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5 Common Money Mistakes and How to Fix Them

The coronavirus pandemic has burdened many small businesses. One of the ways a business survives the pandemic and looks beyond it is to manage its money prudently. That means being aware of money mistakes and avoiding them, or at least fixing them fast. Here are some of the most common money mistakes and ways to keep them under control.

  1. Starting up without a business plan.

    The plan is the foundation of your business, specifying how it will be operated, marketed, and financed. A business plan also helps you recruit investors and secure loans. It lays out milestones, goals, and metrics to measure whether you are succeeding. Without a carefully considered plan, surprises can cause your business to descend into chaos. If you launched your business without a comprehensive plan, don’t panic. It’s never too late to establish a suitable business plan. If you need assistance, contact your local SBA SCORE chapter – they have the expertise you’ll need to ensure your business has a proper foundation.

  2. Insufficient cash:

    The two main culprits are overestimated receipts and underestimated expenditures. When cash runs short, you face a liquidity crisis in which you can’t pay your bills on time, if at all. This will eventually lead to bankruptcy or a fire sale unless you take steps to prevent it. Start by developing several worst-case scenarios to see where you are most vulnerable. For each scenario, map out a series of steps you can take to correct the situation. And make sure you have a convenient loan source that you can trust, like IOU Financial. Loans can help you navigate through a cash crunch, but you must first work out a plan to use the money wisely and to repay it on time. Luckily, IOU Financial offers extremely flexible repayment terms that our borrowers can live with.

  3. Intermingling business and personal funds:

    This leads to disaster. Paying expenses with your personal credit card or checking account makes it difficult to track your business’ performance. You can also expect problems sorting out personal and business deductions when you file your next tax return. This problem is compounded if you are audited by the IRS or by angry investors. Finally, intermingling business and personal funds will make it exceedingly difficult to obtain a business loan. The fix is to establish a separate business account at your bank and to procure a business credit card. Use these to record all business income and expenditures. If you need to use personal funds for your business, create and document a formal transaction. If you have business partners, include them in your money management strategy.

  4. Falling behind on your bookkeeping.

    Sure, paperwork is a pain in the neck. But you won’t know real pain until you face a financial problem with incomplete, inaccurate, or non-existent records. For example, if you hurriedly stash your purchase invoices in a drawer, you may forget to pay them and/or reap any discounts offered for prompt payment. Conversely, how will you stay on top of your receivables when you can’t locate the invoices you sent out? Will you be able to substantiate your business expenses like travel & entertainment? You can use a friendly software package like QuickBooks to keep your books and records. If you can’t or won’t do the bookkeeping yourself, hire a part-time bookkeeper to whip your business into shape.

  5. Mispricing your offerings:

    Whether you sell a product or a service, setting the wrong price has a significant impact on your business. If the prices are too low, you may increase the total volume of sales while losing money on each transaction. Set your prices too high and you’ll suffer reduced sales while your competitors steal your business. The fix is to do some research and reassess your pricing strategy so that it’s in line with your current local prices.

Cash is your businesses’ lifeblood. You must nurture it if you want to remain in operation, especially during times like these. When the time comes for a loan, please contact IOU Financial first. We can fund you quickly and provide you with flexible repayment terms. Don’t wait until it’s too late – remember, government stimulus packages are unreliable at best, but we’ll still be here at your side fueling the growth of small business.

Mid-Year Financial Checkup: 11 Tips

Usually, we at IOU Financial share financial checkup tips with our readers every half-year. In normal times, we would discuss the prudent steps you should consider to increase revenues and cut costs.

Then, along came Covid-19.

So, this installment is dedicated to ways for small businesses to survive the pandemic in the second half of 2020.

  1. Don’t panic:

    Millions of business owners are going through the same problems that you’re facing, so you are not alone. There are a couple of problems with panic. First of all, it wastes physical and emotional energy that would be better applied to solving problems. Perhaps even worse is that panic begets desperation, which leaves many vulnerable owners to consider bad advice. Carefully think through your decisions using your good common sense.

  2. Don’t count on more government help.

    We can’t KNOW that the government will come out with another stimulus package or relief funds.

  3. Be proactive:

    It’s hard to stay ahead of the pandemic because it keeps on changing. New hot spots pop up and old ones cool down. The best you can do is to pay attention to what’s in front of you and figure out if there’re any actions you can take that are under your control.

  4. Involve your workers and partners:

    Nobody wins when businesses fail. You might find that employees, vendors, and suppliers are willing to accommodate you in your hour of need.

