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Inspiration and Information for Starting Your Business

SCORE for Your Business

Posted on May 16th, 2012 by admin
Category: Grow a Business, Small Business Resources

By Brooke Miller Hall

 

We recently announced our partnership with SCORE, a leading resource dedicated to helping business owners and aspiring entrepreneurs by providing for free and confidential advice.

“Our newly formed partnership with SCORE cements our shared goal of providing small business owners with the tools and knowledge essential to grow their business,” said BizFilings’ Director of Business Development Patty Rojas.

SCORE provides small business mentoring and workshops to more than 375,000 new and growing small businesses annually. SCORE also helps launch 58,000 new businesses and create 71,000 jobs each year. In fact, the group’s helped more than 9 million aspiring entrepreneurs since it formed in 1964.

SCORE can help you and your business through:

  • Mentoring: You can request a face-to-face or e-mail mentor
  • Local workshops: Type in your zip code to find out what’s offered in your area
  • Online workshops: Popular topics include planning, budgeting and marketing
  • Templates and tools: Lots to choose from, including a financial projections template and several quizzes to help guide you
  • Local chapters: Use the online locator to find some of the group’s 13,000 volunteers in 364 chapters

As part of this new partnership, SCORE and BizFilings recently produced and will distribute an e-guide on legal structures called The Guide to Incorporating Your Business. This e-guide is designed to illustrate a business’s options and to assist in deciding the structure a business will take.

You can also look forward to co-sponsored live webinars and online workshops on business incorporation. Presented by BizFilings specialists, these workshops will provide helpful information and action steps that entrepreneurs can use to choose a legal structure and stay compliant.

Read more about our partnership with SCORE.

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Curious About Crowdfunding?

Posted on May 14th, 2012 by admin
Category: Finding Money to Start a Business, Grow a Business, Small Business, Start A Business, Uncategorized

By Brooke Miller Hall

 

We recently announced the JOBS ACT, signed into law April 5, which will make crowdfunding easier to obtain.

Crowdfunding collects money online from multiple donors to support your business or a specific project. Sites like Kickstarter and IndieGoGo have raised millions for entrepreneurs and are becoming an increasingly popular way to fund projects.

For example, the film Love for Lust was funded through Kickstarter, exceeding its original $70,000 goal by raising $101,000 from1,519 supporters.

Fran Kranz, who worked on the project, said, “I knew what Kickstarter was, but it kind of all blows me away with all the capabilities of the Internet. I just feel like the playing field has been leveled with the Internet.”

“There’s no limit to what you can pull off with things like Kickstarter,” Kranz added.

While Kickstarter focuses on creative projects, IndieGoGo says it’s for “all types of campaigns” – from supporting a class trip for Costa Rican teenagers to helping hard-luck individuals pay their medical bills.

IndieGoGo has a section reserved for entrepreneurial campaigns and a subsection just for small businesses. Some of their small business campaigns include:

  • a Harlem café asking for $10,000 to help fund an expansion
  • $14,500 for the production of arch-supporting flip-flops that are vegan-friendly and dishwasher safe
  • the start-up of a Norfolk donut supply company, which has already exceeded its $5,000 goal
  • $19,000 for a successful online soap company to open a retail store

The JOBS Act will make it easier for small businesses to use these sites by adding the ability to raise up to $1 million annually through crowdfunding without having to follow any SEC registration or filing. Private investors will be able to invest up to $10,000 (or 10 percent of annual income, whichever is less) annually without any SEC filings.

The SEC has a grace period of 270 days from the signing of the JOBS Act to implement additional regulations. BizFilings suggests that in the interim, small business owners focus on getting all of their documents in place, including business plans, incorporation documents and financial forecasts.

“The changes in legislation can have some great benefits for small businesses by legitimizing these alternative sources of funding,” says Karen Kobelski, executive member of the leadership team at BizFilings. “Before a small business takes advantage of funding, it’s important to make sure your small business is incorporated, and that you’ve chosen the right business structure for your future goals.”

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ABCs of VC: Basics of Venture Capital

Posted on May 11th, 2012 by BizFilings Team
Category: Finding Money to Start a Business, Start A Business, Uncategorized, Venture Capital

Venture capital is often the key ingredient to turn a start-up with enormous growth potential into a market-leading company. VC basics include how to acquire it and whether it’s realistic for your business.

