Understanding Small Business Taxes
You’ve heard it before - nothing in life is certain except death and taxes.
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When it comes to running a small business, the big and small decisions more often than not end up relating back to money. From sourcing funding to managing finances and paying taxes, there’s a lot of information to know. Of course, many businesses rely on financial advisors and accountants to manage their books, but it can literally pay you to understand the basics about small business taxes.
That’s why we’ve made this guide to outline the main aspects of small business taxes, from the kinds of taxes you may have to pay to the considerations to take when structuring your business.
What is a Business Tax?
The types of small business taxes that you will end up paying will depend on the way you structure your business (we’ll get to that later). But, the three main types of business taxes are:
- Income Tax: Every business must file an annual tax return. For corporations, they pay the corporate rate whereas pass-through entities pay an individual tax rate.
- Estimated Taxes: If you’re an independent contractor or freelancer who is expected to pay at least $1,000 in taxes, then you’ll be expected to pay estimated taxes on a quarterly basis. If you miss these deadlines, you may face penalties. The deadlines for quarterly estimated taxes are as follows: July 15, June 15, September 15 (in 2020) and January 15, 2021.
- Self-employment Taxes: Self-employed individuals pay Social Security and Medicare taxes. You are expected to pay this if you make more than $400 in net earnings or if you work for a religious affiliation that elected an exception.
Types of Small Business Taxes
Besides the aforementioned taxes, you may be required to pay these too:
- Sales Tax: Most states in America have their own defined sales tax rate. This is a tax that customers pay at the time of purchase of goods or services. The business owner is then responsible for both collecting and reporting these taxes to their state and local government.
- Excise Tax: Some goods and services are privy to being taxed, but it doesn’t get passed on to the consumer. Instead, it comes in the form of an excise tax, as with cigarettes, liquor and gas, for example.
- Payroll Tax: Even if you don’t have employees, you will have to pay a payroll tax. For sole proprietorships earning more than $400 in net earnings, it’s just called the self-employment tax (see above). If you have hired employees, then you have payroll tax withholdings and obligations. From an employee’s wages, you have to withhold federal taxes and FICA taxes (a 6.2 percent Social Security tax, a 1.45 percent regular Medicare tax (and a 0.9 percent Medicare surtax when the employee earns over $200,000).
- Property Tax: When you own a commercial property, you will have to pay property tax to the city or county in which the property is operating.
Business Structure Options
The way by which you structure your organization legally will undoubtedly affect your tax rates. Here’s a look at the types of businesses you can run and their respective tax implications.
- C Corp: Traditional corporations fall under the category of C corps. C corps consist of: a board of governors, directors, employees, and officers. When this comes to mind, you probably think of large businesses, but it could be that you structure your small business as a C corp. C corps pay taxes on the company level (they are the only legal structure that fits this bill). The flat and current corporate income tax rate is 21%. Shareholders have to pay taxes on their dividends received from C corps.
- S Corp: Unlike C corporations who face double taxation on the company and shareholder level, S Corps pass income to shareholders to avoid the double taxation. To set your small business up as a S corp, you must adhere to these stipulations: have no more than 100 shareholders, all shareholders are U.S. residents and there is only one class of stock. The S Corp is one of the most popular options for small businesses to elect because there is more tax flexibility and S corps may be eligible for a 20% tax dedication. Additionally, shareholders report their business expenses, deductions and income on their own personal tax returns.
- Sole Proprietorship: When you are the only owner of a business that is unincorporated, you’ll default to being considered a sole proprietorship. This is the most common type of small business that exists in America, but it’s also the riskiest. As a sole proprietor, your personal and business finances and legal obligations have no separation. However, taxes are the most straightforward because you would file your individual income and losses on your personal tax return (Form 1040 through a Schedule C). Sole proprietors can deduct 20% of net income from taxable income, thereby immediately lessening tax liability.
- LLCs: LLCs are limited liability companies and boast two tax advantages, namely: deductible business losses and no double taxation. LLCs are taxed on the individual level, in the same way that it occurs with an S corp or sole proprietorship. The term associated with this process is the “pass-through” tax treatment. With an LLC, you can have as many shareholders as you want, but you have to assign ownership percentages for each member. If you have an LLC with multiple members, you get to choose to be taxed as a C corp or partnership. Going down the C Corp route will result in double taxation. If you’re a single-member LLC, then you are taxed like a sole proprietorship. To set up your business as an LLC, you have to pay a certain amount of state taxes each month, no matter what your profits or losses amount to.
What Counts as Deductions?
When you run a business, you’ll have to keep track of income and expenses. Expenses get deducted from your revenue as pre-tax so that your tax liability is then lower based on profits (instead of revenue). To write off expenses, here’s a list of common ones that can be deducted:
- Hiring freelancers
- Business travel
- Depreciation of assets
- Business property utilities, repairs and insurance
- Vehicle expenses
The best way to find out what you can write off is to consult with your accountant or CPA. In most instances, small business software for taxes like QuickBooks will help to itemize expenses for you.
Also note, you can write off startup costs before you are fully operational. You can deduct up to $5,000 in startup expenses and up to $5,000 in organizational costs. This holds up as long as your total costs to get going is less than $50,000.
Taxes can surely get complicated. That’s why it’s so useful to know the basics when you’re setting up your own small business. If you have the opportunity to consult with an expert, it’s definitely advisable. As you can see, the way you set up your business as a legal entity will greatly affect your taxes. So, be sure to perform research before jumping right in.
Once you’re getting going, you may realize you need some help funding your small business. Don’t forget that’s what we are here for at Uplyft Capital. Whether we can provide you with a cash advance or not, we invite you to leverage our Marketplace to get connected to the best small business loan for you.
The Cost of Hiring a New Employee for Your SMB
Businesses are made up of people. Hiring new employees come with more costs than just their salary.
