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3 Small Business Financial Considerations

If you operate your business from home, it may seem as if you are doing so for free. However, this is not necessarily the case.

Below are 3 important aspects of owning your own business:

1. Make Sure Your Business Is Covered By Insurance
   
   In some cases, your homeowner’s insurance policy may cover any losses incurred if you run your business out of your home. In other cases, you may have to get a separate rider.
   
   Don’t take for granted that your homeowner’s policy is sufficient. Make sure you get advice from your insurance agent and purchase a new policy if necessary.
2. Make Sure You Follow Zoning Laws.
   
   Depending on where you live and the type of business that you have, you may not be able to run the business out of your home.
   
   You can check with your local zoning office or city hall to find out if your type of business can be run from your home.
   
   If you can run the business from your home office, then you may have to pay a fee to do so. If not, then you will have to find another location for your company, which means you will have to pay rent on a monthly or yearly basis.
3. You May Have To Use Your Savings To Start Your Small Business.
   
   There are certain expenses that you will have when your business is in the startup phase, such as equipment, computers, office supplies, etc. If these expenses are small, then you can probably use your own money.
   
   However, if you need to purchase inventory or have other large expenses, you may have consider taking out a loan.

Making sure your finances are in order is the first step in starting your own small business. By taking the above considerations into account, you can ensure that your company will be on firm financial footing.

Do You Have What It Takes To Be An Entrepreneur?

Being an entrepreneur takes more than just having a good business idea – you also need to have the necessary skills to drive your company to succeed.

Technical Skills

Technical skills are those that you need to make or deliver your company’s products and services.

If your company is in a highly technical field, you’ll need to have some experience and perhaps a professional designation or certification. Examples of technical fields are accounting and engineering

For other businesses, such as ecommerce or import-export, it may not be necessary for you to have lots of experience.

The bottom line here is that whatever type of business you have, you’ll need the skills to deliver good quality products and services. That is, if you expect people to pay you for them.

Managing Finances

If you are going to run your own business, you’ll need to know how to manage your finances.

Being your own boss means having skills such as budgeting and inventory control. If you don’t feel that your skills are strong enough, then you can hire a professional to take care of the financials for you.

However, you may want to at least take a basic course, because you need to know the basics of what is going on in your own business.

Marketing Expertise

Marketing is one of the most important skills that you can have as an entrepreneur. You can have the greatest products and services in the world, but that won’t matter much if you can’t sell them successfully.

Are You A Good Manager?

Whether or not you’ll have a staff that you need to manage, having good management skills is paramount when you have your own business.

Not only will you need to manage your time, but you’ll also need to learn how to manage your vendors and suppliers.

Being an entrepreneur is tougher than it looks – making sure you have the right skills is the key to success.

Sole Proprietorships and Small Business: What You Need To Know

If you are doing business in your own name and are in business by yourself, then you have a sole proprietorship.

As a sole proprietor, you have unlimited personal liability for the debts and obligations of the business. You are allowed to use debt to finance your operations, but you are also personally liable for repaying the money.

Advantages

A sole proprietorship is easy to set up and operate. There are no forms to file with the state, and therefore, no organizational expenses.

However, if you are using a fictitious name for the business, a notice should be filed with the county or state in which you are doing business. There are no initial or continuing annual reports to file with the state, and there are no separate income tax forms to file—you simply file a Schedule C with your federal Form 1040 Individual Income Tax Return and applicable state income tax returns.

You should keep accurate records of your business income and expenses and make sure to keep those business items separate from your personal expenses.

Disadvantages

A sole proprietor is personally liable for all debts and obligations of the business. There is no limited liability as there is in a corporation or an LLC.

If things go badly, you will be required to pay off creditors. In addition, there is no continuation of the business if you become disabled or die—the business simply goes away.

As a sole proprietor, you can deduct all expenses reasonably attributed to the business from business revenues and all profits are directly taxable to the sole proprietor at individual income tax rates.

If you are planning on starting your business as a sole proprietor, consult your tax attorney to make sure this is a wise choice.

You Can Start a Small Business as an Immigrant

Any individual may form a company. Generally, the minimum age is 18.

In most states, you are not required to be a resident of the state to form a company, and some states even allow one company to form another company.

Immigration Concerns

People who are not citizens or legal permanent residents of the United States are free to organize and run any type of business organization in their own name.

The LLC would be the most advantageous, because it allows foreign nationals as owners (unlike an S corporation) and it avoids corporate taxation (unlike a C corporation). Two legal issues should concern foreigners when starting a business—their immigration status and the proper reporting of the business’s foreign owners.

