In the restaurant industry, business owners are constantly looking for areas where they can potentially cut overhead costs or increase their turnover rate even slightly to maximize their profits. But reaching that goal is often much easier said than done. Fortunately for these owners, technological advances in the industry might just have a practical solution. One of the more recent trends in the point of sale industry has been to offer self-ordering kiosks. What started as a novel or niche idea just a few years ago has now spread to a large number of the top restaurant POS companies, making it a feature that you may not even realize you can implement affordably.
There are different types of self-ordering kiosks as well. Some allow customers to walk through the entire purchasing experience on their own, punching in their order, walking through automated modifiers, and eventually paying. If you don’t want to lose the personal touch from your employees entirely, you can also add on-table kiosks that can simply ease the burden from a server by automating the payment process or allowing customers to browse a digital menu.
X Must-Have Features To Look For In A Good Kiosk POS
Even if your POS system does offer kiosk hardware and software, it doesn’t necessarily mean it will be a good fit for your business. You’ll want to make sure that it has all of the functionality you’re looking for to make it worth actually implementing. Here’s a few features that POS systems can offer in kiosk mode that you may want to check out.
Designing an eye-popping menu that highlights your unique or profitable items can be a difficult task. Having a kiosk can show customers appealing photos of each item and allow individuals to click on various menu options to either view a description or ingredients. This can lead to an increase in impulse sales and free up employees. It can also save you money on printing and laminating when physical menus get destroyed or when the menu simply changes. With most systems, menus can be updated quickly with a few button pushes.
Along that same vein, when a customer is filling out his or her order, the system can quickly and efficiently walk them through various options and areas for up-selling. These prompts and modifiers can be easily added in most POS software and can lead to a decrease in ordering errors and a potential uptick in sales.
How many times have you been making a purchase and, as you were ready to pay, a representative asks you if you want to enter your phone number or email address to receive promotions? By this point, most customers are usually ready to be done with their transaction and don’t feel like spelling out their information. An automated system can also make this process easier, letting customers enter their own information that is then automatically stored for future marketing. In some instances, you can also incentivize customers to sign up for loyalty by offering an immediate or future discount on a purchase.
Variety Of Payment Options
This is one of the most important aspects to consider. Today’s customers will look to pay in a variety of ways and a lack of options at your kiosk could turn them away. At a minimum, you will want a system that can process magstrip and EMV chip cards. However, many systems will also accept other methods like Google Wallet or Apple Pay. If your business also utilizes gift cards, you’ll want to make sure that your kiosks are set up to accept those as well.
This is somewhat more of a niche item but, for convenience stores or quick-service cafes, it can be a life-saver. Having a scanner that hooks up to your kiosk directly can allow customers to purchase self-serve or ready-made items by ringing them up themselves and paying for them in a matter of seconds.
Kitchen Display System Support
If you’re operating a larger full-service restaurant with a busy kitchen, having your kiosk directly sync to your KDS is a necessity. This will allow your cooks to see exactly when the orders were placed and they can view any special instructions or modifications that customers put in themselves. It also eliminates a potentially time-consuming step for your employees who would otherwise have to take down the order and then go to a separate station to send it to the kitchen.
To increase the the efficiency of your restaurant, kiosks can alert customers that their orders are ready either on an individual screen or by sending a text or email directly to a mobile device if wait times are longer. This is also a useful way to gather customer information for future marketing campaigns.
It’s a simple feature but one that can make a huge impact to your business’s bottom line. Simply being given a prompt to add gratuity is proven to increase profits across the board and is a simple, non-intrusive way to, we’ll say gently nudge, customers to reward your employees for their exemplary service.
Surprising Ways Your Restaurant Can Benefit From A Self-Ordering Kiosk Set-Up
Reduce Labor Costs
Obviously kiosks, either at the table or standing alone, can do a lot of the work that would otherwise fall to employees. Not only can this reduce the sheer number of employees you might need, it can also improve the efficiency of your employees on hand by taking some of the busy work off their plate. Kiosks can also mitigate against issues like unexpected rushes or having an employee who calls in sick at the last minute.
Increase Check Sizes
It’s easy to program in modifiers and prompts within a kiosk that will walk customers through up-sells and add-ons. This can be done in an intuitive fashion and in a way that doesn’t come across as pushy and customers feel as if they have more onus in their decisions.
Increase Overall Efficiency
While the addition of kiosks may seem impersonal, it can dramatically streamline your operations. With customers given the ability to send their orders at their own time, it eliminates those common occurrences where a server has to come back because a table hasn’t made its decision yet or stalls at one particular group of customers who take a long time to complete an order. Servers also don’t need to then make a separate trip to another station to fire an order to the kitchen. Instead, your employees can focus on making sure customers have everything they need.
Increase Order Accuracy
Along these same lines, having customers inputting their orders directly obviously eliminates the potential for server errors and will increase the likelihood that food comes out exactly to a customer’s specifications. This makes for an overall happier experience for customers who are then more likely to leave a hefty tip.
