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Credit & Lending

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There are several types of loans available from the Small Business Administration. In part 2 of our 3 part series, discover all the loan choices at your fingertips, so you can do your due diligence and select the one that’s perfect for your business.  You can also read Part 1: "An Overview of  SBA Loans" by clicking here.

 

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Similar Content


An Overview of SBA Loans - SBA Loans Guide Part 1

Getting a business loan in six steps

How Your Personal Credit Impacts Your Business Credit

What Small Business Owners Should Know about Today’s Lending Environment

Lending options for small business owners

Small Business Checking

Watch the video below to see a brief comparison of the different lending products and features, to help you understand how credit options can support every stage of your business journey.

 

SBC Team

The 5 Cs of Business Credit

Posted by SBC Team Jul 12, 2016

When it comes time to secure financing for your small business, it’s important to know going in what lenders are looking for. And while it’s true that many lenders have their own unique underwriting requirements, most follow “The 5 Cs.”

 

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Click here to download a PDF of this content.

Better credit means bigger possibilities. Improving your company’s credit score can help you take full advantage of the opportunities that arise as your business grows.  Learn the ins and outs of building a solid foundation of good credit history with our infographic, Building Credit for Your Small Business.

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Click here to download a PDF version of this infographic.

Inc-Article-Logo.gifFor small business owners, strong personal credit is essential to obtaining business credit, so keep tabs on your credit score and clean up any errors

 

Most consumers know that their ability to borrow money is heavily influenced by their credit score, but maintaining a high score (and staying abreast of changes in how scores are determined) is even more critical for entrepreneurs, who often don’t know that their ability to borrow for their business is linked directly to their personal credit. While credit scores can seem like a black box, there are steps that business owners can take to monitor and potentially improve their credit scores.

 

“Credit scores are a dynamic interpretation of several conditions around consumers’ performance and access to credit, and those are subject to change and adjustment at the whim of FICO,” says Charles Green, managing director of the Small Business Finance Institute and author of Banker’s Guide to New Small Business Finance (Wiley Finance, 2014).

 

A prime example is FICO’s launch of FICO Score 9 in 2014, a revised formula that excluded medical debt. Entrepreneurs with outstanding medical bills could see their credit scores rise by 25 points under this new formula, which could make their applications for business loans more credit-worthy.

 

Credit scores depend on a number of factors, including a consumer’s past record of payment, how much of available credit a consumer uses and borrowing patterns, Green says. Borrowing patterns include how many credit applications you file in a given period and are weighed based on how many applications are made in a specific period of time.

 

It’s also important to understand how the various factors that tie into a credit score are weighed. For example, FICO weighs revolving credit such as credit cards more heavily than term loans such as mortgages, car loans, and student loans in their scoring methodology, according to Green.

 

Because growing businesses often struggle to maintain predictable (and sufficient) cash flow, it can be extremely advantageous to maintain a high credit score so that business credit can be accessed at favorable terms when needed. Toward that end, Green notes that the bottom line in maintaining a clean credit report and high credit score involves:

 

  • Monitoring your credit report regularly by requesting a free copy annually from all three major sources (Equifax, Experian, and TransUnion), and obtain an additional copy just before applying for any type of credit, especially business credit.
  • Fixing any mistakes by reporting them in writing to the credit bureaus, who must then investigate the issue and confirm the erroneous information with the source.
  • Making all credit card, mortgage, and loan payments on time.
  • Moderating your borrowing and maintaining lower balances on revolving credit accounts.

 

  • Employing a strategic approach toward credit card use, including how many cards you have and closing out unused cards properly. (Keep a hard-copy of correspondence with credit card issuers verifying that the account had a zero balance and was in good standing at the time it was closed.)

 

By maintaining a clean personal credit report and monitoring that report regularly, you’ll ensure that you have the highest personal credit score possible, which can prove to be one of your business’s most precious assets.



 

Bank of America, N.A. engages with Inc. to provide informational materials for your discussion or review purposes only. Inc. is a registered trademark, used pursuant to license. The third parties within articles are used under license from Inc.. 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.

 

©2015 Bank of America Corporation

Inc.

How to Assess New Lending Sources

Posted by Inc. Sep 24, 2015

Inc-Article-Logo.gifAs the universe of available financing options expands, small business owners need to do their homework.

 

At the peak of the Great recession many small business owners worried that they had no lending options at all. How things change. Today not only are traditional lenders ready to provide financing, but so too are a wide variety of nontraditional sources.

 

But all those choices don't necessarily make borrowing easier. To make the smartest choice for your company you'll need to invest some time in assessing the pros and cons of each option before signing on the dotted line.

 

“Before taking out a loan, the small business owner should thoroughly understand why they need the money and what their options are in terms of getting that financing,” says Steve Milan, a partner with Fuse Financial Partners in Charlotte, NC. “There are a great many sources of alternative financing, but the terms can be very confusing and may ultimately be quite expensive.”

 

Who's Lending to Whom, and Why?

