The Savvy Business Woman
The Savvy Business Woman
The Savvy Business Woman
The Savvy Business Woman
Staying afloat in tough financial times
The financial savvy of business owners varies greatly. Some do a fabulous job of handling money, spending wisely and so forth. Some have savings set aside to get through tough times. Others just pay the bills when they come in (or not) and don't even have a basic business budget. Following are some basic tips to help your business stay afloat in tough financial times:
Budget - sometimes entrepreneurs focus so much on the many facets of running a small business, they overlook this very basic financial tool. If you have no clue where to start, look at your historical spending and break it down by category. (E.g., 32% rent, 17% supplies, 8% advertising, etc.) Use these percentages as a guideline in coming up with a budget (and at the same time look out for areas you might need to adjust). Then, stick to the budget!
Talk it Out! If your area has been hit with tough times, you aren't alone. So, rather than hiding the bills (I recently spoke with a small business owner who talked of unpaid bills being stashed in the rafters because the person responsible for handling them simply didn't pay), talk with your suppliers, vendors, whomever. Honestly explain your situation and ask for REASONABLE relief (say, changing terms from net15 to net30, taking 5% off the bill or whatever. (Important caveat - insolvency can mean default under some contracts and virtually everything you say could be used for "debt collection")
Tighten the Belt. Yes, the national coffee shop latte seems a necessity for some business owners, but do you really NEED to spend $60 a month for a daily mocha-java-special with whipped cream on top? Pick up a coffee pot at a yardsale and stick it in your breakroom & possibly add $800/year to add to your pocket. Same thing goes for eating out - I'll admit that a good gyro or fresh salad from the corner lunch shop tastes great, but you can really save money by "brown bagging" it! (I overheard a recent call-in from a gentleman who after tracking spending for one month was astonished to learn that he spent $500/month on eating out. $6000/year isn't chump change for many business owners).
Barter. Barter doesn't need to mean under-the-table seedy side deals. If your advertising firm needs new floors and the flooring installer needs some flyers and a radio spot done, it could be a win-win situation! Some sites like craigslist even have barter sections to help you find a good swap. Keep in mind that you will need to report the value of any services you received as income for tax purposes.
Re-evaluate your business. This one is tough, but some businesses have found that new strategies prompted by tough financial times actually improve their entire business.
Get it in writing!
It comes up with surprising regularity - long term business arrangements are agreed to with no writing whatsoever. The law allows this - a general partnership can be formed without any official filings or written agreements and no one forces an individual owner to put anything in writing - but it can cause major problems down the road.
Recent contacts with unwritten business arrangements emphasize this point.
Case # 1: In one new business venture, an entreprenuer shook his head at the idea of needing to spell out details that had to the point "Just been worked out" between two friends who recently started a business together. This illuminates a reason why otherwise intelligent businesspersons fail to put things in writing. There is sometimes fear that putting details down on paper will destroy trust. However, if partners trust each other, that relationship will not be destroyed by committing to common goals on paper! Two other businesses at the other end of the spectrum (winding down rather than starting up) illustrate why a written agreement is so important, even if no conflcit ever arises.
Case # 2: A sole owner of a LLC wanted to finally retire and gradually transfer the business to long-term employees. No operating agreement existed - probably perceived as unnecessary for a single-member LLC. However, such an agreement was essential to sharing the business and needed to be in place before there could be joint decision making, funding requests, transfer of ownership interest and the like. Thus what seemed unnecessary at the beginning of the business became essential at retirement. Fortunately, this owner could put things in order - not everyone has that chance.
Case # 3: Another family came to me after a loved one who co-owned a business died. No details had ever been put in writing, title didn't necessarily match presumed ownership and the business was run "by a handshake" In some respects this worked - the partnership flourished for years and no one cared how things were titled, what the business was worth - earnings were split and that was that. However, when it came time to settle the estate, figure out what assets belonged to the partnership, what should go to the surviving partner and what should be kept with the estate to go to the family - it created havoc. A simple partnership agreement could have easily avoided these problems. The default rules help somewhat, but they are no match for a written partnership agreement.
On a related note, a general partnership simply does not insulate from liability. The family above could easily have been stuck with serious partnership debts. Other forms of ownership - such as a corporation or LLC - protect personal assets. However, no matter which form you select to run your business, a small amount of effort to create written rules (partnership agreement, operating agreement or by-laws) will pay off in the long run.
Does foreclosure investing make sense?
Every cloud has its silver lining, right? While foreclosures can be devastating to homeowners facing the loss of their home, many small business owners and individuals have picked up on the idea that real estate in foreclosure can be picked up for a fraction of the market value.
With foreclosure rates rising, it may be a worthwhile investment for small business owners or entrepreneurs. However, nowhere is the old "caveat emptor" buyer beware principle more applicable than in foreclosure investing.