  5. Communicate with reputable experts:

    Good advice is worth a lot, so speak with your local Small Business Development Center, your lender, your CPA, and your political representatives. It’s important to know what works and what doesn’t.

  6. Strength from unity:

    Perhaps you’ve noticed how businesses have come together to find ways to help the surrounding community during the pandemic. For example, restaurants in Brooklyn have banded together with each other and with financial resources to help feed folks who have lost their jobs. Whatever your business, you might be surprised to learn the many ways you can make a positive difference (and earn long-term goodwill).

  7. Identify key employees:

    If layoffs are unavoidable, try to protect your key employees. Perhaps they will agree to a temporary pay holiday in return for staying on the company health plan. Work with your best employees to brainstorm the most pressing problems.

  8. Model your cashflow:

    You need to know how long you can remain solvent. Stress test various scenarios to see what’s possible under different conditions. Consider marketing steps you can take to spur sales, even if you must take a hit to your profit margins. If you can cover your expenses, you are ahead of the game.

  9. Consider factoring:

    Perhaps you can sell off your invoices to collect the bulk of your accounts receivable. You might also want to liquidate some of your inventory and other assets you can survive without. If appropriate, see if you can induce your customers to order in bulk and speed up purchases. Use these moves to build an emergency cash fund.

  10. Provide extra service:

    You may be able to keep operating if you can provide extra services for free, especially if it saves your customers money. You may be able to provide free services without greatly increasing your variable costs. If you have some time on your hands because of decreased demand, spend that time helping your best customers in meaningful ways.

  11. Borrow carefully:

    You may be operating at a suboptimal level right now in which your cash inflows don’t quite meet your unavoidable expenses. In other words, if you can hang on until conditions improve, your business can survive. That’s where borrowing can make a crucial difference. You can use borrowed funds to limp through the current situation in preparation for better times ahead.

IOU Financial stands ready to work with you to fund your business based on your current and projected cash flows. We can fund you quickly and offer you flexible repayment terms. Contact us today and let’s help each other survive the coronavirus nightmare.

How Small Business Owners can Protect their Financial Future

Owning a business can be one of the most rewarding career paths— you have created something from scratch by leveraging your specific knowledge and expertise in your field. Therefore, it is understandable that you put forth all your effort into ensuring your business’ success. Although it can be easy to get caught up with the many different ideas you have as a business owner,  it is important to remember to continuously plan and reevaluate your personal financial needs. This dedicated time focused on your financial future can offer you long-term protection as a business owner.

Save for Retirement

Perhaps you are transitioning to independently owning a business from working a 9-5 type of job. Or maybe you have always been a business owner. Either way, it is important to note the differences between the traditional workplace and understand that sometimes, the most advantageous parts of working in this type of environment are the employee benefits that are offered through these companies. It is important to try to incorporate some of these benefits into your own plan to protect your financial future.

One essential benefit offered through many traditional employers is a retirement savings plan, especially plans with a company match. A 401K employer-sponsored plan is a great way to save for retirement because the contributions are tax-deferred. As an entrepreneur or business owner, you will be solely responsible for setting up your own retirement account, which is important to do as preparing for retirement earlier than later sets you up for long-term financial stability. There are a few different options that you could look into for retirement as a self-employed individual depending on your specific needs as a business owner.

If you are just starting out, it can be difficult to project your exact earnings and therefore, harder to determine the correct amount to save. Consider taking a conservative approach to saving for retirement now and then increasing your personal contributions once you are making more to ensure a comfortable retirement.

Secure a Life Insurance Policy

As the workplace landscape is evolving, companies are including additional offerings to their benefits packages such as gym reimbursements, office catering, and even pet insurance to attract and retain future talent. While these benefits are attractive, they are not necessary to ensure future financial stability.

However, one benefit offered in most workplaces not to skip out on is life insurance. Having a life insurance policy not only protects you and your family members but also your business’ future. Life insurance serves the sole purpose of reimbursing your designated beneficiaries a set amount of money if you were to pass away.

This is crucial to protect those that depend on your income. For example, having a policy could ensure that your mortgage, household expenses, and even future financial goals such as college savings accounts are still funded even after you pass. Additionally, if you used personal expenses as collateral for your business, having a policy with enough coverage for these expenses protects your spouse and family from financial hardship.

Depending on the type of business you have and your employees, it could also be beneficial to take out a policy for a crucial employee whose knowledge or credentials would not be easily replaced. Since term life insurance policies are usually less expensive because they expire at a given time, this could be a good option to look into for a key employee while you grow your business.