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When you start building your small business, a big question pops up early on. You’ll find yourself asking, “Is it time to hire a new employee?” Whether the answer is yes or no at any given time, it pays to know how much it’ll cost you to bring on a new employee.
Of course, everyone’s job titles and salaries vary. But, there are associated (and often hidden) costs to hiring a new employee. In fact, Deloitte has shown that the average cost of a new hire is $4,000, but the price may likely vary.
Here, we will break down everything you need to know about the hiring process, how to hire the right person, and the total cost of hiring a new employee for a small business.
Recruiting Has a Price
It would be great if the right candidate naturally showed up at your door when you are ready to hire. The truth is that there are many surefire ways to find the right person, but they take time and as such, have costs.
The first step is to write out the job description, which will include a summary of the position, line items or bullets of their job responsibilities, and the required experience and/or education to fulfill the position. You can post the job description on job boards (there are likely to be fees for this) or across social media (can be free unless you pay to sponsor the post). Another option may be to hire a recruiter. However, this may be a more costly option than you are ready to take on. The average cost of a headhunter is $20,283.
The Costs of Training
It’s no Denzel Washington movie when it comes to training day. Once you’ve recruited the perfect new addition for your team, you’ll have to invest resources like time, money and effort into preparing the new hire for their role. Training actually turns out to be one of the most expensive pieces of the new hire process.
You could and should think of training as an investment. You are putting money upfront to hopefully reap dividends in the future, if all goes according to plan. On average, the cost of training a new hire is just north of $1,200 per employee. This number is calculated by quantifying the hard materials cost, as well as the time it takes a manager and fellow employees to get the new hire ready to go (to the point of 100% capacity).
The Price Behind Paperwork
Along with on-boarding comes the process of submitting paperwork and documentation, including but not limited to: health insurance, annual salary, benefits and the like. You’ll have to set up an approval process for the new hire to receive necessary paperwork and it to be properly reviewed. Many big businesses have this managed by a Human Resources department or have outsourced an HR team. As a small business, you may want to take this on by yourself to minimize the costs. If you do so, there are plenty of options for automated human resources management software on the market.
The Cost of Turnover
In business of any size, customer satisfaction tends to be a top priority. Equally as important is employee satisfaction and retention. Just like it costs more to acquire a new customer than retain an existing one (5x more in fact), the cost of turnover is like throwing money out the window. You invest time and resources into getting a new hire up and running so that they can hit the ground running. Remember when we said this is an investment that will only pay out if the employee reaches maximum potential? If an employee quits shortly after being hired, all the costs associated with on-boarding can be considered sunken. Corning Glass Works has found that an employee who attends a structured orientation program is 69% more likely to remain with the company for at least three years.
The Obvious Costs: Salary and Benefits
As a small business hiring a new employee, you probably have spent most of your time calculating a new hire’s costs based on their salary and benefits. Beyond their salary, you should also factor in the price of benefits like: medical and dental plans, retirement contributions, disability coverage, life insurance, tuition reimbursement and so on.
When Do Costs Even Out?
The break-even point for bringing on a new hire tends to take place by month six, at least for mid-level managers (according to Harvard Business School). This is based on the employee reaching their full potential by that time, as training, salary and cost of lost productivity even out.
How to Decrease Hiring Costs
The cost of hiring is not a one-size fits all calculation. Naturally, the salient costs like one’s salary varies greatly by location, hours of work, experience level, etc. But, as a small business, taking on any new costs is an important consideration. However, new hires may not be a cost you can fully avoid because at some point, the benefits of hiring someone to help boost productivity will outweigh the costs of not having a valuable team member. Here are some tips to help reduce the cost of new hires:
- Advertise job descriptions on social media to maximize reach without incurring more costs
- Automate the HR process with software
- Leverage your network to try find the right candidate
- Find a cost effective provider for background checks
- Introduce a referral benefit scheme
- Leverage alumni networks and job fairs
- Be as detailed as possible in your job description and requirements
Make Your Money Work
Small business owners have a lot to manage. That’s why the consideration of hiring a new employee is one to take seriously. Devoting the right time and resources to find the perfect candidate can save you money in the long run.
While the hiring process isn’t always the most quick piece of business, it often ends up being one of the most important. Give time to figure out the exact job description, necessary base salary and benefits, on-boarding process, training environment and overall employee experience. The goal is to find the right person who also feels you offer the right opportunity for growth and maximum potential.
How to Run a Business from Home
Starting a business from the comfort of your home isn’t always comfortable.
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But, if it is something you’re passionate about, it can afford you both a living and more flexibility than a standard job in an office. Before you get started running a business from home, there are legal factors to take into consideration, as well as financial aspects that are necessary to understand.
Working from home is much different than running a business out of your home. Here’s everything you need to know!
The Legal Aspects of Running a Business From Home
When you start a business from your home, there are various legal considerations. These laws vary by state and locality, so it’s important you can define the type of business you plan to run. Then, it’s best to check that you are allowed to legally run your business from your home.
- Licenses: You most likely need a license to run your business. For certain types of businesses, like a hair salon for example, you may need additional licenses or permits. The same goes for daycares that are run from homes. Get in touch with your state office for business registration to find out more.
- Variance: In some instances, your business may be illegal to run from your home in your area. Your best next step for action is request a variance, which is a government exception. If you’re a small business that won’t have people coming into your home or affecting traffic in the area, then you have a higher likelihood of receiving a business variance.
How to Run a Home-Based Business
No matter your reason for starting a home-based business, there are some tips and steps that look the same for every at-home entrepreneur. From the inception of the idea to marketing the new business to the world, you’ll want to touch base on each of the following steps in your process of building.
