Small Business Financing at the End of the Brick and Mortar Era

As more banks close local branches and eschew brick and mortar growth, small businesses face uncertain times. With fewer branches in which to form trusted financial relationships, business owners often must rely on online banking for everyday needs.

This poses a problem for small business owners who previously benefited from personal relationships with bankers when seeking financing. Although a computer algorithm might not recognize the potential of a small business from an online loan application, personal bankers often can, making local banking branches an important source of funds for small businesses.

So, what can small businesses do to secure vital financing in a world where brick and mortar branches are closing their doors? Where can they turn for personalized financing? Can online banking be trusted?

Entrusting a banking app with the financial livelihood of your business might make small business owners uneasy, especially when facing rejection from online loan applications that only take into consideration hard numbers like credit scores and revenues.

You can offset this disadvantage by working with a skilled advisor—such as a Business Lawyer—who can help you plan for the future and secure financing for growth on your own terms. A Business Lawyer can do two things: help you prepare to secure financing from a bank and help keep you in excellent financial shape allowing you to rely less on financing and more on growth.

A Business Lawyer knows what big banks want to see in an applicant and can help you represent your business as an  attractive candidate for financing. By coordinating your business formation, tax strategy, insurance policies, and financial operations, a Business Lawyer can ensure your business is a sound investment for any financier.

But securing a small business loan is just the start. To focus on growth, you’ll want to put financial systems in place that minimize your reliance on financing while maximizing the performance of the funding you do obtain.

Securing financial backing for small businesses is harder than ever, but with sound planning, you can beat the odds. If you want to put systems in place to boost your financial fortitude, begin by sitting down with a Business Lawyer. As your Business Lawyer, we can establish a sound legal, insurance, financial, and tax system for your business so you can focus on growth and reach your full potential.

This article is a service of Gratia P. Schoemakers, Estate and Business Attorney. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today at 832.408.0505 to schedule.

Writing Off Start-Up Costs

One of the biggest benefits of owning your own business is being able to write off certain expenses to lower your annual income tax liability. When done right, writing off business expenses, especially when they are investments in things or experiences you would invest in even if you did not have your business, is a lot like having the government subsidize the things you want to do in the world.

If you are starting a business, the good news is you can typically write off costs for starting, launching, and organizing your business. But you may face certain restrictions, and you need to know how to write off those expenses in a way that will benefit your business. To learn more, let’s take a look at the most common startup expenses businesses may write off for tax purposes.

Starting Expenses

You can write off many research expenses incurred when starting a business. Surveys, feasibility studies, market research, and similar costs are valid startup write-offs.

Launch Expenses

Many costs incurred while executing your business launch—like recruitment and training costs—can be deducted. Conversely, equipment purchases cannot be deducted because they’re subject to rules for deducting depreciation.

Organization Expenses

You can also write off the costs for creating your business entity. These typically include legal fees, accounting fees, and expenses for organizational meetings.

Now that you have a better idea of the type of startup expenses you can write off let’s go over how those expenses should be deducted.

The IRS puts a cap on first-year startup deductions at $5,000 and an additional $5,000 for organizational costs. But, if your startup expenses exceed $50,000, that first-year deduction cap will be reduced by the costs that exceed $50,000. Thus, if your startup expenses equal $54,000, your first-year deduction is reduced to $1,000. You would then lose the deduction entirely once your startup expenses exceed $55,000. In your second year, the rest of your expenses can be amortized and deducted in equal installments over 15 years.

If your business never gets off the ground and running, your startup costs could be considered personal costs and therefore non-deductible. In certain cases, however, these costs could be regarded as capital losses, so always consult with a tax advisor to ensure you are taking advantage of every tax break available to you.

As you can see, there are some big risks when it comes to identifying and allocating your expenses properly to maximize your deductions and minimize your tax liability. The decisions you need to make are important and shouldn’t be executed without first consulting with a trusted advisor, such as a Creative Business lawyer®. If you need tax help for your startup, start by sitting down with us. As your Creative Business Lawyer® we are experienced in helping startups achieve success through careful financial and legal planning. We will guide you to  establish sound legal, insurance, financial, and tax systems for your business so you can focus on increasing revenue and enjoy the benefits entrepreneurship.

