Business Performance

Coronavirus has disrupted the economy, shuttered businesses, and cause major uncertainty for small business owners. For some, it’s been easy to move their business online or continue fulfilling and shipping orders. For others, sales might have dropped, and you need working capital to pay rent.

After the announcement of additional funding for Small Business Administration loans, many small business owners thought that it would be easier to access capital. But while the program has more funding, loan qualification requirements haven’t been relaxed. Lenders will still need proof of income, tax returns, and more to approve your loan application.

Small business loans are a tool that can enable a small business owner to keep their doors open during a crisis, fund expansion, or support growth. Even if you don’t have a current need to borrow, you might in the future. Educating yourself about small business lending support successful borrowing.

Small Business Loan Requirements

Requirements vary by lender, with Small Business Administration or SBA loans having the strictest standards. With the exception of the disaster loans they offer, SBA loans are issued through approved lenders. The government backs a portion of the loan, which reduces the lender’s risk. Therefore, lenders charge lower interest rates on these loans.

SBA lenders prefer to work with businesses that have been in operation for at least two years. They rarely lend to small business owners with a credit score below 650. The average size of a small business loan from a larger bank is $493,000, so if you need a smaller size loan, try a smaller bank where the average loan size is $146,000.

Alternative lenders have much lower lending standards, but you’ll pay exorbitantly higher rates. Small business owners with credit scores as low as 500 can qualify, and they’ll lend if you’ve only been in business for two months.  Minimum revenues required vary, but typically start at $5,000 and up. They may want to be repaid daily by deductions from credit card sales or by automatically debiting your bank account.

A small business loan from an alternative lender will have rates between 12% to 45%. Some could charge prepayment penalties if you pay off the loan early. While they are a good option if you need quick access to capital and don’t meet more strongest borrowing requirements, this form of capital is quite expensive.

Documents Required to Apply for a Small Business Loan

Lenders tend to request the same core set of documents, most of which prove your business’s viability and revenue streams. This is the basic list, but a lender could always request more;

•   Last two year’s tax returns

•   Certified financial statements

•   A robust business plan

•   Statement of how you intend to use the funds

•   W-2’s and 1099’s as well as proof of any other forms of income

•   Investment account statements

An accountant must prepare and sign off on certified financial statements. Banks require this because it reduces the risk of misstatement, whether intentional or accidental. If you have investment accounts, personal or business, they could seek recourse from these accounts if you defaulted. Therefore, they’ll request to see statements with these account balances.

When you take out a small business loan, you may have to sign a personal guarantee. This gives the lender the right to go after personal assets - such as your house or car - if you do not comply with the loan’s terms.

If you are applying for an asset-backed loan - such as an equipment financing loan to buy a new forklift - the bank will request documents relating to the asset. These loans can be easier to get because the asset serves as collateral for the loan. If you default, the lender seizes the equipment and can recoup more of their losses.

Because of this, the collateral’s value matters, and the lender will likely request an appraisal. For large value equipment, they may order their own appraisal. When you apply, have any documentation that supports its value ready to provide the bank.

Improving your Odds of Getting Approved for a Small Business Loan

The easiest way to improve your approval odds is to know if you even qualify for the loan. If applying for an SBA Disaster Recovery loan, check to see if your governor has applied for the program already. Governors must first submit to have their state or an area in their state included in the program.

If your governor has applied and the SBA has issued a disaster declaration for your area, take a look at your financial situation and credit score. Be honest about how well you meet the lender’s requirements - if they will not lend to someone with a credit score below 650 and your score is 550, you would just be wasting your time to apply.

If you do meet a bank or other lender’s standards, you can further improve your approval odds by being prepared when you apply. Gather all the required documents before submitting your application. Banks have been swamped under loan applications since the government announced additional funding for the SBA, and if a mortgage broker has to call you back and request more information it delays funding.

What if you don’t have certified financial statements or a business plan? Meet with your accountant, either in-person or virtually, and have them prepare these documents before you apply.

Other Funding Sources

What if you can’t get a small business loan? 

You could consider taking on a business partner in exchange for an investment in your business, but make sure that you choose a partner who shares your vision for the business’s future. When you give up equity, you give up some of your say in how your business is run. 

Before jumping into a partnership, map out a long-term strategy. Try to find a partner who can contribute more than financially to the business, and have an exit plan for when it’s time to dissolve the partnership.

Credit cards are also an option, though they charge rates comparable to an alternative lender. Existing credit cards and lines of credit might not have limits high enough to meet your needs, but they could help during a temporary financial crunch.

Lastly, borrowing from friends and family or crowdsourcing funding is also an option. There’s likely a limit to the financial resources of your network, particularly during a recession. As well, it’s likely only a network you can tap once.

Bring in the Experts 

Before signing a small business loan agreement, talk to your accountant about how payments, upfront fees, and interest charges will impact your cash flow in both the short and long term. Successful borrowing won’t harm your ability to stay in business but will help you continue to reach your goals.  

If you’ve been relying on word-of-mouth, newspaper advertising, and local networking to bring in new clients, it’s time to expand your thinking. The internet isn’t just for selling products; even service professionals like accountants can build their customer base online.

While you may already have a website that brings in local clients, tweaking it in a few small areas can help you reach remote clients. Before you decide that you want to expand outside your city or state, here’s what you should know.

Pros of Remote Clients

One of the biggest advantages of signing remote clients is how it expands your client base. If your firm has captured most of the available business in a small town, where do you grow? You can try to add services and raise fees, but you’ll eventually hit a barrier. Your local market only represents so much opportunity.

With an online presence and the capability to work with remote clients, your market share grows exponentially. Keeping in mind that you must always comply with the rules of your CPA license, there is a lot you can do for clients who aren’t physically close to your offices.

Consider adding helping small businesses write business plans to your services. Offer special project work, like evaluating their leases against new accounting standards. As a bonus, many of these services can generate and sustain business through the slow season.