The ownership of a U.S. business does not automatically give you the right to enter or remain in the United States. Different types of visas are available to investors and business owners, and each of these has strict requirements.

A visa to enter the United States may be permanent or temporary. Permanent visas for small business owners usually require investments from $500,000 to $1,000,000 that result in the creation of new jobs.

However, if structured right, there are ways to obtain visas for smaller amounts of money.

Temporary visas may be used by small business owners to enter the U.S. These are hard to get because in most cases, the foreigner must prove that there are no U.S. residents qualified to take the job.

United States businesses that own real property and are controlled by foreigners are required to file certain federal reports under the International Investment Survey Act, the Agricultural Foreign Investment Disclosure Act, and the Foreign Investment in Real Property Tax Act (FIRPTA).

If these laws apply to your small business, consult an attorney who specializes in foreign ownership of U.S. businesses.

What is a Limited Partnership, Anyway?

A limited partnership has characteristics similar to both a corporation and a partnership.

The general partners have control and unlimited personal liability, but the limited partners, who put up money have their liability limited to the amount of their capital contribution to the partnership (like corporate stock).

A limited partnership must have at least one general partner and one or more limited partners.

Advantages

A limited partnership usually only needs to file a one-page document, called a Certificate of Limited Partnership, with the state upon formation and pay a fee. In a handful of states, however, the limited partnership is also required to file an initial report and continuing annual reports with the state to update the contact information for the partnership, resident agent, general partners, and in some cases, the limited partners.

Capital can be contributed by limited partners who have no control over the business and no liability for its debts or obligations.

Just like general partnerships, limited partnerships have higher maintenance costs than a sole proprietorship because they must track assets and liabilities as well as income and expenses.

Disadvantages

Like a general partnership, your attorney should prepare a limited partnership agreement to define the ownership and sharing arrangements of the partners.

In a limited partnership, the general partner is personally liable for partnership debts and for the business-related acts of other general partners.

Limiting Liability: To limit the general partner’s liability, use a corporation or LLC as the general partner.

Limited partners give up most of their control over the business in exchange for limited liability. When limited partners take an active role in the running of the business, they jeopardize their protection from liability and can be held liable as a general partner.

In recent years, the limited liability company has overtaken the limited partnership as the tax-advantaged vehicle of choice, because everyone involved has limited liability and investors can participate in the decisions of the company.

How to Develop Your Business Strategy

Business Vision

You can describe what the business is that you want to build, but you must also understand what makes it the right business for you. Determine the skills and experience it takes to make the business successful.

Which of those critical factors are among your greatest talents? Which of those factors are also the tasks you love to do, twenty-four hours a day, seven days a week? The business that is right for you fits your individual expertise and your personal motivators.

Personal Values

Examine your personal values in order to set meaningful goals and objectives for your business.

High-growth, high-reward, high-risk enterprises are not for people who value security, stability, and tranquility.

Acknowledge what is important to you so that you can build your values into your business.

Goals

When you understand what your business is and how you fit in, you can set goals. Given the market opportunities and your personal values, how large could your company become? How profitable?

What is the time frame for accomplishing this and how will you and the company’s other stakeholders benefit from these accomplishments?

Market Definition

Market issues make the difference between success and disaster. Identify a problem and identify the specific groups of people who have the problem.

How does the market currently solve this problem? Every possible solution—including ignoring the problem—represents your competition.

Business Model

Your business model does not refer to the wheelbarrow-sized pile of financial projection spreadsheets that your favorite number cruncher produces. Instead, it refers to how your company operates.

Not all business model decisions are made at start-up; however, the issues and possible alternative solutions should be identified.

Organizational Structure

As part of the planning process, you will need to determine which type of entity best supports the achievement of your goals. Input from your management team, as well as legal and other advisors, will help you in the decision-making process.

General and Limited Partnerships – Know the Differences

Typically, partnerships can be placed into two categories—general partnerships and limited partnerships.

In a partnership, all profits and losses are passed through to the partners according to their percentage of ownership (in the absence of a special allocation), even if the profits remain in the business to fund continuing operation or expansion.

Beyond this basic principle, partnership tax law is a complex subject to understand and is fraught with traps for the unwary.

Unless limited by the partnership agreement, each partner has full managerial control over the partnership. In addition, each partner has unlimited personal liability for the debts and obligations of the partnership.

To form a general partnership, prepare a written partnership agreement to set forth the ownership and responsibilities of the partners.

Unless otherwise stated, any new partners will have the same rights, responsibilities, and liabilities of the original partners.

