3 Financing Options To Start Your Small Business

Whether you’re a young entrepreneur still racked with school loans, or an experienced business professional lacking the means to fund your new startup idea, many thought-leaders and prospective business owners are finding the hurdle of initial investment too high to climb.

Fortunately, there are a number of financing options that are readily available and oftentimes welcoming to those who can demonstrate solid financial know-how and an idea with long-term potential for growth and development. While the process may not be particularly easy or enjoyable, matching yourself with the best financing plan can not only make your idea into a business reality, but can also give you a degree of financial breathing room without the need to pay dues upfront all at once. Let’s explore three common ways entrepreneurs are finding solutions to their financing problems:

1. Find a credit card built for your small business

For those unfamiliar with the differences between traditional personal credit cards and those built specifically for small businesses, the essential distinction involves protection and rewards. Personal credit card holders enjoy a greater variety of protections afforded by the government when it comes to maintaining a healthy line of credit. Those designed for businesses come with a higher degree of risk, but also offer many more benefits that are intended to help the average small business owner such as discounted business supplies, airfare, and so on.

The biggest advantage to opening a line of credit through a business card is the ease of attaining funds relatively quickly. This may be appeal especially to those who are forecasting cash flow problems shortly after launching. In addition to the relative quickness of the credit card solution, is the fact that credit cards present one of the easiest ways to get the money in the first place. So for those who’ve found this advice in hopes of working yourself out of a financial pinch, this may be an option you want to pursue.

If you do decide to open a line of specialized credit, be sure you’re aware of the pitfalls. Credit card interest rates are significantly higher than those associated with a traditional loan, so be sure you’re confident you’ll be able to keep up with the payments each month. Late payments can be a killer to an otherwise healthy credit score.

2. Repurpose retirement funds into investment materials

Specifically for those looking to invest in a franchising option, a relatively new trend is emerging that can provide a direct means of funding at the risk of your personal future savings.

One of the biggest challenges to prospective franchise owners is the often large initial fees. If you’ve accumulated a substantial pool of retirement through our career thus far, it’s possible to flip this money for a franchise investment. This is done through a Rollover for Business Startup Strategy you can explore more in depth here.

Since this strategy can present some more complicated financial issues, it’s wise to meet with a personal finance professional before making a substantial change to your retirement savings. Be aware that this too is an extremely risky move if you don’t have full confidence in your ability to make it work.

3. Turn to microloans for a more manageable solution

If your startup is in need of a more “intermediate” financing option, a microloan may be a useful solution. These loans are typically smaller than more traditional options and are issued to those with little income or have a credit history not quite up to the standards needed to qualify for a bank loan.

Issuers have found a good deal of success in terms of borrower repayment, with most statistics reporting somewhere between 90-99% of properly repaid loans. To add to the general assumption that microloans often result in significant success for borrowers, a survey conducted by Accion US Network found that 42% of respondents noted an income increase after being issued a microloan of some kind.

While each of these methods come with some degree of risk, remember that good ideas and solid business models can be very rewarding investments when executed carefully. While you should be careful when signing onto any kind of financing agreement that could put your money at jeopardy, those who are confident and complete in their research are those that typically succeed.

If you’re looking for financial advice regarding a new startup endeavor, our outsourced accounting and CFO services experts can help you carve a successful future for you and your business idea.

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5 Expenses You Should Avoid When Starting Your Business

For entrepreneurs and prospective business owners making their first foray into starting their own business, longsighted goals and lofty idealism can often obstruct more pressing considerations that need to be addressed and planned for during a business’s first few months. Specifically, accounting for one’s expenses is a task that while extremely vital to the security of a young company, is too often ignored as being a secondary concern for the accountant.

While the prospect of starting your own business is certainly exciting, crafting a budget that adheres to a plan for eventual growth should be a sobering and important part of the preparation process. The major predator to a startup’s early finances is expense. While some expenses are obviously necessary to create an atmosphere to conduct business and pay those who may be helping you achieve your goals, there are many expenses that should not even be on the table when you’ve just cut the ribbon.