Essentially, even if you can’t prepare their state taxes, you can help a business domiciled elsewhere with many accounting-related consulting projects. You won’t just be growing your net income; you’ll also be developing your skillset and providing more intellectually stimulating opportunities for employees.

Cons of Remote Clients

Transferring data and documents can be difficult with a remote client. Unfortunately, they can’t drop their bank statements off at your office on their lunch break. Invest in a scanner, set up a secured file transfer website, or offer to pay for insured shipping to lessen this problem. Be aware that data breaches can happen, and could cause reputational harm, so send all files securely.

 It’s also harder to resolve issues with clients if you can’t communicate face-to-face. While Skype, Facetime, and other services make video conferencing easy and cheap, it still might be a struggle to solve complex issues without an in-person meeting where you can both sit down and go through documents together. Even getting on your client’s schedule could be tough.

Expect to put more work into maintaining the relationship and getting questions answered if your client isn’t nearby. Also, have a plan of how you’ll handle any miscommunications that may arise. Emails and texts can be misconstrued, and there may come a time when you have to jump in and smooth over an issue.

Finding Remote Clients

Clients in another city or state aren’t as hard to reach as you might think. Establishing a robust online presence is essential to bringing in remote customers.  

Websites and SEO

First, you’ll need a professional website. On it, include your company bios, areas of expertise, and credentials. Optimize your SEO, through blog posts and other methods, to hit your target audience. Maybe you don’t want to prepare someone in another state’s taxes, but you’re great at valuing assets in a divorce. Build out a content schedule that helps you rank for that skill.

When you decide to go online to find new customers, you’ll need to enlist the help of someone experienced in both web design and SEO. They can help you refine your buyer persona, or the type of client you want to appeal to, and craft a site that will draw them in.

Online Help Forums

Another great way to find remote customers is to frequent online help forums. Dedicate a portion of each day to answering questions posed by small business owners or your target audience, which relate to your business.

If someone asks on Quora what they should include in a business plan, jump in with an answer! It’s a chance to start building your online reputation and could turn into a potential new client.

Network

You should already be asking existing clients for referrals, but have you thought about asking them to refer you outside your state? Companies deal with vendors, suppliers, and customers that aren’t located geographically close to you all the time. But if you’re a local accounting firm, it might not have occurred to them that you offer your services to non-local clients.

Ask for referrals that extend beyond your local community. Once you have your first remote client, and after you’ve done a great job for them, ask them to refer you to companies in their network. This way, you can grow your reach.

What Kinds of Clients Should you Take On?

Any client that you add to your roster should support your overall business goals, but they can do so in several ways. If they’re both increasing your bottom line, but their project also deepens your expertise in some way, that one client may support multiple goals. When considering bringing on remote clients, however, you might want to start small.

If you’ve never worked with clients remotely, and if you’ve never used some of the technology tools necessary to manage the relationship, pick a smaller project. You want it to be a success, so don’t sign on for something that will tax your resources and skillset. Give yourself time to learn some of the differences between remote clients and those that can come into your office.

To increase your odds of success, you might want to start with clients whose projects are familiar and easy, something you’ve done a lot before. This will boost your confidence and ensure that you fulfill your commitments to them.

Tools Needed to Manage Remote Customers

To successfully manage remote customers, you’ll need access to a robust set of technology tools. Whether you decide to use Uber conference or Zoominfo for video conferences, you must learn and master these tools to succeed.

Before your first conference call, test the software you’re using. Do your microphones work, and can you hear clearly? Practice sending files to internal emails through the file transfer service you use before opening the portal to customers.

Before you roll out any technology to a client, be sure that it works properly, and you’re comfortable using it in-house. It’s embarrassing to have something go wrong during a sales meeting. Any time you plan on expansion, you’ll need to have the right resources and staff in place to support new clients.

If your growth has stalled, thinking outside your geographic area could kick it into gear again. Think outside the box, and outside your town, to expand your accounting business.

PPC, KPI, if you’re thinking of hiring someone to help market your accounting firm, you might have heard these terms. But what do they mean? There’s no reason for an accountant to find them intimidating because they’re all based on math. Each of them tells a story about how your website and marketing efforts are producing results.

Learning the basics of these terms, and how to interpret them, will help you make budgeting decisions for future marketing pushes. It also gives you a way to evaluate which ads, blog posts, or SEO efforts have connected best with target customers. Looking back on your social media marketing maps out a better path forward.

The reality is that while the internet and social media marketing appear to be free, it’s not. You will have to dedicate resources to advertising online, so you should know how to tell if you’re receiving a return on that investment.

PPC

PPC stands for pay-per-click, and it refers to when a company places advertising on a website and then pays the website owner “per click” through the ad. You might also see it referred to as CPC or cost per click.

You’ll hear it when discussing search engine advertising, where you bid to appear in the advertised results at the top or right of the screen. When someone enters a search term into Google, the search engine goes through all of the companies that have bid on that term. Google’s algorithm will look at the keywords used, the money the advertiser has bid, and the quality of the ad’s landing page when determining which ads to return in search results.

PPC can vary widely, depending on the keyword value and competition. You could pay $3 for a click, but if that click turns into $400 of business, it’s worth it.

CPI

You also might have to pay just for a target customer to see your company, ad, or social media post. This is your cost per impression or how much it cost you to put yourself in front of your audience. It builds reach and brand awareness, which eventually lead to sales.

To calculate this metric, take the total cost of your advertising and divide it by the number of impressions. To get the cost per mille, or cost for reaching a thousand impressions, multiply that number by 1,000.

If you are trying to gauge the effectiveness of one social media post versus another, this is a good metric. If one ad cost 0.50 to get in front of each person it reached, and another 0.30, look at what made the one ad more effective (cheaper) than the other. Then, try to replicate this in your next ad campaign.

CTR

Let’s say you tweeted out a link to your latest blog post. What’s your CTR? Click-thru rate goes a step further than CPI, telling you how many of the people who saw your post clicked through it. While CPI tells you who saw your ad, tweet, or Instagram post, CTR tells you if it interested them enough for them to click.

