Starting Your Business - Options for Incorporating

April 1st, 2008

When you are ready to start your own business, you may initially have questions about what the best way to legally structure it would be. The most common business structures within the U.S. are sole proprietorships, LLC’s, S Corporations and C Corporations. Understanding each of theses structures will help you to select the best option for your business goals and needs.

Sole Proprietorship
To establish your business as a sole proprietor requires no legal paperwork and is most often created when an individual wants to do business in their own name. When you are running a business as a sole proprietor, there is not a distinction between you and a legal entity; in this instance they are one and the same.

One of the advantages of establishing a business as a sole proprietorship is that is it a simple process that does not require legal paperwork and there aren’t any annual corporate taxes to be filed. There are several disadvantages to working as a sole proprietor:

  • No legal protection for your personal assets in the event of a business default or a lawsuit
  • The business and personal risks will expand as the business expands
  • There can be substantial challenges to raise capital when you are a sole proprietor.

Limited Liability Company (LLC)
An LLC is a formation that is often a popular alternative for business owners who are not interested in establishing a corporation. LLC stands for limited liability corporation and it offers some liability protection for the owner, although the legal barrier is considered to be thin between the business and the business owner. An LLC is generally the most suitable for smaller companies who have either one owner or a very small number of owners.

The advantages of an LLC are that they have much less administrative paperwork than a corporation and they offer a pass through taxation to the owners. The disadvantages of establishing an LLC are that in some states there is an imposed franchise tax and also that it can often be very challenging to raise capital as an LLC.

S Corporation
An S Corporation falls under the subchapter S of the IRS tax code and is the most common structure for small business owners to develop. An S Corporation does not pay income taxes but passes its taxes through to its shareholders who have to claim them on their own personal income tax returns. A corporation must request after being formed to become an S class and a request must be sent to the IRS to receive the designation. S Corporations cannot have more than 100 shareholders, spouses being counted as one. S Corporations can only issue one class of stock.

C Corporation
C Corporations are similar to an S Corporation in most ways with the most notable differences being in the form of taxation and the number of allotted shareholders. A C Corporation may have an unlimited numbers of shareholders and the corporation in this instance must file and pay its own income taxes. C Corporations can have multiple classes of stock.

Incorporating Your Business
Now that you have information to help you to decide which structure is most suitable for your personal needs, you need to actually create the paperwork and file it with your state. The legal paperwork can be created by you, by an attorney or by an incorporation firm. In my personal experience it is worth hiring an attorney to complete, as you may make mistakes if you do it on you own. Also, incorporation companies are typically less personal than an attorney and are generally more expensive.

The Cost of Incorporating
When you work with an attorney, most LLC paperwork will cost between $250-500 for each formed with Corporation paperwork having a cost between $1000-4000+ to establish.

If you are on a budget and prefer to have a lawyer complete and file it for you, there are many attorneys that are new who will work at a much lower hourly rate than an experienced attorney. While you can print forms off the internet to fill in, if there are mistakes or they are improperly filed, you could run into substantial problems in the long run.

Whichever approach you decide to take, establishing the business structure is one of the first steps that a new business owner must complete.

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Can You Afford Dental Insurance as a Small Business Owner?

March 31st, 2008
dental plans

One of the hardest challenges initially for many new small business owners is the lack of their formal corporate benefits package. While there is substantial information available on self employment health insurance plans, it can be hard to locate information on dental insurance for small business owners. If you are interested in locating affordable, quality dental insurance as a small business owner, there are several options available to consider.

Is Dental Insurance Worth the Cost?
The first major consideration for you and your family when evaluating dental coverage is the cost benefit of having dental coverage. Most healthy individuals see their dentist once or twice per year for annual x-rays and routine teeth cleanings. One thing to always consider when you are evaluating the purchase of any type of optional insurance is the cost benefit ratio. What is the annual cost of the insurance versus any annual benefits that you will receive?

Dental Care Expenses
Assuming that you are a healthy person without prior dental issues, your estimated annual dental costs if you were to pay out of pocket would be between $300-$400, including two annual cleanings and one full round of x-ray’s. If your insurance were only to be $10 per month or near that price, you may make the decision to apply. If the dental insurance is more expensive, most small business owners will elect to pay out of pocket for any incurred expenses. But, what if you have dental issues outside of the normal preventative care? What if you require fillings or crowns which can run upwards of $500-$1000 each?

