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A Small Business Guide to Building Business Credit

While most small business owners are well aware of personal credit scores (like those from FICO), the concept of business credit remains more elusive. Though 65 percent of business ownersuse credit for business purchases, only 50 percent of those cards are in the business’ name. This article tackles the basics of:

  • What business credit is
  • What affects business credit scores
  • How to establish a business credit profile
  • Ways to maintain a good credit score

The Basics of Building Business Credit

For many people, discussing credit or credit cards has become a social taboo. In a study by Experian, the average American’s credit card debt has creeped up 3 percent from last year. The good news is despite the rising debt, credit scores have also increased.

The reality is you need credit to purchase a home, a car, and to sometimes to get business credit. The best way to wrangle this beast is to increase your financial literacy on how credit works, and to get an in-depth knowledge on the ways personal credit differs from business credit.

For small business owners, keeping their personal credit in good standing and separate from their business ventures is crucial. Though, it’s still something that not many people fully understand. Let’s dive into how a business owner establishes a business credit.

What is Business Credit?

Business credit is the result of the information collected by business credit bureaus. They look into your business trade credit transactions in order to create your business credit report. They use your business name, address, and federal tax identification (FIN), otherwise known as your employer identification number (EIN).

Based on your company’s business credit transactions, the business credit bureaus will compile the data and create a report that determines your business’ credit profile. This affects the amount of money your business can be granted, the types of credit cards you can open, and whether or not your business is deemed financially trustworthy.

Establishing Business Credit Profile

Before the major credit bureaus Dun & Bradstreet, Experian Business, and Equifax Business can begin  compiling the data necessary to provide a credit report, you need to incorporate your small business. With sole proprietorships and general partnerships, the business is legally considered the same as the owner. Incorporating a business or forming an LLC creates a separation from the individual, this provides protection to the owner’s personal assets.

Dun & Bradstreet uses a 9-digit DUNS (Data Universal Numbering System) number to identify every business that has a credit file. The Small Business Administration reports the DUNS code is “the most widely used number for identifying companies in the United States.”

With personal credit, your history is automatically tracked; however, if you have a small business, you or your vendors have to voluntarily send your information to business credit bureaus in order for it to be reviewed. Your business needs to have a federal tax identification number or employer identification number (EIN). The process for obtaining this is fairly easy. Go to the IRS websiteto access the EIN Assistant page, and click on “Begin Application” at the bottom to get started. The EIN is required on federal tax filings and to open a business bank account in the name of the corporation or LLC. The EIN is like your small business’ social security number.

The next step would be to open a business credit profile with all three of the major credit bureaus in order to have your information tracked. Each credit bureau calculates business scores differently, so it’s important to note their range and how they rank high credit risks compared to low credit risks.

Factors that Determine Your Credit Score

Business owners are responsible for opening their business credit profiles to establish business credit. Once a credit profile is open business credit card issuers may need to be notified to report credit transactions specifically to business credit reporting agencies. The Experian and D&B credit scoring system uses a range from 0-100; the higher the number, the lower the risk. Equifax’s scoring system ranges from 101 to 816. The primary determining factors of a business’s credit report can be:

  • Number of trade experiences
  • Outstanding balances
  • Payment habits
  • Credit utilization
  • Trends over time
  • Public record recency, frequency, and dollar amount
  • Demographics such as years on file, Standard Industrial Classification codes and business size
  • Delinquencies such as collections, bankruptcy, and liens

Building Your Business Credit Score

In order to begin sending positive activity to the business credit bureaus you should be conscious of keeping your credit utilization low, and managing a variety of credit. Begin by opening a business checking and savings account, apply for small business credit cards in your company’s name, and obtain a small business loan using your business savings account as collateral.

Once you’ve created a business credit profile it’s important to maintain exemplary financial behavior. The goal is to be considered a low risk to banks and other financial institutions. This is accomplished by paying your bills on time and in-full by the end of each month.

Business credit is an intangible asset, according to the NSBA Small Business Access to Capital study. 20 percent of small business loans are denied due to business credit. Of businesses surveyed, 27 percent claimed that they were not able to receive the funding they needed. For those 1-in-4 businesses, the most frequent effect the lack of funding caused was preventing the owners from growing their businesses.

Conclusion

As a small business owner, it is imperative to begin building your business credit profile to maximize your company’s funding potential. Stay informed and up to date with your credit reports, and your business will become a trustworthy borrower.