Calculate the click-thru rate by taking clicks and dividing it by times it was seen. Again, comparing the CTR between two posts can lead to further information about what interests your target audience, which social media platform they prefer to interact on, and if the language of your social media posts is effective.

Engagement Rate

While sometimes used interchangeably with CTR, your engagement rate applies more to social media posts where there is nothing to click. This could be a “like” on Facebook or Instagram. In addition to how many people see your post, how many interact with it? That’s your engagement rate.

Take your interaction with a post – the number of likes, shares, and comments – and divide it by the number of your followers to get your engagement rate. For example, if an Instagram post has 300 engagements, and your account has 15,000 followers, your engagement rate is only 2%. What is considered “good” will depend upon your industry and the social media platform.

CPA

This metric is relevant to both social media and your business in general. CPA, or cost per acquisition, tells you how much it costs to gain a new customer.

Get it by dividing your campaign’s total cost by the number of conversions. Online, measure a conversion by a sale, and Google Analytics will give you this percent in their reports. Offline, you could think of conversions as the number of new clients who have come to your business from online marketing efforts. Consider adding a “how did you hear of us?” question to your website contact forms or asking during an initial meeting to help gather this information.

KPI

Overarching all of these terms is KPI or key performance indicators. This refers to which of the metrics on the above list you have decided are important to your business. Your KPI will relate to the goals that you’ve set for your social media and digital marketing campaigns.

Is your goal to drive traffic to your website? Then CTR and CPC might matter more than impressions. Are you just trying to build brand awareness? You might put CPI higher on your list of KPI.

While these terms may be unfamiliar, they should not be intimidating. They are all numerical representations of effectiveness, similar to ROI in the accounting world. If you don’t want to handle your online marketing yourself, however, and have no clue how to optimize a landing page to rank better in Google’s search results, consider reaching out to CPA Gardens. We provide stunning websites and strategic marketing services guaranteed to produce results.

What are your 2020 small business goals? Do you want to increase revenues by 20%, decrease employee turnover, or launch a new product line? While making New Year’s resolutions, you’ve probably either thought of a direction for your business or made a detailed plan.

But have you thought about how you’ll free up the time and resources to support this plan? Whatever your business goals are for the new year, putting in the work to make them happen will likely pull you from other projects or duties. If you’re trying to figure out how you can make this happen without harming your core business, consider automating or outsourcing.

Passing along day-to-day functions to a trusted employee, a web-based tool, or another business allows you, the business owner, to focus on key growth initiatives. Here are some of the easiest and most effective tasks for a small business owner to automate or outsource.

Payroll and Bookkeeping

If you started small, with only one to two employees, it probably made sense to handle payroll and bookkeeping tasks in-house. Processing payroll could have taken less than a half-hour, particularly if you weren’t paying yourself yet. And fitting in the time for bookkeeping tasks like recording bill payment or income might have been easy during downtime.

But, as you’ve grown, devoting time to these chores might have become more of a struggle. As the business owner, your time might be better spent meeting with clients, supervising employees, ordering new stock, or in many other ways that better support your success. Hiring someone else to take care of these administrative tasks will free you up for other work.

It’s important to consider outsourcing these tasks before it’s an urgent need. Why? Because it takes time to transfer your books to a new software program or to train in a new bookkeeper. If you’ve decided to work with your CPA, as many firms have bookkeepers on staff and perform this service for their clients, they will have questions about how you’ve been recording things in the past.

Consider how these mundane but important tasks fit within your overall business plan for 2020. Are you planning for 20% growth and need to hire more employees to support this growth? What months do you forecast for this growth? Schedule an appointment to kick off outsourcing, or plan for it being fully in place before the growth happens.

Automate Payments and Bill Collection

Another way to ease administrative burdens is to automate bookkeeping tasks. If you haven’t already investigated n various cloud-computing and online accounting software programs. Quickbooks, FreshBooks, and others have auto-functions that save you tons of time.

Most major accounting software programs allow you to set up payment reminders on invoices and walk away. The system will send a follow-up notice on unpaid bills, usually via email, for you. No longer do you have to keep track of past due invoices or bills that you owe manually. Tired of taking credit card payments over the phone? Some small business software suites have integrated payment options, too.

Online banking also supports auto-payment, which will save you money in late fees if you often forget to pay bills on-time. Banks have embraced technology, too, and you can set account alerts if your balance dips below a pre-determined threshold, sign up for text messages if a bill hasn’t been paid, or get a push notification of a large deposit.

These tools help run your business more efficiently and allow you to dedicate your time to other projects.

SEO, Website Design, and Marketing

Unless you own an SEO and website design company, and your website serves as your calling card, it makes no sense for you to manage them in-house. There are plenty of independent contractors, and smaller businesses set up to help you outsource this work.

Maintaining a website can be simple or complex, depending upon your business. A web administrator pushes out updates, fix broken links, and monitor speed and performance. It’s unlikely that you need someone on-staff full-time to handle this work, but failing to keep your website up and running could cost you money.

Monitoring SEO and keyword performance, including metrics and site traffic, is a daily job. With search engine algorithms changing often and the need to post updated content regularly, it would be a full-time job for you to keep track of SEO and a content schedule. Content supports SEO in that search engines prefer to see that you’re updating your website regularly. It’s a signal that you’re providing value to website visitors and they should bump your site higher in search results.

But researching keywords, putting together a content marketing plan, and formulating a marketing strategy to reach your target audience is time and experience most business owners don’t have. Partnering with an expert, such as CPA Gardens, to maintain your website, monitor SEO, and market your business ensures success. They have the expertise to put together a great marketing plan and help you reach the customers you’re targeting to grow your business.

Scheduling and Appointments

Do you still book all your client appointments over the phone? If you run a service-based business or one dependent on appointments, manually making these appointments and following up on them takes valuable time.

