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Monday, January 7, 2013

5 Financial Tips for the Home-Based Entrepreneur

5 Financial Tips for the Home-Based Entrepreneur

By Bernard R. Wolfe & Associates, Inc.

    Here are 5 financial tips that will help entrepreneurs be more successful in their business ventures:

1.    Build an emergency fund. Before you even start your business, you should make sure that you have a nest egg to fall back on since most new business owners struggle the first few years.

Financial advise for the busy home business business owner.

2.    Manage the cash flow. The money has to keep flowing in, or business will come to a halt. Also make sure that if you have a business that’s seasonal, that you save for the times when business is slow.

3.    Skip the office. If possible, work out of a home office as long as possible. A portion of the business related expenses may be deductible on your tax return.

4.    Take advantage of retirement plans. You may be able to put away significantly more tax deductible contributions into a SEP IRA, Single 401(k) plan, or a defined benefit plan depending on your corporate structure and profits.

5.    Work with a tax advisor. Work closely with a Certified Public Accountant who specializes in working with small business owners to help decrease their taxes and to keep them in compliance with the IRS. HBM

Bernard R. Wolfe & Associates, Inc., has provided financial management strategies and investment services since 1981. The company also offers professional women’s financial planning services, led by Samantha Fraelich, a CERTIFIED FINANCIAL PLANNER™ Professional. Visit the website at View the original article here

Accounting and Finance Tips

For Emerging Growth and Startup Companies

By The Reznick Group

Entrepreneurship continues to flourish across the United States and abroad. Emerging growth and startup enterprises focus their finances and resources towards product development, proving a concept, and growing revenue. Limited startup capital and resource constraints dictate priorities as to where money should be spent, and rightly so. However, financial accounting and tax matters should not be overlooked, even in the earliest stages of a company’s life cycle.

Reznick Group’s Growth Markets Practice in Tyson’s Corner, Va., has built its reputation working with companies through challenging times, helping to analyze business opportunities and maximize tax savings. Over the years, they’ve seen patterns in what makes some businesses thrive while others struggle and fail to take advantage of opportunities that are presented even when the market is down.

Following are some accounting and finance tips to help ensure business success:

Purchase an off-the-shelf accounting package. Avoid using spreadsheets to track your receipts and expenditures. Create a detailed chart of accounts that includes the types of assets, liabilities, equity, revenue, and expenses that are relevant for your business.

Conduct solid record keeping and banking.

Keep all business expenses/income separate from personal.

Open a business bank account with a start up and venture friendly bank.

Restrict access to checks and bank accounts. Decide who has the authority to sign checks and up to what dollar amount.

Maintain copies and organize (by vendor and/or account) all invoices and/or receipts for any expenses of the business.

Document on the invoice when it was received and how it is ultimately settled (credit card, check, etc.).

If you pay expenses from personal funds, maintain documentation for these and note as to whether it is a capital contribution or whether you expect to get repaid by the Company. If you anticipate repayment, document the terms of the advance or note payable including the interest rate and repayment terms.

Consider implementing an expense report process to reimburse owners or employees for business related expenses.

Code each invoice to a general ledger account.

Reconcile and/or roll forward balance sheet accounts monthly. Bank accounts (cash management)Fixed assetsPrepaid expensesAccounts payable and accrued liabilitiesIntercompany or due from shareholder accountsEquity

Focus on cash management.

Create cash flow projections for planned business activities (suggest 5 year plan, but focus heavily on next 3 to 12 months).

Manage cash balances daily or at least weekly and evaluate your monthly burn rate against your cash flow projections.

Establish payment priorities. Make sure that all necessary bills from critical vendors are paid on time. Taxes, payroll and any withholdings associated with payroll should be remitted timely. Failure to pay these items will cause significant problems for you and other officers personally.

Determine proper operating metrics. Ensure that Operational Revenues and Cost of Sales are clearly segregated from other accounts, so that you can quickly review performance and set meaningful goals.