 

As more investors enter the lending market in pursuit of higher returns, alternative lending sources are increasing rapidly. Here are a few of the much-talked-about options that you may want to explore:

 

  • Microloans: Small Business Administration Loans ranging up to $50,000.
  • Crowdfunding: Through online platforms, business can raise money for the development and/or launch of new products and services.
  • Peer-to-Peer lending: Pairs investors with business owners in need of capital.
  • Merchant Cash Advances: Advances funds based on future debit and credit card receivables.
  • Factoring: Loans made on outstanding invoices.
  • Asset-based lending: Loans based on assets such as inventory or accounts receivables.

 

For the most part, alternative lenders make loans based either on assets or cash flow, Milan says. The major advantages of alternative financing is that it makes available funds for businesses that don’t have the track record, assets, or cash flow to qualify for a traditional bank loan. The major disadvantages are the fees and interest rates.

 

“There’s financing available for small business owners who need it,” Milan says. "The trick is that such financing is confusing and expensive. The terms can be difficult to figure out because of the combination of interest rates and fees.”

 

When evaluating financing options, take a hard look at the interest rate and make sure you have a full understanding of all fees. Think about how much the loan will cost you in total so you can decide whether it's a wise move. Also keep in mind that the time from when you apply for a loan to when you receive the money can vary by type of loan source and the individual lender.

 

Milan notes that rates and fees vary widely. Peer-to-peer lending rates, for example, run from 5.9 percent to 36 percent annually. Asset-based loans tend to end up in the low teens once you combine the interest rate and fees.

 

"It makes sense for small business owners to consider alternative lending anytime they need financing but a traditional bank loan is not the best option," Milan concludes. “The first step is to consider why the financing is needed and then conduct a profitability and cash analysis. Once the small business owner knows what types of financing are available, then it’s time to compare costs and terms and decide which route to pursue.”

 

 

 

 

 

Bank of America, N.A. engages with Inc. to provide informational materials for your discussion or review purposes only. Inc. is a registered trademark, used pursuant to license. The third parties within articles are used under license from Inc.. 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.

 

©2015 Bank of America Corporation

By Joe DiNicola, Bank of America Practice Solutions executive

 

 

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Access to capital is a vital component of growth for small businesses. While credit demand was lower in the years immediately following the 2008 recession, the lending market is much more fluid now. According to the spring 2015 Small Business Owner Report, 39% of small business owners said they have applied for a loan in the past two years, up from 28% a year ago. In addition, 19% of small business owners intend to apply for a loan this year, compared with 14% a year ago. And these numbers are even higher among younger small business owners.

 

In light of the importance of access to capital for small business owners, this month’s installment of the Bank of America Small Business Social Series discusses how to help entrepreneurs prepare, negotiate for and secure capital.  Click the video below to watch.

 

 

Carol Roth, author and CNBC personality, hosted the discussion. Participants included myself, as well as Barbara Weltman, Publisher of Idea of the Day® and Big Ideas for Small Business®, and Steve Strauss, author and small business columnist for the USA TODAY.

 

We hope you’ll watch! You can also check out previous Google Hangouts which have covered finding balance, tax tips, women and small business and more.

The small business lending environment is improving. Preparing a strong case will enhance your ability to secure financing.

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With interest rates still low and the economy improving, business lending is on firmer footing than at any time since the financial crisis. That means that businesses with sound financials, a comprehensive plan, and a thoughtful approach to the lending market are well positioned to secure the financing they need.

 

Preparation is essential, however, says Neil Berdiev, author of The Loan Financing Guide for Small Business Owners. “There are several key questions that you should be able to answer before you approach a bank: how much money do you need to borrow, why do you need to borrow the money, and when and how do you plan to pay the money back?” he says. “If you know your financials and what is driving your business results, and you are well prepared, you should be in good shape when you meet with a lender.”


Gathering the right documentation

Whether you bring your financial information with you to a meeting or email a packet immediately after, preparing at least three years of financial statements that demonstrate a history of profitability is a great place to start with your documentation. For a smaller, less well-established business, providing a thorough business plan can demonstrate to a lender that you’ve put careful thought into where you want the business to go and provide the context for the financing you seek. A marketing plan, cash flow projections, an analysis of your position relative to competitors, and even a succession plan can also be helpful in making your case for a loan.

 

The Small Business Association (SBA) notes that most lenders require small business owners to provide a personal credit history, personal financial statements, and personal guarantees from all principal owners. “Ensure your personal credit is in good shape by monitoring your credit report and regularly requesting your credit score,” Berdiev says. “Also watch how much other credit you have outstanding, because financial institutions are not going to want to go over a debt-to-income ratio of 36 to 40 percent.”


Choosing the right lender

Banks, credit unions, and community banks serve different markets and make loans of different sizes, so it makes sense to study the market before you approach a specific institution, says Berdiev. “If you’re plugged into a network of business owners who you trust, they can probably tell you which institutions make the size of loan you’re looking to get,” he adds. “Your accountant or attorney is another good resource.”