Build up a Cash Reserve

Many have heard the advice to have three to six months of emergency savings built up. As a business owner, this is incredibly important to protect yourself from any unknown situations that were to occur within the business. These instances could include the loss of a major customer, equipment issues, legal issues, and more. Depending on your industry, it might be beneficial to have even more built up to ensure that you are prepared for any type of fluctuation or downturn in cashflow. This emergency fund can keep you afloat and ensure that you aren’t making short-term decisions that could impact your business in the long run.

Separate your Business from your Personal Finances

This step can be very difficult for business owners because it can be easy to want to throw any additional funds back into the business. While this is admirable, remember that maintaining stability and separation with your own personal finances will give you added peace of mind and help your business long-term.

Since this can be tricky, try to be intentional about separating your finances by opening two individual accounts both to better track your expenses and not be tempted to use funds from your personal account. Additionally, refrain from putting personal expenses on your business credit card and vice versa to help keep clearer records on how much money is going in and out of both accounts.

There can certainly be difficulties to running a business while also trying to further your own financial wellbeing, However, being your own boss is extremely rewarding you establish a process to both grow the financial needs of your business while also protecting your own financial future.

Improve Your Business Credit with These 7 Steps

It can take a while for a small business to establish a credit rating and even longer to improve one. But make no mistake, your credit rating is an essential element when you seek credit or a loan. It also helps get you approved by landlords, suppliers, and vendors.

Business credit scores are available from several sources, such as FICO, Dunn & Bradstreet, Equifax, and Experian. Although each provider uses its own methodology, the following steps should improve any business credit score.

Check Credit Reports

Each business credit bureau maintains credit reports. You want to check those reports to make sure they don’t have any errors that can hurt your score. You do not have the automatic right to look at your credit reports — usually, a little money has to pass hands. The big three providers are Dunn & Bradstreet, Equifax, and Experian, and they all charge fees. You can also access your credit report through Nav.com. Check your reports for any errors and dispute them.

Establish Your Credit

What if you come up empty when you search for your business credit report? It means that you haven’t established your credit yet. Perhaps you’ve been paying your business bills with your personal credit card, a definite no-no. Naturally, those payments will be reported on your personal credit, not your business report.

You must take some steps to establish business credit:

  • Form an LLC, partnership, or corporation for your business.
  • Receive a federal employer identification number from the IRS.
  • Create a business checking account separate from your personal one. Ensure that the account is titled in your company’s name.
  • Get a new phone line just for your business, listed under your business name.
  • Get a D-U-N-S number by registering with Dun & Bradstreet. It helps you secure federal grants and contracts.

Your business credit report will record credit-related transactions. It might also include certain public records and other information.

Get a Business Credit Card

This will help you build your credit profile quickly. Use it for business purchases such as travel, entertaining, office supplies, and so forth. Pick a card that offers good rewards, like high cashback rates or miles. Add employees to the card to collect rewards on their business purchases.

Use Vendors that Report Payments

Many vendors report their received payments to the large business credit bureaus. This applies when you pay on terms, i.e., 2/10 net 30, etc. You might already use vendors that extend terms but make sure they report transactions based on those terms. If not, find alternate vendors that do report payments and switch.

Pay Vendors Early

Some business credit bureaus, such as Dun & Bradstreet, give you higher marks when you pay your vendor bills before they are due. For instance, the D&B PAYDEX score tops out at 100, and you can achieve an 80 score by paying your vendors on time. However, to max it at 100, you need to pay your vendors early.

Manage Your Cash Flow with Credit

Your credit score can help you better manage your vendor relations. A good score might entitle you to better terms and lower rates from vendors. That’s a critical aspect of optimizing your operations and financing. Take advantage of the credit limits on your business credit cards to manage your purchase. These are often cheaper than alternatives, such as merchant cash advances. The more interest you save, the less of a drag on your profits.

Borrow Wisely

There will be times when it makes terrific sense to borrow money for your business. For example, you might be presented with an enticing opportunity that requires more cash than you currently have available. Alternatively, you might use business loans to help smooth out volatile or seasonal sales. You can use loans to grow your business and expand its reach.

Let IOU Financial Help

If you need a business loan that is affordable and easy to repay, look no further than IOU Financial. We’ll lend you up to half a million dollars with flexible and convenient repayment methods, including daily automatic payments. This way, you never face a monthly mountainous loan repayment. And remember, IOU Financial reports your payments to the major business credit bureaus, so you can build your credit quickly. Contact us today for more details!

