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Navigating Business Credit: What it is and How to Establish it

Small businesses play no small role in the U.S. economy. According to the U.S. Small Business Administration (SBA), there are 29.6 million small businesses in the United States, which account for 99.9% of all the nation’s businesses.

Small businesses clearly make up the backbone of the US economy. However, many small business owners remain perplexed by the concept of business credit and how it works. More often than not, small business owners take on personal loans and use personal credit cards to fund their businesses, which can lead to financial and organizational headaches. This article aims to do three things:

  • Help small business owners understand the elusive concept of business credit
  • Highlight the factors that affect business credit scores
  • Assist them in building business credit

What Is Business Credit?

Business credit is a line of credit offered to a business that the business can use to pay unexpected expenses, or expected operating expenses when there is a lack of available cash.

Your business credit scoresare represented by numbers that signify whether your business is suitable for loaning money to or doing business with.

There are three primary credit bureaus (Experian, Dun & Bradstreet, and Equifax) that uniquely calculate business credit scores. Each has a different scoring algorithm. Experian and Dun & Bradstreet’s credit scores both range from 0 to 100, while the Equifax scoring scale ranges from 101 to 816.

Similarly to personal credit, those issuing credit to you will rely on your business credit scores in their decision making. The higher your business’ credit scores, the more likely you’ll be able to secure larger credit limits as well as more rewards and benefits.

What Factors Affect Business Credit Scores?

While your business credit scores vary depending on the specific credit bureau’s algorithm, a few general factors that underlie these scores are:

  • Number of trade experiences
  • Outstanding balances
  • Payment habits
  • Trends over time
  • Public record frequency and dollar amount
  • Delinquencies such as liens or bankruptcy
  • Credit utilization (the percentage of your total business credit that is being used)
  • Demographics such as years on file, Standard Industrial Classification codes and business size

5 Tips To Build Business Credit

Creating business credit is not something that happens automatically. It requires multiple steps on the part of the business owner. Building business credit will not only benefit the business’ credit scores, but open more credit card and loan options for the business. These funds allow the business to keep growing.

In the instance that you have never incorporated your business, or you are starting a small business from scratch, this quick guide will direct you down the path of building your business credit.

1. Incorporate Your Business

The first step on the road to building business credit is to separate yourself from your business through incorporation. Through incorporation, your business will become a distinct legal entity from your person. The U.S. Small Business Administration provides an in-depth guide to launching your business, including incorporation, which would be recommended for all budding entrepreneurs and small business owners.

2. Obtain an Employer Identification Number (EIN) from the IRS

An EIN identifies your business for credit and tax purposes. It’s essential to get an EIN number for an SBA loan. In most cases, it is necessary to have one to open business bank accounts. An EIN allows business owners to separate their social security numbers from their businesses’ credit profiles.

3. Register with Dun & Bradstreet

When a business applies for business credit, lenders and suppliers commonly perform a credit check through Dun & Bradstreet. Register and set up a company profile under Dun & Bradstreet’s database in order to start establishing credit. Dun & Bradstreet will issue a nine-digit DUNS number that is universally used to identify businesses.

4. Open a Checking and Savings Account for Your Business

Open both a checking and savings account in your business’ name. This is done using your recently provided EIN and DUNS numbers. By doing this, you’ll separate your personal and business finances.

A business savings account is not mandatory, but is an intelligent move for any small business owner. A business savings account can assist when an unexpected cost arises and it can also be used as security for taking out a small business loan.

5. Obtain a Business Credit Card & Responsibly Manage Your Finances

Business credit cards are key to building business credit. It’s recommended that these credit cards should be commercial in nature and used for business expenses. Business owners should put any business credit accounts in the name of the business using their EIN and DUNS numbers.

It should be noted that not all business credit cards are created equal. Different business cards provide different types of rewards and benefits. Business owners should do their research and find business credit cards that aligns with the goals of their businesses.

While obvious, it is imperative to maintain excellent financial behavior to build business credit. Make sure to keep your credit card utilization low, pay all bills on time and in-full, and use a variety of credit.

Conclusion

Building strong business credit is not something that’s automatic or instantaneous. It requires business owners to be proactive and behave with financial responsibility. Time and excellent financial behavior are necessary ingredients in establishing high business credit scores for your small business. By understanding the core business credit concepts and following these tips, your business credit scores should be flourishing in no time.

Guest Post: About the Author

Courteney Reed is dedicated to empowering people to make smart financial decisions. As a financial industry analyst, she is driven to provide the most current and highest quality information available.