 

Beware of approaching just one institution based on a recommendation, however, because the friend or colleague who had a good experience with a particular lend may be in a much different situation than you are. One way to get a good sense of the entire market and what institutions may be in play for your type of loan is to call a number of commercial loan officers at area financial institutions. With some basic information in hand from all these resources, you’re in a better position to decide which lenders to approach.

 

 


Bank of America, N.A. engages with Inc. to provide informational materials for your discussion or review purposes only. Inc. is a registered trademark, used pursuant to license. The third parties within articles are used under license from Inc.. 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.


©2015 Bank of America Corporation


Inc.

Understanding Debt Restructuring

Posted by Inc. Jun 24, 2015

Body_FileFail.jpgWhen loan repayments become a problem, the key is to take action before your small business faces a crisis.

 

As economic indicators continue to strengthen and access to credit eases, more small business owners are assessing their financing options. But borrowing always presents an element of risk, and it’s wise to educate yourself in advance about how to manage your debts if your small business experiences slower than projected growth, a change in cash flow patterns, or market changes that create debt repayment challenges.

 

You may already be familiar with the benefits of refinancing to obtain more advantageous credit terms. But debt restructuring is a more complex matter: rather than a means of improving terms, it is a strategy for pulling a company out of crisis. Charles Fraas, principal owner of Fraas Advisory Services, explains that there are four ways to exit from a debt crisis: you can improve your company’s performance, sell some of its assets to generate cash, secure an outside investment, or negotiate a loan restructure.

 

Identifying problems, averting crisis

“Knowing that those are the only options, the first step in figuring out how you’re going to resolve a debt problem or prepare yourself to resolve a debt problem is to understand what your business can produce and why it is not producing,” he says. The next step is to weigh your options for resolving the problem. “You either are going to have to cut expenses, somehow squeeze out profitability from some other part of your business, or grow your business. If you don’t do one of those things, you’re going to have a debt crisis on your hands.”

 

A further complication for many small business owners (particularly sole proprietors) occurs when the business loan is backed by a personal guarantee. Fraas cautions that this can make debt restructuring “a much more limited option” because the lender may prefer simply to seize the assets of the person who backed the loan. But it may still be possible to present other solutions for the lender’s consideration.

 

Contingency planning and collaboration

If you anticipate—or are already experiencing—a problem in meeting your debt repayment obligations, Fraas advises that you develop contingency plans before you address the matter with your financial institution. “Banks for the most part do not want to call a loan, do not want to have to grab the collateral. That is an expensive, messy process,” he says. “It is up to you, though, to bring in a very good plan and explain to them what the expectations are for repayment. You don’t want to ring an alarm bell until you really know what you’re going to need from the bank.”

 

It’s equally important to understand what the bank needs from you, such as a demonstration that the plan you’re presenting will generate sufficient free cash flow to allow you to meet your debt obligations. “That is the gauge of whether or not you will be able to satisfy your debts,” Fraas says. 

 

The goal is to preserve your relationship with the lender and gain an ally in bringing your company to full recovery. By presenting a practical plan and delivering on your restructured commitments, you can avert a debt crisis, and in partnership with your lenders, put your company on a path to restored stability and prospects for long-term success.

 

 

 

Bank of America, N.A. engages with Inc. to provide informational materials for your discussion or review purposes only. Inc. is a registered trademark, used pursuant to license. The third parties within articles are used under license from Inc.. 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.

 

©2015 Bank of America Corporation

Bizloans_Body.jpgFor small business owners, it’s essential to get input from trusted advisors to plan strategic use of lending options and promote optimal growth

 

As a small business owner, you’re constantly dealing with immediate demands and day-to-day operations that can consume all your energy and distract you from your long-term goals. Putting out all those fires, however, often causes business owners to lose track of their long-term financial position and requirements. Have you taken the steps necessary to ensure that your lending strategy and plans align with and support your performance and growth targets for the company?

 

Plotting a lending roadmap is essential not only to achieve sustained growth, but also to ensure that you can meet your short-term lending needs. “You start at where you want to end up, and then plan your steps to get to that point,” says G. Scott Haislet, a CPA and tax attorney in Lafayette, California. To do that successfully, you’ll want to enlist the assistance of trusted advisors who can offer insights, challenge and test your assumptions, and provide an independent outside perspective on the lending component of your plans for small business growth.

 

Managing costs and maximizing assets

For example, they can help you to examine your current borrowing practices in the context of your long-term objectives. Could you do a better job of separating your business and personal credit histories and establishing a stronger credit record for your small business? What market opportunities might arise that could spark a growth spurt at your company, and in that scenario, would your current lending options be able to keep pace? Even if you don’t need access to a greater amount of financing today, what can you do now so you’re ready in advance when that need arises? Working with your accountant and financial services provider can help you determine the most accurate and profitable answers to those questions.

 

Similarly, they can work with you to optimize the use of your existing credit and financing resources. For example, if you’ve been planning to take out a loan for the purchase of equipment or vehicles, they can help you calculate whether it would be more productive to finance those through leasing. That would allow you to conserve your available or prospective credit for longer-term needs.