Guest post: About the Author

Courteney Reed, is a financial industry analyst dedicated to empowering people to make smarter financial decisions.

The Hidden Costs of Starting a Business to Look Out For

As exciting as launching your own business can be, it’s important to remember that success rarely comes for free. The saying “you need to spend money, to make money” is one that often comes up in the entrepreneurial world. However, while many would-be business owners know that they’re going to have to tap into their savings to get their company off the ground, they’re not fully aware of the expenses that can be involved in running a business.

According to one study from the Kauffmann Foundation, startup costs for a small business can average out at around $30,000. Of course, the amount it costs to get your organization running will depend on a number of things, including how much your product costs to make, and how much you have to pay for things like overhead and utilities.

While startup costs in any industry can pile up relatively quickly, knowing what to expect can mean that you’re better prepared when you’re planning for things like website development, real-estate, and initial inventory costs. Here, we’ll be looking at some of the hidden costs that business owners often overlook in the excitement of starting a new venture.

Insurance

When you’re first starting out as an entrepreneur, it’s tempting to think that all you need is an internet connection and a healthy supply of inventory to start making a profit. However, there are a lot of other expenses to think about if you want to launch your company successfully and protect it in the long-term. For instance, insurance provides you with a critical safety net in case anything goes wrong when you’re running your company.

Although you might not feel as though you need insurance at first, as time goes on, the need for various forms of protection is likely to increase. For instance, you may need not only small business insurance, but also liability insurance, omissions and errors insurance, workers compensation, and more.

How much you’ll need to spend on any policy will depend on various factors, including the size and type of business you’re running, your industry, location, and any previous issues you might have had. You can easily spend more than a thousand dollars each year on insurance alone.

Employee Perks and Benefits

While you may have already thought of “salary” as one of the many expenses you’ll need to deal with as a new company, a lot of entrepreneurs overlook the importance of those added extras that make employment so appealing to their staff. Benefits and perks are a crucial component of what you pay out each month, and according to some studies, the average cost can run to about 1.4 times the basic rate of pay.

This means that a $50,000 wage could quickly become about $70,000 by the time you’ve finished accounting for healthcare, vacation time, and other perks. Make sure that you know exactly how much you’re going to pay altogether before you start promising your employees the world.

Alternatively, you could work with freelancers that wouldn’t expect the above-mentioned benefits. That’s not to say that you shouldn’t offer some perks. Something as simple, and comparatively less-expensive, as a monthly fresh-roasted coffee subscriptioncould do the trick or a gift card to a restaurant they mentioned they like.

Permits and Fees

Depending on the industry you choose to operate in, and the types of things you want to sell, you may need to invest in a number of fees and permits just to make your company legal. Some business owners don’t realize just how much cash can go into things like liquor licenses and retail permits. The best way to make sure you’re prepared is to do your research into the necessary expenses for your industry before you launch your business. For instance, you might need:

  • A fire department permit if your business deals with flammable materials
  • An air and water pollution permit if your company burns any materials or use products that produce gas (including paint sprayers)
  • County permits that allow you to trade within your chosen neighborhood
  • Sales tax licenses or certificates of authenticity
  • Health department permits if you run a business that deals with food and drink

Taxes

Taxes are one of the most frustrating parts of running your own business. When you were an employee of another company, the chances are that you probably didn’t spend too much time thinking about your taxes. While you likely paid your fair share, most of the hard work will have been automated by your payroll department. This means that you barely noticed the money going out of your bank account.

Unfortunately, when you become a self-employed business owner, things get a lot more complicated. Self-employment tax can cost a lot more than you might think, and it can also lead to other expenses that are associated with managing your cash flow. For instance, if you want to make sure you don’t make any mistakes on your returns, you might want to invest in a professional accountant.

Administrative Costs

Administrative costs are sneaky. A lot of companies assume that they only have to pay out once for things like phones, computers, printers, and office supplies, and then they’re done until something breaks. Unfortunately, administrative costs can become an ongoing expense when you think about the costs of software licenses, paper, ink, and even paperclips.

Individually, the everyday items you buy like office cleaning supplies and healthy snacksmight not cost very much. However, as your business grows, you may find that your administrative costs quickly add up to a significant price tag. Buying in bulk early can help to keep your expenses down in some cases.

Shrinkage

Finally, shrinkage is a common expense often overlooked by retailers who sell physical products. If you run your own brick and mortar business, or even when you’re selling physical items online, there’s always a chance that shrinkage can occur. In fact, some numbers suggest that shrinkage can cost retailers up to $45 billion each year!