Six Tips to Raise Your Business Credit Score

A high business credit score will allow you to secure more financing for your business. Business credit scoring works almost like personal credit scoring—credit lenders will report business loans and repayment history to credit agencies, who will then calculate a business credit score.

Because a good business credit score is essential for securing business loans, it is important to keep it as high as possible. If your business has accumulated too much debt and failed to repay some loans on time, your credit score may have suffered. However, it is still possible to improve your score by following six simple tips.

Check Your Credit Report

Having a clear understanding of your credit history is the first step towards building a healthy credit profile. You can talk with a credit reporting agency to assess your credit score—some, like Equifax Small Businessoffer consulting services to help you manage your business credit profile.

Once you get your report, you will know where you stand and what you have to work with. Credit reports will also show you which accounts harm your credit score the most; these will be your first targets. Make a list of all the high interest loans that you had trouble paying off and prioritize which accounts to focus on first.

Pay Your Bills On Time

Building up a reputation for consistent and timely repayment is essential to improve your business credit score. Your late payments may hurt your credit score more than your current outstanding debt.

You should always strive to pay all your bills on time, even if you have to stick to the minimum amount. If possible, pay in advance. Keep up this consistent repayment behavior and make sure that vendors report it to the credit bureaus to raise your score.

Don’t Close Your Accounts

Although it is important to reduce your overall debt, closing all of your accounts will not improve your credit score. Do not only think about the money you owe, but also consider the money you could borrow. This is where credit utilization comes into play, which is a way of measuring how much debt you have versus how much credit you could take on.

For example, if you apply for a business credit card account, your available credit will increase, thus reducing your credit utilization. Moreover, you can use a balance transfer credit card to move debt from a high-interest credit card and pay off the loan at zero percent interest.

If you have credit accounts that you don’t use anymore, do not close them. Having a relationship with several lenders will give you access to more financing sources.

Try to capitalize on your good relationship with lenders and repay high-interest loans that you’ve had for a while. In fact, credit reporting agencies will rank you higher for having long-term accounts with several lenders.

No Credit Equals Bad Credit

If you do not have any credit, you cannot have a credit history. Lenders and financial institutions want to see your history of paying off loans to give you more loans. If you have no history of this, they don’t know if you’ll be a good financial candidate. If you have no credit history, start with taking out and repaying small loans.

Build on Your Positive History

 Lenders are more likely to report a bad experience to credit bureaus than a good one. If you have been a loyal bank customer, ask them to report on the positive experiences. The more lenders assess your creditworthiness, the better your business credit score will get.

If you have failed to repay some lenders on time, do that as soon as possible. In fact, negotiate with them, and, if possible, offer to repay the debt in full in exchange for withdrawing any information about late payments that they have provided to credit bureaus.

If the positive experiences outnumber the negative ones, even at high debt levels, your business credit score will improve.

Keep Your Personal Finances Separated

Your low personal credit score may have an impact on your ability to find financing for your business. One way to prevent your personal credit score from lowering your business credit score is to keep your accounts separated. Do not make personal purchases on a business card, and then write them off as a business expense. Your company’s bank account should be completely independent of your personal one.

If your business is going through some rough times, do not be afraid to take out a small business loan. Of course, the final goal should be to grow your business, so choosing the right option is important. Get your credit score report, identify the worst “offenders,” prioritize, create an action plan and start working on removing those black spots from your credit history. By being consistent, you will be able to bring your business credit score to “excellent.” It’s always worthwhile to consider hiring a professional to help you improve your business score. Talk to a representative from CreditRepair.com to discuss your options.

Guest Post: About the Author

Renata Ilitsky is a writer and editor for CreditCardsReviews.com. She is a freelance content writer with over 10 years of experience. She specializes in creating unique and engaging content for any industry. To read some of Renata’s other work, please view her writing portfolio.

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.

Finance 101: Keeping Your Business Finances Organized

Managing your company’s finances is the most important part of running a business. Surprisingly, some business owners don’t know the first thing about organizing their finances. This is not only a problem because they can’t pinpoint exactly how much loss or profit they generate in a year, but for other, more serious concerns.

Companies often experience negative cash flows, especially during the startup phase. Some businesses are seasonal, and need a cash reserve to carry them through the slower months. If your business thrives, it will need an investment of funds to sustain growth.

If there is no management of funds, financial planning and savings, it can be detrimental to a business. In this article, we present Finance 101: Keeping your business organized with these tips:

Separate Personal and Business Finances

This may seem like no brainer, but many small business owners don’t realize they must maintain their personal and business finances separately. They charge both types of expenses on the same credit card, finance their business goals with personal loans and transfer profits into their personal banking account.

