Small Business Startup Loans – What Are the Fundamentals of Business Finance?

If you want to set up or considering setting up a business of your own, you must bring one thing in mind. You must know that you will need money to make sure that the business functions as it ought to. For the purposes of this study, we shall think of business finance as all the money that will be required for the smooth functioning of the business. This will include money from a variety of sources such as loans from lending institutions, cooperatives and these loans may be acquired either on short term or on long term bases.

One thing that should be borne in mind is that it is necessary for every person to understand the fundamentals of business finance. This study is not only meant for those coming into business for the first time. Keep in mind that at every stage in the business, there will be a need to finance to expand, transform or even give a new facelift to your business. The good side about this study us that it will enable you to know where you can seek for finance for your business, it will help you to better manage these finances so that you should avoid falling into debts by paying your loans and it will equally let you know what type of loan is appropriate or not for your business.

Knowing the Essentials of Business Financing

Ahead of opting for any source of finance that might be open to you as an investor, there is always an obligation for you to not only become aware, but to understand and appreciate the importance that financing has to do to your business. As of now, one of the sources of finance to your business is venture capital. Venture capital will refer to a venture group that is willing and able to pump in finance to your business. But it should be kept in mind that this is done with the intension that the venture group will become part of the business.

It will have to take part in the running of the business and equally in the profits of the business. In some cases, the option of an angel financing may also be available. This is a situation in which high risk ventures will be financed for the reception of high profits. Another source of financing is corporate venture capital financing. This is almost the same thing with venture capital but the difference is that groups and not individuals will be involved into the financing. You can also think of taking a loan from a bank or any financing establishment.

If you are an experienced financier, you will realize that identifying and making use of these sources of finance is easily done if you are aware of all the essentials of business financing. This will be difficult for the novice. What has been realized is that most lending institutions have already created and developed some form of confidence with those already in business, plus the fact that they think their money will be better protected with those who already have some worth to prove.

It May Be Necessary To Integrate Your Business When Seeking For Financing

The rationale for confidence building will vary from one lender to another and will also depend on the lender’s personal conviction about the business. It is normal that every lender will want to scrutinize and make use of any former financial record of a business before it can give loans to that business. In other cases, it is known that sources of finance may be easily opened to groups of business than to individuals.

This is the more reason why you must understand all the essentials of business financing before making an application for it. Sometimes, it is necessary that as a sole proprietor, you may decide letting a takeover of your business. This is to give your business a positive credit worth so that it can stand a good chance of being financed. But you must make sure that you seek expert advice in doing this. Remember that there are so many essentials in all of the above and you must be skilled enough in these before you can achieve any success.

How to Avoid Being Targeted by the IRS in Your Home-Based Business!

If you run a home-based business, you might be confused about what you can and cannot deduct as reasonable expenses. Some home-based businesses make critical mistakes and are red-flagged by the Internal Revenue Service. However, with a little guidance, you can start a business that will stay under the radar and keep you out of hot water:

Understand home office deductions. While you don’t have to have a separate room as a home office, the area you use must be used exclusively for conducting business. This includes a place where you meet clients, patients, or customers. You can also claim a home office deduction if you store inventory for your business. In the strictest sense of the word, a home office cannot include personal items, such as personal mail, your children’s toys, etc.

Incorporate your business. The IRS keeps an eye on home-based businesses. In fact, sole proprietorships, especially those that are home based business owners, are more frequently audited than corporations. One tactic that you can use to decrease your chance of an audit is to incorporate (form an LLC or corporation) your business. Incorporated businesses are audited far less frequently than home-based businesses. The IRS is more likely to question deductions in a home environment than a corporate setting.

Keep separate bank accounts for personal and business use. One of the biggest mistakes that small businesses make is to combine both personal and business expenses. Keep separate accounts for personal and business use. In case of an audit, it’s much easier to refer to an account that is used for one purpose than to wade through 12 months of personal and business expenses and attempt to separate them.