Online scheduling programs that integrate with your website help you reduce staffing and save money. They also avoid overbooking problems, will identify gaps and slow times so you can plan for them, and help with scheduling employees efficiently. Many customers prefer the convenience of booking online and receiving text and email reminders.

There are numerous easy to use and inexpensive software programs out there, some of which target specific business types such as a salon or a dentist’s office. You can set them up to text appointment reminders or autodial and leave a message, which decreases the risk of no-show’s.

Administrative Tasks

Do you manage several team members out in the field? Does your business juggle multiple projects and deadlines? Or maybe you’re expanding and will need to manage a contractor for remodeling, employees for sales tasks, and more. Look into task management tools to make your life easier.

Tools like Asana and Trello allow you to add team members, contractors, and others to a group and assign tasks. These programs, and others, have apps and will send push notifications and email reminders of tasks and deadlines. Functionality includes the ability to create repeating tasks, such as a monthly reminder to submit mileage for reimbursement.

The capabilities of different task management software varies, but some programs have the ability to store and share files, create “to-do” lists, and track hours and miles. These could save you hours managing people and projects and reduce inefficiencies.

While many people won’t complete their New Year’s resolutions, you’ve already proven that you have what it takes to start and grow a successful company.  If you strategically outsource and automate in 2020, you’ll help ensure a successful year.

The first month of the New Year can be slow for a small business, particularly seasonal businesses. While you may be glad for a chance to take a break after the holiday rush, now is a good time to take stock of several key aspects of your business.

There’s more to running and growing a successful business than keeping the lights on, but many small business owners get so wrapped up in daily operations that they don’t have time to analyze their business. If business has slowed in the first month of 2020, here’s everything that you should evaluate before going into the new year.

Actuals versus Budget

If you didn’t get around to it when preparing your 2020 budget, you should look at your actuals versus budget in the last year. A comparison of what you thought your cashflows would be to what they were can be enlightening.

Most businesses compare actuals to budget monthly. This can help you identify cash flow gaps, such as when bills came due, but customers hadn’t paid their invoices. Use the information gleaned from this comparison to budget better for the coming year. It can also help with planning for collections activities, allocating employee resources, and future inventory needs.

Product Lines and Service Offerings

Dig deeper into your financial performance. Did a product line perform unexpectedly well? Did something consistently sell out? This could indicate that you need to adjust inventory reorder levels, or perhaps shift your business to carry more related products.

Analyzing product sales, inventory turnover, and profit margins identifies growth opportunities. It also tells you where you might need to drop a product line. Maybe something sat on the shelf or in inventory twice as long as other items. Or, sales of a formerly bestselling item have now slowed considerably. This could be due to lack of demand, or perhaps your sales associates have stopped mentioning it to customers.

If you’re a service-based business, you can do the same. Do you offer a service that customers aren’t utilizing? Or, have customer surveys indicated that they’d like you to add something? You might need to expand your services, or cut some, or market others more. Digging deep into the data behind your sales can provide direction and cost savings for the coming year.

Evaluate Employee Performance

Even if you have a formal employee evaluation process, it’s a good idea to look at employee performance as it relates to your sales, revenues, and last year’s budget.

As mentioned above, a dip in product sales doesn’t always correlate to a lack of customer demand. Did your salespeople neglect to sell a product? Why? Maybe they don’t understand it and aren’t sure how to sell it. Or, perhaps, you need to adjust your incentives to align more with your sales goals.  

An analysis of employee performance when compared to revenues and budget could indicate a need for more training, an employee who needs to be replaced or put on probation, or one causing budget overruns in their department. It could also help, when laid alongside your budget and growth plans for 2020, to reveal where you might need to hire more staff. Consider outsourcing and automating some tasks.

Communicating the results of your analysis to employees could help them do their jobs better but use discretion. You don’t want to scare key employees into leaving, but learning about how sales stacked up to predictions, and which of their services were most in demand, could help them set their professional goals.

While employees bring more to your business than numbers, and offer intangible benefits, taking stock of how they contributed financially in the last year can provide direction going forward.

Re-Evaluate Contracts for Savings

The slow season is a great time to re-evaluate all insurance policies and vendor contracts for savings. Ideally, business owners should look at these policies on an annual basis, but if they come up for renewal when you’re busy, you might have just signed on the dotted line without reading the details.

If it’s been a while since you reviewed out your business liability insurance, worker’s compensation insurance, or other insurance policy, pull them out and start reading. Your business needs could have changed, but your policy stayed the same. For example, perhaps you have fewer or more employees now and need different worker’s compensation coverage.

Compare vendor contracts against actual invoices. Did the vendor agree to waive a charge, but their bookkeeper forget and have been billing you for it? Now is the time to identify any discrepancies or any services that you could cut. Maybe you paid for something you ended up not using and could drop it the next time the contract comes up for renewal.

Even if your policies and contracts don’t come up for renewal for months, you can solicit quotes from competitors and compare them now. That way, you’ll be prepared and ready to make a change or negotiate with current providers in the future.

Put Together Goals for the New Year

All of the data you’ve just gathered and analyzed will feed naturally into goal setting. Where do you want to be in a year? Are you happy with the direction you’ve been going? Analyzing products and services might have shown you where you need to cut or expand, but what concrete steps will you take to get there?

Goals should be actionable and informed by data. Ask yourself what the sales, product, and services data you just looked at told you, and use that information when writing goals. 

If pulling together and analyzing data isn’t your strength, talk to your accountant. Enlist their help in either calculating or explaining the numbers that underlie your business. They can be a greater resource than simply preparing your taxes and are likely eager to help you succeed.

While you should definitely give yourself time to recharge in the slow season, it would be a mistake to neglect the opportunity to take stock of your company’s situation and decide where to make changes.  