Hold off on unneeded travel

Unless your business relies on you to be in constant movement, traveling is one of the easiest ways to drain your wallet with virtually no return on investment.  On top of the fact that airfare and other travel costs can add up to be very expensive, research has shown workers to be less productive when not working from home base.

Today, the need for in-person meetings has been essentially erased by cheap or even free software tools like Skype and GoToMeeting, which allow people from all over the world to connect virtually from their own offices.

Don’t take on employees if extra help isn’t essential

While the stigma of the “large company” still seems to stand as a measure of success within business, taking on a crew too large for the ship can sink it quickly. Not only does payroll often end up destroying your bottom line when you employee too many people, but there’s also the problem of efficiency when smaller tasks end up in the hands of too many people.

Too many cooks in the kitchen can lead to miscommunication, delays, and other issues that can slow your workflow down considerably. Of course, depending on the size and specific kind of work you do, you may need to delegate business to a team of employees. Make sure when you do hire, your team is talented and ready to assume the responsibilities you’ve carefully laid out for them to accomplish.

Don’t go overboard on a website

This can become a complicated part the business depending on the industry you’re in. Of course, if you’re a software company or another digitally-oriented organization, designing your website is probably more important than designing your office.

However, for those new to web development or are looking to create a “stunning web presence,” remember that although anything is possible online, the design of your website should reflect the efficiency of your actual business. The more bells and whistles you attach to your site, the more can go wrong. Shape your web presence around practical functionality rather than provocative aesthetics.

Don’t advertise until your product or service is solidified

The first six months in the life of a startup are not set in stone. No matter how concrete and thorough your planning process was before launching, your business will no doubt encounter some ebbs and flows, which may ultimately lead you down another business path. With so much uncertainty as you test the waters, it’s wise not to make any major advertising commitments before you know exactly what your product or service will be.

Quick money versus longterm customers

While some startups are simply too large in scope to get off the ground without some degree of outside investment, most startups can get off the ground on a limited amount of initial capital. Unless you find yourself at the helm of a high-growth business needing the attention of investors, turn your attention to attracting customers. Raising money can be a full-time commitment than can pull the head of a company away from more pressing day-to-day tasks that will result in more sustained growth.

If you’re looking for financial advice regarding a new startup endeavor, our outsourced accounting and CFO services experts can help you carve a successful future for you and your business idea.

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How To Use Cash Flow To Craft A Better Budget

Knowing how far into the future you can accurately plan your finances can be a tricky task. Forecasting your expenses for the next month is usually much easier than trying to predict what will happen a year from now.

If you find yourself throwing your hands up in the air when it comes to budgeting your books for the year ahead, it’s important to follow through and avoid letting yourself get behind. Just like driving at night, your car has high beams for a reason––don’t let obstacles jump out of the dark at you when it’s too late to swerve out of the way.

The best way to cover all the bases with your budget is to create two separate annual plans. An operating budget focuses your finances around profitability. This, more than anything is a way to track your overall growth from year-to-year.

For small businesses and startups, a second budget based solely around cash flow can be extremely useful for more careful monitoring of both what’s coming in as well as what’s flowing out. As we’ve said before, a poor balance of cash flow can put an expiration date on your business unless steps are taken to reverse it in time.

Paving a path to profitability

Focusing specifically on the operating budget, this plan also accounts for more than just what’s coming in over a 12-month period. In more concise terms, the incoming side of the equations projects your gross sales as well as net sales. Further than that’s it will give you a good idea of your net profits and loses as you move a year ahead with your business.

As far as expenses are concerned, a complete budget should account for a list of one-time expenditures you can see coming down the road. These kinds of items can often slip through the cracks and end up unaccounted for. It’s best to cast a wide net rather than wonder why your numbers seem light at the end of the year. A possible scenario where this could happen might involve a move from one office to another. Items like new furniture, office supplies, and other seemingly smaller expenses can add up quickly over time.