Disadvantages & Concerns When Using Restaurant Kiosks
Many restaurants pride themselves on their customer service and hands-on approach to their customers. Cutting back on the amount of face-time your hand-picked employees get with these customers might be seen as damaging to a restaurant’s brand.
If you end up with a kiosk system that isn’t extremely intuitive or has an interface that customers struggle with even slightly, it could defeat the kiosk’s purpose entirely. Having a server or other employee that is having to routinely walk customers through the ordering process can instantly eliminate any cost-saving benefits the kiosk could provide.
While the world in general seems to be trending toward automation more and more, there is still a large part of the populace that might be turned off by using kiosks to order as opposed to speaking to a human employee. A recent poll from Upserve found that 78% of customers said they would be less likely to frequent a restaurant that utilized self-serve kiosks. No doubt this current trend will take some getting used to for some customers.
While we’ve already discussed how kiosks may help your restaurant cut down on labor costs in the long term, you’ll likely need to do some math up front to determine if the investment is going to be worth it. In short, kiosks aren’t exactly cheap and, if not utilized correctly, they could end up being more trouble than they’re worth.
The 5 Best Kiosk POS Systems For Restaurants & How To Afford Them
Now let’s get to our bread and butter… telling you which point of sale systems might be the bet for you if you’re in the market for self-serving kiosks. The following systems are all among our favorites at Merchant Maverick and excel when it comes to providing kiosk functionality.
TouchBistro is a hybrid system best-suited for small to mid-sized restaurants and other food-service businesses. In many ways, TouchBistro has always been on the cutting edge of POS technology with strong mobile ordering functionality and a sleek designed catered specifically to make the lives of servers easy. It also was early on the scene with an automated kiosk system.
TouchBistro’s system comes with customizable branding and an easy-to-use interface that can feature pictures and descriptions of your restaurant’s products. The kiosk supports all types of payments, including Apple Pay and Android Pay and syncs with TouchBistro’s Kitchen Display System as well for restaurants. As you would guess, the kiosk also walks customers through add-ons and combos and lays out prices and options in an easily digestible format.
Toast is an excellent POS company that is Android based and prides itself on usability and its outstanding customer service. The all-in-one system is ideal for pretty much any type of food-service establishment and has one of the better tableside ordering systems in the industry. The system is feature-rich but does charge extra for some of its services like loyalty and online ordering.
Toast’s kiosk system feature’s Toast’s trademark simple interface and offers convenient order notifications directly to phone or email, eliminating the need for buzzers. Like TouchBistro, you can also customize your screen, displaying your menu items. Toast comes with a convenient scanner integration as well for establishments with quick scan and go items and Toast kiosk also syncs directly to a KDS.
Upserve is a cloud-based system that can handle any-sized food service establishment. Upserve features extensive menu building. It has a robust feature set, including strong inventory management and reporting and a simple, customizable interface. It also has strong tableside ordering functionality and a convenient Upserve Live function that allows managers to check on sales in real time from anywhere on an iPhone.
Upserve makes Bite Kiosk available and come with a unique algorithm that takes user data to help predict future customer behavior, allowing it to make suggestions and up-sell items automatically. It integrates seamlessly with Upserve, allowing for easy menu and pricing updates. It also syncs with Upserve’s loyalty program and, when purchasing, there are discounts for orders of 10 or more units.
Revel is an extremely robust hybrid system that can fit with nearly any sized restaurant or retail establishment. The iOS based system has an extremely generous back end with inventory that can handle more than 500,000 SKUs and a wide variety of reports. It offers a wide variety of ordering options and has its own delivery management system plus a impressive array of integrations.
Revel also is available with an intuitive kiosk mode. You can easily sync your loyalty program to the kiosk, allowing customers to easily look up past orders or simply make a repeat order. It also comes with the ability to take gift cards as payment. Orders are directly sent to Revel’s KDS. The interface also make it easy to browse menu items or retail inventory.
Lightspeed Restaurant is a cloud-based system designed specifically for small to mid-sized establishments but with the capacity to handle larger businesses as well. Lightspeed has a slick interface and syncs with things like mobile ordering and ecommerce plus an excellent employee management system. It also offers a convenient pricing structure, making sure you aren’t charged for features you aren’t using.
Lightspeed makes it easy to switch on its kiosk mode and conveniently walks customers through the ordering process with potential ares for up-selling and modifiers. The menu automatically syncs up with kiosk mode, making changes simple. You can also create your own payment methods, allowing customers to either pay up front or wait until after their meal.
How Small Businesses Can Afford to Invest In Kiosk POS Systems
Whether you’re interested in large, standalone kiosks or individual table kiosks, the cost can add up quickly. There are a few payment options and most companies will allow you to lease their hardware which can bring down the initial price. However, the long-term cost of leasing these systems is almost never a good idea. Buying the hardware outright ultimately saves you money but that still doesn’t solve the problem of needing cash initially when things might be tight. Fortunately, you have some options.