Taxes in 2020 — Small Business Checklist

As we ease into the next tax year, it’s the right time to assess what’s new for businesses:

  1. Minimum wages:

    They went up in 13 states. You’ll need to refigure the withholding and deductions on affected employees.

  2. W-4 forms:

    They’re new for 2020, reflecting the removal of allowances for calculating paycheck withholdings.

  3. Overtime rules:

    About 1.3 million additional workers will now get overtime if they earn less than $35,568, up from last year’s threshold of $23,660.

  4. Retirement plans:

    If you offer a 401(k) or similar plan, you can:

    1. More easily recommend annuities.
    2. Collect a larger ($500) credit to set up a retirement plan if you have 100 or fewer employees.
    3. Collect a $500 credit for the adoption of auto-enrollment.
    4. Increase the maximum default percentage of compensation from 10% to 15%.
    5. Include more part-time workers in your retirement plan by reducing the minimum requirement from 1,000 hours to 500 hours in at least three consecutive years.
    6. More easily establish Multiple Employer Retirement Plans among two or more employers.
    7. Set up a new plan by your filing date in the following year rather than December 31 of the current year.
    8. Face higher penalties for failing to file returns and employee benefit plan reports.

As you assimilate these changes, you should prepare your checklist for 2020 taxes.

The 2020 Checklist

Hopefully, you’ve already started on your 2020 Tax Checklist. Here are the items we recommend you include:

  1. Mark your calendar for important deadlines:

    1. January 31, 2020: W-2/1099-MISC form distribution.
    2. March 15, 2020: S-Corporations and partnerships filing deadline.
    3. April 15, 2020: Deadline for sole proprietorships, single-member LLCs and C-Corporations.
    4. October 15, 2020: Deadline for filing extension returns.
  1. Identify the required forms for company filings:

    1. W-2 and 1099-MISC for employees and independent workers.
    2. Sole proprietors require Form 1040 and Schedule C.
    3. S-Corporations require Form 1120-S.
    4. C-Corporations require Form 1120.
    5. Partnerships require Schedule K-1 and Form 1065.
  1. Assemble your information:

    1. Bank statements
    2. Credit statements
    3. Income and expenditure reports
    4. Accounting documents
    5. Gross receipts
    6. Sales records
    7. Previous year’s return
    8. Depreciation schedule

 

  1. Compare business and personal expenses.

    • You need to avoid inconsistencies and overlaps between the two. Be careful to explain when you used personal funds to pay business expenses and business funds to pay personal expenses.
  2. Get on top of your 1099s.

    • You may be issuing them to contract labor and vendors. Also, you’ll be receiving them from some customers. Keep tabs on all of these in case of audits.
  3. Review your deduction opportunities.

    • This is best done with or by your CPA or bookkeeper. You must properly account for your business deductions, including items like equipment, travel, and supplies. But you should also search out less obvious deductions. If you work at home, make sure you take the maximum home office deduction. The same is true business mileage. Keep good records in case the IRS seeks proof.
  4. Review your estimated payments and payroll deposits.

    • You don’t want to overpay these items, because you can use the surplus payments for other reasons.
  5. Consider an extension.

    • If you find yourself facing complexities you hadn’t anticipated, you can file for an extension to work out the solutions. You’ll still have to pay your taxes on the due date, but you’ll be able to take the time necessary to file a clean return.

What If You Owe Taxes?

You may find that you own significant taxes for 2019. Maybe its because you earned more than estimated, or that you failed to take sufficient payroll withholdings. If you are a sole proprietor, you might have posted insufficient quarterly estimates.

Whatever the cause, if you have an additional five- or six-figure tax bill, a business loan will allow you to meet your tax obligations without draining equity from the business. Turn to IOU Financial for fast, easy funding with convenient repayment terms. We can take some of the sting out of owed taxes by allowing you to pay the IRS on time and then repaying your loan in affordable installments. We look forward to helping your business sail smoothly through this year’s tax filing.

Business on a Budget: Smart Spending Tips for Business Owners

For new and experienced business owners, balancing income and expenditures is never as easy as it seems. There is a qualitative cost to every decision made, and extreme cost-saving measures can make it hard to attract employees. Spending too little on marketing can cause a business to become invisible to potential customers, too.

Short-term profits can inspire investor confidence but sustaining a company over the long term requires a different kind of thinking. Retaining employees that can grow a company is hard, especially in an era when the internet allows employees to search for a new job with a click of a button. Employees need to be motivated to maximize their output—and that motivation often comes from feeling like they’re being invested in.