Discount Dental Plans
Dental issues are the primary reason that business owners consider dental discount plans. Dental discount plans provide a discount on almost all dental needs, including the more expensive procedures. Dental discount plans are not insurance. They only provide discounts on routine and specified dental procedures, requiring the person with the dental discount plan membership to pay the discounted costs out of pocket at the time of use.

How Do Dental Discount Plans Work?
The dental discount plan members will pay a small fee to be a member of the plan and they will be able to use their discounts at participating plan dentists. Just like a health insurance company, each dental discount plan will offer various features and benefits. As a business owner, you will need to compare rates, plans, available access to dental care providers and the overall discounts that are provided and for which services. The most important factor when you are considering joining a discount plan is your overall estimated dental care needs on an annual basis.

How To Find Discount Dental Plans
To start your dental discount plan search, you will need to know where to look. One of the first things to do is to call your existing self employed health insurance provider. Many health insurance companies that offer insurance to self employed business owners also offer dental plans. Beyond your current health insurance company or if you have not yet applied for health insurance, there are several companies available that will help provide you with information and quotes for dental discount plans.

Beyond your current health insurance company, there are several dental discount plan providers that will offer you information and quotes. Start your search with DentalPlans.com and All Care Advantage, they will help you locate specific companies in your region that provide dental discounts.

Once you have located several dental discount plans, you will need to compare and contrast their features and benefits to make a selection. If you have a family, be sure to also include those costs as well. While there are very limited amounts of traditional dental insurance plans available for self employed individuals, dental discount plans may provide an affordable alternative, providing a method to cover the more expensive dental procedures, ensuring that you and your family can afford necessary dental care, even when you are self employed.

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What’s Your Small Business Retirement Plan?

March 29th, 2008

If you are working for yourself, you have been given the responsibility to save for your own future retirement. While you may not have access anymore to your employer’s retirement plans, there are several viable options to consider as savings vehicles for your own future retirement.

One of the biggest challenges that small business owners face is that they spend so much time working in their businesses; that they forget to take care of themselves financially. Saving for retirement is a daunting task for any individual, but as a small business owner, it is even more important to understand and take advantages of the investment opportunities available to you.

Each of the following plans offer the ability for small business owners to contribute towards their retirements as well as several offer considerable tax advantages for participating.

SEP IRA
You can contribute the lesser of $45,000 or 25% of your total compensation into a SEP IRA for the current year, all of the way up until you file your personal tax return for 2008. With a SEP IRA plan, you do not have to offer or contribute for any employees that you may currently have. The financial contributions to a SEP IRA will grow tax deferred.

Simple IRA
A Simple IRA is an investment vehicle that you will have to contribute money for any of your employees that meet minimum criteria within your company. You can personally contribute as the business owner up to $10,500 of your salary, all of which is 100% tax deductible for the year’s personal taxes. The other benefit is that the investment capital placed within the Simple IRA will grow on a tax deferred basis.

With regards to any employees that you have who are eligible, you will have to contribute either $1 for $1 up to 3% of their incomes for the money that they personally contribute into their Simple IRA’s, or a fixed 2% non-elective contribution into their accounts.

Roth IRA
A Roth IRA does not offer the benefit of an immediate tax deduction, but it does offer the option for tax free withdrawals on the principal and growth that are contributed after the age of 59 ½. Roth IRA’s also allow for tax deferred investment growth. The current maximum contribution into a Roth IRA for an individual is $5000 in 2008. There are income limits to a person’s ability to contribute to these plans so discuss these options with your financial advisor prior to making any contributions.

Profit Sharing/Deferred Compensation
Contributions into a profit sharing plan have to be made prior to the employer’s tax filing date; including extensions. An employer can contribute the lesser of $45,000 or 100% of the total compensation amount, but only 25% of the total compensation amount can be deducted on the tax return. Profit sharing plans allow for tax deferred investment growth.