Is my business a good fit for venture capital investors?

Venture capitalists are willing to make significant investments in companies in order to see a huge return, tending to back companies that can grow big and grow fast. Some of the industries that currently fit this profile include:

  • computer technology
  • biotechnology/medical devices
  • alternative energy

To determine where an industry stands in terms of growth, business owners can consult resources such as the Bureau of Labor Statistics’ rankings of industries with the fastest growing output. 

Entrepreneurs who are thinking about going after venture capital should also consider what stage of growth their business is in. Because most VC firms are looking to make an investment upwards of $1 million, most of VC investment comes in the form of middle-stage or late-stage growth capital for businesses that have products or services launched or in a testing phase, and/or have already demonstrated the ability to bring in revenue.

How do I begin the process of acquiring venture capital?

If you think your business is well-positioned to acquire venture capital, it’s time to seek out potential investors and to prepare a presentation for them.

Venture capital firms become important partners in the enterprise. Frequently, the ultimate terms of a deal will include investor representation on a company’s board. Given the close relationship that upper-level management will have with venture capital investors, it’s imperative that a company looking to raise funds do research to find compatible VC firms.

This research can – and should – involve talking with contacts who have experience working with venture capital outfits. Businesses should look to uncover how the VC firms operate, what their investment philosophy is, and whether they are likely to be interested in your business. Personal contacts can also play a vital role in establishing contact between your business and a possible investor.

At the same time that you’re seeking out potential investors, you and your management team can be working on the presentation that you’ll make once a meeting has been set up.

An effective presentation will include:

  • clearly articulated business plan
  • well-supported case for why your business is seeking venture capital
  • description of what your business will do with the money
  • realistic scenario, such as an eventual public stock offering, for how the investor will make a profit

You might also present a due diligence binder, providing a potential investor with articles of incorporation, financial statements, bylaws and other documentation that will reassure an investor that the business is well-managed.

A well-organized and detailed presentation can woo investors, but your enthusiasm and passion will also go a long way when it comes to obtaining financing.

How do I close the deal?

Securing venture capital is a multi-stage process, and will likely involve many meetings with potential investors. Prepare for the process to take some time, focusing on which VC firms are most in tune with your company’s goals and culture.

If a venture capital firm decides it would like to invest in your company, it will deliver a term sheet outlining how much it would like to invest and under what conditions.

The terms spelled out will likely involve technical language and may be complex, touching on everything from redemption rights to vesting, founders activities to indemnification. However, the VC representative typically delivers the term sheet in person, and should be able to walk through the proposed deal so that it is clear. An overly complicated term sheet may be a red flag that communication will be fraught moving forward.

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When to Consider a C Corp

Posted on May 9th, 2012 by admin
Category: C-Corporation, Corporation, Incorporate a Business, Incorporation, Uncategorized

By Brooke Miller Hall

 

Most major companies and many smaller companies are treated as C Corporations for U.S. income tax purposes. C Corporation refers to any corporation that, under U.S. tax law, is taxed separately from its owners. By contrast, an S Corporation is not taxed separately.

The standard corporation, or C Corporation, structure limits each owner’s (shareholder’s) personal liability for the corporation’s business debts to the amount invested in the company by the shareholder.

To determine if a C Corporation is the right business type for you, consider your needs for flexibility, your financial structure and the future of your business.

 

Flexibility

C Corporations offer the flexibility to:

  • Spread business earnings between the corporation and shareholders for tax-planning purposes.
  • Set salaries for employees/owners to minimize Social Security and Medicare taxes.
  • Provide (through the corporation) substantial health and medical benefits and other fringe benefit programs for things like education, life insurance, and transportation cost.
  • Allow flexible profit-sharing among owners.

 

Financials

When looking at your financial structure and goals, a C Corp may be right for your company if you:

  • May need venture capital for financing.
  • Expect your business to own real estate.
  • Want company earnings to stay in your business so that it can grow.
  • Want to be able to offer stock options to employees.
  • Prefer to lower your risk of IRS audit exposure, since there is a higher audit rate for business income that is reported solely on Schedule C of Form 1040 (U.S. Individual Income Tax Return).
  • Want to provide an accountable plan for travel and entertainment.

 

Future

Additionally, if you want to be able to easily sell your business, consider a C Corporation structure. Likewise, if your business has the potential to go public, it must be a C Corporation in order to be traded on a national exchange.