Cutting corners isn’t worth it if it kills a business’s image or employee morale. Here are the basic ways owners can spend their money wisely while still investing in the future.

Employee Benefits That Matter

Sometimes business leaders assume that “networking opportunities” are a great way to attract young professionals. While this is true for extroverts who want to build a name for themselves, many entry-level employees are more concerned with basics like health insurance. Older employees may also be seeking good 401k contributions, and time off matters to employees who have kids or want to travel—but one thing is for sure: Free luncheons and gym memberships don’t retain employees.

Health insurance is expensive, but it’s a much better use of money than catered networking events and yoga classes. Even if your labor force isn’t facing a high turnover right now, remember that employees’ priorities change as they have families or start to face health problems. They may seem to enjoy working for you, but they may seek out employers that offer better health insurance benefits, leaving you scrambling to find their replacements.

Keep Travel Costs Low

Travel can seem like an inevitable cost of wooing new clients and establishing trust with suppliers, but now it can often be replaced with video calls. While sometimes in-person meetings are necessary for inspecting supplier facilities or other manufacturing-related work, they are often just to make meetings clearer and more efficient than the standard conference call. Video calls offer a perfect balance of coordinated visuals and reduced costs for all parties. Travel can also burn out employees with families at home, so it’s not always a perk that attracts or motivates employees.

If clients begin to expect visits from executives, then it can be hard to stop those visits later on, so it may be best not to start them in the first place. Plus, the money saved by minimizing travel can be passed on to customers. Since travel is such an avoidable cost, it makes sense to keep it low at first, and then increase that budget if managers insist that it is needed.

Buy in Bulk

While buying in bulk requires some foresight and planning, it can be well worth it in the long run. Basic office staples like paper and printer ink cartridges have a near-indefinite shelf life, so stocking up on them is an excellent option for reducing long-term costs. It can also make it more worthwhile for you to do specific tasks in-house—like printing large quantities of newsletters and other essential documents.

Coffee and other cheap food items should be kept around the office as well. Instead of having someone run out for coffee ahead of meetings, encourage employees to use a basic stock of coffee, sugar, and creamer to avoid wasting time or being late for the meeting. For employees who are on a deadline or simply forgot to eat lunch, having granola bars stashed in the kitchen can make a huge difference in how quickly they’re able to get back to work.

Avoid Catering

Catered lunches are nice for meetings on a tight schedule, but they’re ultimately a waste of money. In many metro areas, even having sandwiches and chips delivered can cost over $15 per serving. Pizza can be cheaper but can still add up to hundreds of dollars per month for large departments.

Catering is only necessary for meetings with clients when the meeting location is far from most lunch options. It’s great for offices in a far-flung industrial park, but for urban offices with a variety of sandwich shops nearby, it’s better to give employees time to grab their lunch. Plus, catering for a large group can be tricky due to allergies and other dietary restrictions.

Choose the Right Location

Having office space in a high-traffic area is important for businesses that need to regularly attract new clients and customers. However, the exact location of that office can be tricky to figure out, especially in expensive metropolitan areas. While downtown offices can be great for visibility and networking, they might not be feasible for new startups or companies with razor-thin profit margins.

For businesses that have a strong manufacturing focus, offices near an industrial park can be just as good as downtown space. Opening a store downtown may seem like a great way to grow a business, but if most local shops are closer to the suburbs or in another trendy area, then that downtown location may be a waste of money.

Getting the best value possible will come down to a balance of location, size, and available amenities, so be prepared to sacrifice one of those three. Depending on the location, parking and other auxiliary costs could be more expensive as well.

Seek Employee Development

Sending employees off to special training can seem like an unnecessary cost, but it can be a huge asset to a growing business. Clients care about reliability and skill and being able to tout your employees’ certifications can help significantly in competitive and crowded industries. Even if the training doesn’t matter to clients or customers, it could be worth it for small businesses that need to run more efficiently on a shoestring budget.

Carefully research training in your industry to determine which ones will offer a significant return on investment. A vaguely titled training provided by a random consultant may not be worth the money, but a certification course offered by a university could be a game-changer. Of course, local and online options are preferable to far-flung training with high travel costs.

Negotiate with Everyone

Suppliers, vendors, landlords, and even lawyers all come with a price tag. However, that price tag can be surprisingly flexible—especially if you have a long-term healthy relationship with them. In economic downturns, landlords are particularly willing to negotiate a cheaper lease instead of risking losing a major tenant.