 

Moving from transactions to trust

To get this level of input, you need to nurture relationships that are advisory in nature, not merely transactional. “Find an accountant who’s willing to take an interest in not just the numbers or tax strategies in the business,” Haislet says. “You might have a relationship with an accountant who does financial statements for you, not just tax returns. The financial statement should have some value not just because the bank needs it for a loan covenant, but also as a management tool.”

 

Building these relationships with your accountant, financial services professional, and other advisors takes time, but the return on the investment can be significant. By incorporating independent perspectives and insights into your lending and growth plans, you position your company to make the most of its opportunities for long-term profitability, growth, and sustainable success.

 



Bank of America, N.A. engages with Inc. to provide informational materials for your discussion or review purposes only. Inc. is a registered trademark, used pursuant to license. The third parties within articles are used under license from Inc.. 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.

 

©2015 Bank of America Corporation


Overlooked_Tax_Deductions_body.jpgby Robert Lerose.

 

Specialists are fond of saying that tax planning should be done throughout the year, not just as April 15 hurtles toward us. Although some small businesses might rely on an outside tax preparer or accountant to guide them, business owners still need to stay informed about changes to the tax code to claim all the deductions they are entitled to, and to make prudent decisions regarding their business overall, such as hiring a new employee or buying a major piece of equipment. Some small business owners may unwittingly shortchange themselves when it comes to "obvious" tax deductions, like home office expenses, because they don't fully understand the requirements or are fearful of an audit. We consulted with a variety of tax specialists to find out about some write-offs that small businesses overlook or don't maximize.

 

Hire family members

"A home office deduction can be pretty valuable," says Damon Yudichak of Yudichak CPA PC, a Wake Forest, North Carolina-based full service tax and accounting firm. "In the past, there's been a lot of fear that the IRS would audit small business owners because they had a home office, but it's a legitimate tax deduction."

 

To be eligible for the deduction, a home office needs to meet certain requirements. For example, it must be the primary location where you conduct business and the space must be used exclusively for business purposes—eight to 10 hours a week at a minimum, Yudichak says. Small business owners who qualify can deduct a portion of their regular household expenses, such as mortgage interest, property taxes, homeowners insurance, and utility bills.

 

According to Yudichak, the IRS allows two ways for calculating how much of those monthly expenses you're entitled to deduct. One method is to figure out what percentage of the total square footage of the house is taken up by the office and use that percentage as a basis to deduct expenses accordingly. The second method is "where you take your square footage and multiply it [by an amount set by the IRS]. In 2013, it was $5 a square foot," he explains. "Make sure you take pictures and document everything," such as accurate copies of your monthly bills and other deductible expenses.

 

Another overlooked tax write-off is to employ members of your family in your business, particularly children. Yudichak says that you can hire your children over the age of 7 and pay no federal income tax on the first $6,200 of their earnings for 2014. State income tax varies, but small business owners can still come out ahead. In Yudichak's home state of North Carolina, the first $3,000 of wages is not taxed. Children that work for a sole proprietorship or a partnership are also exempt from paying Social Security, Medicare, or federal employment tax.

 

Since each business entity—a sole proprietorship, partnership, C corporation, or S corporation—has its own advantages and limitations, choosing the right set-up is essential for tax planning and should be made in consultation with a tax advisor. Yudichak begins by interviewing the small business owner "to know what their goal is and the type of business it is. Those are the big things that I look at. Otherwise they could choose the wrong business entity and pay unnecessary taxes."

 

Talk early and often

Sometimes a small business misses a tax write-off simply because they fail to maintain frequent contact with their tax advisor.

 

"There are a lot of little items—$100 here, $200 there—that add up to thousands that people don't realize they can deduct," says Jerry Michalowski of Gerald H. Michalowski, CPA, a Torrington, Connecticut-based firm providing accounting, tax, and payroll services. "They don't communicate with their tax people enough to tell us what they're doing so we can make suggestions." For example, when Michalowski had his own home office and his hot water heater had to be replaced, he was able to deduct 40 percent of the unit's cost—a sizable write-off that some home-based business owners might have overlooked on their own.

 

Overlooked_Tax_Deductions_PQ.jpg

Small businesses should consult with their tax experts whenever they're thinking about making a major financial decision. For example, one of his clients hired a veteran and then asked Michalowski if there were any tax breaks. There were—but because the small business had to file for them before the veteran was hired, they lost out on a $3,000 credit.

 

Michalowski cautions that "there are a lot of areas of gray" in the tax code that are open to different interpretations. Small business owners should work with a tax preparer that is informed and forthright about these issues and then decide between the two of you about the best way to go forward. 

 

Set up a SEP

Even otherwise astute small business owners may not be familiar with certain types of common or ordinary business deductions. "I've had people who tell me that they want to do a section 179 and other people who have not heard about it," says Brian Walsh of Brian Walsh EA, a Ramsey, New Jersey-based tax, payroll, and accounting service, with over 50 small business and self-employed clients.

 

In the case of section 179, it allows a business to deduct the full expense of a capital item—such as the purchase of a small truck by a construction firm—in one year, instead of writing it off over time, provided that the business made a profit that year.