This presents a major headache at tax time, when either the business owner or their tax accountant must separate every expense into different categories, causing confusion. Plus, fusing finances can raise a red flag and lead IRS to audit your business.

Invest into Accounting Software

If you cannot afford to hire a dedicated accountant to manage your business expenses, purchase accounting software. Although there is likely to be a small learning curve with every new program, this is an efficient way to enter all of your spending, sales, payroll information, etc.

If the software is cloud-based, it will securely maintain your records online, making them accessible anywhere at anytime. This will cut down on your paper usage and make it much more efficient to view and change your financial information at any time.

Register for an Employer Identification Number (EIN)

Just as you require a social security number (SSN) to open personal accounts or register for government issued documents, your business needs its own tax number, called an EIN. You can easily apply for an EIN on the IRS website for free by following this link. This will be required to open credit cards and financial accounts, as well as retirement plans.

Consult a Professional

Every state and some cities have different laws and regulations about running a business. To make sure you are in compliance with these rules, are filing your taxes properly and know the ins and outs of payroll law, it is advantageous to consult a professional about these matters at least once per year.

These can involve certified public accountants (CPA), labor law attorneys and Human Resource administrators. You are not required to hire these professionals on permanently, but can use their services on an as-needed basis.

Although you will need to pay for their expertise, making sure you are following the law will save you from paying penalties or risk ruining your brand image and losing your business.

IOU Financial is committed to helping small businesses become financially secure. We specialize in hassle-free, easy and secure small business loans of up to $300,000. Contact us today at www.ioufinancial.com to speak to us about qualifying for our loans.

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.

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.

Money Habits for Business Owners to Employ in the New Year

2018 should be an exciting year for small businesses, with lower taxes and a bubbling economy. This is no time to take your eye off the ball – you must continue to pay attention to your money habits if you want your business to do its best. Here are seven tips to help strengthen your business financials:

Set your financial goals:

You should have short-term objectives and long-term goals that will keep you motivated every day. Your goals should be timely, realistic, measurable, attainable and specific. That means you should have a plan, preferably written-out, on how you’ll achieve your goals. Prioritize these plans and then track your progress against them, using a spreadsheet or word document.

Set annual and monthly budgets:

Include assets, liabilities, income, expenses and equity. Use the IOU Financial Business Budget Smart Sheet as your starting point. Pick out areas where you want to save money, and periods of seasonal challenges that might require an infusion of working capital. We at IOU Financial can help arrange quick financing when you need it, with easy payback terms, so keep us in mind when you lay out your monthly budgets. Track your actuals against your projections and try to keep it real.

Know your cash flows:

You might need to send money out, in the form of payments to employees, contractors, suppliers, taxes, etc., before the money comes in from customers. That’s why you need a daily rundown of cash flows and have sufficient reserves when revenues are late or debts go bad. That’s another reason to establish a relationship with IOU Financial. Lack of liquidity kills businesses, so stay on top of your cash flows and recognize potential early.

Spend to grow:

Managing your money doesn’t mean you have to be a tightwad. You should spend some of your profits to grow and strengthen your company. Send key employees for training, improve your equipment and facilities, hire marketing professionals and attend business events. The up-front costs will more than repay themselves with new opportunities.

Need vs want:

Owners like to dream about all the things they want to do to make the business bigger and better. Never give up on your dreams, but always address your needs first. You might have to sacrifice the ideal for now in order to attain it later. This will reduce your risk of unplanned spending for things you don’t really need now, freeing up capital for later use.

Use debt wisely:

Debt is a tool, to be used wisely when needed and to be paid off when feasible. Look upon the interest you pay as another cost of doing business, one that allows you to meet your obligations and keep the doors open. When you take out a business loan, come to a lender like IOU Financial that will get you the money quickly without a lot of paperwork. We offer a unique daily repayment method so that you never are faced with a mountainous monthly payment, and you can refinance with us after you repay 40 percent. Always insist on affordable rates, no upfront fees and no prepayment penalties – that’s how we operate and so should you.

Protect your income:

Consider disability insurance that will keep the money coming in if something untoward happens to you. Business owners typically don’t get paid sick leave or worker’s comp, so they need a way to protect against the unforeseen. Disability insurance can help you overcome a temporary disability that would otherwise torpedo your business.

Remember, IOU Financial is here to help you when you need money fast. Add us to your speed-dial list for 2018 (1-866-217-8564) and worry a little less about the future.