This article is a service of Gratia P. Schoemakers, Business Attorney. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

The Surprising Secret to Keeping Good Records in Your Small Business

Keeping good records relieves stress and makes running your business easier and more enjoyable. But it may not look like what you think if you’ve run your business by saving receipts all year long and then trying to handle your bookkeeping all at once at tax time.

First and foremost, don’t handle your bookkeeping yourself. Your focus should be on sales and marketing for your business, with bookkeeping outsourced to someone who does books for a living. But, be careful! Not all bookkeepers are equal.  Find one who will help you to set up systems, like those described in this article, that get you the reporting you need and not just record debits and credits.

Although good record keeping can easily get overwhelming, it’s easy to do if you follow these best practices.

Schedule a monthly meeting with your bookkeeper (and your Business Lawyer, if you have one) to review your P&L and categorize all expenses properly on an ongoing basis. This will keep you from scrambling come tax time, and you’ll maximize all deductions. If your business is earning 6-figures or more, you may also want a weekly financial report prepared for you that shows what you have in the bank, what’s coming in, and what’s going out a set period of time.

Create a system with your bookkeeper so that you do not need to keep any paper records yourself. Instead, send everything to your bookkeeper electronically so that he or she can keep all of your invoices, paid bills and critical paperwork in a digital file for you.

Do your banking with a bank that provides electronic copies of checks, so you don’t need to keep paper copies yourself. Likewise, send your bookkeeper a copy of the invoice or bill you are paying with each check. If discrepancies arise in the future, it will be easy to reference checks and invoices to sort things out.

Ensure your bookkeeper keeps copies of all invoices you send out, and has a thoughtful way of organizing your invoices for easy reference. Your bookkeeper should also keep track of any accounts receivable with monthly reports submitted to you, so you can talk with your Creative Business Lawyer® if you need collection support. Accounts receivable that go on too long or are overlooked, are less likely to ever get collected. Ensure your profit and loss breaks income down by revenue stream, and possibly even by class, as your revenue grows.

Lastly, but most importantly, do not procrastinate on finding the right bookkeeper for your business! Yes, it is an investment, but an important one that will pay out big returns in tax and time savings for you each year.

This is perhaps the most obvious but most crucial best practice. Set aside an hour each week (ideally on the day you’ve scheduled to work ON your business) to review your financials and proactively meet with your bookkeeper each month to review that P&L and keep it up to date.

Good record keeping for small businesses is often more about having a great relationship with your bookkeeper, regularly meeting and knowing what to look at during those meetings than it is about keeping copies of checks and receipts. If you need help getting started, sit down with us as your Business Lawyer for guidance. We can help you put systems in place to help you organize your business and build a foundation for success. Meeting with a trusted Business Lawyer will help you identify what your business needs to thrive.

We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

The 4 Deadly Legal Mistakes Small Business Owners Need to Avoid

Small businesses dominate the American business landscape, but those that survive several generations are relatively rare.  If you are a small business owner, you need to be sure you are not committing any of these four deadly legal mistakes:

  1. Mixing personal and business finances. If your small business started as a hobby or a sideline but has grown to a point where it is your main source of income, you need to consider forming a legal entity for it, like a corporation or limited liability company (LLC).  Most small business owners choose an LLC for the personal liability protection it provides without the formalities of a corporation.  An LLC also makes it easier for you to transition the business to other partners or future generations and since it is taxed as a pass-through entity, profits are not taxed separately but instead flow through to the owner.
  1. No employment agreements. Employment agreements should be used to spell out expectations, especially in family-owned businesses that may have been funded by one or more family members who expect reimbursement or those who expect a job at the family firm based on nothing more than a familial relationship.
  1. Failure to obtain proper licenses. Most businesses are required to have local, state or federal licenses to operate, with fines assessed for those that fail to get these licenses.  They are generally inexpensive but are often overlooked.  Check with your city or county offices to see if your business requires a license to operate.
  1. No succession plan. If your business has no formal legal entity, it will pass when you do.  Many small businesses fail to last through the first generation due to the lack of a succession plan.  Consult with a Creative Business Lawyer® about creating a succession plan for your small business, so the value you have built over the years is protected after you are gone.