 

Another strategy for small businesses that wish to lower their profits and cut their tax bill is to open up a Simplified Employee Pension Plan (SEP). Small business owners can put up to 25 percent of their compensation in the account, up to a certain limit that changes every year—but they are also required to make contributions to the SEP accounts of their employees as well. "They don't necessarily have to make the maximum contribution to the employees' accounts, but the contribution still ends up being a deduction for the small business," Walsh says.  

 

Small businesses that haven't set up a SEP account for 2014 can still put one in place for last year, Walsh says, by filing "an extension for the tax return and then setting the plan up during the extension time period to make a contribution. I think it makes the small business owner look like a hero in terms of making a contribution to the employees and basically saying to them that their services are valued.”

 

Disclaimer: Since the details of your situation are unique, you should always seek the services of a qualified financial planner and tax advisor.

 

DIY_Taxes_body.jpgby Erin O’Donnell.


Small business owners are used to juggling several roles at once. But financial experts say doing their own business taxes should not be one of them.


Do-it-yourself software such as TaxAct and TurboTax has simplified the paperwork and process of tax time for many Americans. The programs are good at walking taxpayers through the forms with plain language and checking for omissions.


But bookkeeping and taxes are time-consuming. And business owners who do their own taxes aren’t saving a tremendous amount of money. In fact, they might do just the opposite by chipping away at time spent on growing the business, or even triggering an audit because of mistakes, says small business tax expert Barbara Weltman.


“The thing with software is that it does take time, and many business owners don’t have the time,” says Weltman, author of J.K. Lasser’s Small Business Taxes. “Those people probably are better advised to use a professional just to get it done.”


Turning it over to the pros

The cost of tax preparation for business owners varies by the number and complexity of the forms they must file. According to the National Society of Accountants, these are the current national averages their members charge to file business-related tax forms:


  • $273 for an itemized Form 1040, with Schedule A and a state tax return
  • $174 for a Form 1040 Schedule C (business)
  • $634 for a Form 1065 (partnership)
  • $817 for a Form 1120 (corporation)
  • $778 for a Form 1120S (S corporation)


Compared to tax software that costs less than $100 and can be done on an iPad, the price can seem steep. So what do you get in return for using a professional?


For Brian Schutt, owner of Homesense Heating and Cooling in Indianapolis, it’s confidence that the job has been done right.


“While my partner had a finance degree, he wasn’t necessarily a tax professional,” Schutt says. “From day one we tried to recognize our blind spots and find strategic partners to help.”


When they launched Homesense in 2009, Schutt and his partner handled a number of tasks themselves to keep overhead low. But they didn’t want to risk making financial mistakes. So they hired a full-time bookkeeper, then added an outsourced CFO and tax accountant.


Being as accurate as possible when it comes to taxes takes priority, Schutt says. “You don’t have to be at 100 percent as a receptionist to be able to wear that hat for a while,” he says. “But you can’t get your taxes 80 percent right and expect it to be all right with the IRS.”


A DIY approach

Some small business owners prefer the control of doing their own taxes. Bryce Avery works out of his Denver-area home writing questions for quiz bowls and standardized tests, writing patents, and doing technical writing. Avery Enterprises, which he set up as an S Corporation, employs a handful of contractors; the only other employees are Avery’s children.


Avery has always done his own home and business taxes; recently he has used the fillable forms on the IRS website. He says his math and engineering skills are sufficient, and he kind of enjoys doing his taxes. “I hate to pay people to put numbers in boxes because I can do it myself,” he says.


Avery doesn’t have much overhead. He reports the same salary every year. And his business makes less than $100,000 a year, so doing his own taxes is easier than a business with a lot of inventory to track or equipment to depreciate. Still, he has made at least one major error. A mortgage broker was the first to notice that he hadn’t entered his S Corp income correctly on one year’s return.


That could have triggered and audit, which can be expensive. Accountants charge an average of $144 an hour to handle the audit, according to the National Society of Accountants. And that’s on top of additional taxes owed or penalties.


Get a second opinion

There is a middle ground that Weltman says appeals to a growing number of business owners. They like to enter their own data into their choice of tax software, but then turn to a tax professional for a review before filing.


This strategy can give you insights to adjust your tax situation or spending through the year to come, she says.


“You will be more engaged with your year-round spending by going through your taxes yourself,” Weltman says. “It brings home what you paid for things throughout the year. When someone else does it, you may just sign it without going through it line by line.”


Weltman, who is also a tax and business attorney, does do her own taxes. But she adds that she probably stays on top of tax law changes more than the average business owner in order to serve her own clients.


DIY_Taxes_PQ.jpg

Get tax advice all year long

Financial advisor Robert Palidora believes that developing a good relationship with an accountant or tax preparer gives you an advisor for all seasons, not just at tax time.


Palidora, a Pennsylvania-based financial consultant with AXA Advisors, owned a small retail business for 25 years before changing careers. He notes that even the most detailed software is only as good as the records you keep and the data you enter. An accountant can help a business set up bookkeeping software such as QuickBooks correctly to categorize expenses and income.