1. Brainstorm Ideas: After checking in with your localitlie’s business registration restrictions, it’s best to start by brainstorming various ideas for your business. You can run a salon, daycare, e-commerce business, service-based business like tutoring or another type of business from home.
2. Combine Talent and Skills: The optimal way to go when deciding upon the business you’ll run from home is to pick something that combines both your talents and skills. This will help to ensure you are passionate about the work you will be performing day in and day out. Some people have the education and experience they already need to run a business from home. If you have more to learn, don’t be afraid to take online certification classes, attend trade school, rely on a mentor, read books or ask people in your network questions.
3. Funding: Like any type of business, you’ll have to have funding to get it off the ground. There are a variety of kinds of funding methods you can rely on for capital. Some of the most popular funding methods include: business line of credit, merchant cash advance (particularly fitting for commerce businesses even if you have bad credit), small business loan, or crowdfunding. While it is sometimes possible for a startup to self-fund, it requires extra disposable income or being okay with going into debt. However, if you are confident you will be making sales as your business gets up and running, then a merchant cash advance can give you quick funding upfront for a promise of a portion of your future credit card sales for repayment.
4.Write a Business Plan: Running a business requires planning and organization. Writing a business plan can help you stay on track to achieve your goals. It is also a necessary piece of documentation to have if you plan to apply for business loans or investment. A business plan typically includes: an executive summary, financial planning, marketing strategy and a budget.
5.Separate Personal and Business Finances: Importantly, you’ll want to separate your personal and business finances, especially when working from home. A lot of your personal life and work life will overlap when it’s all taking place in the same location. As such, it’s even more important to separate your finances. This begins with opening a separate business bank account and tracking business expenses separately from what you spend personally.
6. Insure the Business: Whether you rent or own your home, you will likely already have renter’s or home insurance. When you open a business in your home, you should ensure that you have the right home-based business insurance protection. This typically requires both general liability insurance and professional liability insurance. You could even want a Business Owner’s Policy (BOP), depending on what industry you’ll operate in.
7. Understand Tax Deductions: Business owners who work from home can claim tax deductions for certain portions of the business activities that take place inside their home. For example, you can deduct a portion of your rent (based on the percentage of space you use for your “home office”), utilities, repairs, maintenance and real estate taxes.
8. Create Your Business Identity: Once you have all your financial plans and logistics figured out, you can get into the fun work of building your brand. With enough brand awareness, people will hopefully be able to recognize your logo and know what your business is. To get to this ideal place, you must begin with creating your business’ assets, which include: a logo, typography, color palette, packaging, a business website, and marketing materials, to name a few.
9. Designate a Workspace: You’ll want to designate a workspace inside your home that is dedicated to the business. For some, this means having an office or studio for work. For others, it may be cornering off a part of your living room for business activities. It doesn’t matter how big the space is – the importance is being able to step into it and knowing you’ll be productive. It’s also nice to be able to limit distraction in this portion of the home so you can set your work hours when you’re spending time in that location. Again, this also will play a role in your tax deductions as you can accurately estimate the square footage used for the business versus living.
10. Get the word out: After you’ve set up all the behind-the-scenes factors to ensure your business can run smoothly (i.e. finances, funding, brand identity, etc.), you can step into the spotlight! Oftentimes, this is one of the hardest parts of any business. Building your brand and marketing your value will entail preparation, funds, and time. While you can do it alone, it’s recommended to rely on experts in respective fields like social media, paid advertising, SEO, influencers and the like. If you can commit to providing a product or service of quality with great customer service, then word of mouth can become your best and most useful tool for marketing.
The Bottom Line
Running a home-based business has a lot in common with running a business from an office space. Some things that overlap include building a brand, writing a business plan, sorting out business funding and applying a marketing plan. Some things that make it different are the extra considerations around what’s legal and illegal to do from inside your home, as well as the implications for your business taxes.
Having a home-based business can offer benefits like flexibility and lower overhead costs. At the same time, it can require extra coordination, organization and motivation to get up and get to work, since you’ll be tempted to go relax on the couch or stay in bed. But, if you know there is a home-based business you want to try that can glean profits, then follow the aforementioned steps and get to working. Go big and stay home!
SBA Business Loans: Things You Should Know
Applying for a small business loan requires research and work.
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There’s a lot to know about the different types of loans, as well as the alternative types of business funding out there. Many businesses opt for loans backed by the Small Business Administration (SBA).
We’ll talk about what small business loans are, the various types, interest rates, repayment terms and everything you need to know before you sign any paperwork.
What is a SBA Loan?
Small-business loans are issued by banks or participating lenders and guaranteed by the SBA. The SBA is able to guarantee percentages of these small business loans as follows:
- Up to 85% of loans for $150,000 or less
- 75% of loans that are for more than $150,000
Many small business owners opt for SBA loans because their rates and terms are typically more flexible and lower than other financing methods. That being said, not all small and new businesses can qualify for business loans. Before we jump into what it takes to get a business loan, let’s see what types of SBA loans are available.
Types of SBA Loans
The SBA guarantees loans of different amounts and for different purposes. Under each program, different groups process the loans as follows:
- 7(a) loan program: The primary SBA loan is called the 7(a) loan program. These are federally guaranteed loans for up to $5 millions and the funds are meant for: expansion, equipment purchases and working capital. Banks, unions and specialized lenders process SBA 7(a) loans.
- 504 loan program: This program also guarantees loans up to $5 million, but the funds are geared towards buying facilities, land and machinery. Private-sector lenders and non-profits fund loans under this program.
- Microloans: For working capital, starting a business, inventory and equipment, businesses can apply for microloans for up to $50,000. Community-based nonprofit organizations process these.
- SBA disaster loans: When natural disasters strike, the SBA backed loans of up to $2 million that provide funds to small business owners suffering from emergencies and natural disasters. The SBA processes these loans. The most recent program that falls into this category is the Paycheck Protection Program for those affected by the coronavirus pandemic.
