Common pitfalls for small businesses
Nobody likes to talk about failure, but any entrepreneur knows it’s the elephant in the room. Starting your own business is an inherently risky venture, but startups need to address those risks as aggressively as possible. Jared Hecht at Inc. and Rhonda Abrams for Gannett each have lists of seven things entrepreneurs needs to look out for. The lists read very differently, but we noticed two strong similarities:
First, have a plan. Or better yet, multiple plans. Startups need to make sure that contingencies are thought out in advance to give a maximum chance of success. Of course, the most important one is the businesses plan. It can be a time consuming process but is critical to ensure the company has needed focus and direction. Another important one is a marketing plan. As Mr. Hecht succinctly puts it, “no matter how great your idea might be, no one can buy your product if they don’t know it exists.” But this doesn’t just include advertising; the sales and customer services processes shouldn’t be done on the fly either. Another good one to have is a cash flow plan. Often, startups, especially service-based ones, struggle with cash flow despite having plenty of sales because clients are slow to pay but the business has not yet built up its cash reserves.
Second, always be willing to ask for help. Ms. Abrams strongly recommends that a startup never hesitate to seek legal advice: “Often, a few hundred dollars spent on a lawyer at the beginning of a business or an important deal can save you thousands of dollars and loads of headaches later on.” Both also note that one way or another, you need to be willing to listen to customers and other employees rather than relying solely on your own desires for your product or service. After all, it is the customer that has to like your offering enough to pay money for it.
Of course, we would add to these lists that it’s important to get professional help with your finances. Payroll, bookkeeping, tax compliance, and financial statement preparation are all areas that can distract a small business from its core purpose, so if you need help in any of these areas, give us a call and find out how we can help!
Getting creative with funding your small business
Over the past few weeks, we’ve come across several articles talking about some less common but potentially useful ways which small businesses can obtain funding. In an environment where traditional small business loans are getting harder to come by, small business owners should know that there are a lot more options than visiting your local bank branch.
First, online lending is slowly but surely gaining favor for small loans. Among the factors cited in its growth are banks’ hesitancy to loan to small businesses and small business owners showing distaste for the often drawn out loan application process. Advantages of online lending include a faster application process and increased willingness to lend to small borrowers. Both articles note that the lack of regulation among these types of lenders can be both good and bad, as it lowers costs but also means there’s little oversight. It’s also important to note that, while some of these lenders offer products similar to traditional loans, there are a wide variety of business models, such as Kabbage, which allows businesses to borrow against their outstanding invoices. Read more at New York Times and Fortune.
Next up is Kickstarter. A lot of us already know about the virtues of crowdfunding (here’s a good primer in case you’re unfamiliar), but sites like Kickstarter are generally thought to be tools for very early stage companies trying to get their first product off the ground. However, the Wall Street Journal reports that companies who have had successful Kickstarter or Indiegogo campaigns are even more likely to be successful with each subsequent round. In addition to gaining the necessary funds, one entrepreneur argues that an even more powerful aspect of repeat crowdfunding is it allows companies to build a fan base in increasingly crowded retail markets.
Finally, Adam Aronson writes for Entrepreneur that more businesses should consider family offices for their funding needs. Family offices operate as private companies that manage investments for high net worth families. As Mr. Aronson notes, there are over 3,000 family offices in the United States and they generally have at least $100 million to invest. He also notes some of the advantages of obtaining financing from family offices, including great networking connections, increased patience, and a higher willingness to serve as mentors.
No matter which route you choose, always know we’re here to help with tax planning, financial statement preparation, and any other needs you have along the way!
Important Supreme Court Decision for 401(k) sponsors
Yesterday, the Supreme Court ruled on Tibble v. Edison International, and the result is something that all plan sponsors should take note of.
Several employees of Edison sued the public utility holding company because they believed that, as plan sponsor, the company had not acted in their best interests by selecting several mutual funds that were open to the public instead of institutional funds, which were identical except for charging lower fees. The Yahoo article linked below notes that a 1% increase in annual fees would reduce an average worker’s retirement savings by around $70,000 over a 40-year career.
The Court ruled unanimously in favor of the workers. Justice Stephen Breyer wrote in the opinion, “The continuing duty to review investments includes a duty to remove imprudent investments”
It’s important to note that this is a much higher fiduciary standard than plan sponsors have historically been held to. In short, plan sponsors need to actively monitor the investments in their plan to ensure they are the best options for the participants.
Link to articles: Yahoo!, WSJ
Reminder: nonprofit taxes due May 15th
A quick reminder that tax-exempt organizations who use the calendar year as their tax year must file the appropriate Form 990 or an extension by May 15th.
For more details, see http://www.irs.gov/uac/Newsroom/Many-Tax-Exempt-Organizations-Must-File-with-IRS-by-May-15