As a small business owner, you have some flexibility when it comes to receiving a loan. You can apply for an alternative small business loan, which can provide you with cash quickly and can be a good option if you have less than stellar credit or aren’t bringing in much money. These loans can get you the cash you need but can also have somewhat high interest rates.
There are other small business loans that you can look into as well each with slightly different terms. Loans for fledgling restaurateurs are sometimes difficult to land as the industry is viewed as risky. However, if you have a well-designed business plan, the right documents in order, and a good sense of your finances, you can dramatically increase your chances at approval. And, if you’ve run the numbers correctly and can bring down your costs by implementing kiosks, you may be able to pay off the loan quickly.
Are You Ready To Make The Jump To A Restaurant Kiosk POS System?
So hopefully you have a good sense of what kiosk systems are and what potential benefits they could provide for your business. If used properly, self-ordering systems can dramatically bring down your labor costs, increase efficiency and keep your customers happy by speeding up orders and cutting down on errors. It’s also a trend that may become the norm in the restaurant industry sooner than later.
However, that doesn’t mean that there aren’t inherent risks in making that switch. Upfront costs need to be a heavy consideration along with your customer base and your restaurant’s brand. If you rely heavily on your servers for their unique brand of customer service or have a clientele that may be wary of a more automated ordering process, it may not be worth the risk.
As a final thought, keep in mind that, if don’t immediately have the cash on hand to purchase a handful of self-ordering kiosks, you have options there as well with numerous small business loans that may be at your disposal. As with anything, do your research, crunch your numbers, and don’t hesitate to ask questions when making this important decision.
The post Why You Should Consider A Self-Ordering Kiosk For Your Restaurant (Plus The 5 Best Kiosk POS Systems & How You Can Afford Them) appeared first on Merchant Maverick.
So, youâre all set to launch your new business and make your fortune (well, hopefully). You realize that it would be nice if your customers could pay you using their credit and debit cards. Okay, âniceâ isnât nearly a strong enough word to describe how desirable this option is. In todayâs increasingly cashless society, itâs flat-out essential for most businesses to be able to accept credit cards. Without that ability, retail companies will lose out on sales, and eCommerce businesses will have a hard time making any sales at all.
You realize that youâre going to need a merchant account to process your credit and debit card transactions. But where do you find one? Every provider you talk to wants a ton of information about your business, tells you that they have the lowest rates (without mentioning what they are), and tries to pressure you into signing a lengthy contract before youâve even had a chance to read it. Then you hear about Square (see our review). No lengthy contracts. No endless forms to fill out. No monthly fees. Rates that are published right on their website. What kind of black magic is this? It all seems too good to be true.
Square â and other companies like it â are what are known as third-party processors. Rather than giving you your own merchant account, they oversee a giant merchant account thatâs shared by all their users. In this article, weâll explain how third-party processors work and how they differ from traditional merchant account providers. Weâll also explain the advantages and disadvantages of using a third-party processor rather than signing up for a full-service merchant account. Finally, weâll give you some examples of popular third-party processors that are helping businesses just like yours every day.
How Third-Party Payment Processing Works
First, letâs discuss nomenclature for a moment. The credit card processing industry is notorious for using different, non-standardized terminology to describe the various entities youâll encounter when you set up a merchant account for your business. While there often isnât a single, âcorrectâ term that must be used, youâll find certain terms are more commonly used than others.
The most broadly-defined term you need to know is merchant services provider. This is any business entity that can help you process credit or debit card transactions â regardless of how they do it. Breaking this down a little more, there are two types of merchant services providers:
Merchant Account Providers (MAPs):Â These companies will set you up with a traditional, full-service merchant account. Your account will include a unique merchant identification number that identifies your business to the payment processing networks. There are dozens â if not hundreds â of merchant account providers on the market, many of whom are resellers for a small group of very large direct processors. Examples include Payment Depot and Fattmerchant.
Read our Review
Payment Service Providers (PSPs):Â These companies provide you with the ability to accept credit and debit card payments, but donât offer a true merchant account with a unique merchant identification number. Instead, your account will be aggregated with that of other businesses using their service. Although there are relatively few PSPs in the industry, theyâve garnered a large share of the processing market in recent years by offering a low-cost solution to small business owners. Examples include Square, PayPal, and Stripe Payments.
Read our Review
While the term merchant account provider is very commonly used, things get a little fuzzy when it comes to payment service providers (PSPs). Although both Visa and Mastercard officially use the term payment service provider, youâll also commonly hear them called third-party processors, aggregators, and even payment facilitators. You just need to understand that all these terms refer to the same thing: a company that can allow you to process credit and debit card transactions without the need for a full-service merchant account. For a more in-depth look at payment service providers and how they operate, check out our article, What Is A Payment Service Provider?.