To start, make sure you know the position of the mortgage being foreclosed upon. What does it matter if it is a first mortgage or second being foreclosed? Potentially hundreds of thousands of dollars! A real estate attorney can run a quick title search to check on this. (Turn-around times vary by law firm or title company, my firm seeks to process within 24-72 hours of request in a foreclosure situation). Make sure you know the condition of the property. This can be a bit tricky since there is often no way to inspect or even see the interior, but you can drive by and know the neighborhood. Make sure you can cover the full price and already have financing lined up - unlike a standard real estate contract, there is no contingency for obtaining financing and if an investor can't muster the purchase price within so many days of ratification, they stand to lose their entire deposit.
There are several approaches to foreclosure investing, and vast numbers of books and articles on how to "get rich quick" in this area. However, most approaches boil down to one of two possibilities: 1) negotiate a deal with the property owner or 2) buy at the foreclosure auction.
Pitfalls exist with either approach - Maryland has enacted laws designed to help homeowners facing foreclosure from predatory "foreclosure consultants" and you should be scrupulous about adhering to the rules. It is one thing to pick up a great investment by jumping on a great opportunity, quite another to amass wealth by trampling on the rights of someone who is down-and-out. People face foreclosure for all types of reasons (and if you are merciless, you may someday find yourself in a hard place without mercy!) It is far better to treat the property owner with respect and dignity and negotiate an agreement that follows the law.
If you buy on the courthouse steps, you should be armed with plenty of research and know what you are getting into. In any case, I'd suggest lining up some or all of the following profesionals: 1) an attorney to look over the title and conduct the settlement, 2) a Realtor or appraiser to give an idea of the property value, 3) a lender (or the funds) to cover the investment and 4) a contractor to take care of needed repairs!
(As with all posts on this blog, the foregoing is not legal advice. If you wish to contact Attorney Cedulie Laumann about a particular situation, please don't disclose private, personal details in comments. You can reach the Office of Attorney Cedulie Laumann at 410-216-7000 or through the website elawmd.com)
How quickly can I start a business (incorporate or form a LLC) in Maryland?
Sometimes entrepreneurs find a deal that just can't wait. Perhaps it is a piece of property to purchase, or an existing business to acquire. Or maybe just an itch to start marketing under a particular business name. Whatever the reason, business owners sometimes require quick incorporation or LLC formation. The good news is that this can be done ASAP, although it triggers an additional governmental filing fee in the State of Maryland.
In Maryland, new entities (corporation or limited liability company) must file Articles with the State. The normal turn-around time is 6-8 weeks. However, for an additional fee, the State will process new filings on a faster "rush" basis. For some time, the State promised to process the initial paperwork in 24 hours, however, that time frame has stretched a bit and it realistically seems to take 2-6 days for processing of expedited fax requests. Still better than waiting two months, but prudence suggests that a new venture contact their attorney to get the ball rolling as quickly as possible.
As with many areas of life, you can get things done faster if you are willing to pay a bit more. (In my practice, I do not charge more in attorneys' fees for rush service, but fees are set by each individual business lawyer or law firm). Of course, it takes more than the initial Articles to run a business, and every company should make sure they have a complete Company Record Book with proper tax set-up and agreements governing the internal workings of the business before jumping into a major purchase.
Small business owners & record keeping - You CAN go paperless!
Many small businesses generate a lot of records ... bills, checks, estimates, receipts for business expenses, invoices, reports and on and on and on... This week I heard from a few small business owners who felt themselves drowning in a sea of paper clutter, but were scared to let go of anything lest the IRS might demand a paper copy of some ancient receipt. Several home based businesses actually claimed that their accountants forbid any electronic records and required all years to be kept in paper indefinitely. While it is prudent to occasionally keep a few critical originals, (say, the last few years tax returns, important signature-based contracts) everything else can be scanned, stored electronically & shredded, so long as a few simple rules are kept.
Small businesses may want to invest in a high-speed, ADF (automatic document feeder) scanner. (In my experience the all-in-ones and single-sheet feeders are far too slow and unreliable to use on a regular basis). A personal favorite is the Fujitsu Scan Snap - load a stack of papers onto the ADF, press a single button and zoom! it pulls a good 10-20 pages/minute and the included software stores in searchable pdfs. However, given the chance of pc's to "crash" or have accidental deletions, a backup of the files should be burned onto CD or other removable media. (keep the back-ups in a small fireproof, waterproof safe)
To sum it up, while the IRS does require certain basic record keeping requirements, small business owners are not forced to drown in paper clutter. There is a lot of misinformation, but the following DIRECT quote from IRS publication clarifies the position on scanned
records should clarify for those hesitant to let go of the paper:
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"Electronic Storage System
Records maintained in an electronic storage system are accepted for
recordkeeping purposes if the system complies with Revenue Procedure
97-22 in Cumulative Bulletin 1997-1.
