Is going into small business talking small? The answer is yes and no, depending on how, what and where you are establishing the business. Some small businesses can really be capital-intensive so you have to put up a decent sum to get it up and going. You can invite friends to invest in the business. They might come in if the business idea is promising enough.Small business in the real physical world is not for guys with really “small” capital. You will need a space that will house your small business. However small that may be, it still costs you money in monthly or weekly rentals. And there are utilities like communications (letters and telephone, at the very least), electricity and water. That is why start-ups like to think small for their first ventures.
Even with a good business idea and capital investment counterpart from friends, miscalculated assumptions in the business plan can easily shoot the small business down. Professional help on business planning and during the initial stages of the operation can help and take the business afloat but it should start to make real profits within 3 years or under. Enough working capital should be handy for at least 2 production cycles so that sales in the first cycle can assuredly cover a third as your buffer cycle. A dynamic mode of management and operation is vital for the first year of operation as there are real “new” discoveries that could not be covered and known specifically in the business planning phase.Shifts in the industry environment are another thing to be vigilant about. In the business plan, these are considered as “ifs” in the list of assumptions but under the general category of the “yet unknown.” Allowances in cash-readiness and operational adjustment readiness cover this area but are harder to confront in actual operational mode than when it was tackled in business planning. Hard facts have real impacts.That is how it is in the real physical world of business. When you get wounded, it really hurts. It is not for the faint-hearted.
Small businesses on the web, however, are an entirely different thing. They have as much chances as large-capital operations. The key success factor in an online small business is the business idea. Web business technologies abound in the internet. It is just a matter of marrying the strengths of a few of these web technologies and the small but knowledgeable start-up can suddenly grow big. Examples of these businesses are social networking websites. They get to earn millions in advertisements alone.But beware of scammers on the web. They are also more deadly than in the real physical world. Don’t forget to always bring your common sense with you.
Money makes the world go round. When small to mid-sized businesses are lacking working capital, they get left behind. Credit can be hard to come by in the world of small business so what are the alternatives? An owner can add up his invoices that are still out for payment and watch the money trickle in over the next several months. What he needs is cash right now and those pieces of paper aren’t doing anything for him. But… they can. In a win-win opportunity for these small to mid-sized companies, accounts receivable factoring and alternative invoice financing option are the future.An online auction site offers a neutral ground to put businesses and investors in contact with each other. The transactions are convenient and completely secure and private. Business owners have 24 hour access and can watch live bidding on the invoices. With the criteria that the receivables seller enters and the criteria that the receivables buyer enters, accounts that meet both of their needs are pulled for the perusal of the buyer.
Sellers (small to mid-sized business) get access to working capital when it is needed and not when the invoice is paid by the account debtor. This allows Sellers to take advantage of unexpected opportunities or handle unexpected problems. Similar to accounts receivable factoring, invoice financing through this online marketplace gives the small business owner control over the future of the company instead of remaining a slave to outstanding invoices and monthly bank loan payments.This is not a loan process, but an opportunity for businesses to get quick access to cash when they need it by selling outstanding invoices for a predetermined discount fee. The Seller has a very hot commodity that the Buyer wants. In an uncertain stock market where housing and retail are suffering and the value of the dollar is not where it should be, hedge funds, investment firms and other financial entities are seeking innovative ways to diversify their portfolios and decrease their risk.Processes like accounts receivable factoring or the Seller-friendly invoice financing are opportunities for them to do just that. This makes invoice financing an attractive investment for the Buyer. Because of this, there is no shortage of Buyers who will be bidding on the invoices listed which means a competitive cost capital for the Seller.The Buyer has the freedom to choose what invoices to bid on, granted it meets their criteria. However, the Seller remains in control by setting the maximum fee and minimum advance amounts. Once the transaction is made, the advance is made instantly to the Seller. The online auction site manages the payments made between the Seller and Buyer. Once the payment is made on the invoice along with the amount to cover the fees, the transaction is complete. If there are any funds left, the Seller receives them. If the debtor defaults on the payment, the Seller is required to buy back the invoice.
So, invoice financing offers more benefits to the Seller than accounts receivable factoring, but it is beneficial to all involved. If the money will come in eventually, why not get it when it is needed. Accessing working capital through this process can be the difference between a successful small business and a missed opportunity.
If you fall into one of these three categories, this article is for you: 1) you own a sole proprietorship; 2) you are a partner in a partnership; or 3) you are the owner of a limited liability company being taxed like a sole proprietorship or a partnership.What do these three types of business owners have in common? They are all faced with the dreaded self-employment (SE) tax on the profits of their business.If you’re new to the world of small business taxes, here’s a quick review of self-employment tax. Sole proprietors and those taxed like sole proprietors (i.e. partnership partners and LLC owners who have not chosen to be taxed like a corporation) must pay 15.3% of their business profit in SE tax to the federal government. This consists of 12.4% social security tax and 2.9% Medicare tax. In effect, it is the self-employed person’s version of the employee/employer federal payroll tax of 15.3%.
But here’s where frustration begins to rear its ugly head: employees and employers each pay one-half of the 15.3%. The self-employed person must pay the entire 15.3%.So what’s a self-employed person to do? There’s one particularly effective strategy to legally reduce self-employment tax: choose to be taxed as an “S” corporation.Here’s how it works. In 2009, the self-employed person pays SE tax on the first $106,800 in profit. Let’s assume you make $60,000 profit this year (sales minus expenses). You must pay SE tax on the entire profit, so your SE tax will be $9,180 ($60,000 x .153).But if you choose to be taxed like an “S” corporation, you can legally reduce the SE tax by structuring your compensation as a combination of wages or salary (which you must do now that you are being taxed as a corporation) and a profit distribution payment. Assuming that you can pay yourself reasonable compensation of $35,000 salary, only that salary will be subject to the 15.3% SE tax (which will now be called “payroll tax” rather than SE tax). The remaining $25,000 in profit can still be paid to you whenever you like, but it will not be subject to payroll tax, because only wages/salary are subject to payroll tax in a corporation.End result: the payroll tax on $35,000 will be $5,355. Compare that to the $9,180 in SE tax and you legally reduce your taxes by $3,825.Two important caveats: First, note that it is only SE tax (or payroll tax) that is reduced. This strategy does not reduce income taxes, because regardless of the entity (self-employed or corporation), the entire $60,000 will be subject to income tax.
Second, now that you are paying yourself wages/salary as an employee of a corporation, the corporation must do all the paperwork that comes with payroll. You must issue yourself bona fide paychecks (which means that withholding calculations must be done). You must also file all the required federal, state and local payroll tax returns, and make all the required federal, state and local payroll tax payments. This can be quite a mountain of paperwork and you should probably outsource these payroll tasks. This will result in a new expense to hire an accountant or bookkeeper to do payroll, but most small business owners in this situation still come out way ahead.