What are the Interest Rates?
Interest rates for SBA loans are determined by participating lenders who set their interest rates based on the prime rate plus a markup rate, which is called a spread. It looks like this for the 7(a) loan program based on loan amounts and the repayment terms.
- $25,000 or less: <7 years repayment = 7.50% / >7 years repayment = 8.0%
- $25,0001-$50,000: <7 years repayment = 6.50% / >7 years repayment = 7.0%
- $50,000+: <7 years repayments = 5.50% / >7 years repayment = 6.0%
How Can I Get an SBA Loan?
Receiving approval for a SBA loan begins with an application process. It can be a lengthy process, taking weeks or months before you see funds or rejection. There are very specific criteria you must meet to be able to apply for a SBA loan in the first place. So, if you fall into any category of ineligibility, it’s not even worth applying.
If you are eligible to apply, then you should prepare the following paperwork that will be needed for the application:
- Borrower information form
- Statement of personal history
- Personal income tax returns (prior 3 years)
- Business tax returns (prior 3 years)
- Business certificate or license
- Loan application history
- Business lease
- Personal finance statement
What Do Lenders Care About?
Although the process and application can be lengthy, SBA loans do offer some of the best interest rates and repayment terms when compared to other business loans, and they are guaranteed if a borrowed defaults. That’s why it is a good place to begin. However, such lenders do care about your cash flow and credit history. They will stringently choose businesses that they believe have high creditworthiness and are unlikely to default on the loans. Lenders will look at what’s known as the 5 C’s, namely:
They’ll also want a strong business plan and down payment. As such, some up-and-coming businesses may have a harder time proving this good history.
This is just one of the reasons why many small businesses can benefit more quickly from merchant cash advances (MCA) over traditional bank loans. A merchant cash advance provides borrowers with a lump sum of money upfront in what can be less than 24 hours turnaround. As repayment, businesses promise a portion of future credit card sales that will be proportionally paid back. In most cases, it’s much easier to apply for and receive a MCA than a business loan.
Things to Know Before Applying
- Limit how many you apply for: Be sure to find the program that is suited for your needs before applying to all of them in the hopes you will be approved.
- Understand the cost: Understand that there is a cost of borrowing money from any provider. The cost is the interest rate and it can be fixed or variable. It also often differs based on repayment terms and the amount you borrow, or principal amount.
- Shop around: Look at your options for SBA loans, private loans and also alternative funding options. Uplyft’s Marketplace is designed to help you find the right lender.
- Understand repayment terms: Repayment terms dictate the agreement between borrower and lender for how the loan is to be repaid. If a borrower fails to adhere to the repayment terms, there can be costly and serious consequences that could cost you more than your business.
- Choose between a line of credit or business loan (or MCA): Weight business loans versus taking out a line of credit or MCA before signing any paperwork. Businesses don’t all operate in the same way, nor do they require the same type of funding. That’s why it’s important to write down the pros and cons of your options to best assess your own situation.
The Wrap Up
Although the Small Business Administration doesn’t provide loans per se, they do guarantee loans on behalf of small businesses that borrow from participating lenders. Since they are guaranteeing the borrower, the application process is rigorous and requires that small business owners are in good standing to pay back the loans they borrow.
However, not all small business owners will be approved for SBA loans, nor do they all qualify. Some good alternatives for small business funding include merchant cash advances or lines of credit. Every form of borrowing money comes with its own terms and costs, so it’s best to assess your current business standing to see what option leads you down the safest and most cost effective route.
A Guide to Taking Your Business Online
If there’s ever been a time when online business is important, it’s now.
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Whether you’re doing it out of choice or necessity, taking your business online can boost your brand awareness, expand your clientele and help you build your bottom line. Running an online business takes work, but if you set it up properly, it can be easily sustainable.
Here, we will outline the basic steps you should consider when building your business online. From the seemingly obvious to the more nuanced details, be sure to read and share this guide with anyone who wants to transform their business to be digitally-focused.
Starting an Online Business - The Basic Steps
Taking your business online or starting a new online business isn’t something that looks the same for everyone. In the same way that everyone finds business funding that works for their needs, business owners create online stores according to goals.
In any event, there are some common steps that are worth exploring and sticking to, including the following:
- Fill a need: First things first, you should aim to fill a need. If you have just 10 people who vigorously believe in your brand and vision, you can grow exponentially. It all begins by defining your intended customer, or target audience. Then, you can outline what value, whether it be products or services, that you will deliver to them to fill a need they have.
- Write good copy: Once you have your value proposition, you need to inform the public and your website visitors of who you are and what you do. Your words matter and so does your communication style. Your brand tone of voice should reflect your brand values and be consistent throughout every form of communication you have, including: your website, your social media, your advertisements, products, and direct messages to customers.
- Build your site: Your website is your digital home, and people will come and go very quickly. In fact, if your website takes longer than 3 seconds to load, you’ll lose about 40% of visitors. Along with a speedy site, you want to design your website to be user-friendly and navigate people to take the action you’re hoping for. In technical terms, this is called a conversion – moving a window browser to a customer. You can build your own site with the help of platforms like Shopify or WordPress, or you can hire an expert web designer and developer to do it for you.
- Use SEO: In a world web of websites, you will need to build your website traffic. Along with marketing efforts, part of your strategy should include search engine optimization (SEO). This is so that search engines like Google return your site as an option when people search for your offerings. SEO involves keywords, content and data analytics to get right.
- Customer-first approach: Like all businesses that succeed, putting your customers at the heart and center is necessary. To do so, you’ll want to build reliable customer support and offer many avenues by which customers can get in touch with your team. This could be in the form of phone calls, email, online chat support and just overall good customer care.