Shrinkage can happen for a number of reasons, from packages that get lost during shipping, to issues with shoplifting and employee theft. Even something as simple as a paperwork error can cause you some serious problems with your cashflow. The good news is that if you catch the signs of shrinkage early, you can sometimes reduce your risk. However, most companies will find that’s impossible to eliminate shrinkage entirely.

Ultimately, there are plenty of expenses involved with running a company that are easy to overlook – particularly when it’s your first time as an entrepreneur. Making a list like the one above and making sure that you’re prepared for every expense can prevent you from facing a nasty shock when you launch your company.

Starting your business takes funding! IOU Financial is ready to help. Contact us to learn how you can get qualified for a small business loan of up to $300,000 in just 24-48 hours!

Guest post: About the Author

Raj Jana launched his own business when he realized that there weren’t enough sustainable solutions out there for those in search of their daily caffeine fix. When he’s not busy running JavaPresse, he shares his stories and experiences with the world through blogs and articles.

 

Best Accounting Software for Small Businesses

Accounting is not the most fun aspect of the business, but it’s surely one of the most important. That’s why, no matter whether what kind of products or services you sell, you’ll need a reliable accounting software as the backbone of your business’ finances. But if you’re a small or growing company, you probably don’t need the huge-scale feature—or price tag!—of the accounting programs that are targeted for much larger companies.

So which ones are the most affordable and intuitive to use? Are there any programs that create automated invoicing, expense reports, and bill payments? What about cloud-based software for convenience and security? If you’ve been wondering about the answers to these kinds of questions, the good news is that we’ve done all the research so that you won’t have to. After all, you’ve got a business to run.

QuickBooks Online

If a convenient and simple-to-use accounting program is what you’re looking for, Quickbooks Onlineis a smart choice. With an intuitive interface and cleanly designed dashboard, you have an at-a-glance look at your overall financial health, from outstanding or paid invoices, expenses, sales, and profits and losses. With built-in report templates and automated features like recurring invoices, bill payments and reminders, QuickBooks Online does away with the tedious and time-wasting nature of manual transactions to free up your time for actually running your business.

Via Quickbooks Online

QuickBooks is compatible with a ton of external applications so that you can automatically import and export data with no hassle. Plus, your data is automatically backed up, so you never need to worry about losing important transactions or reports. With a $10-$30 monthly subscription fee, as well as a free trial, the price for making your small business more efficient couldn’t be better.

Wave Accounting

When something seems too good to be true, it usually is. But Wave Accounting is a completely free accounting software, with no catch or tricks up its sleeves. Even better, it’s one of the best financial software programs out there for small business owners who don’t plan to scale (past 10 or so employees). Keep in mind that it is a step down in complexity from some of the more robust accounting programs since it doesn’t track billable hours or automatically attach tracked expense to invoices. And because it’s not capable of tracking inventory or creating purchase orders, this one isn’t for you if your business provides more than a handful of products. Still, reviewers swoon over its ease of use for a small company with simple needs.

Via WaveApps

And with basic features like automated recurring billing and payment reminders, automatically synced data with your other financial services like your bank, credit card, or PayPal, as well as cloud-based data backup, you can rest easy. If what you’re looking for is simple and frills-free, you can’t beat with Wave Accounting.

FreshBooks

Looking for a program that’s simple to use and offers reliable, top-notch customer service, as well as various integrations? FreshBooks makes it easy for you to invoice customers and track both billable hours and expenses. You can send payment reminders and see when a client has viewed your invoice.

Via FreshBooks

One downside is that FreshBooks is meant for single-entry accounting only, so if you require more complex features, this may not be the best choice for you. But with an easy-to-use intuitive design, mobile apps, and solid invoicing and billing capabilities, it gets the job done for a small business that doesn’t need all the fancy bells and whistles. Keep in mind that pricing is set upon your number of customers, as well as features and additional users.

Xero

If you’re looking for a platform that provides real-time updates from your bank and credit cards, and you’re the type who wants to know what’s going on with your finances on a moment to moment basis, a subscription with Xero will be your best bet.

Via Xero

Xero features a subscription model with tools for bookkeeping, invoicing, expense management, taxes and more. When you upgrade from the starter subscription (which allows you to send invoices to send five invoices and quotes, and reconcile 20 bank transactions per month), you get unlimited access to these features plus payroll, so you can adjust as your business expands.