 

Take a closer look at the different business types using our comparison chart.

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Dos and Don’ts for an Effective Investor Pitch

Posted on May 7th, 2012 by BizFilings Team
Category: Angel Investors, Finding Money to Start a Business, Grow a Business, Start A Business, Uncategorized

When it comes to pitching investors, you will likely develop a personal approach based on your personality and business type. Your approach  may also change according to what kind of investment you’re seeking and your audience. For entrepreneurs new to the game, there are a few fundamental dos and don’ts that can help shape a winning pitch – and even seasoned business owners can benefit by reviewing the basics.

Do: Be concise

You’ve probably refined an “elevator pitch” that you can rattle off without hesitation. Now that you’re in a proper meeting with investors, maintain the punchiness of your message without racing the clock. Keep a PowerPoint deck to basics, and try to distill each point to its essence.

Do: Prepare for your technology to fail

This means two things:

1) Have your pitch deck and support materials in multiple formats.  Consider a USB drive, CD/DVD or in the cloud to turn a tech failure into a chance to impress with your preparation.

2) Know your presentation. If there’s a total tech meltdown, having your numbers committed to memory is essential. This means you should know the order in which you want to make your points, and should be able to unhesitatingly provide key financial data like projected revenue.

Do: Dress to impress

A no-brainer, perhaps; however, it’s important to not only dress professionally, but to be comfortable in your clothes – and shoes. This will impact your posture and gestures, which should convey confidence and trustworthiness. As New York real estate mogul Barbara Corcoran told Inc. magazine, “A certain level of nervousness is expected but if you constantly shift on your feet this sends a signal that you aren’t trustworthy, maybe you are hiding something.” 

Do: Show them the money

That is, show them how they will make money by investing in your company.

You no doubt want a healthy bank account, but you probably launched your business for many reasons:

  • You had a vision of how a product could change the world
  • You wanted to be your own boss and shape a company you could be proud of
  • You wanted to find an outlet for your expertise and talents

Keep in mind that investors are coming to the table with a simpler and more singular motivation. To make money.

This means they are most interested in seeing how their goal will be accomplished, typically when your company is sold or goes public. All your projections should point to this eventuality.

Do: Name a figure

Your asking for a specific amount of money is a call to action that an investor galvanized by your presentation will be eager to answer. Also, by determining what specific figure to ask for, you will be doing the essential work of determining what exactly you need money for and how it should be spent to grow your business. Potential investors will want to know this information.

Don’t: Spend too much time describing your product

How your product works and what makes it special should be easily grasped so you spend more time during the presentation selling your business as something worth investing in. Given you’ve got something of value to offer the market, an investor is betting on your business plan and team, so this is what you need to tell them about during a pitch.

However, it’s a good idea to bring in a prototype of your product, or mock-ups, models or designs. Also, be sure to note if the product is patented or trademarked, as this means you possess a hard asset that may be worth something even if the business ultimately does not perform to expectations.

Don’t: Avoid talking about competitors, or mischaracterize your competitive advantages

Before there was Facebook, there was MySpace. Investors may be excited about a company that is an early entrant into a particular market, as this gives it time to corner that market, but investors expect that there is or will be competition. No doubt you know who the competition is and have thought about ways to come out on top. Potential investors will want to hear about your plan and the competitive advantages your company has.

Do: Show your passion – but don’t fake it

Conventional wisdom says displaying how passionate you are about your business is key to winning investors; but, there are many ways to demonstrate your passion, and overplaying enthusiasm can backfire. One study conducted in 2009 found presenters’ facial expressions, tone of voice and gestures had no statistically significant impact on whether investors had a positive or negative impression of a pitch, according to The New York Times. Substance is valued more than style, and a presentation ought to be smooth but not slick. As one of the study authors told the Times, “Being authentic is much more important. There is such a thing as quiet passion. Anything that comes across as slickness is a negative.” 

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Angel Investment: 4 Steps to Success

Posted on May 3rd, 2012 by admin
Category: Angel Investors, Financial Services, Finding Money to Start a Business, Start A Business, Uncategorized

In stories, angels often appear just when they’re most needed. When it comes to the real world of business, an angel is not likely to swoop in with bags of money to finance your dream venture. Rather, you’ll probably need to pursue an angel or angels – that is, a wealthy individual or a group of private investors – by mapping out a careful strategy and executing it successfully.