Solo 401 (K)
The Solo 401(k) is a newer investment option for self employed individuals, allowing up to 100% of the first $15,500 of 2008 income and an additional 20% of the total self employment income to be contributed into the plan. The contributions are tax deductible and will grow on a tax deferred basis.

Why Should you Contribute?
Don’t rely on the sale of your business or on social security to provide for your retirement income stream. With so many unknown variables, it is suggested that small business owners prepare for their retirements through a carefully thought out financial plan. Each of the above retirment savings options offers benefits for both the business owner and the business when contributions are made.

No matter which plan you choose to leverage for your own personal retirement, it is important that you begin saving and that you continue to save for your future. Not only do these plans offer the benefit of tax deferral, allowing your money to grow quicker than a typical savings account, but most of them offer the added bonus of being able to take a much needed tax deduction for the year of each contribution.

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Why Small Business Credit Cards are Vital to Successfully Mastering Your Finances

March 26th, 2008

If you’re a small business owner or you’re planning to be one soon it’s important to think about credit cards.  No, not the ones you have in your wallet right now, you’re going to need new ones!  That fact will excite some people and terrify others.  No matter what your case is, it’s vitally important to open a line of business credit.

Do I Qualify?
One of the biggest questions I get about opening a business credit card is whether or not a certain business is ‘too small’ to get a business credit card.  A lot of people think they have to be a large corporation.  On the flip side others think it’s fine to just use a personal card because their business is so small.

No matter what size your business is it’s best to get a business credit card rather than use your personal one.  It will take a bit more work to qualify for a good line of credit than it did for your personal account, but the effort is well worth it.

Why Can’t I Use My Personal Credit Card?
You might have heard it before but it bears repeating.  You should never mix your personal finances with your business finances.  There are many people who do this, and hopefully you won’t be one of them.

Whenever you make a purchase you need to know whether the purchase was for your home or business.   You might think that it is easy enough to keep track of, but you’d be surprised at how many people spend time wracking their brain to figure out if that dinner out was for business or pleasure. 

When you have a business credit card there is no guessing.  Time is money, and you’ll have more of it when you have a business line of credit.  All you’ll need to do is track your business expenses on one account, and personal expenses on another.  There is no need to guess what goes where.

Along those same lines, there might come a day where your business taxes are audited.  The IRS likes to see a separate business line of credit where it is obvious which things were purchased to further your business.

How Do I Apply For a Card?
The next bit of news is tough to take for some entrepreneurs who are nervous about starting a small business.  It can be a lot harder and is more work to get a business credit card.  Don’t worry; you’ll get through this! 

Business credit cards are just more customized than personal lines of credit.  There are different limits and types of card according to the kind of business you run and how much credit you need.  Obviously, the larger the scale of your business the more credit that is needed.

There are different requirements depending on the company you choose to apply with.   Some may require you to submit a full business proposal.  This will include where you plan to go with your business, what type of business you’re running, what you plan on doing with the line of credit, how you plan to repay the credit card, and any collateral you have (among other things- check with your chosen company). 

Many creditors also require a financial statement from you and will run a credit check.  Keep in mind that there is a difference between a personal credit reputation and the one you will build with your business.  If your business does not have a credit reputation your personal one is the fallback.  This can either help or harm your situation, but there are offers that will work for you if you do your homework.

What Should I Look For?
Don’t just settle on the first credit card offer you see, it’s best to shop around a little.  After all, there are many different credit card companies clamoring for your business, so you should make them work for it!

Definitely check the APR the card charges as well as any annual charges and hidden fees.  If a certain offer is too high you can try and negotiate with the credit card company to get it lowered. Of course, that depends on your credit score and your business.

Beyond the general things there are also special perks that come with owning a business credit card.  Here are some of the more fun things you’ll come across:

• Business discounts on airfare, hotels, car rentals, phone access, copy services, and shipping services. These discounts are special for you just because you are a small business owner.

• Introductory offers are another thing to check.  There are many that offer no payments for six months to a year or a 0% APR for a certain amount of time.  When you just need a chance to get your business up and running this can be a big help.

• Business rewards a great as well.  If your business sends a certain amount of money you will get rewards back.  This might be in the form of money, air miles, products, or services. 