Whether you’re setting up your new business for the first time or simply switching financial institutions, choosing a business bank account is an important decision. It can affect everything from how long it takes you to travel to your branch to your business’ cash flow. It’s not a decision to be taken lightly or made based on some temporary advertising gimmick. We’ve all seen those fliers in the mail touting 3 free months of checking or a one-time deposit bonus. As a business owner, you need to look beyond the surface and dig deeper.

How the Wrong Bank Account Can Hurt Your Business 

There are all kinds of business bank accounts. Each bank has their own set of terms. Your job is to make sure those terms match up with your business needs. If they don’t, your business could suffer in very tangible ways. Here are some examples of terms that could be problematic if the account doesn’t suit your business:

Extended Holds on Large Checks 

It’s very common for some businesses to receive checks over $10,000. It’s also common for banks to put holds on large checks over that amount. Hold times will vary among institutions. In addition, some banks will eliminate holds on certain large checks if they are from an established client. For instance if you get a $25,000 check from the same client each month, eventually your business account manager might waive the hold and allow you to have instant access to the funds. Other banks are firm and rigid and won’t release funds until the hold time is complete. Further, some banks have extended hold times that may last between 7 and 10 business days.

Hold times can severely impact your cash availability and cash flow. You can’t safely pay your own bills with that money until the hold is released. This can (and eventually will) cause problems at certain slow times of the year when your business really needs the cash. Look for a bank with shorter holds on large checks and a manager who will agree to waive holds on repeat client deposits.

Fees on Deposits 

Many business bank accounts charge fees on deposits over a certain limits. For example, an account holder may be entitled to five free deposits each month. After that, each deposit carries a $2.50 fee. The system seems strange, but for whatever reason, this is a new trend in banking. Now, if you’re a business that only makes a few deposits each month, fees on deposits aren’t really a big deal because you’ll likely never incur them.

However, if your business makes frequent deposits, these fees will add up fast. You may even end up holding onto deposits so you can batch them together and avoid the fees. But then that negatively impacts your cash flow. Consider how your deposit schedule will work with the terms on any business bank account you’re considering. It may be worth it to choose a bank and account with no limit on deposits so you never have to give it a second thought.

Minimum Balances 

Minimum account balance requirements are very common these days; in particular with business bank accounts. Banks want to know that you’ll keep a certain amount of money in the bank so they can count on it to do business. A negative incentive to keep a minimum balance in there is that the bank will charge you a hefty monthly service charge if your balance drops below that amount. There may even be a daily service charge for each day that your business bank account is below the minimum.

If you’re a large corporation with millions in the bank, a minimum balance requirement is probably not a big deal. But if you’re a small or medium sized business, you may commonly have large fluctuations in your bank account balance. You may even have seasonal fluctuations that are really beyond your control.

Adhering to minimum balance requirements might seem like a reasonable request in the beginning when you’re flush with cash. But how will you feel about it when you have payroll to meet and the money’s in your account, but you can’t use it without incurring penalties? Or when some catastrophe strikes and you need to use your cash resources to get up and running again? Your best bet is to choose a business bank account with either no minimum balance requirement or one with a very low minimum.

Proximity to Your Place of Business 

A smaller yet still important concern is the proximity of the nearest branch to your place of business. Even if you do most of your business banking online, sometimes a visit to a branch may be required. You might have a new manager you want to add as a signatory, a loan application to discuss, or some other matter that necessitates an in-person visit.

If the bank branch is far away from your place of business or residence, you may find it highly inconvenient to do conduct bank business. This can impact how much time you need to spend out of the office and how long it is before you arrive home each night. It can cause scheduling problems if you need to send someone to the bank with a deposit and you’ll be left short-staffed while they’re gone. For long-term convenience, try to choose a bank that’s within an easy drive of your business. Only you can determine how long of a distance you can tolerate on a frequent basis.

These are some of the most important considerations that you should think about when choosing a business bank account. As you can see, many of them are about the bank and not the account itself. If you have any questions about which one to choose after you’ve spent some time comparing and contrasting various options, please feel free to contact us. We’ll be happy to help you select a business bank account based on your business needs.

It may be the first gorgeous day of fall, but it won’t be long until April 15 comes knocking. Be prepared for next year’s tax deadline by beginning your preparations today. That means, as a small business owner, now is the perfect time to begin organizing receipts, collecting owed payments and deciding on year-end purchases. Do it now, and you won’t have to dread facing it in the spring. And if the task seems too overwhelming, remember – we’re just a phone call away to help you get through it.

Clear Outstanding Invoices

Organization is king, especially for anyone who owns a small business. If you haven’t already, begin getting things in order by clearing any outstanding invoices. Make those collection calls to clients who’ve been slow to pay. Studies show that the longer you allow unpaid debt to linger on the books, the less likely you’ll be to ever receive payment. And here’s another tip: Hire a certified bookkeeper to make your collection calls. A certified bookkeeper understands the language of collection calls, and what you are and aren’t permitted by law to say. Keep yourself and your company out of the legal doghouse by letting a pro handle this end of the business. By hiring someone else to do the handle the collections, you’ll also have a buffer so you can maintain amicable client relations.

Understand Your Startup Deductions

Is this your first year of operation? If so, you may be able to deduct pre-startup costs such as the training of management and lower-level personnel; travel expenses incurred while locating distributors, vendors, and even customers; advertising and consulting fees, and more.

In most instances, it costs a lot to get a new business up and running. This is especially true if you’re building from the ground up. Talk to a professional CPA about which expenses you can and can’t write off for the year and do it now, before the big tax rush of spring.

See If You Qualify for the R&D Tax Credit

Does your business create things? Are you a developer? Do you work at improving products or services that are already in circulation? If so, you may qualify for a research and development tax credit that saves business owners millions of dollars annually. Many business owners qualify for this advantageous credit, but few claim it simply because they’re unaware that it exists. If you are in business, for example, to develop software, search for ways to grow increasingly organic produce, or are inventing a new kitchen cleaner that’s harmless to the environment, you could take advantage of this terrific perk. Check with an accountant to find out if your business qualifies.