Third-Party Processors VS Merchant Accounts
Before you decide that a third-party processor is a good choice for your business, you need to understand how they differ from traditional merchant account providers. Hereâs a rundown of the main differences youâll encounter between these two types of business entities:
Simplified Underwriting: Traditional merchant account providers need to collect an extensive amount of information about your business before they can approve you for an account. This process can take several days â or even weeks. Third-party processors already have an aggregated merchant account that you can be added to, so they donât need nearly as much information upfront. They can usually approve you in fewer than 24 hours, and in many cases, the application process can be completed entirely online. For this reason, third-party processors are often a great choice for new businesses that donât have an established processing history yet.
Account Stability:Â The downside to quick and easy approval is that itâs just as easy for your account to be shut down. Square, in particular, has a bad reputation when it comes to account stability. Account holds, freezes, and terminations can happen unexpectedly for a number of reasons. Perhaps the most common cause is when a business attempts to process a single transaction thatâs much larger than what theyâve averaged previously. Similarly, Square will shut you down quickly if they determine that youâre a high-risk merchant.
No Long-Term Contracts: While your relationship with your processor will always be governed by a contract of some type, Square and other third-party processors don’t require you to keep your account open for a specified length of time. Merchant account providers, in contrast, frequently require you to accept a long-term contract (typically for three years) with an automatic renewal clause that extends your contract for one-year periods and an early termination fee (ETF) that youâll have to pay if you break your contract by closing your account early. While these provisions are more or less the industry standard, theyâre very unpopular with merchants. As a result, there is a growing number of merchant account providers who have ditched the long-term contracts and allow you to maintain your account on a month-to-month basis.
Pay-As-You-Go Billing:Â Unlike merchant account providers, who typically charge a number of monthly and annual fees in addition to your processing charges, third-party providers usually only charge you for the cost of processing your transactions. You usually wonât have to pay a monthly account fee, an annual fee, PCI compliance fees, or gateway fees. The tradeoff is that your processing rates will usually be significantly higher overall than what youâd pay under an interchange-plus pricing plan offered by a traditional merchant account provider.
Simplified Processing Rates: Most third-party processors offer simplified,Â flat-rate pricing for processing your transactions. Everyone pays the same rates, and theyâre published right on the providerâs website. This makes it much easier to know in advance what your overall costs will be so that you wonât get hit with any sudden surprises on your monthly billing statement. However, you should be aware that flat-rate pricing rates are notably higher than most interchange-plus rates, particularly for PIN debit transactions. At higher monthly processing volumes, this can actually make using a third-party processor more expensive than a traditional merchant account.
Customer Service Options:Â Third-party processors arenât known for offering a full range of ways to contact customer service. Instead, youâll often find yourself rummaging through an FAQ on their website or trying to contact them via email. This situation is gradually getting better, with some third-party processors now offering telephone-based customer support where you can talk to an actual human being.
As weâve noted previously, both third-party processors (or payment service providers) and traditional merchant account providers fall under the term âmerchant services providers,â as theyâre both able to process your transactions and deliver the funds from those transactions to you. However, itâs essential to consider the differences between these two types of entities and to understand how those differences could affect your particular business.
Can I Really Accept Credit Card Payments Without A Merchant Account?
The upshot of the above discussion is that, yes, you can take credit and debit cards without having to sign up for a full-service merchant account. Third-party processors such as Square or PayPal give you the ability to process these types of transactions without the expense and paperwork of setting up a merchant account. For a new business thatâs just getting off the ground, this can be a great option. Youâll save money on fees, and youâll be able to start taking credit card payments much quicker than if you had to go through the full underwriting process that getting a merchant account requires.
However â and we canât emphasize this point enough â third-party processors are not the best choice for every business. Both third-party processors and full-service merchant accounts have their good and bad points, and you need to understand them and determine how they affect your business before deciding on which type of payment processor to use. Below, weâll discuss the advantages and disadvantages of third-party processors, and how you can evaluate which kind of processor is right for your business.
Advantages of Third-Party Payment Processing
Hereâs a look at the benefits of using a third-party processor for your business:
Quick Setup:Â Square and other third-party processors allow you to sign up for an account online, and youâll usually be approved in little or no time. Just download the Square app and log in, and you can start accepting cards instantly. (Note that youâll need to wait for your card reader to arrive in the mail before you can accept card-present transactions.) This feature is in marked contrast to the underwriting procedure that a merchant account requires, which can take days or even weeks to complete. The flip side is that your account wonât be as stable as a true merchant account, and youâll have to be very careful to avoid any account holds, freezes, or terminations.
