new entrepreneurs make too often is . . .

 

Mistake #1:  Not having a budget. Mistake #2, high overhead, comes from Mistake #1, not having a budget. The problem for many people is that they start a business without much more than a lot of enthusiasm and a strategy like, “come up with an idea, build a store, launch a website, and take orders.” That won’t keep the doors open too long. What will keep them open is a sound plan and budget.

 

Think of a budget this way: What is your ideal plan for your money? What do you need to spend your business capital on? And what would you like to spend it on? That’s all a budget really is – your plan for your money. So make a list of business expenditures, track your expenses for three months, and then re-prioritize your assets once you see where you should be spending your money.

 

You just created a budget, and you will likely stay in business for the long haul as a result.


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.

http://www.smallbusinessonlinecommunity.bankofamerica.com/people/Steve%20Strauss/content

You can read more articles from Steve Strauss by clicking here


As I mentioned in Part 1 of this piece, Get your business funded, this is a great time to get your business funded – something I’m actually surprised that I’m writing down on paper. After all, it wasn’t too long ago that the Not-So-Great Recession made finding and getting the money you needed for a business a very difficult task. But the silver lining of the recession is that new funding options came along as a result, and what we see today is a much more robust funding landscape.

 

Consider some of the many ways available today to fund your business:

 

Bank loans: As I like to say, banks want to lend you money. They are in the business of lending money. But more specifically, they want to make smart loans to responsible people, so you have to show your banker that a loan to you and your business is just that – a smart decision.

 

So that is where you start – meet with a banker early in the process. My friends here at Bank of America have hired a lot of small business bankers in the past few years, and I suggest that you meet with one in your neighborhood to get the process started. Many people wait until they think they have everything perfectly in place to meet with their banker. I would suggest a different method – get to know your banker early in the process, so they can guide you through it and perhaps suggest ways for you to improve so that you are an optimal candidate when the time comes to request a loan.

 

Credit cards: There are two ways to do this:

  1. Many entrepreneurs have funded their business using their own personal credit cards. The beauty of this is that you don’t need anyone else to say yes. As long as you have a solid plan for paying off the loan (to yourself) in a timely manner, this is a great way to go. The danger, of course, is when you don’t stick to that plan, and you put yourself – and potentially your family – into debt.
  2. If you have a business credit card, using that to fund your business is also a viable strategy for the same reason — you are free to use the card as you wish, when you wish. If you don’t have a business credit card, this should be a good reminder to get one.

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Microloans: Maybe you need a smaller loan, or your credit isn’t great for whatever reason. In that case, you might want to consider getting a microloan. Depending on the institution, these loans can be very micro, or not so micro at all:

 

  • CDFIs (Community Development Financial Institutions): CDFIs are nonprofit financial institutions in various underserved communities that make small loans. A CDFI loan, for example, might be as small as $2,000 or as big as something in the hundreds of thousands. Google CDFI in your area to find some lenders near you.
  • Accion: Accion is another nonprofit that makes microloans to small businesses. I have heard of Accion loans in the hundreds of dollars, and of course, there are much bigger ones too.
  • Kiva: Kiva is a peer-to-peer lending platform that facilitates microloans between individuals and low-income entrepreneurs. Up until recently, Kiva worked mostly in third world countries, but it has now come to the U.S.
  • The SBA: The Small Business Administration also makes microloans up to $50,000.

 

Crowdfunding: Of the new funding mechanisms that resulted from the recession, crowdfunding tops the list. Using a platform like Kickstarter (or Indiegogo, or a hundred others), a small business can appeal to strangers to help fund the dream.

 

There are essentially two forms of crowdfunding. The first is equity-based, where you sell a piece of your company (the equity) to an investor for the funding you need. This is more challenging for most small businesses. The second is a rewards-based system, where you give someone a reward for their investment in your business. For example, a restaurant may name a dish after a crowdfunding investor in exchange for a $500 investment in the business.

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Angel investors: An angel is what it sounds like – a person willing to invest in your business. Angels come in all forms: everyone from a stranger you meet through networking to your best friend’s dad.

 

Whatever the case, angels all want to see the same thing: a plan for success. They want to know that they are making a smart investment. As such, you need to have some sort of business plan ready for them to see. As with a banker, your job is to show the angel that investing in you is the right move.

 

Partners: Maybe you don’t have the money, but a potential partner does. You can offer to team up using your idea and sweat in exchange for their money and partnership. Just be sure that you like working together and are on the same page about the vision and direction of the business.  I’d recommend trying a few projects together before partnering on a business.

 

Business plan competitions: Many communities around the country are now creating competitions with cash prizes in an effort to lure and incentivize entrepreneurs.  A Google search can help you find one in your neighborhood.

 

So yes, today there are a lot of ways to Get Your Business Funded.


 

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.

http://www.smallbusinessonlinecommunity.bankofamerica.com/people/Steve%20Strauss/content

You can read more articles from Steve Strauss by clicking here



 


Recently, I have been speaking at a great series of events called Access to Capital, put on by Dun & Bradstreet Credibility Corp. and sponsored by (among others) Bank of America. Every event is sold out, and for good reason: Entrepreneurs need access to capital.