Build Your Marketing
Once you have funding for your business, the next step is allocating where and how you will spend the capital.
Don’t ignore marketing. More specifically, invest in marketing!
It’s usually a hard pill to swallow because you won’t be able to see the results right away.
But, once you are up and running, you’ll see the ROI. Some aspects of marking you should familiarize yourself with include:
- Organic traffic from search: Once again, SEO plays a role here. You can grow your organic traffic from being ranked highly in search engine results. This will take time to build and requires some expertise in understanding keywords. You’ll want to implement keywords in your website copy and your blog posts to maximize their benefits.
- Social media: Social media gives you the opportunity to build your following organically or through paid advertising. Running social media accounts is timely, but it can pay off, especially as social media platforms integrate more with e-commerce platforms. It’s another channel to boost brand recognition, gain a loyal customer base and push products.
- Content strategy: Running an online business comes with having a content strategy. Content can be in the form of the written word, webinars, videos and more. Whatever content you choose to produce, it should have a measurable goal in mind. You may be looking to boost brand awareness or drive sales. Your strategy will depend on your goals. Additionally, you’ll want your brand tone of voice to be consistent because your brand has a personality. Consistency is key when content is king.
- Email marketing: For any online retailer, email marketing plays a major role in keeping customers engaged and up-to-date on offerings. It’s best practice to employ an email marketing automation tool to manage drip email marketing campaigns. Along with audience development and segmentation, your email marketing will act like your silent salesperson.
- Data-based decision making: Above all, everything marketing related should be measurable. This is so you can quantify your ROI and allocate funding according to what is giving you the most bang for your buck, as they say. There are marketing agencies that can do this for you, but you can also leverage software tools and systems to help you keep track of your key performance indicators (KPIs).
Plan Your Online Business
Online businesses pop up daily. There are so many reasons why starting an online business or converting your current business to operating online makes sense. Not only will you have low overhead costs, but you can also reach a global audience and quickly adapt to the changing needs of customers.
With a digital business, you can follow trends and adjust your website accordingly.
From branding to content to marketing, there are a few key ingredients to running your online business efficiently. Be sure to line up your process and plan before jumping right in.
Top 3 Tips to Build a Successful Business
Have you been thinking about starting your own business?
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Does the thought of actually doing it and everything that it entails stop you in your tracks? You’re not alone.
Starting your own business can be scary and may feel impossible, but with the right tools and guidance, you too can build your own successful business. Here are some basics to get you started:
Tip #1: Business Financing
The financial aspect of building a business is usually the most intimidating piece, especially for those who haven’t been saving up to do it or who don’t have extra money laying around. Let us start off by saying: do not let this stop you! There are many ways that you can get the financial support you need to move forward in your business plan; we will share just three. Some first steps are a business line of credit, traditional business loan, or merchant cash advances.
To start, a business line of credit is geared towards small businesses as a more flexible loan than a business loan. It works similar to a credit card in that you can borrow up to a certain amount of money and pay interest accordingly. Just like with a credit card, you can use and repay at your discretion as long as you don’t exceed your limit. .
The next option is your traditional business loan which is fairly easy to get since there are many lenders out there looking to partner with business owners. You’ll most likely need a credit score of 720 or higher, a stable source of income, and a business plan (it doesn’t have to be perfect, don’t worry). One of the biggest pluses of a business loan is that if the business fails the loan doesn’t have to be repaid *in most cases. This should give most borrowers a sense of relief. When applying for a loan, it’s important to make sure you read the fine print – there are usually early repayment penalties that come with a loan, so finding the right loan for you is crucial.
Finally, you have merchant cash advances (MCA) which isn’t exactly a loan but rather a cash advance that will be repaid according to a percentage of the credit card sales deposited into your business’ merchant account. The benefits of a MCA is that you can apply for one and have funds appear in your business checking account within 24 hours upon approval! The application process is a bit different than from a lender or banker in that a MCA provider will evaluate your daily credit card receipts to assess risk.
Tip #2: Human Resources
A successful business cannot operate without a successful team. You’re not expected to do it all (and you definitely shouldn’t). Begin by figuring out your strengths and weaknesses so that you can see where you’ll need more hands on deck. That said, utilizing recruiting companies as well as securing a solid Human Resources department are vital for success.
It is important to remember that when hiring staff, you want people who will stay and grow with your company. Your team members should have the same goals and values, and even more importantly should be as dedicated to the success of the business as you are.This comes hand in hand with building a culture for success. This means making your employees feel valued, respected, and trusted. How do you do this? Establishing company norms such as team building activities, whole company meetings, weekly happy hours, and other unifying experiences. A team that likes and trusts each other is bound to thrive!
Tip #3: Invest in Marketing
In today’s age, word of mouth is the biggest marketing agent. People look to the internet for customer reviews first, using platforms such as Yelp, Facebook, and other online forums. For this reason, customer service and satisfaction are critical. Utilizing free social media platforms like Facebook, Instagram, Twitter, and Yelp can build your clientele as well as your credibility tremendously. They are also ways to engage with your customers and provide quality customer service.
You’ll need a basic website to direct your customers to, even if it just states the minimum about your company: who you are, your mission, contact information, and product or service details. Email subscription is another great way to keep your customers up to date on products, services, and anything else going on at your company. You can also add news and other updates about your company to invoices that are emailed to customers.
There are many free ways to market your product or service, but you’ll also want to set aside a marketing budget for some paid advertising, which will definitely increase your visibility.
Money Tips to Remember
Keeping track of where you’re spending money can be tiring, but it’s extremely important. If you find that you’re spending too much time and energy doing this, you may want to look into online tools and apps for expense tracking; finding the right one could be a game changer. Having a specific budget will ensure that you aren’t dipping into other funds or spending money on things you don’t need. Pay attention to what is and isn’t working so that you aren’t spending money where you don’t have to.