Guest post: About the Author

Lauren Pezzullo is an east-coast-raised Austinite and musicophile who writes about the latest software and B2B trends for TrustRadius. She’s currently at work on her debut novel.

 

3 Ways to be Smart about Business Expenses as a New Business Owner

New business owners become overwhelmed by expenses, taxes, and financial issues in a short time. With so much to do and manage, it is challenging to keep tabs on expenses. But, if you want to stay in business, you must keep your spending in check, stay on top of your tax responsibilities, and prioritize tasks and expenses. Our tips will show you how to do it all.

  1. Hire a Financial Advisor Specializing in Small Businesses

It seems strange to emphasize keeping expenses in check and then suggest hiring a financial advisor, but it is the best way for you to comply with tax laws, make smart purchases and investments, and protect your assets as your business grows. Your best move is to choose a financial advisor who has ample experience in assisting small businesses and who understands the ever-changing tax laws.

If you work from home, you especially need a financial advisor to help you determine whether claiming your home office is the best way to proceed with your taxes. It also is more challenging for small business owners who work from home to keep their personal and business expenses separate, and a financial advisor will ensure you do things by the book to avoid penalties or fees. Your financial advisor also will help you find areas to save costs and prevent you from using too much of your personal money to grow your business.

  1. Create a Budget… and Stick to It

Your financial advisor also will help you create a budget for your small business or your home office. It is critical that you stick to your budget because you don’t want to stretch your new business too thin in the early stages.

In fact, the Bureau of Labor Statistics reports that about 80% of businesses with employees survive their first year in business, 66% survive their second year, and about 50% will survive their fifth year. However, only about 30% survive their tenth year. Why do so many small businesses fail? For many of them, the answer is lack of sufficient capital and cash flow problems. One study shows that 82% of businesses fail due to cashflow problems.

The lessons new business owners must learn are that they need to manage their expenses wisely, and they need to have enough capital to grow. The solution to these common issues is to prioritize your needs by creating and sticking to a budget.

If working from home is the best way to start your business, do so to save overhead costs. You’d be surprised by how much you can accomplish with the perfect workspace in your home and the right technology. You’ll likely be able to get off the ground with reliable, high-speed internet, a laptop or tablet, and a reliable printer and phone. There are even online payment systems that allow remote business owners to receive one-time or recurringclient payments from the comforts of a home office. Reliability and convenience are much more important than spending too much for the latest technology, phones, or gadgets.

  1. Make Priorities

As a new business owner, the bulk of the work will fall to you. Because your time is money when you’re in charge, you need to be as productive as possible and make time for yourself and your family. That may be easier said than done if you work from home, so set your hours based on when you are most productive and make time for your family to strike a work-life balance. The perk of working from home is setting your schedule, so do so wisely.

You’ll also need to prioritize your workday tasks. While answering emails is an important part of your role as a new business owner, other tasks will suffer if you spend too much time checking your inbox and replying to emails that are not urgent.

To spend less time on email, set up an automatic response and take advantage of canned responses. You’ll still respond to customers promptly, but you’ll also be more productive if you schedule time for email throughout your day. It’s also important to prioritize record keeping for tax purposes and to create a system for filing receipts and other documents that will support your business expense claims each quarter.

New business owners succeed when they make smart decisions about expenses. Make it easier on yourself by hiring a financial advisor specializing in small business, creating and sticking to a budget, and making priorities.

Guest post: About the Author

Ms. Fisher has spent more than 20 years as a CPA, and is currently working on a book about financial literacy (due out in 2018). She also runs Financiallywell.info.

Reasons You Should Have a Business Credit Card

If you are self-employed or the owner of a business, you should seriously consider getting a business credit card and use it exclusively for your business-related purchases. Picking the right card can save you time and money – let’s see why.

Taxes:

Your business expenses are tax-deductible. The easiest way to keep track of these expenses is to charge them to your business credit card whenever feasible. Furthermore, you can deduct interest charges and/or annual fees on your card, as long as you use it exclusively for business. Those fees aren’t deductible on a personal credit card, even if you charge some business expenses on it. At tax time, you can look at your business credit card transactions for the tax year for a quick summary of your deductions, which will save you time (and money if you use a tax preparer). By the way, the IRS frowns on intermixing personal and business spending, and you might attract unwanted attention if you mix your spending on the same card. It might also help to show the IRS your business is a business, not a hobby.