Organize, Organize, Organize

Hopefully, your receipts aren’t a mess, but if they are, you’re not alone. Many small business owners find bookkeeping to be a daunting task. Sadly, it’s a necessary evil when tax time rolls around. Shoeboxes filled with scraps of paper receipts isn’t what your tax preparer is hoping to see come next spring, so take care of that organizing task right now. For best results, consider going digital and using cloud storage to keep receipts, invoices and bills organized. Your accountant will thank you come tax time.

Separate Business and Personal Expenses

Make sure you have a firm understanding of what constitutes a business expense before documenting it as such. According to the IRS, certain expenses are definitely deductible:

• Business use of your home
• Business use of your car
• Employee pay
• Retirement plans
• Rental expense on your storefront
• Insurance
• The cost of goods sold

There are other business deductions you may qualify to take as a small business owner, but it’s essential that you understand what they are. The differences between a personal and business expense may sound elementary, but gray areas exist that could cause confusion.

Basically, a business expense is the cost of operating a business. Advertising, overhead, and the cost of a plane ticket to travel to a business conference are deductible. Furthermore, keep your business receipts separate from your personal receipts from day one to avoid confusion and a potential tax audit.

Adopt the Correct Legal Structure for Your Business

Are you operating as a sole proprietorship or an LLC? Both have different tax laws you’ll need to follow. C Corporations and S Corporations do as well. Make sure your small business is operating under the right classification, and you could save significant tax dollars. If you’re unsure where your company falls regarding its legal structure, here’s a brief reminder:

Sole Proprietorship

This option will get you started right away, but it also leaves you completely open to litigation. As the sole proprietor of your business, you declare profits and losses via your regular tax return. This structure is the easiest one to set up.

Limited Liability Corporation (LLC)

As the owner of an LLC, you’ll have some protection from litigation. It’s easier to attract investors and gain capital as an LLC, but the formation of the structure costs money as well.

S Corporation

An S Corporation can issue stock to shareholders, though the amount is limited. There’s some liability from litigation, but this structure is complex to set up and maintain with reporting and paperwork required.

C Corporation

A C Corporation status gives you the most protection from litigation, but it’s also the most complex to maintain. You’ll file corporate taxes as a C corporation and much regulatory and legal reporting is required.

Don’t delay in preparing your company records for next tax season. Understand your allowed deductions. Know where your company stands legally. And most of all … get things organized ahead of time.

Thirty percent of all new businesses fail within the first two years, according to the Small Business Association. Disorganization and confusion regarding taxes don’t help. Call us today for help getting ready for tax season. Our friendly and professional staff is knowledgeable in tax law, and we’re standing by to answer your tax-related, small-business questions.

Sources:

https://www.tonyrobbins.com/wealth-lifestyle/the-smb-write-off-checklist/

https://www.nfcc.org/resources/blog/top-10-tax-preparation-tips-for-small-business-owners/

https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses#personal

https://quickbooks.intuit.com/r/legal-taxes/pros-cons-every-business-structure/

https://www.investopedia.com/slide-show/top-6-reasons-new-businesses-fail/

If you’re a small business owner struggling to make payments on credit cards and loans you might have been wondering if consolidating your debt would be a good idea. Debt consolidation companies often target those with high balances, sending letters and calling with promises to lower your monthly payments and save you money.

But do these companies really do what they promise, and can they help your business? Here’s everything you should know before applying to take out a debt consolidation loan.

What is Debt Consolidation?

During the start-up or growth stages of a small business many small business owners take on debt. Because you need capital to grow, you may open a small business credit card or a line of credit, or take out a short-term loan. After a while you may find yourself with multiple loan payments to juggle every month.

Debt consolidation combines all of your debt into one loan. Instead of owing money to multiple lenders, you owe to just one company and only have one monthly payment.

What are the Pros and Cons of Debt Consolidation?

There are many pros to debt consolidation.

If you struggle remembering to make all your payments, now you only have one payment to worry about. And you can set up auto-withdrawals from your checking account and forget about it. You can pay off higher interest-rate debt with your consolidation loan and save money on interest and other fees. Because less of your monthly payment goes to paying interest, you can pay down the principal balances faster.

The cons of debt consolidation first relate to your spending habits. It will not solve cash flow problems if your business is spending more than it makes in revenue. If you consolidate and pay off debt and then immediately charge up balances on a business credit card you could worsen your financial situation. And you should be absolutely sure that the debt consolidation will save you money and hassle overall.

Another con to debt consolidation is that it often extends the debt repayment term. If you’re only a few months or a year away from paying off a loan but you consolidate it with other debt you could add another two to three years to your repayment period. An extended repayment term could lead to a higher cost of capital overall.

Variable or Fixed Interest Rate

One of the reasons that many small business owners look into debt consolidation is to convert variable rate debt into fixed rate debt. If you have a loan or credit card that has a variable rate, typically based upon Prime or LIBOR, your monthly payment can fluctuate. This can make budgeting difficult.

When you consolidate debt into a fixed-rate debt consolidation loan your monthly payment won’t fluctuate. It makes budgeting and planning to pay off the loan’s principal easier. When you’re shopping around for a debt consolidation loan make sure that your lender is offering a fixed-rate product.

If you consolidate debt into a variable rate product, such as another credit card with a lower interest rate, you could run into trouble. If Prime rises and you’re then paying more interest on the loan product you used to consolidate you could end up paying more interest and fees in the long run.

Simple Interest Rate vs. APR

Don’t be fooled by a simple interest rate that’s lower than your current interest rate, always ask for the APR. A simple interest rate is the pure interest rate you’ll pay on your loan’s capital. If a bank advertises 5.5% on their website, read the fine print. This rate doesn’t include fees and other charges.

An Annual Percentage Rate, or APR, is more reflective of your true cost of capital. It blends together the simple interest rate, fees, and other costs to the loan to give you a more accurate representation of the loan’s true cost. If you’re talking to a lender about debt consolidation, ask them to provide you with the loan’s APR.