An electronic storage system is one that either images hardcopy
(paper) books and records or transfers computerized books and records
to an electronic storage media, such as an optical disk."
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Check out the IRS rules yourself at www.irs.gov, but please don't let the assumption that you must have paper of everything scare you into
keeping needless paper clutter! In sum, a business owner must keep complete records, but legible digital images are perfectly acceptable. (See
earlier post about back-up electronic records) Per procedure 97-22, you must make sure the scanned documents are legible and indexed, but
you can shred the originals and go paperless! So, go ahead and keep all your records- just keep them on your harddrive & duplicate copies
on a few disks stored in a safe. Get rid of those boxes and piles allover the place!!
Feel free to check out IRS a link to the detailed requirements at www.recapinc.com/irs_97-22.htm and the IRS publication 583 at www.irs.gov
Can I hire "independent contractors" or do they need to be employees?
With all the start-up costs facing a new business owner, paying for help looms large. Wages involve a host of other related cost, unemployment insurance, that "FICA" thing, withholding taxes and the like. A number of small business owners inquire about "independent contractors." It seems an easy way to avoid the whole mess involved with hiring employees, right?
The law defines "indepdent contractors" not by the label the small business owner puts on them, but on HOW they work. It is a fabulous idea to hire independent contractors when it makes sense - for instance, you may want to hire a bookkeeper, office cleaner or courier without bringing them on-board as an employee. However, you do not want to call your 9-5 secretary or your uniformed landscaping assistant an "independent contractor" if that is not what she is...
In the words of the IRS "If you have the right to control or direct not only what is to be done but also how it is to be done then your workers are most likely employees. If you can direct or control only the result of the work done, and not the means and methods of accomplishing the result, then your workers are probably independent contractors."
Key areas are training, instructions, benefits & reimbursement for expenses - the more a worker receives in any of these categories, the more likely they are an employee. The less they receive, the less they look like an employee.
For example, say you want someone to help deliver local packages for your business. If you tell your help when to show up, when to leave, ask them to wear a uniform or name badge, have a delivery order and certain procedures they need to follow, offer medical insuranc and pay for the gas, oil changes & so forth, you almost certainly will not be able to avoid the "employee" designation. On the other hand, if you hire a delivery person to pick up & deliver all your packages in their own vehicle, in whatever order they chose, with the only instruction that they are delivered the same day & compensate per delivery you likely have an independent contractor.
Still confused? Your help can always ask the IRS to make the call by filing an SS-8 form with the IRS.
How much do I have to pay my employees? What about this new minimum wage in MD?
So, you are thinking of hiring employees and wondering what you need to pay them? Recently, someone interested in moving to Maryland expressed excitement about the great minimum wage. At city-data, a poster wrote "I just had a question about the minimum wage in MD. I've read on a few other sites that the minimum wage in parts of MD is $11.30/hour...and that everywhere else it's $8.50. Just curious if this was actually true."
No, it is not true. While dissapointing to many workers, this $11.30 / hr. minimum wage applies ONLY to government contracts. It further does not apply to every government contract, so if your business plans to do government contract work, check the rules closely.
I encourage every employer to pay a "working wage" - while the small business owner may shell out a little more initially, you usually will have a much better time retaining quality employees and spend less on turnover and training. That being said, currently in Maryland the minimum wage is $6.15 / hr. We fare better than some states who only match the federal minimum wage of $5.15 / hr., although it is still not enough to live off of. However, it does enable employers to hire teenagers or other unexperienced workers without breaking the bank.
Running solo ... How does a small business owner take a vacation?
Summer vacation time seems to produce a crunch on sole practitioners (and individually owned corps & LLC's). Whether you have vacation plans or schedule juggle with kids out of school, chances are that at least a few days, you will nto be able to be available for your clients. But this is an impossibility when you run your own one-woman (or one-man) show, isn't it? I've never met a small business owner who shrugs off lost business. How can you afford to step out? My own worst-case vacation story is at the end.
How can you make the best of your plans? I've tried most of these, with varying degrees of success:
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Driving Business to Maryland Women / Minority Owned Businesses
For women-owned or ethnic minority owned businesses who have not yet competed for governmental contracts - this seems a good time to consider it. Since 2001, Maryland's MBE Participation goal is 25%, with sub-goals of 10% for Women owned firms and 7% for African American owned firms. With current rates much under those goals, there certainly appears to be some room for businesswomen to compete.
Don't know where to begin? To compete under the MBE program for government contracts, your business must first be "Certified." How do you get certified as a minority business...<< MORE >>
to share home & bed .. and a business? co-owning a business with your spouse
A few things converged to get me musing about husband-wife ownership teams. Besides my own (brief) experience with a husband & wife partnership, the Baltimore Sun recently had an article about a Maryland couple and the effects of their divorce on the lucrative business they built together; I am working with a company successfully run by a married couple and recent client inquires involved questions about how a couple could best structure a joint business.
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