You can do this by:
- Outlining business goals: Having a clear goal will eliminate any excess or unnecessary spending.
- Determining Key Performance Indicators (KPIs): These can be both financial and customer focused and they set the criteria for measuring your company’s performance and success.
- Monitoring your Return on Investment (ROI): This is a performance metric used to measure the probability of gaining a return from an investment. In other words, ROI can be used to gauge an investment’s profitability.
- Being adaptive to change: Change is inevitable so it’s important that you have an open mind and are ready to shift gears when necessary. Make sure you’re following trends and staying current with the times so that you aren’t blindsided when you have to adjust accordingly. Remember: change can be good!
Building a successful business certainly sounds easier than it is (if it sounds easy at all), but following the right steps can help drastically.
Your first step is to figure out the right funding for your needs, and once you’ve done this, you’ll be able to get moving!
The Pros and Cons of Business Funding
Starting a business will lead to having to make countless decisions.
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The first big decision you’ll have to make is how to fund your small business. You may ask yourself, “Should I get funding?” or “Should I seek investment?” No matter how you phrase the question, you’ll essentially be asking how to do it.
What works best for some isn’t the right choice for others. There are many variables to each funding route you may choose to take. Let’s weigh the pros and cons of some of the most common ways by which you can get business funding.
Funding Options: Weighing the Pros and Cons
- Bootstrapping: When you hear bootstrapping, you probably think that it means using money from your own pocket. While that’s one way to bootstrap a business, there are other ways to do it that are still considered bootstrapping. The actual term means that you finance your company through unconventional methods. One may be the use of existing resources or renting out your home to make extra cash. Another way is to use earned revenue instead of borrowing money. A lot of companies make it successfully by traveling down the bootstrapping route. For example, Patagonia, SPANX and GoPro have all become household names, founded by entrepreneurs who funded their businesses as they grew.
- Pros: Without borrowing money, you won’t have to worry about paying it back or paying interest.
- Cons: Bootstrapping may not be timely enough. If you have to wait for sales or income from another hustle, then you may lose valuable time that you could have otherwise been spending on the business’ needs with outside funding.
2. Borrow Money – Formal: One of the most popular options that entrepreneurs use to get their company off the ground (and continue to use throughout its existence) is to borrow money from an institution or government. There are several options to choose from when you borrow money. A few common sources include:
a. Bank loans: You can apply to receive a business loan from a bank. If you don’t know where to begin because there are so many options, try use our Marketplace, which is designed to match you with the loan provider that best suits your current needs.
- Pros: You can receive loan amounts that may be larger than funding from another source.
- Cons: There are strings attached to loans, and it’s not always easy for new businesses to be approved for loans because they may lack good credit or business history.
b. Merchant cash advances: A merchant cash advance is a way to borrow a lump sum of money quickly. When you get a merchant cash advance, you promise to pay it back with a portion of credit card sales.
- Pros: The funding is fast. We mean, really fast. Uplyft Capital can get you business funding within 24 hours through an easy application. You also don’t need to have a good credit history or any collateral.
- Cons: MCAs aren’t meant to be a long-term solution.
c. Investors: There are different types of investors. Angel investors are individuals who lend money usually at the inception of a new business idea. They tend to give large sums. Venture capitalists invest in several new businesses on behalf of clients. This makes receiving venture capital a competitive scene.
- Pros: It’s a great way to get large amounts of funding and also potentially gain a mentor in the process.
- Cons: It’s costly! After all, it’s an investment so they need it to be worthwhile to give up their money. This means they’ll ask for some ownership (equity) in your business.
3. Borrow Money – Informal: If you don’t want strings attached when you borrow money, you may be in a position to take a loan from friends or family members. You can also consider crowdfunding platforms like Kickstarter. Even when you seek assistance from personal ties, it’s best to prepare a business plan and showcase how you will be able to pay back the money in a set timeframe.
- Pros: Since the funding isn’t regulated, there will be more flexibility. You may also feel more motivation to do well so that you can pay back the money more quickly because you care personally about the lender.
- Cons: At the same time, borrowing from someone with personal connections could lead to higher levels of stress or could damper your personal relationship.
Here’s To New Beginnings
Finding the funding source that makes sense for your new business adventure will require research. How you choose your funding method will affect the early days of your business, which lay the foundation for what is yet to come.
The upside is that you can start with one funding method and always change it up as the business grows. Your needs will change as you grow and scale, too. If you’re worried about being approved for a business loan, look to merchant cash advances. If you have family and friends with disposable income who are willing to lend some cash, you can avoid the competition of finding a venture capitalist.
Getting started is the first and most necessary step!
How to Apply for a Small Business Grant
The best kind of money is free money!
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For any business, a grant is a solid method for funding because you don’t have to give it back. The types of small business grants available are growing in number, which adds to the chances that you will be awarded.
Here’s everything you need to know about small business grants, including who is eligible, the options available and how you can apply.
What is a Small Business Grant?
A small business grant is money awarded to help fund small businesses and nonprofits on their path to success. Governments and private organizations offer small business grants. You can consider a grant to be a gift, because it doesn’t have to be paid back. Unlike a loan, a grant requires no collateral, fees or interest.
Although the money is free, a grant may come with terms attached. The grant-giver may speculate how you can use the funds. For example, a grant may be provided to hire more employees, so if you use the money to buy equipment instead, you’ll have to pay it back. You may also face legal ramifications.
Who is Eligible for a Small Business Grant?
Eligibility for grants depends on who’s giving them. For example, a government small business grant won’t be provided to cover operational expenses or pay back debt. Government grants are most attainable for nonprofits related to medical research, technology and education.