 

Step 1: Determine if you need an angel, and can land one

Angel investors provide money to early-stage enterprises; however, because they are looking to make a profit on their investment, angels are not likely to sink capital into a business that only exists on the back of a napkin and has no other funding secured. Instead, angels generally invest in companies that have gotten off the ground but are not in a position to pursue venture capital or large-scale debt financing, or raise funds through other channels. So before pursuing angel investors, you should tap family and friends and other sources of seed money.

Unlike venture capital firms, which typically invest more than $1 million in a given company, angels usually provide more modest sums. But like VCs, angels are looking to make a significant return on their investment, and so are most interested in companies with the potential to expand rapidly and bring in big profits. A Center for Venture Research report showed the leading industries for angel investment in the first quarter of 2011 were:

  • Healthcare (25 percent)
  • Industrial/energy (17 percent)
  • Biotech (14 percent)
  • Software (11 percent)
  • Media (8 percent)

Although these were the industries that angels have focused on recently, any business that is poised to expand can potentially secure angel financing.

If your business is at a stage where angel investment makes sense, you can begin the search for financing.

 

Step 2: Research and reach out to potential angels

Prayer is not necessary to reach angels in the business world, but it is necessary to delve into your Rolodex – or your social media contacts, professional association acquaintances, mentors and other people in your network. The majority of angels are high net-worth individuals who may not publicly solicit candidates for investment, so the only way to discover who they are is by leveraging your connections. Other entrepreneurs who have secured angel financing, lawyers who work in the equity investment field and business counselors are three excellent connections to tap.

Finding potential angels is only half the battle, though. Because angels will typically receive an ownership stake in your company as a condition of investment, you need to not only find potential angels, but those who will work well with your business. This can be a challenge, but it is also an opportunity. Many angels are successful entrepreneurs themselves, and so can be invaluable advisers with insight into your industry and target markets.

In addition to individual investors, there are a growing number of angel investment groups, similar to venture capital firms. The Angel Resource Institute links to many of these groups. Keep in mind that most angels invest close to home, so it’s best to investigate angel groups near your center of operations. According to the Angel Capital Education Foundation, more than a quarter of angels in 2008 invested in a business within a two-hour drive.   

 

Step 3: Apply for funding

Having identified a likely investor, it’s time to make the case for why your company is a good investment opportunity.

For angel investment groups, the process sometimes begins by filling out an actual application for funding, often available on the group’s website. This is typically prescreened to determine whether your company fits the basic criteria the group is looking for. About 10 to 25 percent of applicants pass prescreening to make it to further review, according to the Angel Resource Institute. If you move beyond the prescreening stage, you may be asked for a more detailed business plan or other information, so it’s wise to be prepared with materials. A presentation to the group might follow, and if a group is still interested in funding your enterprise, they will conduct due diligence on your company before presenting a term sheet detailing how much they are willing to invest and on what conditions.

The process of wooing an individual investor may be less standardized, but will likely involve the same basic steps as persuading an angel group to fund your company. In addition to a strong product and business plan, angels will want to see a viable exit strategy showing how they will eventually profit from their investment. According to the CVR, mergers and acquisitions represented two-thirds of all angel exits in 2010, and annual returns at the time of exit for M&As and initial public offerings were between 24 and 36 percent.

It’s important to keep in mind that angels are looking for a great product, but they are ultimately betting on the prowess of you and your management team. Therefore, building a strong team is just as important as innovating a must-have product.

 

Step 4: Continue to cultivate your angel relationships

Angels will typically assume an ownership stake in your company, so these are not structured to be take-the-money-and-run deals; however, it’s shrewd to prioritize your relationship with angel investors and make an effort to keep it on a solid footing by communicating clearly and often, and reaching out for assistance as necessary.

The ACEF said communication among angel groups is on the rise and angel groups are increasingly growing their relationships with venture capital firms. So after investing their own dollars to help you grow, angels are likely to be key contacts within your organization helping you successfully negotiate the next phase of equity financing.  

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Small Business Development Centers: 5 Common Questions

Posted on May 1st, 2012 by BizFilings Team
Category: Finding Money to Start a Business, Small Business Resources, Start A Business

Even the most confident and determined small business owner sometimes needs help when it comes to obtaining the funds necessary for a company to grow. Because of this, it’s important to develop a strong support system, and many savvy entrepreneurs consider small business development centers a key source of assistance.