Credit history:

Using a business credit card for your LLC or corporation will create a credit history for the business. That’s very important, especially if you pay your bills on time. Having a good credit history should result in a good credit score for your business and easier access to business loans.

Bonus points:

Most self-respecting credit cards, whether personal or business, reward you with bonus points or cash back on your purchases. The problem with personal cards is that they might not reward you for the kind of expenses your business incurs. For example, a personal card might reward grocery store purchases but not social media advertising. It’s smart to get a business credit card that offers rewards on purchases like search engine advertising, internet services, business travel, shipping costs and so forth. Some of these purchases might not earn you any rewards on your personal card. You might be able to pool your points from your business and personal credit cards if they come from the same issuer.

Bookkeeping:

If you make all your purchases on a personal credit card, you’ll have to waste time every month separating the business purchases from the non-business ones. Yes, you can still deduct business expenses charged on a personal card, but why do the extra work and risk overlooking several expenses? You can export your business card transactions directly into accounting programs like QuickBooks and save a lot of time. Business credit card statements are often more detailed, and this comes in handy if you have employees who get their own copies of your business credit card, which most issuers will provide you for free. By setting up your business card, you can quickly give one to each new hire. Don’t forget, you collect all the rewards on your employees’ purchases when they use your business card.

A business credit card is a no-brainer for sole proprietorships, partnerships, and limited liability companies. There are a few cautions to be aware of when choosing a corporate business credit card:

Fees:

Many personal and small-business credit cards have no annual fees. However, many corporate cards have fees, some of them on the high side. Also, many of these credit cards charge a higher interest rate compared to personal cards.

Grumbling:

Your suppliers and vendors might grumble if you pay them with a corporate credit card, because the transaction fees they have to pay on these cards are much higher.

Abuse:

If you have employees sharing a corporate card, be on the lookout for any personal purchases they make with it. First, they are stealing from you if they do this. Secondly, even if you don’t catch it, the IRS might, especially if you deducted personal expenses as business ones.

Financial Questions Every Business Owner Should Ask Themselves

The most significant strength of a small to medium business is its size. A small-to-medium enterprise has a reasonable overhead cost. The infrastructure is confined to one location in most cases. There are fewer employees (or perhaps none). The company can tweak its policies to suit its customers or clients, scaling up or down a bit is not a major challenge. And lastly, there is substantial scope to grow because one is starting small.

However, these advantages are countered by one significant disadvantage. Most small-to-medium businesses have limited capital or available cash. A majority of small businesses fail due to a financial crisis. Lack of sales or revenue is the obvious cause of failure in theory and in practice. However, that problem can always be tackled for a longer period of time if there is enough financial backup. Every business needs time to mature and grow, to solidify its clientele or consumer base, and to become a self-sustained enterprise.

Business owners must ask themselves hard financial questions and only rely on actual numbers, not estimates, speculations, expectations, or assumptions. As a business owner, be sure to ask:

How much does it cost to run my business?

A business owner should know every cost or financial liability like the back of their hand. Many people focus on rent, utility bills, wages, personal income, and cost of inventory. These are indeed the quintessential recurring expenses, but there are more. A business will need funds to advertise its products and services or promote itself as a brand. There are costs to maintain and upgrade the infrastructure, even in the short term. Very few businesses launch with an infrastructure that can sustain its short term growth. Using the last penny from the revenue generated to finance minor upgrades or to procure more inventory can risk the sustenance of the business, as the working capital will dry up.

How much profit does my business actually make?

Every business owner should know the fundamental difference between gross profit and net profit. Gross profit is not the difference between the selling price and cost price of a product or service. It is the amount you are left with after paying for every recurring expense and after putting aside whatever amount of money you wish to infuse in your backup fund. Net profit is calculated after business and individual taxes. The difference between revenue and gross profit and subsequently with net profit is substantial in most industries. A wrong calculation of profit can wreck a business.

What is my business credit score?

Most business owners worry about their credit score only when they have to apply for a loan. This is fine if your business credit score is healthy and acceptable to the lenders. If not,  there are many ways you can improve your credit score over a period of time so when you have to look for some financing, your rating doesn’t prevent you from getting a loan. Keep a tab on your business credit score and work on improving it. This will save your business when the going gets tough or even when you wish to expand and grow, which requires fresh funding.

What are the financial highs and lows in my business?