Often, once the origination fees, underwriting fees, and more are added into the cost of capital the loan consolidation may not save you as much money as you thought it would. Make sure to get a full and complete list of all fees before deciding on a loan. Being able to compare the APR between your current loan products and the debt consolidation product that you’re considering will help you make a wise decision.

Check for Prepayment Penalties

Before signing on the dotted line to consolidate your debt you should look into a few more things. Some lenders charge a prepayment penalty on their loan products. This is because when you pay off a loan early they’re not making as much money on it as they had planned. The prepayment penalty helps them make up some of that lost profit.

If you’re unsure if existing debtors will charge you a prepayment penalty call and ask before arranging to pay off the loan early. If one exists, it could wipe out any cost savings from consolidating your debt.

Will it Impact your Ability to Obtain More Credit?

When putting together a business plan you might have planned for a debt consolidation and then to take out another loan for a business expansion.

Banks look at your leverage when deciding whether or not to lend, and it also impacts your credit score. Leverage is the amount of your business that is financed by debt. If you take out a new form of credit to consolidate your debt, for example a credit card that’s interest-free for a year, and immediately close all other forms of credit it could actually hurt your credit score.

A component of your credit score is the ratio between your open lines of credit and the amount of capital you’ve borrowed. The higher this ratio creeps, the more it negatively impacts your score. For example, if you have total credit available of $50,000 and have borrowed $35,000 you’re using 70% of your available credit. This will negatively impact your score.

How does debt consolidation come into play? Let’s say you have a credit card, a loan, and a line of credit all open with available credit of $50,000 and have taken out $25,000 on all of them combined. Your current credit utilization is 50%.

Then you decide to consolidate and move 100% of that debt to one credit card with a limit of $35,000. You close all other forms of credit. Your credit utilization ratio is now 71%, which looks much worse. Banks may not be willing to grant you any more capital and your credit score could take a hit.

In this example, you’d be better off consolidating but also keeping the other forms of credit open. Your credit utilization would then be 29% and you’d have better odds of obtaining more capital, if needed.  

In conclusion…

Debt consolidation loans tempt many small business owners struggling with cash flow but they may not be the right choice for you. Try using a debt consolidation calculator to determine if consolidating your debt will truly help your business.

If the numbers are unclear, talk to your accountant or financial advisor about setting up a budget or other options to help you pay off debt faster. They can help you with some of the calculations and guide your debt consolidation decision.

When it comes to getting work done in your business, you have the option of hiring independent contractors or traditional employees. Both types of workers can get the job done, but there are pros and cons of each that you need to be aware of.

Pros of Hiring Employees

There’s a reason why most companies make the commitment to hire traditional employees over independent contractors. Most companies need the stability of having the same employees day after day, in addition to the following three benefits.

Higher Qualifications

Employees tend to have higher qualifications and more education than independent contractors. When a person has acquired a professional degree or trained for years in a certain industry, they tend to go for jobs that will offer security, stability and substantial pay. Conversely, when a company is looking for solid experience and background, only a traditional employee will do.

More Company Loyalty

Employees exhibit more company loyalty than independent contractors. That’s because in a traditional employer/employee relationship there’s an understanding that the situation is long-term. Employees know that their success is tied to the company’s success, and they’re usually willing to work harder for a company that they know stands behind them. That loyalty is enhanced when the company makes efforts to reward employees who demonstrate commitment and dedication.

Better Company Culture

A company with employees is likely to have a better company culture than one that simply uses independent contractor. Traditional employees tend to think of their fellow employees as members of an extended family. As such, there’s a sense of community that exists, even if it’s informal or not officially recognized. Birthdays are celebrated, company outings are organized, and groups of employees may even opt to socialize outside of work.

Cons of Hiring Employees

Of course, hiring traditional employees has its downsides, too. Following are some of the drawbacks to consider:

Payroll Taxes

Payroll taxes often represent the biggest chunk of monthly expenses that a company faces. Whenever you have employees, you’ll have payroll taxes to take care of. This will never go away unless you decide to switch to hiring independent contractors.

Benefits Package Expenses

Businesses with as few as 49 employees are required by law to offer insurance. While that’s great for your employees, it does represent a financial burden, especially for smaller businesses. And, employers know that a generous benefits package attracts more qualified job candidates.

Salaries to be Met Regularly

When you have traditional employees on your staff, you have to meet salaries on a regular basis. Every two weeks or so, you need to come up with the cash to meet payroll, even if business hasn’t been good. Your employees get paid no matter how many sales you make in any period of time. That’s a heavy responsibility, which is why you need to carefully consider whether you should be hiring employees or independent contractors.

Pros of Hiring Independent Contactors

It’s probably clear that by now that there are many pros to hiring independent contractors. You’ll never run out of independent contractors to hire, either. There’s always a big talent pool to draw from, no matter what your industry is.  Here are more benefits to consider:

Fewer Taxes

You’ll have significantly fewer taxes to pay when you hire independent contractors over traditional employees. Independent contractors are responsible for their own federal, state and local tax payments, as well as their own Medicare and Social Security contributions. All you have to do is pay your independent contractors the sum they’re owed. Just be sure to get their tax ID number so you can send them a 1099 if you pay them more than $600 in one calendar year.

Easily Downsize When Business Slows Down

When you hire independent contractors, you don’t have to worry about being overstaffed when business slows down. If you find that you have too little business to keep workers occupied, you can simply not hire independent contractors. When business picks up, you can temporarily hire more workers to fulfill your business demands.

Hire and Fire at Will

Speaking of hiring and firing, you can do both of these at will when you use independent contractors. Unlike traditional employees, you don’t need to have a reason not to use a particular independent contractor for future work. Their work can be “on demand,” which means you use them when you want and don’t use them when you don’t want. This frees you from any need to have “just cause” when you no longer wish to have a certain independent contractor working for you.