Deductions should be reasonable for your business. Avoid extravagant deductions. Another red flag for you home business is when the deductions are high in comparison to your income or the industry norm. Obviously, you’ll have deductions, but over-the-top claims will catch the eye of the IRS. If you have large deductions, keep the proof on file for at least three years.

Use specific amounts. Most costs don’t end in rounded numbers. Be specific. Rounded numbers imply estimates, and this could flag your business for an audit. Also, if you believe that a deduction will flag you for an audit, attach proof to substantiate your claim.
File online. Math errors are another audit magnet. While one small error probably won’t create a problem, multiple errors will most likely bring attention to your business. When you file online, the software will do the math for you, eliminating the margin of error.
Don’t underreport earnings. Keep in mind that in this technological age, the IRS can easily find your earnings. Don’t be tempted to underreport your income, or you could find yourself at the losing end of an audit.

Run your business like a business, not a hobby!  Use some type of accounting software to track your monthly revenue and expenses so you can track your profit and loss. Running your business based upon your online checking account balance and “let’s just see how it goes,” sounds more like a hobby to the IRS vs. a real business.

Operating a home-based venture is a rewarding experience and doesn’t have to create IRS headaches. Know the tax laws, keep good records, and your home business will thrive. For more information about what you can and cannot deduct as a business expense, go to the Internal Revenue website and download Publication 587: Business Use of Your Home.

Prioritizing Business Needs

Many of my clients, these days, are looking to me to help them find new ways to do what they do and to reach out to their clients. They tell me that the sales process is getting longer, they need to make various cuts and that they cannot depend on their steady cash flow to bring in the clients they are used to serving.

Of course, in a recession, this is no surprise. The problem isn’t about recognizing the problem, it’s about working through the solution.

One of the biggest questions is around “where to begin.” That’s one of those questions that makes you kind of laugh and think to yourself…man…if it was that easy! The question is…do I market more…do I let people go…do I change my product offerings…do I…and how do I know what to do, and when?!

Well, the majority of the answer comes from knowing your business. While this exercise isn’t a “quick and dirty fix” that will turn things around for your organization, it is an exercise that all business owners need to incorporate into their business model. There are 3 internal considerations and 2 external. The first thing that I must suggest to you, however, is to get out of panic mode. In panic mode, most business owners cannot make good decisions. Decisions tend to be reactionary and serve the moment. They often do not result in long-lasting positive change for the organization.

Be clear, on the other hand, that your business cannot survive in planning mode. Quite the dichotomy. However, as a leader, you must learn and be clear on the time to plan versus the time to make informed decisions.

The exercise:

- What are the basic things your business needs to survive every day? The first thing many business owners will say is cash flow. Well, cash flow is more like “blood.” Blood has no purpose without a being. So, let’s look at some alternatives:

- Clear, transferable belief statements – your mission, vision and values. No excuses. If you don’t know why you exist, who you serve and know where you are headed, you’ll get no where, fast.

- Leadership – leadership will drive the beliefs. The business owner doesn’t necessarily need to be that person. Not everyone is gifted with the ability to lead, though most of us are gifted with the ability to dream. Be very clear on that.

- Market – While selling ocean water to fish might be appealing in a great economy – there will be fringe purchasers who might splurge periodically, in a tough economy, 99% of your purchasers are going to come from a specific market; your fringe purchasers will be focusing on their own needs. Therefore, you’ve got to be crystal clear on who your market is, where they live, what they do, their purchasing habits, etc.

- What are the things that will allow the business to continue operating from day to day?

- Consider – an effective sales medium

- Required (be clear on “required” versus “desired” resources – cash flow, personnel, production capability,

- Processes – how to get things done and efficiently as possible

- SWOT awareness – knowledge of what makes you great, what areas you need to strengthen or work around, things in the marketplace that could hurt your business and marketplace situations of which you could take advantage.

- Management – the assurance that day-to-day activities are being carried out properly – the right people or products at the right place at the right time in the right condition

- What is your relationship with your stakeholders? Who are they? How are you serving them? How are they serving you? What is your messaging for each group?