Get Ready and Apply!
You need to gather up all the information the credit card companies will ask you for and apply as soon as possible.  You can really start your business the right way and get the funding you need with a business credit card.  Trust me, it will make your life a lot easier in the long run.

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How to Get Your Small Business Loan Faster & Cheaper than from the Bank

March 23rd, 2008

Did you know you could borrow up to $25,000 for your small business without going through a bank?  Not only that, if your credit is decent, you can even get the loan for a better interest rate than the bank would offer!  In addition you don’t even have to risk your home or any other asset as collateral; you can get an unsecured loan for up to $25,000 if you have good finances and a positive credit report.

Borrowing Startup Capital from Others

How is this possible?  How are entrepreneurs getting loans more quickly, with less paperwork, and for better rates than a bank or credit card would offer?  An innovative new method of funding called peer to peer lending provides platforms that allow individuals to lend money to other people in a formal/structured manner.

Peer to Peer Lending

The two largest peer lending sites are Prosper and Lending Club, both facilitate loans anywhere from $1K–25K. Can you get a business loan there? Sure thing, according to Prosper and Lending Club at least 20% of the loans funded on their sites are used for business purposes.  The Wall Street Journal and Entreprenuer.com recently took a look at some of the small business owners that have successfully borrowed money with peer to peer lending:

  • Alex Kalempa needed $15,000 to expand his motorcycle racing component business.  After being offered only a $5,000 credit line and $500 credit line from two different banks, he was able to borrow $15,000 at a 9.6% interest rate from Lending Club.
  • Patrick Kelley, was denied a small business loan for his eBay business three times by financial institutions, then he turned to Prosper and was able to borrow $18,500 at an interest rate of 10.97%.
  • Michael & Amy DeFabio needed money to launch their newest product for their holistic health care company but were repeatedly refused funding by the banks.  After only a few weeks of listing a loan on Lending Club, they had $15,000 to take their new product to market.
  • Madeline Smith was able to raise $5000 on Prosper to start her own business, Madeline Pet Clothier, in the booming pet industry.

Borrowing Money with Prosper or Lending Club

The peer lending model uses the micro-loan concept, many different people loan out small amounts, usually $25–100, and the p2p system aggregates them into one big loan for you. Of course people won’t just lend you money without convincing, you have to create a loan listing describing why you need the money and how you’ll use it to grow your business.  You also have to submit your financial information as shown below but the listings don’t include your name or address so you don’t have to worry about the whole world knowing your financial situation.

Here is an example of a business loan for $22,000 that was funded at an 11% interest rate:

Smallbusinessloansummaryprosper

Lenders were confident in lending this business owner money based on the borrowers financial profile, shown below:

Smallbusinessloancreditprosper

As mentioned earlier, you should explain why you need the loan and how the money will be used.  Here is the detail provided for the above loan listing:

Purpose of loan:
This loan will be used to expand an already succesfull design and drafting business. We, as a company, have broke into the expanding energy and oil business in Western Colorado, designing and drafting blueprints for some very acknowledged companies. We have upcoming contracts to design and build for these companies. We plan to expand into another city closer to the “action”. We feel we can serve these companies better having an office closer to their main operations in Western Colorado.

My financial situation:
I am a good candidate for this loan because I have proven over and over again that I am trustworthy and honest. I started my business with very little money and created some great opportunities for exceptional people, and exceptional communities. I have never been late on a payment in my life. I have never defaulted on a loan, got in over my head, or made a late payment on a loan or credit account. NEVER! I have proven to budget very wisely and create positive situations for my company.

To show that I am serious about this opportunity for my company, I have already bought the land to build on. I have a large stake of my net worth in this opportunity, and I would not have jumped at the chance without extensive research and confidence in my company. I need another $22,000 to qualify for the rest of the financing for the construction project.

So if you’re in need of startup capital or some extra funding to give your small business a boost but have been avoiding it due to the paperwork and time involved, give Prosper or Lending Club a try. eBay business owner Patrick Kelley, who borrowed $18,500, confirmed that the peer lending process was much quicker and easier than going through a bank.