Cons of Hiring Independent Contractors

Hiring independent contractors isn’t perfect, though. There are plenty of reasons to avoid using independent contractors, which are outlined below:

Customer Relations Could Suffer

It might not work to hire independent contractors for front-facing jobs. Independent contractors might not deliver the top quality level customer service that you’d like to see. Also, if customers are always interacting with a different company representative, the relationship between your company and your customers can’t really develop.

Vulnerable to Injury Claims

Since your worker’s compensation insurance doesn’t likely cover independent contractors, your company could be more vulnerable if one of them gets injured while working for you. Of course, a separate liability insurance policy may bridge this gap, but that’s an added expense so it’s something to consider.

Need For Accurate Records

Governments want to ensure that all records are accurate when a company uses independent contractors. This is partially because independent contractors are liable for their own tax payments, and some may try to get out of paying tax entirely. To cover your own position, you’ll need to carefully monitor how much you’ve paid your independent contractors, ensure that you send out 1099s by the January 31st deadline and adhere to all other government regulations regarding this non-traditional workers class.

As you can see, there are positives and negatives about hiring employees and independent contractors. Rather than choosing between the two, some businesses may even find that having a mix of employees and independent contractors is the most practical solution. Ultimately, you’ll need to decide which option works best for your business needs.

Managing your company’s accounts receivables is one of the most critical aspects of fiscal health. Yet, many business owners fail to effectively handle their accounts receivables, either directly or indirectly. Poor accounts receivables policies can lead to a bevy of problems involving client relations, cash flow, tax return complications and even legal issues. Seven of the biggest mistakes in handling accounts receivables are outlined here, with advice about how to avoid each one.

1. Letting Accounts Receivables Age Too Long

The longer your accounts receivables age, the more of a threat they become to your cash flow. Also, the longer you let these sit without contacting the debtor the less likely it is that you’ll ever get paid.

Run your aging accounts receivables reports weekly to stay on top of things. As soon as a receivable becomes over 30 days due, you should take action. This can be with an email reminder, a phone call or a statement notice. This will help prevent cash flow problems in your company and remind debtors of their obligation to your company.

2. Not Complying With Debt Collection Laws

Your accounts receivables team needs to be aware of the collections regulations in your area. In addition to federal laws, there may be state laws in place that govern collection calls. If anyone in your company falls afoul of the relevant laws, your company would be vulnerable to legal action.

Since overdue debt collection is such a sensitive issue, it’s good practice to designate just one person in your company to make collection calls. That person would be responsible for keeping abreast of regulations as well as for keeping detailed records of each call. An added benefit to this method is that the debtor has just one point of contact in your company to communicate with regarding the issue. This makes things simpler on their end whenever they need to call with updates.

3. Allowing Only One Payment Method

Often, your debtor wants to pay their bill but can’t because of cash flow problems. They won’t necessarily come out and say it because that would be admitting that they don’t manage their own cash flow very effectively or that they don’t have any liquid savings. When you only allow one payment method, you’re inadvertently restricting your clients’ ability to pay.

Offering more than one or two payment methods is a way to give overdue debtors a chance to settle their account with you in a way that they can financially manage. You could either offer multiple payment methods to all your clients or make it a special offering exclusive to overdue debtors. Suggestions include:

• credit card payments

• in-house debt financing with interest

• interest-free installment payments

• automatic deductions from their bank

4. Not Sending Reminders

When you fail to send reminders of an overdue debt, it’s easier for a client to “forget” it. By keeping silent about it, you’re sending a subtle message that the debt isn’t important enough to you to take action. And if it isn’t important to you, it surely won’t be a priority to the debtor.

Reminders give your debtors slight pressure to get overdue bills taken care of. They keep your overdue receivables in the foreground of their minds instead of allowing them to be easily forgotten. Reminders also subtly let your debtors know that you haven’t forgotten the debt and that you don’t intend to.

5. Extending Credit Indiscriminatingly

The fastest way to draw the short stick with your accounts receivables is to give generous credit lines to non-creditworthy clients. Odds are high that if they didn’t pay their bills with previous companies they aren’t going to pay yours either.

Don’t implement a company-wide credit policy. Instead, whenever you take on a new client for whom you will be extending credit, contact references for payment histories and/or perform a business credit check. That way, you’ll fully understand your level of risk and can make independent credit decisions accordingly. Don’t feel like you’re crossing boundaries with this simple check. Reputable companies with nothing to hide almost expect it.

6. Omitting Overdue Payment Policy on Invoices

When you fail to state your company’s policy on overdue payments, you give your debtors excuses and leeway to not pay your accounts receivables on time. Omitting overdue payments policies also severely limits your available recourse in the event that you need to take legal action.

Your overdue payment policy should be clearly stated on either the front or back of all your invoices. if you choose the back, be sure to put an asterisk comment on the front that indicates that the full policy can be found on the back (or second page, in the case of a digital invoice). Also, best practices dictate that overdue invoices should start accruing interest after a certain amount of time. Be sure to state your interest policy as well.

7. Having Too Lax of a Credit Policy

When you extend generous lines of credit to clients, you’re essentially shouldering that debt yourself. If your credit policy is too lax, you could ultimately inhibit the growth and stability of your company. Too lax credit policies include:

• excessive lines of credit

• little to no interest accrual on overdue debt

• no pre-credit background checks

• no definitive aging policy when final payment is due

• no set repayment plans

Carefully consider your company’s ability to hold debt. Can you really afford to let your clients go for long periods of time without paying? How will that affect your cash flow?

While it’s good business to extend some lines of credit to certain valued clients, you should spend time fleshing out a detailed credit policy that protects your interests. If you need help ensuring that you’ve covered all the bases with your credit policy, contact your trusted financial advisor.

Remember that the condition of your accounts receivables impacts your own business credit, stability and reputation. These are the biggest mistakes that commonly occur with accounts receivables. Avoiding them will enable you to keep your company financials in the best possible shape.