Technology-Driven Platforms: In our experience, there is a fundamental cultural rift between third-party processors and traditional merchant account providers. Third-party processors tend to be established and run by people with computer science degrees and deep tech backgrounds. Merchant account providers, however, are usually run by bankers with business degrees who arenât really experts in modern computer technology. While they offer most of the same software products (such as payment gateways, virtual terminals, etc.) as third-party processors, they often rely on outside contractors to develop them, as they donât have the same level of in-house expertise that youâd find with a third-party processor. This rift is slowly closing, but for now, youâll still find that third-party processors offer products that are more automated, more integrated into cloud-based platforms, and more feature-rich than what most merchant account providers can give you.
Low (Or No) Initial Setup Costs:Â If you just need a payment gateway or a magstripe-only card reader for your smartphone, account setup with Square is essentially free. Although we highly encourage you to part with a few dollars and purchase the companyâs EMV card reader, this cost is still a fraction of what youâll pay to get started with a full-service merchant account. Application fees, account setup fees, and paying for a credit card terminal can all add up to hundreds of dollars, depending on the provider. Fortunately, competition from third-party processors is forcing merchant account providers to lower (or even eliminate) many of the costs associated with establishing a merchant account.
No Monthly Fees:Â Perhaps the most attractive feature of third-party processors to small business owners is that they (usually) donât charge any monthly fees to maintain your account. Monthly account fees, statement fees, PCI compliance fees, and annual fees are all eliminated. You also wonât have a monthly minimum hanging over your head every month. This makes third-party processors particularly affordable to very small businesses that donât have a high monthly processing volume. Also, seasonal companies wonât have to worry about being charged during the months when theyâre not operating at all.
Predictable Flat-Rate Pricing:Â Itâs nice to know in advance what it will cost you to process a transaction, and third-party processors make this easy to do with their simple flat-rate pricing plans. With this type of pricing, you can also more accurately estimate your monthly processing costs, meaning that you shouldnât have any unpleasant surprises waiting for you on your monthly processing statement.
No Long-Term Contracts:Â Third-party processors only charge you for actually using your account, and you wonât be locked into a lengthy contract. You also wonât have to worry about getting hit with an early termination fee if you close your account. Note that an increasing number of traditional merchant account providers are now beginning to offer this feature as well, so you donât necessarily have to sign up with a third-party processor to avoid getting locked into a long-term contract anymore.
Free Hardware: When Square first launched in 2009, one of its most attractive features was that each account came with a free magstripe card reader that plugged into your smartphone or tablet. Together with the Square app (also free), you could log in and start accepting credit card payments right away. In contrast, most merchant account providers at the time would either sell you a credit card terminal for a few hundred dollars or sign you up for an expensive terminal lease that would ultimately cost you even more. While Squareâs magstripe reader is still free, itâs also obsolete. We highly recommend purchasing the companyâs EMV-capable reader, which costs far less than a standalone terminal.
Disadvantages of Third-Party Payment Processing
Okay, if third-party processors are so great, why isnât everyone using them? Why are full-service merchant account providers still in business? The answer, of course, is that third-party processors also come with some significant limitations that make them a poor choice for a lot of businesses. Before you rush out to sign up for your âfreeâ third-party account, consider some of the following disadvantages:
Account Stability Issues:Â Not having to go through the complete underwriting process makes it quicker and easier to get up and running, but it also means that your account isnât as secure as an individual merchant account. While having a full-service merchant account doesnât provide complete protection from account holds, freezes, and terminations, it does make them much less likely. Consider the potential impact of an account freeze on your business before you sign up with a third-party processor. In our experience, these unfortunate incidents usually occur because either (1) the merchant attempted to process a much larger transaction than their average ticket size, or (2) the processor discovered that the merchant was selling something thatâs expressly prohibited by their user agreement. This includes most high-risk businesses, including CBD merchants.
No Specified Processing Limits:Â With a full-service merchant account provider, youâll be required to stay within maximum monthly processing limits and maximum transaction sizes. Third-party processors, unfortunately, tend not to specify what these limits are in advance. Youâll only find out that youâve gone over a limit when you actually exceed it and suddenly have your account shut down. While the majority of merchants using third-party processors never experience this problem, itâs still important to consider it before you sign up.
Limited Acceptance For Specialized Cards:Â Third-party processors generally donât allow you to accept specialized cards such as SNAP/EBT cards or government-issued credit cards. Debit cards are generally accepted, but youâll pay much higher processing rates than you would under an interchange-plus pricing plan offered by a traditional merchant account provider.
Limited Hardware/Software Options:Â With so many credit card terminals, POS systems, payment gateways, and online shopping carts on the market, traditional merchant account providers go to great lengths to ensure that their accounts are compatible with as many of these products as possible. With a third-party processor, youâll usually be limited to using just the hardware and software products that your processor offers â and these are often pretty generic. This might not be much of an issue for a small business owner, but as your business grows, youâll eventually want to add many of the bells and whistles that are available with a full-service merchant account provider.