We can help you discover if you have what it takes to start your own business and guide you through the steps to successful entrepreneurship. Whether you are new to entrepreneurship or already operating a business, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

The Family Business: Avoid These 4 Lethal Legal Mistakes

If you operate a family-owned business or are considering starting one up, there are four potentially lethal legal mistakes you should take care to avoid, including:

No employment agreements.  Family members who work together are usually hesitant to confront one another if someone is not pulling their weight.  Having an employment agreement for everyone ensures that expectations for job performance are spelled out and what the grounds are for termination.

Mixing family and business finances.  Many family businesses start with loans from various members, and as the business grows, those initial investments need to be protected.  This is the stage when you want to consider setting up your family enterprise as a limited liability company (LLC) or a corporation.  Most small businesses use an LLC structure, which provides liability protection for personal assets and allows for company profits to flow through to owners.

No licenses.  Even if you operate out of your home, you will likely need to obtain a local, state or federal license to operate your family business.  While licenses are generally inexpensive, the fines for not having them can be costly.  You can find out what the requirements are in your area by contacting your city hall or county office.

No succession plan.  Family business feuds can easily occur when there is no succession plan in place.  Also, legally speaking, if a business has not been incorporated or formed as an LLC, the business dies when its owner does.  If you started a family business to keep it in the family, you need to follow through with a formal succession plan.

Having a business attorney who understands the individual needs and unique circumstances of your company is key to helping your business thrive and prosper. If you are interested in learning more about legal protection strategies for your business and how we work with you as a partner in protecting your company, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

How Micro-financing May Change the Borrowing Landscape for Your Business

In the past, small businesses relied on bank loans when in need of extra funds. Although new to the scene, microfinance lenders now offer additional flexible funding alternatives for small businesses.

Originally used to fund entrepreneurs in underdeveloped countries who lacked the resources, credit history and stability to pursue traditional finance options, microloans are now helping small business across the U.S. meet consumer demands and achieve strategic growth.

The average microloan is $10,000. This may seem like a nominal amount, but microlenders are finding that their borrowers often turn small loans into big success with a success rate twice the national average.

But what makes a micro-borrower positioned for greater success when compared to those that rely on traditional bank loans or credit cards? It all comes down to relationships, accountability and moderation, elements often overlooked by big banks.

Stronger Relationships

Microlenders typically invest more than just money in their borrowers. They spend more time getting to know their borrowers on a personal level before lending, which often leads to borrowers striving to meet or exceed the lender’s expectations.

Group Accountability

Many microlenders lend to lending circles. Groups of small businesses borrow together, support each other and in some cases are even accountable for each other’s loans. There’s nothing like camaraderie and moral support to encourage success.

Small Loans

As the name would suggest, microloans are small, typically capped at $50,000 with an even smaller average. Because of the limited funds being borrowed, small businesses tend to make more careful and strategic use of smaller amounts of money than you might if getting too much money in one lump sum.

Trustleaf.com, PayPal, and Accion USA are all potential places for you to seek micro funding. In addition, you may want to consider 0% interest business credit card funding. We’ve got a video on that here.

If you are ready to grow your small business strategically, and identify the best funding sources for your business, start by sitting down with us as your Creative Business Lawyer®. We are experienced in helping small business entrepreneurs achieve success through careful financial and legal planning. As your Creative Business Lawyer®, we can establish sound legal, insurance, financial and tax systems for your business so you can focus on increasing revenue and enjoying the benefits of entrepreneurship.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call our office to schedule.

 

 

How Your Legal and Financial Decisions Can Impact Your Marketing for the Better (or the Worse) In the Eyes of Your Prospective Customers and Clients

Running a small business often means you play a jack-of-all-trades. Whether it’s drafting client contracts or taking inventory, it’s likely you have a hand in all aspects of your business.