 

It doesn’t matter where they are in the life cycle of their business. We meet entrepreneurs with nothing but a twinkle in their eye of a business they want to create down the road, and we meet seasoned vets who have multi-million dollar enterprises and need funds to keep the dream growing.

 

What is so interesting about the funding game these days is that there are just so many options available - many that folks don’t know about. That is one of the things we try and accomplish at these events – to teach people what their options are and how to get funded.

 

Let me drill down on that second issue first - getting your business ready for funding. It seems almost laughable, doesn’t it? Yes, I can hear you now: “Steve, don’t worry about that one. My business is definitely ready for some funding.”

 

But that’s not what I am referring to. What I mean is that if you want to get your business funded (using one of the options I outline in part 2 of this series), then you have to make sure your business looks as solid as possible to outsiders. That is how you “get ready” to get funded.

 

The fact is, banks want to lend to you. That’s their business. But even so, any business loan carries  a degree of risk. With that in mind, it is your job to make it easy for the bank to say yes to you, and you do that by showing them that the risk of investing in you is minimal and that lending to you would be a solid, smart decision.

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It is so important to meet with your banker early in the process. He or she can review your business plan, your P&L statements and so on and give you feedback on what else you might need to get that ‘maybe’ turned into a ‘yes.’

 

Whether we are talking about funding from a bank, an angel investor,  a VC, or even Uncle Joe, as a general rule there are several things that lenders and investors look at when deciding whether or not to help fund a business. Here are the four main things you will need to drill down on before you ever pitch your funding request:

 

1. A solid business plan: No matter whom you go to to get funded, they will want to see your business plan. What is your marketing strategy? How will you deal with the competition? Where do you see your business going in the next five years and how do you plan on getting there? Those are the things you should cover in your business plan. Use it to show others that you really understand your business and industry and have a solid strategy for success.

 

2. Your team: Whenever I speak with angel investors, the one issue they inevitably fall back on is the team. Has the entrepreneur surrounded him or herself with the right people who have the experience and know-how to execute on the idea?

 

This cannot be underestimated. Yes, of course the lender or investor will look at your financials (as well they should), but they also care about the people behind the business. If you have smart, sharp, capable people on your team, the investor knows that you are doing something right. And if these smart teammates have bought into your plan, it makes it easier for the investor to do so as well.


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

 

3. Your financials: You may be tempted to use pie-in-the-sky numbers in your business plan to impress an investor, but don’t. Experienced businesspeople can see through inflated numbers immediately and, in the next moment, will conclude that either

 

  • You don’t really know what you are doing, or
  • You probably are not to be trusted

 

If you need to make financial projections, make solid projections based on real numbers.

 

4. Your skin: People want to see that you have some skin in the game too. They don’t want to be the only people taking a risk. Have you invested your own money? What is your sweat equity worth? Statistically, by having your own money invested in the venture, you are far less likely to fail than if it is funded entirely with OPM (Other People’s Money).

 

Next week: The many funding options available to you these days.

 


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.

http://www.smallbusinessonlinecommunity.bankofamerica.com/people/Steve%20Strauss/content

You can read more articles from Steve Strauss by clicking here


Steve Strauss

The B Word

Posted by Steve Strauss Apr 28, 2014

It is safe to say that people start businesses for many different reasons:

 

  • Maybe someone loves doing something so much that he just had to take a risk and build a business around that passion
  • It might be someone who always longed to be her own boss and when the opportunity arose, she took it
  • It may be that they are what we call “accidental entrepreneurs”- people who lost their job, whose unemployment ran out, and who had no other choice

 

Whatever the reason, you can safely assume that all different types of entrepreneurs have one thing in common: They probably didn’t go into business because they love crunching numbers and making budgets (unless, of course, the entrepreneur is an accountant, but I digress.)

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But budgeting is one of those things that business people usually learn to do, sooner or later, because they have to, because staying afloat and being professional requires it. For newer businesses especially, budgets are often something to be endured at best and avoided at worst. Since there are so many other things to do in the start-up phase, projecting and budgeting can easily be put off for another day.

 

However, that is a big mistake. Think of it this way – would you ever get in your car, put a bag over your head, and drive off? Of course not. With a bag over your head, you would never know if you were headed in the right direction, you couldn’t see any dangers down the road, and you wouldn’t even know if you had enough gas to get where you wanted to go.

 

That is exactly the same situation when you run a business without a budget. Without a budget, you might have a vague idea of your cash flow, profitability, and money situation, but you don’t really know if you have enough money to get where you want to go. Creating a budget allows you to take the bag off of your head, get your bearings, and head in the right direction with the confidence you need to make smart decisions.

 

Often, new entrepreneurs learn about budgeting the hard way. In the early stages of a business, cash flow is usually an issue. Money comes in, some bills get paid, others don’t, and budgeting for the future is put off. The problem is that with cash flow so erratic, the new entrepreneur without a budget has no tool to help him or her analyze how best to use their money. Should they invest in that Google Adwords campaign, and if so, how much? Can they afford to hire that independent contractor? Without a budget, it is really tough to know.