Expensive Flat-Rate Pricing:Â Wait a minute. Didnât we just say that third-party processors were less costly than full-service merchant accounts? Well, thatâs only true in some circumstances. For a very small business owner, youâll usually save money with a third-party processor because you wonât have to pay all the extra monthly and annual fees that come with a full-service merchant account. However, flat-rate pricing is significantly more expensive than interchange-plus pricing, at least on a per-transaction basis. Debit card transactions, in particular, are dirt cheap under interchange-plus pricing. With a flat-rate pricing plan, however, youâll pay the same high rates for debit cards as you will for credit cards. Youâll want to carefully analyze your overall costs under each type of pricing before deciding which option is best for your business.
Limited Customer Service Options: Square â like many other third-party processors â is notorious for offering limited options for customer support. For a long time, Square didnât even have a phone number that you could call for help! Customer support was often limited to email, which was slow and required a lot of back-and-forth messages to resolve an issue. Merchant account providers, however, usually offer 24/7 telephone support. Unfortunately, the quality of that support can vary widely from one provider to another.
Is Third-Party Payment Processing Right For Me?
By now, it should be quite clear that the choice between a third-party processor and a traditional merchant account will depend on the nature and size of your business. There isnât a single provider on the market that offers a true âone size fits allâ service thatâs suitable for every business. Third-party processors are usually a great choice for very small or seasonal businesses that donât process a lot of credit card transactions, donât have a high monthly processing volume, and donât need any of the fancier bells and whistles that are available with a merchant account.
Ultimately, your overall processing costs will determine whether you should sign up with a third-party processor or go all-in with your own merchant account. Whichever option meets your needs for the lowest cost will, naturally, be the best choice. Unfortunately, it isnât always easy to accurately determine which option will save you the most money. As a very general rule, we usually recommend third-party processors to small businesses and merchants who are just starting out. In contrast, larger, more established businesses will usually save money with a traditional merchant account.
Typically, the single most important factor in making this determination is your monthly processing volume. Unfortunately, there are so many variables involved that we canât provide a specific amount where it makes sense to upgrade to a full-service merchant account. Weâve seen figures from vendors ranging from as low as $1,500 per month to as high as $10,000 per month. The important thing to understand is that this number is highly variable and unique to your business. Youâll have to compare quotes from several merchant account providers and compare them against what youâre currently paying to figure out whoâs offering the best deal. To make this process as simple and accurate as possible, we recommend our Merchant Account Cost Analysis Workbook, which includes spreadsheets to help you automatically compare rate quotes.
Lastly, choosing between a third-party processor and a merchant account isnât entirely a matter of dollars and cents. Sometimes, itâs worth paying a little extra for things like better customer support or more fully featured software. While costs are always going to be important, we recommend that you consider the overall value you receive in choosing a provider. Good luck!
The post The Truth About Third-Party Payment Processing appeared first on Merchant Maverick.
You have an idea for a new product that you can’t wait to introduce to the market. Or maybe you’re ready to take your freelancing career to a new level by launching your own business. Maybe your situation is a little different, and you’re ready to trade in your 9-to-5 to become your own boss.
Whether you have the next big invention or you’re an aspiring entrepreneur, starting your own business always requires one important detail: a business plan. A business plan works as a blueprint or roadmap for the success of your business.
Does hearing the words “business plan” conjure images of a huge stack of papers filled with graphs, charts, and every single detail of your business? Don’t break out into a sweat just yet. There’s good news: your business plan can be just one page. Yes, you read that correctly.
While there are certainly more complex business plans that you may need to explore at a later time (or perhaps not at all, depending on your business structure), many businesses can get started with a single-page business plan. In this post, we’re going to take a look at why you might pursue a one-page business plan. We’ll break down what you should include in your plan, discuss situations where you may need a more detailed plan, and even share a template that can help you get started.
If creating a business plan seems intimidating, keep reading and we’ll show you how easy it is to get started.
What Is A One-Page Business Plan?
It should come as no surprise that a one-page business plan is exactly what it sounds like: an overview of your business that fits on a single page. This document is used to convey your business idea succinctly, as well as give a brief outline of your goals and how you will reach those goals.
The terms “one-page business plan” and “lean business plan” are often used interchangeably. These two types of business plans aren’t exactly the same. A lean business plan is a more condensed version of a fully detailed business plan and typically uses bullet points and short summaries. A lean business plan may be longer than just one page. On the other hand, a one-page business plan must fit on one page and be written in a legible font size. No 4 point font allowed!
An executive summary is a similar document, but it’s not exactly the same. Many detailed business plans include an executive summary, or it can stand alone. An executive summary provides key details about your business and is usually written out in sentences instead of bullet points. A well-written executive summary may also take up two to three pages.
For this post, though, we are focusing solely on the one-page business plan, when it’s appropriate to use (and when it’s not), and what should always be included. Let’s start off with the basic structure.