1. What are SBDCs?

Small business development centers are run jointly by the U.S. Small Business Administration, state and local governments, educational institutions and private sector companies. Each state has at least one Lead Small Business Development Center that coordinates the program in its area, and there are more than 900 branch SBDCs. Many are located on the campuses of universities, vocational schools or community colleges, or are part of municipal services facilities, such as chambers of commerce or economic development associations.

Each SBDC location employs a staff and recruits business experts from the community to provide services, such as consulting or teaching, to SBDC clients. All services provided at SBDC locations are free and confidential. SBDCs also offer low cost training programs.

 

2. What services do SBDCs provide?

SBDCs offer classes, workshops, seminars, one-on-one counseling and a variety of other programs related to a wide range of topics relevant to business financing, including:

  • Drawing up a business plan
  • Incorporating a business
  • E-marketing and e-commerce
  • Franchising
  • Taxes and accounting

In addition, SBDCs offer consultations specifically on different small business financing options, ranging from microloans and commercial bank loans to factoring and venture capital. Being associated with the SBA, the centers are an excellent source of information about SBA loan programs, such as:

  • 7(a) Loan Guaranty Program: offers guaranteed loans through private sector banks
  • CAPLines: offers working capital in any amount to help businesses meet short-term and cyclical needs
  • LowDoc: offers expedited processing of loans up to $150,000
  • Export Working Capital Program: guarantees private sector loans up to $1 million to provide short-term working capital to exporters

SBDCs are equipped to address practically any question or issue related to the management and administration of a small business, including raising funds; however, each SBDC provides services tailored to its local community and has staff members with particular areas of expertise.

So, for instance, the director of the Northeastern California SBDC has experience in helping clients draft business plans and pro forma projections in order to secure funding. The website of the Illinois SBDC at McHenry County College in McHenry outlines some of the funding assistance common to SBDCs: It provides information and assistance related to loan and grant programs at the local, state and national levels and business funding sources in both the public and private sectors; it maintains records related to grant availability; and it has relevant contacts at the state and federal levels.

 

3. What kind of businesses do SBDCs assist?

Entrepreneurs who cannot afford to hire a private consultant – including aspiring business owners – are eligible for SBDC programs.

SBDCs assist small businesses of all kinds. In 2009, SBDCs served about 500,000 small businesses, according to the Association of Small Business Development Centers. As of December 2011, the top 10 business types served by SBDCs included fitness/recreational sports centers, full-service restaurants, homes for the elderly, used merchandise stores and landscape architectural firms, according to the SBA National Information Clearinghouse.

Women, minorities and veterans are particularly well served by SBDCs. In 2009, women accounted for 43 percent of SBDC business consulting and business training clients. A third of SBDC business consulting clients were minorities and 9 percent were veterans.

 

4. How effective is SBDC assistance?

SBDCs offer practical, trustworthy advice and assistance that can have a significant impact on a small business’ growth and bottom line. According to the Association of Small Business Development Centers:

  •  $100,000 in financing is secured by SBDC in-depth clients every 17 minutes
  •  SBDC in-depth clients generated upwards of $5.6 billion in new sales in 2008
  •  SMBs that worked with a SBDC in 2007-2008 experienced average sales growth of 17.4 percent, compared to a nationwide average of 3.6 percent
  •  SBDC in-depth clients open a new business every 43 minutes, and more than half of pre-venture clients go on to start a business

 

5. How do I get started?

Those interested in working with a SBDC can consult the SBA website  or the Association of Small Business Development Centers website to find the nearest branch. TheSBA National Information Clearinghouse also links to each state’s business counseling services 

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Traits for Success: Passion

Posted on April 27th, 2012 by admin
Category: Business Inspiration, My Startup Success, Work For Myself

By Brooke Miller Hall

“Above all, you want to create something you are proud of. That’s always been my philosophy of business. I can honestly say that I have never gone into any business purely to make money. If that is the sole motive, then I believe you are better off doing nothing.”

– Richard Branson, English business magnate and founder of Virgin Group

 

The Guardian Life Small Business Research Institute survey of 1,100 small businesses (between 2 and 99 employees) found that planning and networking are key traits for successful business owners. We’ve covered these traits in previous posts.

The third trait for success is passion, enjoying what you do and gaining personal satisfaction from your business.