“He estimates that each bank-loan application he submitted took several months to prepare. There’s more paperwork, and banks want an updated business plan and tax returns, he says. By contrast, he says the loan-application process on Prosper took a couple of weeks, from the time he applied for a loan to the time the money was in his bank account.”

Thanks to technology and the innovation of entrepreneurs, now it’s possible for small business owners to get a loan faster & cheaper than from a bank.  Take advantage of this new funding alternative and grow your business today!

References:

– Where Either a Borrower Or a Lender Can Be

– Business Loans Get Personal

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Advanta Business Card Application Overview - Quick & Easy Access to Capital for Your Business

March 22nd, 2008

Small business owners are busy people; we don’t often have time to spend opening new accounts and trying out new credit cards.  Sometimes this fear of wasting time prevents us from finding the best credit card or other small business services available in the marketplace.

Quick & Easy Credit Card Signup

It’s understandable why we’re so guarded with our time, frequently applying for a credit card involves filling out screen after screen of information.  One of the things I love about Advanta credit cards is that their application process is short and easy.  You fill out your business name and personal information on the first page and then the rest of your business information on the second page, both on short forms, and then you’re done!

So you don’t need to worry about wasting your time when you open an Advanta card; they get you through the sign up process quickly and your credit card application is off for review right away. You can see for yourself, the images below show the steps you’ll go through when you apply for your Advanta card.

Advanta Card Application Demo

Most business credit cards ask you to enter your federal Employer ID Number (EIN) during your signup.  You’ll notice that Advanta doesn’t require an EIN. You can see below what information you do need to have available when you go through the credit card application.

  • Business Name & Phone Number
  • Home Address & Phone Number
  • Social Security Number & Birth Date

Apply

Hopefully you don’t have any existing credit card debt but if you do you can look into transferring anything you owe on other cards to your new Advanta card.  At one point they were offering 0% APR on balance transfers for 15 months. Check out their current balance transfer rates and see if you can save money by moving your existing balance to Advanta.

If you have other people in your business that might need access to a company credit card you can also request additional employee cards for them for no additional cost simply by checking the appropriate check box. 

Now you’re finished with page one, pretty quick wasn’t it?  I timed myself and it took me under a minute to complete, 48 seconds to be exact. Now click the big red Submit button and you’re onto the last page.

Business Credit Card Page

The second screen is where Advanta asks for more information about your business.  You can see below the data that you’ll need to fill out on this page:

  • Business Address & Industry
  • Years in Business & Total Employees
  • Annual Revenue & Yearly Household Income
  • Mothers Maiden Name & Your Email Address
  • Rent or Own Housing

Businesscard

That’s all there is to the application!  You can also opt into a trial of Advanta’s Credit Protection program or learn more about their merchant account options by selecting the check boxes before you click the Submit button.  Pretty quick and easy, once you’re finished you’re taken to the confirmation page shown below.

As Advanta reviews your application, they keep you in the loop by providing a site where you can check the status of your credit card signup request.  They also provide a toll free number where you can speak with someone about your pending application.

You may notice the online survey button, a sign that Advanta does offer one of the best credit cards for small businesses.  They actively gather feedback from people that signup and use their cards and are always looking for ways to make entrepreneur’s lives easier. I went through the survey and it definitely reinforces that fact, as it focuses on saving us time with easy navigation, clear & concise forms, and a straightforward application experience.

Applicationsubmitted

 

Save Time & Money with Advanta Platinum BusinessCard

If you invest the small amount of time it takes to apply for the Advanta Platinum Business Card you’ll discover like I have that this card and company exist to help small businesses.  I’m not the only one that speaks highly of Advanta, in an article “Best Credit Cards for Small Businesses”, BusinessWeek had this to say:

“Advanta, a company that caters specifically to small businesses, offers one of the best all-around deals for a small-business credit card. The Advanta Platinum Business Card offers a 0% APR for 15 months and a 7.99% fixed APR thereafter, while offering 5% cash back or travel rewards. And there’s no annual fee for using the card …. Another perk: Customers put their own [business's] name on the front of the card. It brings instant credibility to a business”

Advanta has been in the small business credit card field for a long time and use their experience to help you save time and money.  If this experience sounds like something that would help maximize profits for your business make sure you get more information today.

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