Negotiation is an art, so special training may be necessary to get results without hurting relationships with clients and suppliers. Plus, it’s far easier to negotiate cheaper hourly or per-unit costs when buying in bulk, so start with your biggest bulk expenditures. While your savings may not seem like much at first, they’ll add up after just a few months.

Your business’s overall outlook can improve quickly with negotiation skills and other tweaks to spending practices. Even businesses with low overhead can see savings when per-employee expenditures are taken into account.

Guest Post: About the Author

Tania Longeau serves as the Head of Services for InkJet Superstore. Tania oversees a team of Operations and Customer Service Reps from the Los Angeles headquarters. Before joining InkJet Superstore, Tania was a team leader and supervisor working for one of the biggest mortgage and real estate companies in the country. She is a happily married mother of one who enjoys spending time with her family and reading in her leisure hours.

Finance 101 for Small Biz: Debt vs Equity

Small business owners trying to grow their businesses need sufficient capital (i.e., money) to pay for inventory, marketing, equipment, and other vendor-related items. But owners must also have enough capital to pay for operational expenses like rent, utilities, and labor. And let’s not forget about the owner’s salary or draw. After all, most owners rely on the income from their businesses to live on.

So, the question is how to pay for company growth. Basically, you have two funding choices: debt and equity. Here’s how to decide between the two.

Equity

Equity is the money you and investors would have leftover if you liquidated your company and paid off all debts. In other words, it’s the business’ assets minus its liabilities.

Many small businesses have a single owner, meaning that 100% of the equity belongs to the owner. In this case, the owner’s equity is equal to the business’ retained earnings, which is the accumulated profits of your company after you pay all your bills and draw your own income.

Some small businesses have investors. You issue shares of stock to investors and pay them dividends in return for their equity investment. Then, the total equity of the company is money contributed by investors (including yourself) plus retained earnings.

Unlike debt, equity does not have to be repaid. Equity investors are willing to risk their money in return for a return on their investment. You can use equity capital to pay for the growth of your company, but you need to know the cost of doing so.

The cost of equity is equal to the return demanded by investors (including yourself) for investing in your company. Because small businesses are risky, equity investors usually require a higher rate of return than lenders do. The reason is that lenders have the first claim on the business’ assets if it goes bankrupt. For instance, you might be able to get a commercial loan at, say 10%, but have investors requiring a 15% return to justify their investments.

Dividends and owner’s draw are not tax-deductible to your business.

If you want to grow your company without debt, then the amount available for you to pay yourself and perhaps pay dividends to investors is decreased by the money you spend on growth.

Debt

Debt is the capital you borrow. The cost of debt is the interest rate, but since business interest is deductible, you must adjust the interest rate by your tax bracket.

For instance, suppose you take a 10% commercial loan and you are in the 20% tax bracket. Then, your after-tax cost of debt is 0.10 x (1 -0.20), or 8%.

Unlike equity, you have to repay debt. If you are taking a loan to finance growth, then you expect that the increased revenues from growth will allow you to pay the loan interest and repay the loan principal.

Owners looking for financing often prefer debt to equity because they don’t want partners. Lenders have no say about how you run your business, whereas equity investors may want to have input on your decisions. If you don’t want investors questioning or disputing your decisions, you will prefer debt financing.

Weighted Average Cost of Capital (WACC)

If you use both debt and equity to finance your company, then WACC is the percentage of each times the cost of each. For example, if your capital structure consists of 50% equity with a cost of 14% and 50% debt costing 8%, then WACC is 11%.

Preferred Shares

Sometimes, a business will issue preferred shares to equity investors. Preferred stock is a hybrid of equity and debt because it pays a relatively high dividend that must be paid before common stock dividends. The cost of preferred shares is, therefore, a complex calculation.

Conclusion

For many reasons, business owners turn to debt rather than using their own money or that of investors to fund their business’ growth. We at IOU Financial provide small businesses affordable loans of up to $500,000 with instant pre-approval and funding within a day or two. We invite you to contact us today to arrange financing that will help you grow your company and increase your revenues.

4 Reasons Why You Should Hire a Tax Accountant for Small Business

Tax accountants do much more than only handle your tax return. They advise on legislation that could affect your business. They oversee and prepare your company’s tax compliance reports. And they give feedback about budgetary concerns. If you’re running a business without a tax accountant, you can probably already see why adding one to your firm is a good idea. Not convinced? Then check out these four reasons.