For some, it’s easy. It’s why you’re doing what you’re doing. You love your business and relish in being your own boss and having control over your personal income.

Perhaps your business focuses on a cause that has personal significance for you. Or it involves a trade or service you enjoy so much that it doesn’t even feel like work.

Hold onto that joy and excitement. It’s easy to get bogged down in the details and everyday challenges of starting and maintaining a business. And if you find that you don’t enjoy what you’re doing, it will eventually take a toll on the success of your business, or lack thereof.

How can you hold onto that passion, even during the most trying times?

  • Think about what you love most about your job. Then make sure to incorporate that in your day-to-day duties. Do something you love every day.
  • Reflect on why you got into the business. Don’t lose touch with the passion and motivation that started you on this journey.
  • Who are you helping? Think about the customers who benefit from your product or service.
  • Talk with your customers. Gaining a deeper understanding of how you’ve helped them in the past – and how you can help them even more in the future – can give you the kick start you need. 

Kentucky Fried Chicken’s founder Harland Sanders recalls, “No hours, no amount of labor, no amount of money would deter me from giving the best that there was in me. And I have done that ever since, and I win by it.”

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Business Licenses You Need and Trust

Posted on April 25th, 2012 by admin
Category: Business Licenses, Form My Business, Incorporate a Business

By Eva Rosenberg, EA

In a tax roundtable discussion recently, I advised a tax pro that her client needs a business license to be self-employed. She mentioned that the client lives and works in Los Angeles County, which doesn’t issue business licenses.

Within a 5 or 6-mile radius, in parts of Los Angeles, you can be working in 6 distinct cities – West Hollywood, Beverly Hills, Santa Monica, Culver City, and the City of Los Angeles – each with unique business license requirements. Have your cities and towns grown as complicated as ours? 

Some people like to avoid the higher licensing costs in LA or other high-cost cities by establishing an address at a mail-box service with a street address (not a Post Office box) in a nearby area with lower business tax rates.

Big misconception

Therein lies the problem. People think that by setting up business addresses in mail boxes, or by incorporating in tax-free states, they can avoid taxes in their city, county or state.

There are two things wrong this concept.

1) You are not doing the work inside that box or at that mailing address. The work is being done where you live, at your office or shop – or at your clients’/customers’ locations when delivering products or services. You really must register your business where the business is taking place.

2) The extra cost of those offsite, or out of state, registrations add up to more than you save on the taxes.

For instance, here are things you must avoid or do when registered in Nevada, Delaware or Wyoming to totally avoid taxes in your state or town.

  • You need a mailing address in the state of registration, to receive your mail. All of it – the bills, contracts, samples, catalogs, supplies, everything. Depending on the volume of mail you get, you pay between $10 and $50 per month for the service.
  • Then you must pay to have all those things re-shipped to you by the mailbox service. Perhaps another $25 or so per month?
  • Naturally, there’s the delay in receiving the mail, especially important correspondence. Some of which might be time-sensitive – like a new client needing something done quickly, or needing a proposal. Yes, some people still send things by mail. You might actually lose business, or lose the opportunity to take a time-based discount. (This has happened to people I know.)
    • You could pay your service to scan/fax correspondence to you when it arrives. That’s a costly labor-intensive service.
  • Either a toll-free phone number, or a phone number using the area code of the state where you claim to be based. Either way, everything becomes a long-distance or paid call, costing from $10-$100s extra per month.

There may be other costs to keep your state from being able to prove you’re not doing any business in your state. But it’s so easy to slip-up. You can easily be caught through your blog posts, Tweets or Facebook entries.

Bottom line? Once your business is proven to have been run from your state of residence (domicile), you will have wasted all the fees to establish your business in the wrong state or location. You’ll have to re-file as a foreign LLC or corporation in your home state – and pay all taxes, fees, etc., perhaps with penalties for the years before getting caught.

Wise advice – set up your business where you live and work.

 

Overlooked Licenses, Permits, etc.

People in certain trades and professions generally know about their own licensing requirements. What are the most common things that are overlooked? And how will you get caught?