Every business owner should have a budget. It is an integral part of any business plan, not just at the inception of an enterprise, but every year and every month for some companies. No business has a uniform or entirely predictable revenue stream throughout the year. What you do with the surplus revenue when “the going is great” and how you manage the revenue deficit when “the tough gets going” will determine the long term fate of your enterprise.

What is the cost and income per unit for my business?

This is a difficult calculation. Even successful companies struggle to boil all its income and expenditure down to a unit. A unit can be a piece of inventory you have or every dollar you spend. The objective is to find out how much your business earns for every penny you spend. This is one of the surest ways to know if your business is financially viable. There will always be some inventory stocked up and some receivables pending. There will be credits granted to you and owed to you. Some incomes and expenses will always be in limbo because of the ongoing cycle of purchases and sales. There will be the need to expand. And lastly, a compulsion to change your products or services.

All such mathematical calculations can become subjective and circumstantial unless you focus on the cost and income per unit. If this correlation is in the green, then your business is financially viable and stable. Else, you need to review the financials of your business.

Guest post: About the Author

Steven Millstein is a professional personal finance writer and contributor to many leading financial publications. His work has been mentioned in and linked to from The Bustle, The Huffington Post, Benzinga, Yahoo Finance and many other publications. He also has his own personal finance blog, Credit Zeal, where you can follow him.

10 Innovative Ways Your Business Can Save Money

Business owners are always trying to maximize profits and save wherever they can to ensure success. Here are some of our favorite creative ways to save some cash:

Website:

Build your own website. Many small businesses spend a ton on having a website built and maintained. Guess what? You can do it yourself using website builder software. Check out the offerings from Wix, Squarespace, GoDaddy and others. You’d be surprised at the sophisticate product you can turn out at a fraction of the cost.

Advertising:

Ads can get expensive. Consider enlisting other small businesses to participate in communal advertising, in which you share suppliers, mailing lists and distribution channels. It’s best to work with other companies having a solid reputation and offering complementary products or services.

Spread the word:

Community events are terrific venues to show off your expertise in your given industry. You’ll get free exposure for your business and yourself. You never know, it might lead to paid speaking gigs!

Convert living space:

Commercial offices are so 2010! The IRS has made it easier to declare part of your home as your office and earn valuable tax deductions. Renting office space is expensive, and for many businesses, unnecessary. This is especially true if your business involves e-commerce, where customers will never see your workplace.

Think used:

If you do need office equipment and furnishings, think used! You can get used desks, chairs, filing cabinets and so forth for a fraction of their costs when new. Remember, shiny new furniture is no match for a healthy bank account.

Use freelancers:

It’s cheaper to use freelancers when needed, because you don’t have to pay employees who might sometimes be idle, and you don’t have to worry about the costs of payroll, withholding, benefits, profit-sharing, etc. In addition, using an experienced freelancer saves you the cost of onboarding and training an employee.

Barter:

You might offer something that can be bartered, allowing you to obtain products and services without spending cash. For example, if you’re a freelance CPA, you might obtain legal work from a lawyer client in exchange for tax preparation work.

Borrow wisely:

Entrepreneurs often waste time applying for bank loans only to find out a month later that they’ve been turned down. Sure, bank loans offer good interest rates, but only to the most credit-worthy clients and only after taking a month to make a loan decision. If you’re in a fast-moving business, you can’t afford to waste a month on a business opportunity that might evaporate in a week. When you borrow from IOU Financial, you’ll get your money in a day or two, putting you in a position to open the door when opportunity knocks.

Demand discounts:

Has it occurred to you to demand discounts from your regular suppliers? You’ve given them your business, now they can provide you with a thank-you by offering a discount on future orders. You just might find them very flexible when you hint at taking your business elsewhere.

Don’t buy, rent:

Do you occasionally need heavy equipment, vehicles and other items available from your local rental store? By renting, you avoid large capital outlays and money spent on equipment maintenance and repair. Rental expenses can be deducted when they are incurred, whereas equipment purchases may take years to depreciate. Renting makes a lot of sense for a variety of small businesses.

f you have tried all of these strategies, but are still finding it difficult to sustain your business during the holiday time, turn to IOU Financial. We make it a priority to support small and medium-sized companies with easy loans up to $300,000. You can get funded in as little as 24-48 hours.

How to Tell if It’s Time to See a Financial Advisor for My Business

An American College survey of business owners found that 60 percent of respondents have not met with a financial advisor, and few had developed contingency plans for future events that could affect their businesses. A financial advisor has the expertise and experience to help you maximize the effectiveness of your capital investment in your business, and meeting with one can be quite beneficial.