A Tax Accountant Can Be a Good Investment

You may be worried about the cost of hiring a tax accountant, but an accountant can actually save you money in the long run. Most tax accountants have a wide variety of accounting knowledge and skills, so your accountant could be the perfect fit for the other accountancy tasks of your company. By getting invaluable tax and general advice from an accountant, you are sure to see your profits grow more than they previously did. A tax accountant could be the best investment you make in your business. If you run a more significant company, it’s worth investing in hiring a certified public accountant. CPAs are qualified and highly experienced. So, they can assist in tax issues and a variety of other accounting elements like financial planning, mergers, acquisitions, and investments.

You Can Avoid the Nightmare of Doing Tax Returns

Tax accountants obviously deal with tax issues. So, if you’re unsure about your taxes, you should hire a professional. After all, doing your company’s tax returns can be an outright nightmare. You need to know what tax codes mean, which forms you need to fill out, how to fill out the complicated forms and a hundred other things. With so much time and stress focused on your tax return, you’ll probably also be worried about incurring hefty fines from getting your return in late. If you’re not an expert in tax, it’s best to hire a tax accountant. He or she will ensure you avoid any late-fines and put your paperwork in order.

A Tax Accountant Helps You Stay Legal

If you don’t fully understand your taxes, you could end up overlooking a critical detail which could result in a severe fine or even an illegal action. If you want to ensure you stay on the right side of the law, hire a tax accountant. He or she will be able to advise you on other legal matters too. There are a lot of rules and regulations for business owners, and understanding all of them can be tricky. For instance, you may not know that you legally need to take out employers’ liability insurance. Having an accountant as part of your team ensures your business meets all applicable rules and laws.

You’ll Have More Time to Focus on Other Things

However large or small your business is, you’ll know that it takes up a considerable amount of your time. On top of full-time working hours, you’ll probably be doing other tasks like maintaining your firm’s website, ordering stock, looking for new contracts, or looking over any other business fundamentals. Indeed, running a business can often mean you have little leisure time to spend with your family and friends. Taking time out is essential for any business owner, but with a seemingly never-ending list of tasks, how do you find that extra time? Of course, the answer is: get a tax accountant. Hiring an accountant to handle your taxes and organize your finances means there’s a huge chunk of your work-life that you suddenly don’t have to handle. Instead, you can focus more on other critical areas of your business and spend more time with your loved ones.

Guest Post: About the Author

Erika is an independent copywriter and content creator. She is an avid reader who appreciates unread books more than read ones. You can follow her on Twitter.

Are You Ready for Your 2020 Budget?

You can’t put it off any longer. The time has arrived to prepare your 2020 budget that’s so necessary for important activities such as:

  • Projecting cash flows
  • Preparing for taxes
  • Identifying borrowing needs
  • Evaluating growth opportunities
  • Assessing performance

The stakes are high, because 50% of small businesses fail during their initial five years. You can increase your chances of success by budgeting your company’s income and expenses. Here are some suggestions to help you get started:

Review the previous budget:

Your 2019 budget contains a wealth of information. The most important is the line-by-line comparison between budgeted and actual expenses and income. This exercise should point you toward any significant adjustments to your 2020 budget.

Estimate your income:

You need a realistic picture of monthly income. If your company is brand new, speak with other small business owners to build a rough mental picture of your cash inflows. Don’t overestimate, as it encourages overspending, and don’t underestimate income, thereby inhibiting growth and expansion.

Estimate your expenses:

Start with fixed expenses, typically including rent, salaries, insurance, utilities, and taxes. Naturally, these can vary from one year to the next. Prudence suggests you pay about 30% of your income on estimated tax payments. You owe these on the 15th of April, June, September, and January. You don’t want to get dinged for underestimated tax payments.

Pay attention to unexpected items:

These may include vehicle maintenance and fuel costs, office supplies, shipping costs, meals and entertainment expenses, and professional dues/subscriptions. Also, allow for events like equipment breakdowns, rent increases, and other contingencies. Put aside a contingency fund so that surprises don’t blow your budget.

Consider capital expenditures:

You may be able to increase productivity by purchasing a new machine or system. The budget should include the amount of current cash inflows that must be allocated for these expenditures versus using funds from retained earnings. You may also want to use excess capital to pay down debt and thereby lower your interest expenses. On the other hand, you might want to borrow money to finance growth or to plug a gap in your budget. IOU Financial can provide you with a business loan of up to half a million dollars and get funding in as little as one day.