Create customer and sales metrics.

Sales pipeline (assign probabilities of success and set sales goals)

Sales per employee (creates visibility into value added hiring)

Customer acquisition cost and payback period (creates window into growth potential of your business)

Determine the type of entity structure (C corporation, S corporation or limited liability company) and capitalization of the entity at inception of your business (Founders shares/Common shares and associated vesting). Maintain accurately ownership records going forward.

General Business Considerations

Following are some general business considerations to also help growth and start-up companies:

Apply for a federal identification number with the IRS on the IRS website ( if the entity will have calendar versus fiscal year end. This decision needs to be made no later than 2 ½ months after the month selected for yearend by filing a tax return or valid extension.Legally register to do business in the state you are located in any state that you do business in. For most states, you can complete registration forms online. This will register you for payroll taxes, sales taxes and personal property taxes.For federal payroll purposes, you will need to apply with the IRS for electronic payments. They no longer accept vouchers/checks.Depending on the number of employees, it would be advisable to work with a payroll company such as ADP or Paychex for your payroll filings. There are many rules and they are always on top of the necessary filings.Investigate multi-state filing and Nexus issues depending on where and how you do business in various states.Consult with your insurance provider concerning workers compensation insurance and other business liability insurancesTax Reporting may be required for the following: Interns and/or employees where lodging is/was provided.Any persons receiving consideration for their services (Form 1099-MISC or W-2s) due by the end of January.Consider first year tax elections. For example, as a C Corporation, an election would need to be made in year one to capitalize Start-Up Costs and Research & Development Costs. An S Corporation election must also be made within a specified time period in order to be effective for the current tax year.

"While these tips may sound simple, many companies are so busy trying to keep their businesses running that they overlook some of the basics," said Mark Hooley of Reznick Group’s Growth Markets Practice. "We see so many businesses make the same mistakes, so we put these tips together to let businesses benefit from what others have learned the hard way." HBM

Reznick Group is a top 20 national accounting, tax and business advisory firm founded in 1977 and headquartered in Bethesda, Maryland. The firm maintains offices nationwide. Reznick Group’s Growth Markets Practice, located in Tyson’s Corner, Va., focuses on helping entrepreneurial, growth-oriented companies address their audit, tax, and business needs. For more information, visit

View the original article here

Raising Money Through the Small Business Administration SBA

7 Tips for Landing an SBA Loan
By Rachel Zippwald

While SBA loans are available, it may take a bit more work to obtain one and banks are requiring more information than they have in the past. Rachel Zippwald, Vice President of California Bank & Trust, a major SBA lender, recommends following a few tips to facilitate getting your SBA loan approved.
1. Provide details on exactly how much financing you need and how you will use it. Banks like specifics, so be prepared to provide a precise dollar amount and give details of how you will use the funds. Banks are impressed with research, so provide a written quote for the equipment. If you’re planning to consolidate debts and refinance for a longer term, provide copies of your promissory notes and state how much you think you can save with the refinance. Detailed loan amounts with copies of bids, promissory notes or proposals can help strengthen your loan package, because your lender can understand the

Take the time to thoroughly explain the nature of your business, your vision, and your background to your lender.

facts backing up the request.
2. Provide information about company management. When banks lend money, they like to understand who runs the company and to be familiar with their backgrounds. This is a key factor in presenting your loan for approval. Help your lender by providing a resume for each owner or key employee, and describe their functions and responsibilities. If certain key positions have not yet been filled, include a thorough job description of the type of person you are seeking. This will confirm for the lender that you have analyzed your needs and have determined the requirements of the position.
3. Be prepared to offer collateral. The SBA requires collateral to fully secure your loan, to the extent that it is available. If you own a home, you will likely be asked to pledge it. The SBA may also request a lien on your business assets and may require life insurance on sole owners of a business. Most loans made by banks are secured loans, and therefore approval may be contingent on a guarantor who is willing to offer collateral.  
4. Detail your credit history and credit score. Your credit score is an integral part of the loan process, because it illustrates the ways in which you handle your other obligations. Your bank will eventually run its own credit report, but if you can provide information prior to them doing so, you can discuss any issues ahead of time. If you don't know your credit score, take the time to research it on the Internet, where low-cost reports are available. If you've had problems such as identity theft, bankruptcy, or divorce, you’ll want to discuss it with your lender up front and provide proof that issues have been resolved or discharged.