  • Office in home – Some areas require a separate registration when you run a business from home. They may require a fee, and/or an inspection of the business in the home. There might be zoning issues to prevent your kind of business from being run in a residential area. You can get caught by the address on your website or the address on your Schedule C. IRS is sharing Schedule C information with ever more cities and states.
  • Sales taxes – IRS and your state are just starting to catch people who run businesses without registering for sales tax permits. That new 1099-K form is alerting the authorities to businesses with over $20,000 in revenues and over 200 transactions, who get paid via PayPal, credit cards, or other third-party systems. If you’re shipping tangible goods (things, not downloads) within your state, you need to register with your sales tax authority.
  • Payroll taxes – That person working for you in your office is not a freelancer. S/he should be on payroll. In fact, take a look at your virtual workers. Are they working only for you? Or are they in business for themselves? Some of your virtual assistants may also be regarded as employees for tax purposes. It’s really awkward when those people are out of state. But at least look at the workers within your own state to see if they meet the definition of an employee. IRS’s new Form 8919 encourages folks getting a 1099-MISC to rat out their ‘employers’ in order to reduce their own tax bite. Incidentally, do you think you should have been putting your workers on payroll and want to come clean? IRS has a special amnesty program for you, called the Voluntary Worker Classification Settlement Program (VCSP). It might be worth your while to discuss this with your tax pro.
  • Other licenses – There are a myriad of other licenses that might affect your business. Liquor licenses, health department, excise tax registrations for a variety of things – trucks, tobacco, fuels, etc. You can look up the state-by-state requirements at BankRate.com. Or get a comprehensive list that affects your business, your industry and your location, consider using BizFilings’ Business License Application Package. It will search all the relevant databases to give you a list of your required filings.  

———————————————————————————–

Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered for free. Eva is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches tax courses at IRSExams.com and CPELINK.

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5 C’s of Small Business Lending

Posted on April 23rd, 2012 by The BizFilings Team
Category: Financial Services, Finding Money to Start a Business, Lines of Credit, Start A Business, Uncategorized

Become familiar with the 5 C’s of lending to help secure funding for your small business.

Credit

Credit refers to the money loaned to the business, and the business’ ability to borrow more money. Lenders that are evaluating your business’ creditworthiness will consider multiple factors. They will examine your credit history, amount of credit used, number of inquiries, past and present credit issues, outstanding balances and unsecured debts, among other things. By evaluating all these factors, a bank will get more insight into whether your business is a good candidate to receive a loan.

 

Collateral

A bank or other lender will often ask a small business owner to pledge assets in order to be considered for the loan. The assets will function as collateral – the second C – for the lender, if you fail to fulfill your side of the deal by repaying the loan. Collateral commonly takes the form of business-owned real estate or equipment, or cash savings, but there are other types of collateral. For instance, a lender might accept a purchase order as collateral against a loan needed to fulfill the order. Depending on the type of collateral available to secure a loan, it might be wise to register your business as a limited liability company. By separating personal and business assets, this provides some protection to business owners in the event of a default.

 

Capacity

While credit and collateral are well-known concepts to business owners, the third C, capacity, may not be as familiar a term. Essentially, capacity refers to your business’ ability to repay a loan. Businesses that are just starting out will of course not have a track record when it comes to revenue, and, because their success will not be proven, banks will rely upon the strength of a business plan to determine capacity. Therefore, at the beginning of the loan process, it’s essential to draft a detailed proposal regarding how much money is needed and how it will be spent to boost revenue and enable your business to repay the loan.

 

Cash flow

Banks and other prospective lenders will also assess your cash flow, which refers to the inflow of funds that enables a business to pay its bills and meet other financial obligations. Once again, new businesses may not have an established revenue stream to point to; however, lenders will examine the business plan in light of factors such as off balance sheet debts, personal debts of the owners, vendor payment schedules and accounts receivable/payable. Lenders typically look for a debt service coverage of about 1.25, which means the business has yearly revenues about 1.25 times greater than the amount of debt it must cover annually.

 

Character

What could be the most important aspect of your business is your own character, showcased by your financial history. The bank will look at things such as your trustworthiness, whether you have a backup plan and how you will be able to respond to critiques and requests for additional information.

 

Although the 5 C’s offer an easy-to-remember framework for maintaining creditworthiness, devising and executing a strategy that addresses each of the C’s can be anything but easy. Small business owners might take advantage of resources to help in this endeavor; for example, by turning to the U.S. Small Business Administration affiliated non-profit organization SCORE. In addition to serving as a repository of general business advice, SCORE offers resources tailored to specific types of entrepreneurs, such as minorities, women, seniors and veterans. 

 

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