Concentrate on return on investment (ROI):

When you have multiple funding opportunities, choose the one with the highest ROI that exceeds the weighted average cost of capital. You can use internal ROI calculations to see which ones provide the most benefits. The same is true for marketing ROI, in which you direct your dollars toward different channels and media.

Create a review routine:

If you don’t already have one, set up a monthly budget review process that can allow you to make course corrections as soon as possible. For instance, if your fixed costs are higher than anticipated, you might have to cut variable expenses until you can find a way to lower your fixed costs.

IOU Financial offers our Business Budget Smart Sheet to help you get a grip on your business budget. With it, you have a sophisticated yet easy-to-use tool that will help you plan and analyze your cash flows. If your budget forecasts shortfalls in the next 12 months, turn to IOU Financial for a convenient business loan that can put money into your bank account quickly. In many ways, IOU Financial is an important resource to help your business succeed.

Secret Ingredients to Successfully Manage Your Business Finances

Managing finances requires constant vigilance. Many aspiring entrepreneurs are almost solely devoted to making the products they love or developing the big ideas they have come up with.

One of the biggest mistakes people make is thinking it’s all about the products and services they offer. With a mindset like that, an entrepreneur may feel like managing finances is a tedious chore.

Problems emerge when they start treating them as such. What your business has to offer will earn you a place in the market, true. But, if you want to survive there, proper finance management is vital.

Pay Yourself

Many passionate business owners tend to invest everything back into day-to-day operations. There’s no doubt that extra capital helps business growth. Still, that doesn’t mean you should sacrifice paying yourself to help your business thrive.

However, if the business doesn’t turn out as you would like, it’ll all be over with you hanging dry. You’re an employee just like everyone else, even if you are employing yourself. You need to compensate yourself just like you compensate others. Never forget that you’re part of the business in more ways than one.

Educate Yourself

Invest time in learning about different aspects of finance. If you don’t already know how, learn to read financial statements. You’ll know how to tell where the money is, how many hands it’s changed, and where it comes from. Financial statements have four key details – balance sheet, income statement, flow statement, and statement of shareholder’s equity.

The balance sheet relays information on shareholder’s equity, liabilities, and company assets. The cash flow statement analyzes financial inflow, financial outflow, operating activities, as well as investments.

The amount by which the business is funded through preferred and common shares is represented in the statement of shareholder’s equity. When you want to know how much revenue the business has earned within a specific timeframe, you can read the income statement.

Separate Business and Personal Finances

Your finances should be the line that separates business and pleasure. Get a business credit card and use it for its intended purposes. That way, you’ll stay in control and be able to track your outlays.

Opening a separate savings account would also be a wise step. You can use it to gradually build a corpus by transferring a certain percentage from each payment that you get. For instance, you can use those funds to pay taxes.

Drawing a line between the two signals responsibility and will improve your professional and personal image, especially among banks and investors. You’ll also keep the government happy. Such fiscal responsibility allows you to reap the benefits of various tax deductions.

Funding and Investment

If you want your company to thrive, it’s important to secure funds for growth opportunities. Investing a portion of your profits into other lucrative endeavours is one way of moving in a healthy financial direction, provided that you have the skills and knowledge to do that.

For instance, you can learn to trade and secure additional funds for your enterprise that way. Naturally, you’d want to make sure you learn all about the right strategies and risk management before you start. If you’re completely new to the game, make sure to start from the trading terminology and cover the basics, and then slowly make your way into the process.

If you know exactly how you’d invest money, you can always apply for a loan in order to secure the necessary funds for growth. Employees appreciate when their employer invests money into the company and therefore in their careers. If you don’t waste all of your profits on personal matters, you will ultimately create more value for your company.

Credit Score

The benefits of maintaining a good credit score are numerous. With a good credit score, lenders are more likely to offer you loans with lower interest rates and better terms, as well as enough capital to grow your startup.

A bad credit score, on the other hand, may make them avoid you like the plague. If a time comes when you need emergency funds, and there are many such surprises with businesses, you’d want to be on good terms with the banks.

So, even if you don’t need a loan now, that doesn’t mean you can allow yourself the luxury of having a bad credit score. To increase it, you can take out credit cards, use them regularly and pay them off even before they are due.

Conclusion

Being an entrepreneur means you have to work around the clock. There are always some issues that have to be dealt with immediately. No matter how busy you are, take some time every day to plan your finances for the future.

Guest Post: About the Author

Anna is a tech writer and researcher interested in startups, web development and business innovation. She is passionate about motivation, self-development and yoga. A recent hiking enthusiast, she enjoys exploring new trails and breathtaking views.