5. Provide complete copies of tax returns, financial statements and bank statements. Your bank will want to know everything about you and your business if they are to become, in essence, your financial partner. One way to streamline the process is to scan your financial documents and provide them to your lender in the form of a disk or a flash drive. Your lender may even be willing to accept your documents via email.

6. Explain how you’ll achieve your projections. Sell your lender on your vision and forecasted success. If customers have expressed a desire to do business with you, give your lender a copy of their correspondence. Prove to the lender that a market for your product or service exists and demonstrate the validity of your sales and expense figures. If your Cost of Goods Sold (COGS) has historically been 65% and you can lower them to 55%, provide details of your calculations. If the loan for which you are applying is intended for a new piece of equipment that will allow you to reduce your staff needs, describe how this will occur and show the math.
7. Expect questions and be patient. Your lender needs to connect with your story and business and will appreciate your assistance in doing so. Take the time to thoroughly explain the nature of your business, your vision, and your background. Your banker will likely be presenting your loan approval to other parties, so he or she will need your help in making your case. The process may be time consuming, so it helps to be patient. Feel free to request an estimated time frame for approval and respect that the projected date may slip a bit. It’s best not to call or email your lender frequently — remember that in lending, no news is often good news. HBM
Rachel Zippwald is a Vice President and SBA Business Development Officer for California Bank & Trust. On a nationwide basis, California Bank & Trust and its parent, Zions Bank, are among the largest SBA 504 lenders in the nation. Rachel’s responsibilities have included loan origination, processing, underwriting, documentation, closing and servicing. 

View the original article here

The Winning Game Plan for Your Home-Based Business

By Greg Crabtree, CPA

Whether your home-based business is by choice or necessity, you need to focus on three keys to have a winning game plan:

1.    Define what success looks like
2.    Choose simplicity for organization structure
3.    Count the cost by paying vendors and taxes before you take money out of the business

The IRS defines tax implications, and “business physics” will define your economic outcome, so choose your course wisely!

As the owner, you get to make the initial decisions on how things will work.  However, you have to understand the IRS defines tax implications and “business physics” will define your economic outcome so choose your course wisely!

Defining Success (3 types of home businesses):

Passion over profit – This is the entrepreneur that loves the idea of a product or service they have personally experienced and they want to share it with all the people they know.  It is great to have passion, but you will need profits to make the business sustainable unless you like working for free and have other sources of funds to keep plowing into the business.  The IRS may have something to say about whether losses will be deductible if you fail to meet the general rule of profits 2 out of 5 years.  It is expensive to argue your point with the IRS if you do not meet the guidelines so your argument had better be valid and worth it!

Profit to support family – With current unemployment rates, there are record numbers of home businesses being formed.  While it does provide a great opportunity to be your own boss, you still need to treat it like any business startup and follow sound business principles.  The early stage will be to make a profit to replace your wages. As we will cover later, the profits you hope to live on will sometimes be in conflict with other expenses that the business needs to pay.  This will add to the complexity of managing cash flows as you and the business compete for use of the same dollar.  As you gain stability and success, you can make your market wage plus make a profit on top of that.