However, organizations provide small business grants for:
- Rural businesses
- Green businesses
- Women-owned businesses
- Minority-owned businesses
- Nonprofit organizations
Types of Small Business Grants
As alluded to, grants come from two main sources, namely the government or private organizations. Private organizations like charitable foundations may also offer grants.
Although it would be helpful to have, there isn’t a centralized database for all grants. Instead, you have to search for specific types of grants based on your needs. But, we’ve compiled a quick list of places to start.
- Small Business Innovation Research Program
Private Corporation Grants:
- FedEx Small Business Grant
- Patagonia Corporate Grant Program
- Eileen-Fisher Women Owned Business Grant
- First Nations Development Institute Grants
- Veteran Small Business Award
How to Apply for a Small Business Grant
Free money is the best funding method, but it doesn’t make it the easiest. Since you don’t have to pay back the grant, organizations do have to be highly selective in who they award the money to.
For starters, the application process tends to be lengthy (but, let’s face it – it has to be that way). To begin, it’s best to find a grant that specifically meets your needs. Then, you can follow these best practices to boost your chances of winning the money:
- Before you start the application process, double check the requirements. You have to be honest here. For example, the grant may be designed for women-owned businesses that offer a technological solution to protect the environment. If you’re a women-owned business but that’s not your market, then there’s really no point in going down that path. Instead, spend the energy and time to find the type of grant that is meant for your business.
- Diligently read instructions and fill out the application in its entirety. Also, don’t go above and beyond word counts.
- If you have any questions or doubts, be sure to get in touch with a grant officer. People are available to help answer your questions. It’s better to be informed than potentially ruin your chances.
- You can count on having to provide a business plan. This should include your company’s purpose, how the grant will help achieve success and the ways by which you will adhere to the grants stipulations.
- Like with a job interview, it’s best to follow up after submitting your application. By creating a relationship with the grant officer, you can keep an open flow of communication without being overwhelming.
Alternative Funding Methods
Small business grants are highly competitive. Whether they come from the government or organization, it requires that your business fits the requirements perfectly like a puzzle piece. When applying for small business grants, it’s also a good idea to have other funding methods in mind in case you aren’t awarded with the free money or need more.
For some, a merchant cash advance may be the right fit! A merchant cash advance offers you money upfront in exchange for a portion of future credit card sales. If you experience a slow month of business, then the money you pay back becomes a function of your sales, so it can be less stressful than having a fixed rate on a loan.
The Bottom Line
No one would refuse getting free money to help set their business up for success. For this reason, small business grants are highly competitive and not always the right fit for every small business. But, if you can find a small business grant that aligns with your needs, then it’s worthwhile to take the time to apply meticulously.
At the same time, you can check out merchant cash advance options. It’s just another useful low risk way to secure business funding quickly.
Best Financial Practices for SMBs
If starting a business was so easy, everyone would do it.
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Being a boss and business owner demands a lot of responsibility, time and, of course, capital. Small and mid-sized businesses often operate with less resources which means that following these best financial practices to maintain financial health can go a long way.
All business success begins with education and leads to applying knowledge in practice, making mistakes and learning from them. Let’s take a look at some of the best business practices to follow if you’re running a SMB.
Best Practices for SMBs
- Pay yourself: If you think that forgoing a salary or any form of compensation for your work to instead invest it in the business, then you’re missing a major fact. You are an essential piece of the business (especially in the early stages), so you should set aside some of the money to pay yourself for your time and work. But, you are not your business – that’s why you’ll want to separate business and personal finances (we’ll get back to this later). Paying yourself proves to be especially important in the case that your business doesn’t survive – you will need to have financial stability as an individual.
- Invest in growth: Now that you have some money set aside to pay yourself, you should also prioritize reinvesting profits into business growth opportunities. Investing in growth creates a domino effect. It shows customers that you care about your business long-term and it also signals to employees that you are invested in the health of the business.
- Spread out tax payments: That’s right – the only things certain in life are death and, you guessed it, taxes. Be prepared to pay your business taxes. If possible, it’s best to rely on an expert like an accountant or business financial advisor to help navigate these procedures. But, it could be the case that you don’t have the funds for a steady advisor. As such, be sure to set aside money for taxes as if it’s another operating expense.
- Monitor books: Keep a close eye on your financial documents. This is a tedious part of the job, but there are many software solutions on the market that can help automate most or all of this process. Bookkeeping will help you to not only be able to assess the financial health of your business, but it will help to avoid risk like fraud or theft.
- Plan ahead: You have a lot to manage in the present moment when it comes to finances, but as a business owner, it’s important to look ahead to the future. Being prepared for events down the line will help you better manage money today.
- Budget for marketing: This is vital. Most small business owners decide to forgo marketing costs because they seem like a big expense that’s upfront. However, without marketing, you will have a hard time to get your product or service in front of the people who end up being your customers. Not only is marketing essential for the survival of your business, but it also helps to boost stakeholders’ confidence in your business.
- Prioritize information security: The world is full of big data, and the amount of data grows everyday. Your customers’ and employees’ information is sensitive and deserves to be treated as such. Be sure to invest in software systems and third parties who can help to keep information secure.
Focus on These Financial Documents
When it comes to your business and money management, there are a lot of financial statements to keep track of. As a small or midsize business owner, prioritize the following documents:
- Cash flow: Cash enters and leaves businesses like water flows – swiftly and endlessly. Even if you’re running a profitable business, you must ensure that you have enough cash on hand at any given time (i.e. money in the bank). You can get cash from sales, loans, cash advances, asset sales, etc. Your cash flow statement shows you the inflow of revenue and outflow of expenses in a specific time period. Cash flow statements tend be generated monthly or quarterly.
- Balance sheet: Your balance sheet is one of the most important financial statements your business will have at any given point in its existence. A balance sheet serves as a snapshot of your business’ overall health because it reflects the assets, liabilities and equity you have. It’s used to calculate your business’ net worth. It needs to be maintained for accuracy because it becomes a regulated document for public companies.