Good recordkeeping is especially important once you have employees, Palidora says. “The minute you have the responsibility of payroll and people working for you, it’s kind of a disservice to yourself and everyone else to think that you can handle this work over the Internet,” Palidora says.


Business owner Schutt says he likes having multiple layers of oversight on his finances. If only one person is watching the books, there’s a greater risk not only of mistakes but misappropriation. Plus, using an outside tax preparer helps shift liability away from yourself.


“Having that trust gives us the peace of mind to operate in our areas of greatest strength,” Schutt says. “When you’re a lean startup, that’s essential.”

Price_Increases_body.jpgby Erin McDermott.

 

How do you break the news to customers that you’re raising prices—and still keep them on board?

 

It’s an uncomfortable task, coming after every margin has been squeezed, every cost has been absorbed, and all alternatives are exhausted—and it’s especially tough for small business owners who know all too well that every penny counts when it comes to going up against the competition.

 

Yet companies of all sizes have had a lot of practice with this lately. Forecasters are predicting an increase of 3.5 percent in food prices for American consumers this year, up from 1.4 percent in 2013. Among the reasons: water shortages in California that are anticipated to push fresh vegetable prices up an additional 3.5 percent on top of last year’s 4.7 percent increase, according to the U.S. Department of Agriculture. (And bad news for many sleep-deprived entrepreneurs: coffee futures have surged nearly 70 percent since the start of 2014, largely because of drought conditions in Brazil.)

 

Combined with the rise in other agricultural commodities, industrial metals, new taxes on gasoline in several states, and the ups and downs of fuel prices, there’s plenty of angst among small business owners about how much more clients are willing to pay.

 

Here are a few tips on how to handle the leap:

 

Explain why you’re doing it

First, think about who your audience is. Is this a B2B relationship, in which a client might already be well aware of market changes that are affecting prices? Or is this a B2C situation, where customers aren’t necessarily steeped in your industry’s trends and might need some extra consideration? In either case, your wording needs to be clear and concise: Costs to produce a product or service have gone up, and you are forced to raise your prices. Then shift the conversation: Remind customers that even though your price has increased, the value of your product or service justifies the higher cost.

 

Price_Increases_PQ.jpgBe careful with the details

The best thing you can do is be honest, but pass on only relevant information. Steer clear of touchy issues that may have contributed to the decision, particularly anything involving politics, government policies, cultural issues, or anything that might turn off customers with opposing beliefs, including the divisive implementation of the Affordable Care Act or taxes. But if the reasoning is unavoidable, use neutral statements that don’t blame, complain, or urge action. One good example: Leck Waste Services, a suburban Philadelphia garbage hauler, told customers that Pennsylvania’s new increase in gas and diesel taxes meant a surcharge would appear on quarterly bills starting in January. Its announcement listed every effort at efficiency the company had instituted, directed users to a website with the text of the legislation—and actually helped educate customers, too: Did you know garbage trucks get an average of only 4.2 miles per gallon?

 

Think about sales psychology

Give customers a few options. Maybe set a date for when prices will rise and offer the “deal” of a lower rate up until that time. Another: Offer to lock in prices for a year if customers buy a specific number of products or commit to a certain time period for your service. Or aim the increase at new customers only.

 

With technology, you can test what the market might bear with actual clients. Jared Lazaro and his girlfriend are using that approach at the yoga studio they operate together in Grand Rapids, Mich. For example, for a beginner’s level class, they tested two price points in an email to customers: $69 and $79. Using Leadpages.com’ landing-page generator, they showed half of their email list one price and the other half the alternate price. “The same number of people clicked on both offers in the test, so we went up to the $79 offer for everyone else who looked at the page. If we hadn't tried the more expensive option, we would've left several hundred dollars on the table for one class and not even known it,” Lazaro says. “So many small business owners undervalue their work and products, that a simple price shift for new customers can produce a huge boost to a company.”

 

Choose your method wisely

A note on the door or menu or an email notice may not always suffice when communicating the news. In January 2013, Royce Leather Gifts had to implement not one but two rounds of price increases in a single month after the cost of cowhides skyrocketed after the previous summer’s crippling drought across the Midwest and West. To try to help soften the blow, Billy Bauer, marketing director for the Secaucus, N.J.-based leather goods maker, says he got on the phone with his biggest accounts himself. “There was going to be a big change that might affect their bottom line and they needed to hear that from me,” he says, adding that he faced a pushback from some clients. Talking directly gave him a chance to communicate what they stood to gain from the situation (they’d still be getting the best quality hides), and express the company’s wish to cushion the blow to keep their business.

 

“No one wants to be cornered with a ‘Take it or leave it’ ultimatum,” Bauer says, noting that clients did come around in the end. “When you can build a personal relationship over the years, there’s a sense of trust where I hope they know I’m not trying to mislead them to increase profitability. People want to know that you are committed to their profitability, too.”

Mother_Daughter_Business_body.jpgby Erin O’Donnell.