Marketing is no exception. And knowing how to create an efficient marketing plan for your business can be difficult, especially when you might not be sure how to tie that into the legal and financial aspects of your business. Surprisingly, tight legal and financial systems can enhance your marketing and set you apart in your marketplace. Here’s how:

Build a great website. Websites are an often-overlooked marketing platform, especially for small businesses. But to take full advantage of the plethora of creative online marketing techniques, do not make the mistake of eschewing this essential. And, make sure your website has a clear privacy policy, terms of service and disclaimers that improve your marketing, and don’t hurt it, inadvertently.

Keep a track record. You need to keep records of your business’s performance to be able to identify what is working and what isn’t. You can take advantage of user-friendly metrics programs that will do most of the tracking for you, but make sure you are paying attention to what those metrics mean. We can help you to read your metrics and understand how they tie into your financial goals.

Know what marketing techniques your competitors are using. And better yet, find out whether they are successful. This may lead you to discover a way to market your business that is particularly effective in your industry.

Be distinct. This is easier said than done. Building a distinct brand is the best marketing investment you can make. Stand out in your own unique way to catch the attention of prospective clients and customers. Having your legal systems set up with clear boundaries and expectations can actually be a huge differentiator and ensure one measure of distinction is how “on it” you appear compared to your competitors.

Market your business to the right audience. Don’t make the mistake of marketing to the wrong demographic or interest group. Identify who your audience is and tailor every one of your marketing efforts toward that group. This is where most business owners go wrong, either by trying to market to everyone (which you cannot afford), or by not ensuring that your legal agreements, disclaimers, terms of service and privacy policies take into account the audience you are reaching with your marketing.

Get marketing (and sales) literate. Don’t let someone else take over your marketing carte blanche. Know and understand how and why marketing techniques work so you can make educated decisions that tie into your financial objectives. Knowing how to market and sell isn’t enough, you also need to know how your marketing leads into sales, and then ensure your process for collecting payment and getting paid is smooth so you don’t lose the sales you’ve worked so hard and paid so much to line up.

If you need help knowing where to start, begin by sitting down with us. As your Creative Business Lawyer®, we can review your marketing, sales and payment collection systems to ensure they are all congruent and will ensure you not only get customers and clients, but that you get paid and can collect on outstanding invoices with ease. Getting trusted legal guidance from a Creative Business Lawyer® can help you build a strong foundation and fully enjoy the advantages of running a profitable small business.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial and tax systems you need for your business. Call our office today to schedule.

Common Ways to Finance a Small Business

If you have decided to take the plunge into the world of small business, you are likely evaluating finance options. Most businesses require some initial influx to cover startup costs. Before you embark on the exciting journey of owning a small business, however, it is important that you evaluate the financing options available to you.

Before you liquidate any assets or borrow money, do your homework. Many sources are available to help you learn about small business ownership, most for free. If you haven’t already done so, take advantage of sources like the following:

  • The Small Business Administration (SBA);
  • Your state’s small business support agency; and
  • Your local chapter of SCORE, which provides free small business advice and pairs small business owners with mentors.

Talk to current and former business owners about their financing experiences. There is much to learn from the experiences of others. Even unsuccessful business owners have a lot to offer in the ways, whys, and hows of things that failed.

The SBA is a strong source of planning and financial information, as well. The SBA can help you make a solid business plan and provide a loan that is partially backed by the government. SBA loans usually run 10 years or less, and lenders usually require you to put down 20-30 percent cash to back the loan, as well.

Another popular source of start-up funds is assets you already own that you can liquidate quickly. These include stocks, bonds, and mutual funds. It is important, though, to consult with an experienced attorney or tax professional before liquidating assets because doing so often results in income, which means income tax liability.

Many people are discovering the advantage of leveraging their retirement accounts to fund their businesses. If you use a “rollover as business startup” (ROBS), you can access your retirement account before retirement age with no tax consequence. In addition, capital gains are sheltered in your retirement account, if you later decide to sell.

If you are blessed with a solid credit rating, traditional banks and credit unions offer loans to small businesses, again with a typical 20-30 percent cash contribution from you. To apply, you must provide significant documentation for review, including prior tax returns and a personal financial statement.

