Keep Your Friends and Family Out of Your Business

Business Fails, Business Partners, Finance, Uncategorized

Involving third parties in relationship matters doesn’t solve your problem, it compounds the issue. If you discuss your private affairs in public, it is going to backfire. Managing relationships by committee condemns them to a premature death. The best approach is to allow time, patience and the human conscience a moment to work. Besides, only you and the person that’s involved posses the ability to actually solve your problem. Once you put people in your business, you never get them out. It’s human nature for people to hold on to negative preconceptions about people. This is especially true as it pertains to your friends and family when you immerse them in your relationship.

It’s better to keep your business to yourself, others just want to do you pain. 

Be wise and hold your mouth, the worst that will come out of it is staying the same. – morayo

There is an old saying, “A dog that brings a bone carries one.” In other words, people that have an eager ear to hear your business cant wait to tell it. Using your as the example, don’t you have at least one person you share information with? Other people are just like you! The juicier the gossip, the harder it is for someone to hold it in. There is a ninety percent chance that anything you say will be repeated to someone. Not only are you needlessly exposing your relationship to unnecessary scandal, you’re betraying your mate. Long after the two of you get past the problem, friends, relatives and those in your social circle will still be whispering about you and your significant others past issues. i.e. Don’t get pissed off at your relations when you put them in your business to begin with.

 So, you get it: Keep your business and personal credit separate. But how do you get started?

1. Establish your business as a separate legal entity.

This could be as a sole proprietor, LLC or S-Corp. Sit down with your tax advisor or financial planner to determine which legal entity fits your business and financial situation. Sites like LegalZoom and Rocket Lawyer can take care of the legwork. You just complete an online questionnaire and pay a small fee. The websites fill out the documents and file them with your state. You can receive your official formation documents in about seven to 10 days.

2. Set up a business checking account.

This keeps your business financials more organized and allows you to get a clear picture of where your money is going. It usually takes just 30 minutes to set up an account at your local bank.

Use the business account for all business-related expenses. When paying yourself, deposit the money into your personal checking account. Your business checking account also allows your business to use employee payments as tax deductions from income, while letting you show personal income for the purpose of loans, credit and taxes. Business lenders will want to see your bank statements to get a true picture of how you’re performing.

3. Build a business credit history.

Start by opening a business credit card and always paying on time. The business credit bureaus will add this positive payment history to the credit file dedicated just to your company. Unlike personal cards, you may be able to deduct interest from business credit cards. When applying for a business card, just be sure to verify that the card provider reports to business credit bureaus and not to personal ones.

One of the biggest mistakes new businesses owners make is relying on personal credit cards to fund operations. Not only do you take on liability, you can damage your personal credit. If you have a personal score of 800 and max out your cards, your score will drop below 700. A 100-point drop will definitely cause your odds of getting credit to tank. It’s that severe.

Along with getting a business credit card, you should also open credit lines with your vendors and suppliers. This is known as trade credit. It gives you extra time (net 15, 30, or 60 days) to pay for your supplies and services. Depending on what type of industry you’re in, you can open accounts with businesses like Office Depot, Staples, UPS, Home Depot, etc. These companies are usually willing to establish a small credit line for your business without reporting or checking on your personal credit information.

As you establish a consistent history of on-time or early payments with these suppliers, your business credit scores will improve. This will allow you to access even more credit with even better payment terms. It’s a snowball effect.

4. Monitor your business credit regularly.

After establishing healthy business credit, you’ll want to stay on top of it. According to the U.S. Small Business Administration, the credit score of 33 percent of businesses may decline over just a three-month period. That’s why your lenders and creditors reassess your company’s creditworthiness on an ongoing basis. If your credit deteriorates, terms can be adjusted or stopped altogether. Without notice, you could be forced to pay cash on delivery for your supplies in place of your normal 30 days payment cycle. Regular monitoring helps avoid these nasty surprises.

Managing Your Finances – How to start a Business – Part 4

collections, Finance, managers, Uncategorized

1

Cover your startup costs. How are you going to finance your business initially? The bank, venture capitalists, angel investors, Small Business Administration (SBA), your own savings: these are all viable options. When you start a business, be realistic. You will probably not roll out of the gate making 100 percent of whatever you project, so you need to have enough ready reserve to fund things until you are really up and running. One of the surest roads to failure is under-capitalization.

  • Remember the four F’s for investment: founders (people who share your idea), family, friends and fools
2
Have more than the minimum. You may determine it will take $50,000 to start your business, and that’s fine. You get your $50,000, buy your desks and printers and raw materials, and then then the second month arrives, and you’re still in production, and the rent is due, and your employees want to be paid, and all the bills hit at once. When this happens, your only likely recourse will be to pack it in. If you can, try to have the reserves for a year of no income.
3
Pinch those pennies. Plan to keep purchases of office equipment and overheads to a minimum when starting up. You do not need amazing office premises, the latest in office chairs and pricey artwork on the walls. A broom cupboard in the best address can be sufficient if you can artfully steer clients to the local coffee shop for meetings every time (meet them in the foyer). Many a business start-up has failed by purchasing the expensive gizmos instead of focusing on the business itself.
4
Crunch some numbers and plan ahead. Chart your way to financial success. What price do you intend to sell your product or service for? How much will it cost you to produce? Work out a rough estimate for net profit—factoring in fixed costs like rent, energy, employees, etc.
5
Check out your competitors. Know how much are they selling a similar product for. Can you add something to it (add value) to make yours different and hence make it a more enticing price? For example, perhaps your company would like to provide an additional year of guarantee at no cost, or a repair part free-of-charge or an additional gadget with the initial item.

  • Competition isn’t just about the goods or services themselves. It is also about your social and environmental credibility. Consumers are increasingly conscious of the need to show that your business is concerned with labor conditions and isn’t damaging the environment. Certification endorsements from reputable organizations, such as labels and stars, can reassure customers that your product or service is more aligned with their values than one lacking the certification.
6
Manage your running costs. Keep a close eye on your running costs and keep them in line with your projections. Whenever you see something spent wastefully—like electricity, phone plans, stationery, packaging—look around, and estimate how much really need, and minimize or remove the cost in every way possible. Think frugally when you start up, including hiring items instead of purchasing them and using pre-paid plans for services your business needs instead of locking yourself into long-term contracts.
7
Find a way to get paid. You will need to do something to get payment from your clients or customers. You can get something like a Square, which is great for small businesses since it requires the minimum amount of paperwork and the fees are minimal. However, if you feel uncomfortable with technology, you can go the old fashioned route and get a merchant account.

  • A merchant account is a contract under which an acquiring bank extends a line of credit to a merchant, who wishes to accept payment card transactions of a particular card association brand. Previously, without such a contract, one cannot accept payments by any of the major credit card brands. However, the Square has changed that, so don’t feel locked in or limited to this option. Do your research.
  • The Square is a card swiping device which connects with a smartphone or tablet and turns that device into a sort of cash register. You may have encountered this device in the businesses you frequent, as they are becoming common at coffee shops, restaurants, street food stands and other businesses (look for a postage-stamp sized plastic square plugged into a tablet or phone).