Tips for Creating Next Year’s Budget

The new year brings opportunities to make your small business more successful. There’s no better place to start than with your annual budget. It encapsulates your revenue and expense expectations in a single spreadsheet. Here are some handy tips for creating your new budget:

Analyze last year’s budget:

How closely did your estimates match actual experience? You probably under- or over-estimated at least some of your cash flows. Learn from your mistakes to set your numbers more realistically, wishful thinking aside. If your data shows a trend throughout the year, incorporate it into the new budget. Some numbers are harder to estimate – if you have a lot of these, try doing a best-, worst- and average-case version of the budget.

Break it up:

You should break down your annual numbers into monthly ones. This gives you the ability to incorporate seasonal differences that more closely match your cash flows. It also lets you apply actuals and revise numbers based on experience.

Budget in a cash cushion:

A good budget will incorporate a cash cushion to help you survive sudden crunches. Near-cash securities such as T-Bills are a fine place to stash the extra cash. Even if it’s an unusual year that doesn’t see unpleasant surprises, extra cash will certainly come in handy sooner or later.

Seek help:

Do you find setting up and working a budget confusing? Don’t fumble through it. There are many resources available to you to assist. We recommend our Business Budget Smart Sheet, which will help you analyze your spending patterns, streamline areas of overspending, gauge the cash flow impact of fixed and variable costs, and much more. If you need more help, speak with your accountant or tax specialist.

Make adjustments:

Are you selling more units each month and losing money on each sale? Bite the bullet and raise your prices (and slash your expenses). Calculate your new revenues based on higher prices and incorporate into your budget. Do the same when you reduce expenses. For example, you might find it cheaper to subcontract out some of the work that you currently do in-house. Your budget should reflect your best ideas for making a profit.

Create recession contingency budget:

At the time of writing, the U.S. is enjoying a growing economy. What would happen to your business if we suddenly fell into a recession? It will happen sooner or later, and you’d best be prepared by creating a recession budget as a contingency. The recession budget is based on conserving cash in the face of lower demand for your product or service.

Remember, budgets are planning tools, not straightjackets. Remain flexible, and you can always turn to IOU Financial if you find yourself short of cash despite your best planning.

 

3 Things you can do NOW to Avoid Tax Headaches Next Year

As the days are winding down at the end of the year, it may be tempting to relax and start planning for time off during the holidays. However, business owners should know by now that there is rarely time to relax when running their business. The end of the year is actually the perfect time to get busy and plan now to avoid tax headaches next year. We recommend three things to consider doing now to ease the burden come next April.

Incorporate Ways to Boost Accounting Efficiency

For most business owners, the most difficult part of doing taxes is preparing for them. Gathering receipts, calculating the cost of doing business and counting your profits takes up a lot of time. Losing or forgetting important documents that represent spending or profits can lead to mistakes on taxes and a big headache for you.

How can you streamline the process of preparing for taxes? By reconsidering how you conduct your administrative services and incorporating new ways to boost efficiency. For example, instead of writing paper checks and balancing your checkbook, switch to sending electronic checks straight from your bank account. Not only will this save you the price of a stamp, but it will also help you track all of your spending via your bank account in one place.

Purchasing an accounting program, such as Quickbooks, is another advantageous strategy that allows you to regularly update all of your financial information, spending and earning, in order to generate reports when filing your taxes. 

Automate Your Payroll System

How do you pay your employees? If you do so manually, you are not only wasting valuable time, but you may make mistakes that can prove to be troublesome for you and your staff. To increase productivity and eliminate errors, invest in an automated payroll system which pays your employees through a computerized system.

A special payroll system will calculate wages based on employee agreements (hourly pay or salary) and generate paychecks as well arranging direct deposits.

The first tax benefit of an automated payroll system is that it is a safe place to store payroll records that doesn’t take up any space. Remember that the Internal Revenue Service (IRS) dictates that employment tax records must be kept for at least four years!

The second benefit of this system is that it makes it easy to accurately withhold necessary deductions, such as state income, social security and Medicare taxes. Utilizing the system’s hard-coded tax rates, you eliminate payroll tax errors come tax time.

Finally, the payroll system syncs with your accounting system to provide accurate reports whenever you need them.

Save for Business Taxes

The end of the year is the right time to approximate how much small business taxes you may be liable for. Print or create a profit and loss statement to reflect your financial situation; once you have this information, you can count how much taxes you may be responsible for.

This will help avoid unpleasant surprises come tax time, and will help you save the required amount to pay off the taxes. Remember that the IRS also offers convenient payment plans if you cannot pay the full amount by the due date.

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!