The Basic Structure
Remember, keep everything clear and concise to fit all relevant information on a single page. A good rule of thumb is to keep each section to one or two sentences or bullet points.
Should You Use A One-Page Business Plan?
Every business — no matter how big or small — should have a business plan, and a one-page plan is a great place to start. This plan should help provide a basic overview of your business in its early stages. A one-page business plan is one of the best ways to map out the goals for your business and how you plan to reach these goals.
A condensed business plan can also be used to pitch your business idea to potential investors, partners, or customers. While you may need a full business plan later (more on that in a minute), your one-page plan serves as an excellent introduction to your business.
Writing a one-page business plan may also help you when crafting a lengthier plan further down the road. Because a one-page plan must be concise, writing yours should assist you to clearly convey your thoughts and cut down on unnecessary and lengthy wording.
However, there are times when a one-page business plan just won’t do the job. If you have a very complicated business idea or multiple partners, for example, a condensed plan won’t work for you.
If you’re seeking capital for your business, a formal business plan is a more appropriate choice. Banks typically require a formal business plan when applying for a loan. You may also be required to submit a formal business plan for other types of business funding, including Small Business Administration loans, grants, and startup loans.
What You Need To Create A One-Page Business Plan
Ready to get started on your business plan? Before you start tapping away at your laptop, map out everything you need first to make the process quicker and easier. Remember the basic structure we discussed earlier? Let’s break down each section so you know exactly what to include.
In this section, you should first state the problem that you have identified. Then, you will give a brief description of how your business will solve that problem. In other words, what product or service do you offer that will fulfill a need in the market?
Remember, you’re limited on space, so it’s important to get directly to the point without being too generic. You want to make a statement that shows how your business stands out from the rest.
For this section, you really need to sit down and think about your objectives for your new business endeavor. These objectives should be a list of the goals you have in starting your business or selling your product or service. Every business has different objectives, so think about what’s most important for you. Do you want to be your own boss? Do you want to provide outstanding service in an industry where service is lacking? Have you set a revenue goal?
Think about short-term and long-term goals for your business and jot your ideas down. Your objectives should be clear, concise, and arranged in a bulleted list.
This section is used to outline the specific things that qualify you to be a successful business owner. This could include your educational background, industry experience, work history, or even your own experiences as a customer that led to your business idea.
Having a resume on hand can make this section easier. It’s also a good idea to have a resume ready for when you seek funding in the future, as some lenders require this as part of their documentation requirements.
In this section, you will provide information about your target market. Who will be your customers? What are the needs of these customers?
More specifically, focus on the following:
Will you sell your product/service to consumers or businesses?
What is your key demographic? Consider factors including age, income, and lifestyle.
Why do these customers need your product/service?
Why should customers buy from you?
To answer these questions, you have to do your research. There are a number of ways to do this, but the internet will be your greatest resource. You can use the internet to create surveys, check out industry studies, and do your due diligence on comparable businesses.
The only drawback is that serious market research costs money that most startups don’t have. For now, keep it simple. As your business grows and you develop a formal business plan, you can explore investing money in your research. For now, focus on free and low-cost methods for learning about your target market.
This section focuses on your competitors — who is your competition? Consider comparable products, services, and/or businesses that offer something similar to what you offer. Do they have any competitive advantages? Perhaps most importantly, what advantages do you provide? What do you offer customers that would make them choose your business, product, or service?
For this section, you can use the market research from the previous section. Again, you want to keep it simple here, but as your business expands and you create a more comprehensive business plan, you may need to invest money in additional market research.
Now, let’s talk numbers. In your financial summary, there are several important numbers that need to be listed. The first is your startup costs. If you haven’t launched your business yet, you may not have exact figures — after all, you always have to expect the unexpected — but make sure to do your research to get solid estimates.
You will also need to figure out ongoing costs to operate your business. This could include a lease or mortgage, marketing expenses, hiring and training employees, payroll, insurance, and other expenses.
Finally, the last number you need for this section is your revenue. How is your business going to be profitable? What are you going to charge for your product or service? How many customers would you need to meet your revenue goals? You may already have an idea in mind, but you can research comparable products or services to make sure your pricing remains low enough to be competitive but high enough to bring in a profit. If your business is currently in operations, you can review your bank statements and other financial documentation.
By this point, you should know how much revenue you need to be profitable. Now, it’s time to think about how to get that revenue by writing down your marketing strategy.
Remember, this is a one-page plan, so you don’t have to list out every single detail. If you plan to grow your business, this is something you will need to explore further in the future. For now, though, there are a few things to keep in mind.
The first thing to figure out is your budget. There are lots of free and paid marketing tools available. As a new business, start with free and low-cost marketing methods until you figure out what works. Once you’ve had a chance to test out different strategies, you can always invest more in the future. Don’t forget to add this estimate into your business costs.