- Customers – the people you hope to do business with. Much of your marketing and advertising efforts will be focused on them. However, in a tough economy, it’s more than traditional advertising: it’s assurances, demonstrated capability, track record, recommendations and testimonials

- Vendors – who your vendors are and your relationship to them is part of your branding strategy. For example, if you are an eco-friendly company, and one of your vendors is known for dumping raw wastes illegally, or is a major producer of waste, you are not providing a consistent message. How does this effect your business? Your other stakeholders may have some influence over each other’s purchasing decisions (think community, customers…)

- Community – how your community views you is going to be a major indicator of how successful or unsuccessful in your business. A business that is well received, regularly gives back and participates in community events is going to be received much better than those that don’t. Keep in mind the difference between participating in the community and shameless self-promotion at community events: one serves the community, the other serves the self. Guess which one will be better received?

- Team – consider your team not as employees, but as people who are bring their gifts, talents and abilities to share in reaching the vision for your organization. They should be able to take ownership of company beliefs, and interested in moving objectives forward on your behalf. Your relationship with them should be synergistic, meaning that when you put two of them together, you should get far more productivity and results than you would get from either one of them, or from each of them working independently. These types of relationships are those that you must really nurture and develop in order for everyone to reap the benefits from.

- Network – as Debbie Rodkin of Re:Focus on Careers would say, “It’s not about who you know. It’s about who knows you!” Leveraging the relationships you build during your networking endeavors is a powerful force for your organization. Don’t underestimate it. Remember – people most often do business with people.

- What do people think about your company – or you, if you are the company – when they think about it? How do they envision your company?

- Is your company’s messaging accurate? Does it clearly and accurately establish your company’s expertise?

- Does everything in your company express that idea or message that you are getting across to your stakeholders?

- Does your company logo/collateral help or hurt your company?

- Does your team help to express your company beliefs? Do you take the time to train them on how to? Do you realize that there are some people you may need to let go in order to maintain the integrity of your brand if you find that you cannot get them on board?

- Does the way you interact with your stakeholders – vendors, team, community, customers and network further help or hurt your brand?

- Do you have any brand management strategies?

- Do you have a perpetual, purposeful marketing strategy?

- Do you have a plan for growing the organization? Growing the organization may or may not be the last thing on your mind, right now, but consider the following:

- If you are effectively managing the items mentioned above, you should be stable and possibly capturing a larger portion of the market than some of your direct competition. Some business owners are realizing that they don’t have the “rounded out” skill sets required to run a business on their own. You may be in a position to partner with or purchase one of these struggling businesses that are aligned with your organization (beliefs, stakeholders, market, products & services), which could further your business and relieve another business owner.

- The current economic conditions won’t last forever. Where do you intend to emerge? What are your contingency plans?

- What are your indicators of change – as in, those things that have to occur in order for you to take certain steps. For example, if your customer base drops below a certain levels, do you expand your marketing? cut prices? enhance positioning? What if the base expands? When do you increase capacity? How do you know if the expansion is sustainable? Having a plan for what to do next is going to keep you from making those gut-level decisions that are often like using an axe when a scalpel would have sufficed.

In order to navigate the tough seas of unstable economies, you need to be aware of your business – it’s capabilities and capacities. You need to know its strengths and weaknesses and what is going on in the environment. This is the valuable information you need in order to make good decisions about the direction for your business. Lastly, remember that the environment is continually change – it shifts like sand, nearly every day. While there will be some things that rarely change – your belief statements, for example, there are other items that may change, such as your vendors, economic conditions, etc. Ensure that you have a regular practice of bringing up this list of business needs and making adjustments as your business has need.

Lastly, keep in mind that this is a framework. You may discover other areas that you need to emphasize certain areas of the business. However, generally speaking, when you are prioritizing the needs of the business, you will want to start from the base level (#1) and move forward (to #5). When you address issues, know that while you may skip certain things, ensure that this should only be a very short term situation, and that the closer to the base level the item is, the more impact it will have on the overall organization.