 

Let me also suggest that another reason why many small business people put off budgeting is simply because of the word itself: “budget.” Not a lot of people like that word, entrepreneurs especially. Budgeting often connotes restriction, and especially with the freedom that entrepreneurship can bring, constraint can feel alien.

 

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


So consider this instead: Substitute the word “plan” for “budget.” Because, really, that is all that a budget is; it is your financial plan for your business. Would you like to grow your business this year? Great, then you probably need to spend more on advertising and marketing. Make that part of your plan. Are you spending too much on labor? OK, make that part of your plan too.

 

Here is the easy way to do it: For three months, track all of your spending. Create as many categories as you can and faithfully record where you are spending your money right now. There are many excellent software programs you can use, such as Quickbooks, Peachtree, or Freshbooks. You could also simply create a spreadsheet using Excel.

 

Then, analyze the data. By taking the paper bag off of your head and seeing where you are headed, you will be better able to make a course correction. Want to spend more on new equipment? Then maybe you can cut back on transportation costs. Perhaps you see that you are spending too little on labor, or too much on insurance. Whatever the case, by analyzing your spending you will now be able to make smarter, better, more informed decisions.

 

If you are unsure how much to spend on different categories, ask yourself these two questions:

  • How much do you need to keep the doors open? (rent, labor, taxes, insurance, etc.)
  • What spending will give you the biggest bang for your buck?

 

In the beginning, this is a matter of trial and error, but after a while you will see what works best for you and your business. Double down on that.

 

After all, it is your budget – err, I mean plan – and you can use your money however you want.

 

 

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.

http://www.smallbusinessonlinecommunity.bankofamerica.com/people/Steve%20Strauss/content

You can read more articles from Steve Strauss by clicking here






There are many things to handle when you own a business: Of course, you need to be on top of sales, inventory, and advertising. You also probably have your hands full with everything from shipping to social media marketing to labor issues.

 

So, when was the last time you monitored your business credit?

 

If you are like most small business people, you haven’t done it in quite a while. While that’s understandable, it is also a mistake - and a potentially costly one at that.

 

Example: Joe owned a computer repair shop for many years. It was an established and successful business, so he never thought much about business credit. He ran his business off of his profits.

 

Then the recession hit, and Joe’s business took a dive. The problem for Joe was that because he had been ignoring his business credit for so long, when he needed a short-term line of credit to tide him over, he couldn’t get it.

 

It turned out that for many years, inaccurate derogatory information was being reported to Joe’s business credit profile. A company with a similar name to Joe’s business had hit hard times too, started paying its bills late, and eventually filed for bankruptcy. All of that was, unbeknownst to Joe, mistakenly being reported onto his business credit report. Since Joe had not been monitoring his credit, he never caught the mistake, and when the time came for Joe to use what he thought was stellar credit to help his business, it was almost too late.

 

It took six months of letters, documentation, and acrimony before the errors were discovered and corrected, and in that time, Joe almost went under.

 

Don’t think that Joe’s experience is unique, because it’s not. More than one billion pieces of information are reported to personal and business credit files every month, so there are bound to be mistakes. The way the system is designed is so that it is incumbent upon you to make sure your credit profile is correct. It is your responsibility to check your credit, no one else’s.Steve-Strauss--in-article-Medium.png

 

Up front, it is important to note that your business credit should not be the same as your personal credit, although for a lot of small businesses it is. Most people start their business with their personal credit, at least partially. However as soon as you can, you need to separate the two. The way to do that is to set up a separate and distinct credit profile for your business. You do so by getting a taxpayer ID number from the IRS, and then a DUNS number from Dun & Bradstreet Credibility Corp.

 

You may also need to review your personal credit profile. You are allowed by law to receive a free personal credit report, once a year, from AnnualCreditReport.com.

 

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


Monitoring your credit report(s) allows you to:

 

Find and correct false information: As Joe’s cautionary tales exemplifies, you must monitor not only your personal credit profile, but your business profile as well.

 

There are any number of things that can be inaccurate on your business credit profile:

 

  • Someone else’s bad information showing up on your credit report as yours
  • Debts that are not yours being reported as yours
  • Omissions of your good payment history
  • Not having false or outdated information being removed after 7 to 10 years, as the law generally requires

 

And the beat goes on. It is vital therefore that you closely monitor your DUNS report so you can catch errors before they hurt your business.

 

Avoid identity theft: In this era where even large corporations can get hacked, it behooves all of us to keep a very watchful eye on our credit report. According to a study by McAfee, 60% of small business that are a victim of identity theft never recover and go out of business within six months.

 

Get the credit you deserve: The point of all of this monitoring is to make sure that your business credit report accurately reflects that you pay your bills on time, because once it does, it also shows potential lenders and investors that your business is a good risk. The likelihood that you will get the credit you need grows with each positive entry on your credit report.

 

Thus, by regularly monitoring your credit profile, paying your bills on time, and keeping your debt low, you may be able to get a good loan at a reasonable rate when you need it.



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.


http://www.smallbusinessonlinecommunity.bankofamerica.com/people/Steve%20Strauss/content


You can read more articles from Steve Strauss by clicking here






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