Starting A Small Business? Choose The Right Mode Of Finance

A small business is like a budding plant– it needs to be nurtured in order to flourish. Just as a budding plant needs to be watered and manured well enough to facilitate its growth process, a small business needs to have an adequate financial back up for it to grow and become a larger concern in the coming years. Proper financing at the grass root level is essential for a business to prosper.

Starting a new business venture needs proper capital planning. To get the requisite start-up capital, entrepreneurs often depend on the general loan schemes offered by various banks and financial institutions. These institutions evaluate the credibility of a loan seeker on the basis of their credit score, available collateral and their financial standing. These loans would also come with a host of strict terms and conditions. Small business entrepreneurs often find it difficult to meet the qualifying requirements for a loan and abide by the stringent terms and conditions. In most cases they will either have to settle for a loan with very high interest rate that results in higher financial burden in the future or will have to look for other cash sources to fund their business. Choosing the right financing solution is one of the prime determinants of the success of a small business.

Finance in the form of loans is of two types – Secured and unsecured. A secured loan is essentially backed up by a collateral or a security on the condition that in the event of the applicant failing to repay the loan, the financial institution has the right to seize the collateral and sell it off to get their money back. An unsecured loan, unlike that of a secured loan does not demand a security or a collateral from the borrower. Due to a lesser degree of risk associated with the lender, a secured loan charges a lower interest rate than that of an unsecured loan. The borrower nevertheless has to make repayments on a monthly basis under both the types.

Of all the available financing options, an entrepreneur should ideally look for a scheme that offers quick processing of the loan, is flexible and more importantly has a less burdensome repayment plan. Besides the various loan offers available in the market, business cash advance satisfies all these conditions to the maximum advantage of small business owners. A business cash advance is one such scheme that makes the very word “business” seem comfortable to the budding entrepreneurs. Unlike loans, a business cash advance neither demands a security or a collateral and at times they are offered even to borrowers with not so good credit ratings. The characteristic that works very well in the favor of the borrower in case of a cash advance is its repayment plan. Unlike other forms of loans, a business cash advance does not have a fixed monthly repayment plan. In this case the repayment is directly related to the frequency of sales through Visa or Master card i.e. the lender gets their money back through the future credit card receivables of the borrower.

Powered by the above benefits, a business cash advance [] provides a strong financial foundation to a small business. Opting for a business cash advance surely helps the budding entrepreneurs to grow and take their enterprises to the next level of prosperity.

What Are the Biggest Problems Small Businesses Are Dealing With?

The study from the National Federation of the Independent Business Research Foundation, sponsored by Wells Fargo, recently researched the issues that small business owners consider to be the most problematic in their work. No wonder, on the top is the problem with health insurance, but liability insurance as well. In second place are the business costs and difficulties with small business financing, with emphasis on the tax cluster and worker’s compensation.

Difficulties such as incompetent employees, problems with customers and suppliers and inability to organize their time between job and family are also regarded as important, but with much lower ranks, according to this survey. Even though most of the small business owners don’t have time nor interest to deal with some political issues, many of them believe that politics does have an impact on their business and can be a source of their problems.

Many small businesses’ worries are connected with the cost cluster, among them, the most difficult to control are health insurance costs, energy costs and inflation. Other cost problems are connected with the costs of fuels and electricity, supplies, inventories and worker’s compensation insurance. An American economy used to provide a good, stable foundation for small business owners, but lately it had a negative turn, resulting with small businesses struggling to search for innovative ways to reduce expenses and increase sales.

Speaking of problems with taxes, we are talking about federal taxes on business income, property tax (real, inventory or personal property), tax complexity or state taxes on business income. Obviously, most of the high ranked problems small business owners deal with are connected, this way or another, with some general issues or a state. The only way to deal with those difficulties is to be well informed and to have a good strategy. Never underestimate the importance of a good small business plan.

Still, there are some concerns more locally oriented, which are connected with the organization within the company itself. There are, of course financial problems, which could be solved by careful and professional managing and a special emergency bank account with some money saved on regular basis but used only in tough months.

The survey also showed that some of the everyday headaches a small business owners may have, come from their near surrounding. For example, incompetent employees which can give company a very bad look. In comparison to large companies, small businesses have a high employee turnover, and reliable and trustworthy employees are a great challenge.

Maybe the most serious problem of this kind is a relation with suppliers. Most of the businesses are sort of net or chain of services and goods, and a flue of the money, so one business works as good as is the functioning of business deal with suppliers or other company you cooperate with.

Four Easy First Steps to Small Business Accounting

When starting a new business one of the most daunting tasks the entrepreneur will face is that of accounting. Many small business owners neglect this important area of business, particularly during start up. Making this mistake can be fatal and many companies fail because of a lack of knowledge of the business’ finances. Keeping good records and having good accounting practices from day one is paramount. There are many simple, yet effective techniques that can help the small business owner get their finances on track.

The first, and most important thing, you can do is to set your business up as a legal entity separate from yourself. This means setting up some type of corporation, or LLC. This simple step is overlooked by too many entrepreneurs. Keeping your personal and business finances and taxes separate is the main reason for this, but there are other benefits as well. Which of the different entities is right for you will depend on many factors of your business, and you should consult a CPA and an attorney to help you with the process.

Once you have decided on which entity you will use and have followed your state’s guidelines to set it up you will need to file form SS-4 with the IRS to obtain your EIN, which will be your business’ federal tax ID number. As soon as you have set up your business entity your next step will be to visit your bank (be sure to check out the competition’s offers as well) to open your business checking account. Most banks offer free small business checking accounts with no minimum balances. If the bank is going to charge you for small business checking, or a debit card, find another bank.

When choosing a bank be sure to ask the sales representative if the statements are cut on the last business day of the month, so that each statement represents an individual month. If the statement is cut on a floating 30 cycle, or if the cycle begins on the day of the month on which you opened the account find another bank. This simple thing can save hours when settling your account each month.

It is also a smart idea to have multiple accounts dedicated to different portions of your business as well. This may include a payroll account, an account that receives payment deposits and an operating account to name a few. If the bank only allows one free account per business find another bank. You may find that you need multiple accounts and keeping up with them all is starting to get confusing. If this happens ask your banker about the Cash Management services they offer. These services will normally include fees, but can help save you time, energy and headaches.

Once you have your new business set up and you are starting to see some cash flow you must make sure to keep your business and personal finances completely separated. This means that only revenue from the business should be going through the business checking accounts, and more importantly that no personal purchases be made through the business.

It is crucial that you take a salary from your business, rather than spending the business’ money on yourself. There are several different ways to take a salary including taking a fixed amount and/or a percentage amount based on the business’ performance.

My last point is also on the list of things often overlooked by the small business owner. Make sure you hire a bookkeeper. This point bears repeating – Make sure that you hire a bookkeeper. Even if your business is small it will be a tremendous benefit to hire someone to keep the books. Most new businesses fail to do this because they are trying to save money, but the fact of the matter is that you can get a bookkeeper for around $25 per hour depending on where you do business. Your time can be better spent on other aspects of the business that are your specialty and others can’t do. Make sure you are leveraging your time properly. There are thousands of bookkeepers out there but only one you! These types of services will usually save you a lot of money in the long run.

These are just a few points that all new business owners should make sure to focus on during start up. This was by no means an exhaustive list of accounting procedures, but only a few of the most important first steps. Finance and accounting are some of the most important aspects of business, but are so often overlooked by the new business owner.