This budget will also account for essential ongoing expenses––most common probably being rent. Other ongoing expenses you may want to take note of are­­: personnel expenses (payroll tax), utility bills, insurance plans, licensing and any third party services like accounting and legal teams.

Perhaps the biggest boon in taking the time to lay out a complete operating budget is the ability to experiment with business variables. For instance, say you’re able to cut your staffing over the next two months, or set a higher price for your product as it appreciates in value. These scenarios can point you towards more realistic profitability goals, giving you a practical sense of when to expect your business to earn the profits you think you can achieve.

Ensure your growth is secured with a cash flow budget

Although it’s often ignored among small business owners caught up in other aspects of their budding business, establishing a budget just to monitor and project cash flow is an essential piece of the financial puzzle. For small businesses especially, this budget can actually tell you more about where you’re going in the short term than a budget based around profitability can.

If you’re unfamiliar with cash flow as a concept, it’s an important metric to understand. You can call your cash flow positive if you have enough money in the bank to pay off your bills at any given time throughout the year. This is the big difference between having a positive cash flow and being profitable. While the operating budget may lead you to believe your finances are stable since you can call yourself profitable, you may be paying for things in advance and waiting on payments that are accounted for but not yet in your books.

The first step for small businesses and startups

Unlike established businesses with a history of financial data to start a budget with, startups need to start from zero. Instead of looking back within your business, gauge a starting point with your budget by researching your industry in depth and compare competitors in your market.

In terms of measuring your costs, try to record your expenses as accurately as possible, and take any widely known market changes into account. If your business will fluctuate seasonally, try to get data that you can put together to account for dramatic shifts in business accordingly.

Lastly, it’s important to keep current on your budget and not simply seal it away every year after you’ve worked out a plan. Check it at least once a month to gauge how well your financial forecasts match your actual income and expenses. A well-crafted budget is a great tool for catching unforeseen problems before they become damaging.

If you’re looking for a reliable accounting or CFO service willing to work through your budget with you, contact our start-up accounting and CFO services experts.

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4 Tips For Improving Your Small Business Bookkeeping

Apart from monitoring and planning your small business’s financial strategy, entpreneurs and those new to money management from a business’s perspective commonly struggle with bookkeeping. In many ways, financial strategy and effective planning really can’t begin without consistent and accurate bookkeeping in the first place.

For this reason, we’ve decided to put together a brief list you can use as a reference when devising your preferred method for keeping track of your finances day-to-day, month-to-month, and so on. Not only is this important for simply knowing where your business stands financially at an given time, but it also help alleviate the stress and hopefully shorten the time commitment you’ll put in when tax season rolls around.

If you tend to brush off bookkeeping as a nagging chore, you might want to take another look at the benefits of keeping your books in order. Capturing your all of your expenses when they happen is an important element to maintaining and monitoring cash flow. If your business receives write-offs, keeping a close eye on your records will ensure you don’t end up paying for things you don’t need to. More generally, keeping your finances organized and fully accounted for means less stress and frustration when issues arise and you need to call on your records.

1. Learn the ins and outs of the process before jumping in

Small business owners tend to have a wide variety of excuses for poor record keeping. While some simply don’t see the value to in the time and energy commitment, others consider it too overwhelming to even know where to start. No matter why you’re not being as complete as you should be, it’s important to understand how to get yourself in a position to manage that part of your business.

There are a number of online courses that teach specifically these kinds of skills to entrepreneurs looking for a crash course in introductory bookkeeping. Whether you’re looking for a more generalized bookkeeping instruction, or want to learn the ins and outs of a particular bookkeeping tool, these kinds classes can equip you with the means to be efficient with your records.

2. Pick the right software tool

If you’re reading up on bookkeeping before you’ve launched your business, one of your main focuses in the planning stage should be choosing a software platform to keep your records logged and maintained on. QuickBooks has become something of an industry standard in recent years and if you don’t know where to start looking, it’s a great tool to look into. That said, there are plenty of Cool Tools out there worth exploring.