- Income statement: An income statement is also known as a profit and loss statement. It shows your business’ revenues and expenses from the year (which are then used to calculate your net profit of loss). Income statement can help monitor your business growth over time.
- Revenue forecast: Revenue forecasts are a look into the future based on data from the past. Revenue forecasts help to predict how much money your business will bring in so you can assess what you can afford to do now and set budgets.
Separate Personal and Business Accounts
For tax purposes, the single most important action you can take when running a SMB is separating your business and personal finances. This involves creating a bank account for your business, as well as opening a business credit card.
When choosing a business bank account, be sure to consider: checking vs. savings accounts, monthly service fees, cash deposit limits, wiring limits, ATM access and mobile capabilities.
Need Help with Funding?
No matter how well you may care for the financial health of your business, you may need extra funding or quick access to capital. Uplyft Capital provides two services designed to help you access money fast. You can choose to take out a merchant cash advance with a program that fits your needs. Or, if you prefer to be matched with a loan provider, you can access our the Uplyft Marketplace that uses the power of automation to find a financial partner for you.
Final Words: Finance Tips
Running a small or mid-sized business relies on strong financial health. Begin by separating yourself from the business, in terms of finances. Then, follow the best practices mentioned above to keep you in healthy standing. The nature of business is ever changing, so if there comes a time where you require quick cash on hand, remember that Uplyft Capital is here to meet your needs!
Small Business Advice You Need to Hear
If you're reading this, you're doing the right thing.
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The time has come where you’ve decided to take one of your many brilliant ideas and run with it to create a business. There will be days where it feels like an uphill battle, and others, where everything will just click. To have more days where things click, consider taking heed of some or all of the following advice.
This list has been compiled from entrepreneurs in various industries and covers everything from managing finances to finding time for yourself as a business owner.
Let’s dive into the good stuff!
Best Small Business Tips for the Trade
- Separate personal and business accounts: No matter how small or large your business may get, you should start by separating your personal and business accounts. If you’ve opened a business entity like a LLC or S corp, then you probably have this on your list of next steps. However, some freelancers tend to stick to mixing their business and personal accounts from the get go. Down the line, when it comes to tax season and keeping track of accounts, it becomes clear why having two separate accounts proves to be helpful. Not only will you be able to have a clearer view of what your income and expenses are, but you’ll also be able to easily prepare documents for your accountant whenever needed.
- Use accounting software: It’s all too common for new businesses to focus on keeping low overhead costs. And, that’s a great strategy! But, your accounting software should not be overlooked. There are many free or low-fee options on the market that can automate your accounting processes and help you produce professional invoices.
- Pay taxes quarterly: When it comes time to file your taxes, you may run into paying fees for having not paid quarterly tax minimums on time. Your accountant can advise you on what these payments may be so that you can prepare to pay them on time.
- Earn while you grow: Before you quit your day job to start your own business, begin it as a side hustle. Most businesses fail within their first five years of operation, and this statistic isn’t meant to dissuade you from starting your business. Instead, it’s just to take heed of the fact that you’ll want to deal with details in the beginning and prove your minimum viable product. As you find and grow your market, you will be able to rely on the income from your part-time or full-time job until you’re making enough income from your passion project to make it your full-time job.
- Speak up: Have confidence to speak up about your business and idea to everyone and anyone willing to listen. The people you talk to can potentially become your future customers. And, even if that’s not what happens, they may provide you with valuable insight, ideas or connections that will help your business grow.
- Practice the 80/20 rule: The 80/20 rule is also known as the Pareto Principle. The gist is this: 80% of your outputs should derive from 20% of your inputs. You can apply this to how you spend your time and also your clientele. Applying this rule in practice helps you to achieve efficiency and limit waste (in terms or both tangible resources and your time). If you have a customer who brings only 20% of value (revenue) to your business but is taking up 80% of your time, then you are going to operate towards a loss overall. Keep this principle in mind when you allocate your time, budget and people to projects.
- Solve a problem: Good ideas are essentially limitless. However, not every good idea solves a problem or need. If you can focus your business toward solving a problem, then you can easily target your audience to those who need that problem solved. It’s not about reaching the masses from the get go – it’s about serving a niche market and watching that expand with a good quality product or service.
- Keep costs low: This one is pretty obvious for anyone running a business. The lower your costs, the higher your profit. But, when you’re getting started, how do you know what’s worth investing in or waiting on? If you can run your business from a home office without employees, then that’s the best way to get started. Hire people on a project basis when you need expertise in certain areas. Invest in marketing and growing your business naturally. When you have enough income, you can expand and scale the business to hire employees and move into an office space (or co-working space) if need be.
- Get funding: You’ll likely need capital to get going on your idea. Capital funding can come in various forms, from bank loans and bank credit cards to merchant cash advances. For a business idea that will likely bring in credit card sales in the near future, a merchant cash advance could be a smart option for funding. This method works by giving you cash upfront that will then be paid back from a portion of credit card sales each month. Unlike a loan, you won’t need so many requirements to apply for a merchant cash advance. Many new businesses are denied for loans because they don’t have enough income or high enough credit history. Merchant cash advances can help small businesses get up and running in no time.
- Ask for help: Don’t be afraid to ask for help. Let’s say that one again – don’t be afraid to ask for help. Starting a business can be stressful and challenging. But, if you remain persistent and have conviction, you can do it. Be open to asking people you know for help when you need it. Whether it’s a mentor, professional, friend or family member, there are people who want to see you succeed!
Keep Your Head in the Game
Regardless of where you are in your small business journey, these tips have been practiced by those who have made it in business. Always remember why you got started in the first place. If you can continue to apply your knowledge, skills and allocate funding wisely, then you will be able to build your business with each day!