When Kit Seay retired, she thought she’d tour the country in an old camper. Instead, she found herself running a pie business with her daughter—and loving it.


Seay and her daughter, Amanda Wadsworth Bates, started Tiny Pies three years ago in Austin, Texas. Seay was retired from a career in state government and working as a sorority housemother. Wadsworth Bates was working unhappily in real estate. The mother/daughter duo had always baked together, but hadn’t considered doing it for a living until Wadsworth Bates’ son asked for a pie he could pack in his lunch.


After a few months of testing recipes, Tiny Pies was born. Their handheld pies come in signature and regional flavors, such as strawberry rhubarb and the family’s pecan pie recipe. The business was focused on catering and wholesale until last month, when Tiny Pies opened its first storefront.

Mother-daughter firms are a different type of family business. The women who run them say their businesses directly benefit from their unique bond. An estimated 2.3 million such companies are operating in the U.S., according to the National Association for Mothers and Daughters in Business (NAMDB), and their ranks are growing.


“There’s no competition between us. There’s no ego involved. There’s no lack of trust,” Seay says of the work arrangement with her daughter. “I never give a second thought to anything she says or does.”


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Tiny Pies is typical of many mother-daughter businesses that NAMDB founder Jamie Kizer sees. The daughters tend to be in their 30s, with mothers in their 50s or 60s, often retired from a previous career. The younger generation wants more work-life balance, Kizer says, and the older generation is in a position to help them with that.


“In my generation, we worked, and our children were latchkey kids,” says Kizer, who lives in York, Pennsylvania. “We don’t want our daughters to be in that situation. We want to give them flexibility with their own business or self employment.”


Kizer has run a dozen businesses, from an art gallery to a teen magazine. After her daughter Jordan graduated college, she decided they should open a clothing store together. But they quickly found they didn’t work well together.


“I had to make the decision that this business is not worth jeopardizing our relationship,” Kizer says. “My daughter had to be very brave to speak up and say, ‘This is your dream, it isn’t mine.’”


When Kizer had trouble finding resources for their situation, she decided to coach other mother-daughter entrepreneurs through their challenges. It’s an intense bond, and that can be both a strength and a weakness.


Handling conflict

Alexandria Keener never dreamed she would open her own retail store, much less partner with her mother, Deborah Daugherty, to do it. In 2012 they launched My Girlfriend’s Wardrobe, a consignment clothing shop in York, Pennsylvania, as a website. A brick-and-mortar store followed last year.

Keener says she and her mother have always been close, but working together puts them on equal footing. They both have strong opinions on things such as how the shop windows should look or which outfits they should spotlight.


“One of us is always right, and it’s never the other person,” Keener says. “Sometimes I yell at my mom, and she knows I’m just frustrated about a whole bunch of other things. And she’ll do the same to me. But if you did that to an employee, they’d be out the door.”


They are learning to divide the labor. Keener says they share the retail operations, with only one other part-time employee. Daugherty, who also works full time with special needs teens, takes the lead on tasks like accounting. Keener handles the website and marketing. And Daugherty is able to step in when Keener can’t be there, because she’s also a full-time student at the Harrisburg University of Science and Technology. She’ll graduate in May with a degree in new media design and production.


At Tiny Pies, Wadsworth Bates and Seay say they discovered they have complementary strengths. Wadsworth Bates takes care of sales, marketing, and business development, while Seay oversees what’s happening in the kitchen. They now have a staff of 11.


Wadsworth Bates says it’s important for mother-daughter entrepreneurs to separate business and family. Starting a new business is inherently stressful, but they’ve learned not to bring conflicts home.


“If we get crosswise over a work issue, we can still go to dinner, and she can still hang out with the kids,” Wadsworth Bates says. “It’s not changing that side of our relationship.” 


Communicate openly and often

Communication skills are important in any business. But successful mother-daughter teams say it’s critical to their survival.


Kizer cautions them not to make assumptions and to check their expectations. Dedicate time to learning how to communicate in an emotionally healthy way, she says. “My motto is, ‘let’s put it all out on the table and clean it up later.’”


Sandy and Stevie Lynn D’Andrea say they almost never stop talking about their company, Jewels for Hope. They run their handmade jewelry business from their home in Stamford, Connecticut. Ten percent of the firm’s net profits go to charities such as the American Cancer Society and Labs 4 Rescue.


Sandy D’Andrea started the company in 2009. She made jewelry to pass the time during her mother’s final months in hospice and gave pieces to the nurses in thanks. Eventually, D’Andrea opened a store on Etsy.com. Stevie Lynn, a graduate of Fashion Institute of Technology, joined the company a year later to handle advertising and marketing.


“I taught my mom how to use Facebook, and she taught me how to make jewelry,” Stevie Lynn says.


Jewels for Hope has been featured in coveted celebrity gift bags for events such as the Oscars, the Emmys, and the Golden Globes. Meredith Vieira, whose husband has multiple sclerosis, has been photographed often wearing her Jewels for Hope bracelet, created to benefit the National MS Society. Other pieces have been worn by stylist Stacy London and actress Jennifer Love Hewitt.