Tax write-off business – This is the business I recommend staying away from.  You probably heard someone on the radio telling you how you could deduct these expenses to not pay taxes.  Repeat after me, “to spend a dollar to save 15 to 35 cents in tax is dumb!”  Deduct the legitimate business expenses you spend to produce your income, but you will never build wealth (without cheating) unless you have taxable income AND spend less than your after tax income to live on.  I know this is not what you want to hear, but this is how my wealthy clients did it and they can sleep well at night not fearing an audit.

Choose Simplicity for Organization Structure:

Complex is many times the code word for expensive!  Here are the guidelines for home-based businesses to use when you are consulting with your tax advisor:

1.    Sole proprietorship – this is by far the simplest form of doing business.  The activity is reported on your personal tax return and does not require a separate tax return to be filed.  Since “you” are the business, it does not afford you legal liability protection that a corporation or limited liability company (LLC) does, but many of those liability fears can either be insured against or are so remote, it is not worth the additional cost.

2.    Limited Liability Company – Should you need some liability protection or you have more than one owner, this should be your next option to consider.  Most home businesses do not have employees or may use contractors for spot help.  An LLC taxes you just like a sole proprietorship by having you pay income tax and self-employment tax on your profits from the business (whether you take the money out or not).  As long as your profits are less than a market-based wage for you, it helps you not have to deal with the cost of payroll tax returns.  The downside is many LLC owners and Sole Proprietors build up taxes due before they realize it.  Since nothing is being withheld from draws they take out to live on, they often have a bad surprise come tax day.  See the next section for how to avoid this problem.  The legal documents for an LLC are simple if you have one owner, but they get much more complex once you add an owner that is not a spouse.

3.    S Corporation – The main complexity with an S corporation is the requirement by the IRS for the owners who work in the business to make a market based wage.  The IRS does not make you take a wage if there are no profits, but they do not want you to avoid payroll taxes by taking low to no wages and take your profits out as distributions.  The data the IRS needs to find if you are doing this is all in the S Corporation tax return, the only reason they have not found you yet is their resources are limited to how many companies they can track down on this each year.  Rest assured, they are adding resources and more will be paying back taxes and penalties for doing this wrong (including the tax preparers who told you to do it!).

There are many other issues to consider in choosing your entity, but these are usually at the top of our list and you need to be proactive in explaining your goals to your tax advisor.

Count the Cost!

Most home-based business owners hate accounting but this is especially the kind of business you need to keep your hand on the cash.  The smaller you are, the less likely you have any room in your costs to pay an outside bookkeeper.  QuickBooks has made many entrepreneurs functional (i.e. “good enough”) in accounting.  Take a class in QuickBooks and take charge of your numbers to avoid surprises.  As you get bigger, then you can transition the role to a part-time outside bookkeeper when it makes financial sense.
You need to know the “Four Forces of Cash Flow” to stay out of trouble managing your cash.  If you are not profitable, cash flow is just a calculation of “days until death”.  Fix profitability first and now we deal with the “4 Forces”:

1.    Taxes – Set aside your tax liability as you go.  If you are taking draws as a sole proprietor or an LLC partner, you are setting aside self-employment taxes each time you take a draw.  Once a quarter, you are setting aside income taxes and paying in based on IRS rules.

2.    Get Out of Debt – If you borrowed money to start your business, pay it off as soon as you can.

3.    Core Capital Target – You need to have at least 2 months of operating expenses in cash with nothing in debt to be a fully capitalized business.

4.    Profit Distribution – Once I have paid my taxes, paid off my debt and built my core capital target, I can now take a profit distribution as the reward of my business success.

These principles apply to all businesses, big or small and they will help you run a successful business! HBM

GREG CRABTREE has worked in the financial industry for more than 30 years. He founded Crabtree, Rowe & Berger, PC, a CPA firm dedicated to helping entrepreneurs build the economic engine of their business.  Crabtree leads the business consulting team, helping clients align their financial goals with their profit model and their core business values. He is the author of Simple Numbers, Straight Talk, Big Profits! For more information, please visit:    View the original article here