Less frequently used options include business credit cards, which can help to supplement operating expenses, particularly for new businesses, home equity lines of credit, and signature loans. We have a relationship with a company that can help you get up to $150,000 of 0% interest business credit cards that use your good credit score, but won’t impact your credit score negatively, even if you use all of the available credit.

In contrast, if you use personal credit cards and use more than ⅓ of the available credit, your credit score will go down, making it harder for you to get more credit in the future.

An experienced (and creative) business lawyer can help you sort out the options that best fit you and your new business.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer® One of our primary services is a LIFT Start-Up Session,™ in which we guide you through the right choice of business entity, location of business entity, start up agreements, intellectual property protection, employment structuring, insurance, financial and tax systems you need to start your next business and succeed right out of the gate.   Call us today to schedule a time to get started!

 

 

 

 

4 Fatal Legal Mistakes Family Businesses Can Avoid With Planning

Anyone involved in a family business knows that working with family has its pleasures and its pitfalls –incurring these legal pitfalls can prove deadly to your family business, so here’s how to fix them:

  1. Mixing family & business finances. Unfortunately, we live in a litigious society, so as soon as your family business is up and running, it’s important to shelter your personal assets by forming a legal entity like a corporation or limited liability company, which will protect the personal assets of investors/owners (i.e., family members) from business liabilities.  Without that protection, everyone’s assets are vulnerable if something goes wrong with the business.
  1. No business license. Many businesses, even those that are home-based, require a local, state or federal license to operate.  Without, you can face stiff fines or even be shut down.  Your city hall or county government office can tell you what is necessary to operate your business legally in your area. Or, you can contact us for a LIFT Start Up Session.
  1. No agreements. Unless you want employment in your family business to be a birthright, you need to have employment (or Independent Contractor) agreements that spell out – in writing – what the expectations are for the job each family member is doing and how they will be compensated, as well as termination guidelines.  Because there will probably come a time when you will have to transition a relative out.  Having a written agreement on hand to refer back to can help keep things civil.
  1. No succession plan. You must start your business with the end in mind so you can ensure your business takes care of your family throughout all of your life’s stages, including retirement and beyond your life as well. And what happens if the person who started it all suddenly wants to cash out, falls ill or dies?  If you want your business to go on without you, a succession plan that spells out how this will be accomplished is crucial.

We can help you prepare for the sale of your small business and guide you through the steps to a successful sale. Whether you are new to entrepreneurship or already operating a business, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

Retirement Plan Options for Small Business Owners

Creating an estate plan for your business is just as important as developing one for your personal assets.  Part of estate/succession planning for business is planning for the day you eventually retire and hand the reins of the business over to someone else, either through succession, inheritance or sale.

Most small business owners want a retirement plan that is fair to themselves and employees – one that provides the desired tax benefits without eroding the company’s liquidity.  Here are some common retirement plan options for small business owners:

SIMPLE IRA.  SIMPLE (Savings Incentive Match Plan for Employees) IRAs don’t allow employees to contribute as much as they could to traditional 401(k) plans, and employers are required to match employee contributions.  In addition, plan owners cannot borrow money from a SIMPLE IRA and there are no tax-free options like a Roth.

SEP IRA.  The SEP (Simplified Employee Pension Plan) IRA is funded entirely by an employer, who also makes all the investments.  Earnings grow tax-deferred, but there are no loan, catch-up contribution, Roth or profit sharing options with a SEP IRA; the primary benefit for the employer is a more relaxed tax reporting requirement.

Traditional or Solo 401(k).  Versatility is the main reason these 401(k) plans are so popular with small business owners, providing employers with a contribution match option and the ability to make loans to employees.  For those who are 50+, these plans offer catch-up contribution and Roth options.  Solo 401(k)s offer higher contribution levels than traditional 401(k)s, but only the smallest businesses – no to very few employees — qualify for these.

As your Creative Business Lawyer®, we can help you sort through the options that are right for you, your family and your business.  Call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit so we can help you identify the right retirement plan options for you, your family and your business.