Living and working together can blur the lines between business and family, Sandy D’Andrea says. She had to remind herself to respect Stevie Lynn as an equal in business even when her instinct was to advise her as a mother. They also make a conscious effort to put business aside and have fun, together and separately.


Stevie Lynn D’Andrea says, “I don’t think the business would have done so well if we weren’t working together. We both complete the unit.”


Leaving a legacy

For younger daughters like Keener, it can be an ongoing struggle to convince other people that she is an equal partner with her mother. Sometimes customers and vendors assume it is Daugherty’s shop, and 22-year-old Keener is her employee.


“Mom has taken the approach of telling them ‘it’s her store,’ because she thinks people won’t respect my decisions if she doesn’t,” Keener says.

Kizer says she values how mother-daughter businesses provide both women involved with financial independence, a creative outlet, empowerment, and mentorship. And it builds a legacy that, like any family business, can be passed on.


In the days before Tiny Pies’ grand opening, Wadsworth Bates says, she was struck by how meaningful it was to be opening a shop with her mother, in a space designed by her sister, an architect, and to have her teenage son proudly helping with last-minute preparations, too.

Wadsworth Bates says of working with her mother, “Our relationship is so much better than it would have been. This is a priceless experience.”

Clearing_Inventory_body.jpgby Iris Dorbian.


If you're a small business owner who sells clothes, electronics or other products, there’s a good chance that from time to time you might be left with excess or unsold inventory from the previous year. You could try to clear out these items with a special sale, of course. But suppose the items are seasonal—such as ski equipment—or customers are simply indifferent, having moved onto the latest gadget or trend. What are the most efficient and cost effective ways to clear out last year's inventory?


Donate surplus items to charity

Rather than simply dispose of last year's products, you could consider earmarking them for charity. For instance, if you are a small fashion retailer saddled with last season's styles, your local Salvation Army might be interested in picking up these items. Not only will you be clearing space for current merchandise, you’ll be performing a good deed while also getting a tax write-off on these donated clothes.


And if you're confused about which charities will accept your extra inventory as donations, you can always consult a company like Zealous Good, which helps connect businesses to local organizations in need.


Brittany Martin Graunke, founder and CEO of the three-year-old Chicago-based Zealous Good, says her company frequently works with small businesses. Most donate office equipment, furniture and supplies, she says, but others also offer up excess inventory.

"We like to think of it as a new and easy way to give back to your community while also being savvy about your business needs," she says, explaining her firm’s mission.


She does offer a few caveats:


"Never donate something you wouldn't give to a friend," she advises. “At the same time, use common sense as well. If it’s 2014 and you have thousands of 2013 calendars, there is likely no reason to donate these.” Also, don’t assume that a charity is going to be interested in everything you deem dispensable.


Clearing_Inventory_PQ.jpg

“Just because you're donating to a charity in need, doesn't mean they need everything,” says Graunke. For example, if you’re looking to donate excess sweatshirts, you might be surprised to learn that some shelters want only professional clothing or certain sizes. By determining in advance if a charity can actually benefit from your excess inventory, you'll save yourself the stress and frustration of giving a charity inventory they don't need, she adds.


Go paperless

If your excess inventory is in the form of old documents, some of which you have might have held onto longer than necessary, turn to technology to lessen the paper trail.


Donna David, a professional organizer in New York City, is a staunch proponent of this tip. “Use technology to help clear the clutter,” counsels David, who works with many small businesses on their spring cleaning. “Scan your documents and store online and in the cloud so you can shred most originals.” She urges small business owners to do this on a regular basis. “Discard the things you don't need: recycle, shred, or toss,” she says.

And if you've have an excess stack of business cards, David suggests that you eliminate them by using either the Camcard or Cardmuch app. “Just snap a picture of the card and data will be stored in your contacts,” she notes.


Recycle electronics for cash

Rather than discard old or excess items like cell phones, tablets, or other similar gadgets, you might consider using a company such as Gizmogul, which specializes in paying people for their old working or non-working electronics and excess furniture.


According to Barry Schneider, co-founder of Gizmogul, this is a great way for consumers and businesses to get the most value out of unwanted electronics or furniture. Not only does this afford business owners the opportunity to buy new equipment or furniture with the cash they receive via recycling, but it can also remove clutter and open up some much needed space.


However, if you consider this option, Schneider shares a few tips:


       --Trade in early. The longer you wait, the more your phone will depreciate in value.


       --Before taking your old cell phones to a recycling company like Gizmogul, make sure the device can be used with a difference service provider, suggests Schneider. “It will increase the value of your phone instantly,” he says.


       --Perform a basic data wipe on all electronics or gadgets. To completely delete any other data on your computer equipment or device, e-cycle your trash with a company that provides a certificate of data destruction. This allows you to be sure that sensitive information won’t end up in the wrong hands.


Clearing out excess or old inventory is a terrific way for a small business to make space for new merchandise. When done regularly it can help a company stay current with customer preferences and help out charitable organizations along the way.

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