Advantages

General partnerships have higher maintenance costs than a sole proprietorship because they must track assets and liabilities as well as income and expenses. However, they have lower maintenance costs than a corporation because they are not required to follow the same formalities as corporations.

In addition, the business can continue after the disability or death of a partner if there are more than two partners.

Disadvantages

A general partnership is potentially a dangerous form of business entity because each partner is jointly and severally liable (meaning together and separately liable) for the debts of the partnership and the acts of other partners within the scope of the business.

It is often hard to get rid of a disgruntled partner.

A carefully drafted partnership agreement prepared by an attorney can help you avoid the disadvantages inherent in partnerships.

Implement Your Business Idea in 4 Simple Steps

For your business idea to be successful, you will need to take some concrete steps to take it from the drawing board to the market.

Here are 4 simple steps to implement your business idea.

1. Conduct Thorough Market Research
   
   Even though your idea might be technically perfect, you will still need to evaluate if there is a need for your idea.
   
   Consult your friends, relatives, and any mentor to find out their reaction to your idea. Also, compile a sample list of your target market and get their views.
   
   Find out if there are any competitors that are already in the market and their mode of business.
2. Calculate the Time Factor
   
   Some ideas have a limited shelf life before they become obsolete or are overtaken by newer ideas.
   
   Calculate the time required for you to introduce your idea in the market and the approximate period that your product or service will take to flourish.
   
   Also, calculate the time required for you to come up with any new ideas to keep the show going.
3. Calculate the Cost Factor
   
   You will also need to arrange for financing to convert your dream idea into reality. If you do not have ready funds, then you will also need to explore the option of taking out a loan.
   
   Calculating the interest payable on that loan is crucial to your business’ long-term viability. A proper technical and financial plan is also necessary if you do not want to run out of funds after a couple of months.
4. Determine Your Skills
   
   You will need to determine your technical and selling skills in order to successfully sell your idea.
   
   Your products or services should also have something more to offer than the competition does.
   

   Bringing a new product or service to market isn’t easy. By following the 4 steps above, you can give your new small business a fighting chance.

How to Negotiate a Business Deal over a Business Meal

Negotiating a business deal over a business meal is not only a good way to save precious time, but it can also create a personal bond with your client.

In addition to your selling skills, it is essential to polish up your social skills too, as illustrated by the following tips.

Plan in Detail

If you can obtain details of the likes and dislikes of your client, then book your table in a restaurant that you know your client would love.

Ensure that your table is well away from the hustle-and-bustle of the kitchen or aisle so that you can talk and eat in privacy.

The restaurant should have a peaceful atmosphere and comfortable seating arrangements along with excellent food.

Re-Confirm Your Booking

You should re-confirm your booking on the day of your appointment with the restaurant and your client.

You should also reach the location before your client to make sure that everything is in order. You can also confirm with the server that you will be paying the bill.

Do Not Jump Into Negotiations

Engage in some small talk to make your client feel relaxed before you get down to business.

Depending on the nature of your business and the expected length of your negotiations, you can either start your business discussion during the main course or wait until you order dessert.

Stay Away From Alcohol

Even if your client drinks alcohol, you should stay away from it, or consume a minimum quantity in order to concentrate at the task on hand.

Negotiating business deals over business meals is a very old tradition. If planned and handled correctly, then you can ensure that you have a client for life.

How to Handle Merchandise Returns

If you are running a small retail business, then you are aware that store returns are a part of life.

However, the manner in which you handle these returns can determine the future of your relationship with your customers.

Here are some tips on how to handle returns.

Make Your Return Policy Clear

Ensure that your store return policy is clearly mentioned on your invoices and also posted prominently.

Instruct your employees to explain the policy to your customers, in case they are not able to fully comprehend any aspects of your return policy.

If you will not accept any returns during a sale, then mention it in clearly so there are no misunderstandings later.

Keep the Return Procedure Smooth

Keep your cool when dealing with angry customers that might have a complaint about one of your products.

Don’t allow yourself to get drawn into arguments. Rather, handle each issue on a priority basis to defuse the situation as soon as possible.

Your employees should be familiar with the return process so that it can be handled as quickly as possible.

Take Swift Action

If a product needs to be replaced, then make sure that the customer receives a replacement within the shortest possible time.

If a refund has to be made, then do so immediately so that the process isn’t stretched out over a long period of time. If this happens, it will only agitate your customer even further and affect your business reputation negatively.

If you want the relationship with your customers to prosper over the long term, it is essential that you have a clear return policy in place and that you execute all returns quickly.