3. Work on organization

Every business operates on a different workflow, so simply duplicating a partner company’s bookkeeping method more than likely will fall short of achieving actual effective record keeping. Start ironing out your workflow and what kind of bookkeeping plan will best align with your cash flow situation. It may be useful to keep both physical and digital folder systems to collect receipts, invoices and other financial documents you can store to ensure you’re accounting for all finances flowing in and out of your business.

4. Outsource to financial professionals if your budget allows

If you find yourself out of options when it comes to keeping your bookkeeping duties in-house, bookkeepers, accounting firms and other financial professions are always a viable to option for those who want to ensure their records are kept and also have the means to hire outside services.

A major advantage to working with financial professionals besides the lightened workload, is the benefit of having accountant services available to answer questions and offer advice about what steps to take to protect your finances. This is also a great option for those who are capable of handling day-to-day bookkeeping tasks but need assistance setting up software or installing a system you can use regularly.

If you’re a start-up owner and unsure of how to establish a bookkeeping system, give us a call. Our outsourced accounting and CFO services experts can help you navigate these waters.

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Finding Startup Success Through Financial Metrics

When it comes to offering truly valuable advice to startups, the task of management can’t be brought up enough. While it’s helpful to zoom in and focus on key areas where management can be applied at the micro level of a business, those areas require an equally if not more competent central management team.

Whether an individual or a team comprises management, it’s essential for company leaders to establish actionable metrics by which to judge success or failure. For some businesses, certain metrics will matter more than others. Knowing how to find out the key areas of your business is one of the first big steps you can take towards getting your business working smoothly.

Think of your business in terms of its parts

A useful way to think about your company is to imagine it like a simple machine with inputs and outputs. As a manager, your task is to make sure right buttons are pressed when they should be while the others go idle. To keep the metaphor going, we all know how frustrating it can be when we’re forced to use a brand new technology without knowing how it works. Avid iPhone users are usually frustrated when they’re asked to operate a Windows phone when they have no prior experience and visa versa.

The point is, you need to understand your business through and through before you attempt to design a management system to keep its parts in good working order. The goal with every measurement decision is to make sure you can tell when the outputs are less productive than what you’re putting into it.

Putting communication first

Without a means to solve problems and recognize successes throughout your organization, it’s nearly impossible to envision a bright future for your business. All too often management teams pass the blame of their shortcomings onto the health of the market or other external circumstances they don’t have control over.

While downturns in the market should certainly be accounted for when evaluating yourself, throwing your hands in the air and hoping for better luck next time doesn’t pass for management. In order to get some real problem solving done, you’ll have to open the hood and have a look at all the parts of your business to find and isolate the problem. The systemic nature of problems within your business usually only reveal themselves once the management teams invests the energy in tracking the trail of breadcrumbs back to the original source.

By tracking comparatively poor earnings to poor sales, you may find that salesmen fell behind because they weren’t handed leads by the marketing team. By analyzing your marketing efforts over time, you may find that by downscaling your social media team, you’ve lost a significant amount of engagement which once accounted for a significant amount of your total leads volume.

Where a “band-aid solution” would have probably stopped at the sales team and resulted in restructuring a team that was actually doing everything right, you’ve not only let the actual problem go, but also hindered a part of the machine that was working well. It’s in these kinds of scenarios where poor management can gradually do more hard than good to both your business’ bottom line as well as employee morale.

Early points of focus management teams should pay close attention to

The best way to avoid the kinds of problems presented above is to designate standards by which to measure your business’ actions over time. While it may seem like a rudimentary lesson in business, it’s important to think of these concepts as they relate to one another rather than simply a list of things to check off each time you review your numbers.

In terms of meeting your most important goals early on, the three broad measurements to keep your eye on the most are your cash flow, profits/losses, and assessable growth. While every business obviously requires its own set of measurement parameters from which to judge success and failure, these are the elements of every business which should never be overlooked by your core management team.

If you’re a start-up owner and unsure of how to analyze these financial metrics or others, give us a call. Our outsourced accounting and CFO services experts can help you navigate these waters. Photo Credit: Biking Nikon SFO via Compfight cc