While it’s a good idea to use a financial advisor from the beginning, you might have put it off. Here are five ways to tell that now is the time to see a business financial advisor:

Cash flow problem:

A financial advisor can help when you suddenly find your business facing an unexpected cash crunch. The advisor will help you work out your options for plugging the cash gap in the short run and preventing it in the future. One alternative is to acquire a working capital loan, such as the ones we provide at IOU Financial. Short-term loans provide the liquidity you need to continue operations, and the cost is quite modest compared to the consequences of not paying your bills on time.

Buildup of owner’s equity:

Good news can also trigger the need for a business advisor. One happy scenario is that your business is doing better than expected and your owner’s equity account is growing must larger than anticipated. You’ll want to speak to an advisor to see how to put that extra cash to work in a tax-friendly way. Sure, you could simply withdraw it, but that will create a personal tax liability. An advisor can help you look at different alternatives to grow your business, such as extending your geographical reach or expanding/enriching your product mix. You might want to hire additional employees or move to a better location – these alternatives require careful planning that a business advisor can provide.

Sudden opportunity:

Sometimes, opportunity knocks and you’re not quite ready. For example, a key competitor might approach you with an offer to let you buy it out. Or a sudden deal becomes available that would let you significantly increase your inventory at a highly-discounted cost. A financial advisor can help you work out how to take advantage of the opportunity in the most efficient way. Once again, a short-term loan might be the answer. IOU Financial can lend you up to $300,000 to grow your business at an affordable cost. Opportunities don’t come along that often. Be prepared to seize them, and to do so in the most efficient manner.

Thinking about retirement:

A business financial advisor should be brought in well before your retirement date to help work out how to sell the business and how to best use the proceeds of the sale. For example, it would be nice to minimize the tax impact of a big payout. A financial advisor can show you alternatives like trusts, charitable contributions and tax-sheltered accounts. It might require you to restructure your company before you sell it in order to reap the best after-tax benefit from its sale.

You’re feeling overwhelmed:

Maybe you know your business more than you understand finance. As your company grows, you might find yourself paralyzed by financial ignorance. Hire a business financial advisor to break the logjam and get you moving in a positive direction. Don’t mismanage your success. Don’t be afraid to get help before your sweet business turns sour.

Overcoming Accounting Challenges for Small Business Owners

Becoming a business owner can be a dream come true, offering freedom and flexibility away from the rush and bluster of a traditional 9 to 5 work week. It can also be an extremely frightening proposition depending on where your expertise lies.

And for most people, their expertise is not in finances. Taxes, cash flow, and payroll deadlines can cause stress for many owners and make it difficult to understand where the business stands. For small businesses, these factors play an even larger role in the health of the business than larger enterprises. Starting a small business requires a certain amount of guidance and resources. There are several accounting challenges that will have serious and costly consequences if a business owner doesn’t fully understand their role.

Understanding Federal and State Labor Laws

Before they ever hire their first employee, a business owner needs to know their place with local and state governments. There are also standards that must be met that ensure payment standards, vacation and benefits for your employees, severance pay, payroll deductions and plenty more.

Any small business owner will face these, so it is crucial to understand your role, what you will be required to – and ethically should – provide employees, and what effect it will have on your budget. Ignorance will not save you from state and federal laws, so be sure to become familiar with what your responsibilities are. The United States’ Small Business Administration is a great place to begin learning your responsibilities on each level of government jurisdiction.

Complying with Reporting Deadlines

Issuing paychecks and paying payroll taxes is just half of the requirements in payroll accounting. There are federal and state requirements concerning the reporting of quarterly payroll taxes. There needs to be a clear understanding of which taxes are reported on specific reports and whether these taxes are at the state or federal level. The Internal Revenue Service does a good job of keeping these dates clear on their website.

If a business acts as a collection agent for sales or use tax, there are also laws requiring the remitting and reporting of these taxes. The local state tax department will be the best source for answering questions about deadline dates and methods of reporting.

Cash Flow Management

The ebbs and flows of cash management can be a headache for any accountant – and especially so for a small business owner. Staying on top of cash flow requires meticulous documentation, recording all receipts and disbursements regardless of size.

Banks are very good at keeping up with these things; it is their job, after all. When in doubt, record all the expenses and sales your business earns and consult with the bank that handles your accounts. Depending on the complexity of your business’ cash flow, it might even be worth consulting a financial advisor to properly plan goals and become more knowledgeable about your cash flow.

Meeting Payroll Deadlines

Paying employees on time must be a high priority of any business, large or small. There are federal and state laws that dictate when an employee must receive their pay, so cash flow management must set aside funds for payroll.

Along with the actual disbursement of paychecks, there are also crucial deadlines for remitting payroll taxes. These deadlines can be both on the federal and state level, so each category of taxes must be dealt with in a timely manner. Most payroll taxes require submission electronically; luckily, there are software systems – such as Sage Peachtree, Quickbooks, and more – available to automate this process for you as well as record your expenses.

Qualified Employees

Finally, you need employees who you can rely upon. That means planning a payroll budget that measures how much help you’ll need, what skills they’ll require, as well as a fair market assessment of what those skills are worth.

As a small business owner, it can be difficult to know what that fair market price for employment would be. Those metrics will rely on the market that you are in as well as the general value of those skills. A salary too low may experience much more turnover than you’d prefer as well. Fit Small Business lists several free tools that will allow you to fairly assess what a competitive salary in your field looks like.

A small business’ finances can be a difficult aspect of business to manage. But with proper documentation, automation, and research, you can tackle each of these issues and flourish as your own boss.

If you need help affording a payroll and/ or accounting system or require financial assistance to pay off your business taxes, turn to IOU Financial. Our hassle-free small business loans of up to $300,000 can be in your bank account in under 48 hours! Contact us today!

Guest Post: About the Author

Alex Briggs is a contributing writer for Rising Path Accounting.

3 Ways to Strengthen Your Business Credit Score

Similar to a high FICO score, it is important to have a strong business credit score. In order to qualify for loans or get approved for trade credit, you must prove that your company is a safe bet for investors, banks and private lenders.

A low business credit score signifies that your business carries a significant amount of risk to lend funds to, which will result in either a denial of a loan or unfavorable rates and terms based on the level of risk. Additionally, you can qualify for lower insurance rates with a higher credit score.

How is Your Business Credit Score Calculated?

Your business score is calculated by credit-reporting agencies that utilize an algorithm based on various factors. Although your score can fluctuate slightly depending on the agency and its scoring model, similar factors are taken into account when determining your score.

Your business’ creditworthiness is rated on a scale from 0 to 100 based on the accounts in your company’s name. It is important to note, however, that business lenders may consider your personal FICO scores in their decision-making process.

How to Strengthen Your Business Credit Score

In order to improve your business’ creditworthiness, you must strengthen your business credit score. There are three effective ways to do so, which include:

Monitor Your Credit Report

The first and most effective way of strengthening your credit score is regularly monitoring your credit report. No system is created perfectly, and errors are common between lenders and credit reporting agencies.

If you don’t monitor your credit report, you will not be aware of discrepancies that can significantly plummet your business credit score. Get in the habit of requesting annual credit reports from the three credit reporting agencies, Experian, TransUnion and Equifax, which will alert you to issues that you must address to improve your score.

Pay Bills on Time

It is no easy task to manage your personal and business expenses, which is why you may not have enough funds every month to pay all of your bills on time. There are sources that may advise you to lag behind on payments, later agreeing with collection agencies on repaying lower amounts just to settle your debts.

While this may benefit you in the short term, not paying your bills on time can significantly affect your business credit score. Not only will you be obligated to pay a late fee and possible interest on the outstanding balance, a payment that is over 30 days late will be reported to credit agencies, possibly lowering your business credit scores. One source states that “payment history information typically accounts for nearly 35 percent of your credit score, making it one of the single most important factors in calculating your score.“

Paying bills on time will boost your credit score; in fact, paying bills ahead of the due date will play an even bigger role in strengthening your score!

Raise Your Credit Limit

Your business credit score is calculated by factoring in your credit utilization ratio, which considers available credit in relation to debt. It is advisable to keep the ratio under 30% to have a high credit score.

Although you may not be able to limit the amount of debt your company has, you can improve the credit utilization ratio by increasing your credit limit. While many credit cards will do so automatically after a certain period of time, you can make proactive efforts by contacting lenders and requesting an increase in your credit limit to better your business credit score.

Increase your credit limit in order to raise your business credit score by securing a small business loan from IOU Financial! Contact us to inquire about a small business loan of up to $300,000 in just 24-48 hours!