Next, consider what your competitors or similar businesses within the industry are doing. In your eyes, which methods have been successful … and which have been total flops? You also want to think outside of the box here. While it’s certainly okay to do things your competitors are doing (such as advertising on social media), you also want to come up with unique ideas that make you stand out from the competition.
One-Page Business Plan Template [Download]
With everything involved with launching your own business, even something as simple as creating a one-page business plan can be completely overwhelming. If you don’t know where to begin, don’t worry — we have you covered. Check out our one-page business page template.
Get Our One-Page Business Plan
This easy-to-use template can help you get started on the right track. With our template and the tips in this post, you’ll be able to create a professional one-page business plan in no time!
You’ve Created Your Business Plan. Now What?
Congratulations! You’ve created your one-page business plan. Now, it’s time to put that business plan to use.
If you haven’t yet launched your business, you can use your business plan as a road map to get started. You have your goals in place, you’ve started to calculate your expenses, and you know how much money your business needs to make to be profitable and successful. It’s time to take the first step toward reaching these goals and getting your business off the ground.
You can also use your business plan to pitch your business idea to investors or partners. However, be aware that a formal business plan is often needed when seeking capital (i.e. getting a bank loan). Remember, this one-page plan is a great starting point that can give you practice in clearly and succinctly communicating your ideas.
Ready to get started? Check out the following resources for more help in launching your business:
Small Business Startup Loans: Your 8 Best Options
SBA Loans For Startups: Types, Terms & How To Apply
How Much Money Do You Need To Start A Business?
Everything You Need To Know About Small Business Payroll
How Health Insurance Works For Businesses With One Employee
The post The âHow-Toâ For One Page Business Plans appeared first on Merchant Maverick.
If you’ve been reading this website for a while, then you know that we began as a place focused on demystifying the world of credit card processing for small businesses. You might wonder, then, what we’re doing writing an article about a cash-only business. The fact is, we see both advantages and disadvantages to such a business, and we want to share some of our thoughts with you.
While most businesses do take some cash payments, some businesses are particularly suited to be cash-only. These businesses tend to be small and provide the services or sell their merchandise in person; the items sold also tend to be of smaller value. Below we have compiled a non-exclusive list of such businesses as well as a general overview of advantages and disadvantages for taking only cash payments.
Credit Card Processing Doesn’t Have To Be Expensive
Each of the above companies provides excellent customer service and fair pricing.
Why Would You Want A Cash Business, Anyway?
It is no secret that we are moving towards a cashless society, where customers carry little to no cash and make purchases through credit, debit, or cash cards. However, if you look carefully, you’ll notice that cash-based businesses are still lurking everywhere. Any kid can set up a lemonade stand or mow a neighbor’s lawn. Typically, you would pay them in cash. Same with a street musician or a hotdog stand by the sidewalk. Most likely, you will pay cash to your babysitter and maybe your dog walker too.
Cash-only businesses are typically new or “temporary” or side hustles, and they take only cash because they want to minimize start-up costs, they do not accept returns, and they do not have the time or desire to listen to pushy salespeople to learn the ins and outs of payment processing or buy any related equipment. In other words, they take only cash because cash is easy.
The Best Cash Businesses
Some businesses are especially suited as cash-only business. Below is a non-exclusive list to give some examples of such businesses.
Coffee, food cart, or food truck operator
Bakery, deli, or lunch stand
Lawn mowing service
Vending machine operator
Farm stand/farmer’s market vendor
Arts and crafts show vendor
Street artist (face painter, caricature artist, street musician, or similar)
Pet services (pet sitting, pet grooming, pet training, dog walking. etc.)
Personal trainer or fitness instructor
Hair/nail salon or barbershop
Note that these businesses tend to be single-person operations that can be set up easily and quickly. With some notable exceptions like a laundromat, they tend to be mobile, with no physical business address. The goods or services they sell are usually lower priced, and customers do not usually demand refunds after purchase.
Advantages of Going Cash Only for Payments
Most businesses take cash in addition to other forms of payments. For this article, though, we truly mean cash only. This means no credit or debit cards, cash cards, gift cards, cash transfers (Venmo, Zelle), or personal checks. The business takes paper bills or coins, and that’s it.
We start below by discussing some advantages of going cash only.
Lower Costs & Overhead (No Processing Fees)
Compared with taking credit cards, taking cash saves your business money. In order to process credit cards, you would need to buy or lease the equipment to read the cards. After you get the equipment, you would have to spend time (or money to hire someone) to maintain the equipment.
In addition to needing equipment, each swipe/dip/tap of a payment card costs you money to process. The cost is percentage-based, so it’s difficult to know ahead of time how much each use of a payment card would cost you. As well, some processors charge additional monthly or per incidence fees. These charges can add up and affect your profitability, especially if you operate a small business with narrow margins.
When you take only cash, all of the above issues go away. You won’t need any equipment except a cash register or maybe just an old fashioned calculator. You won’t have to deal with recurring monthly charges for services you may or may not need. Best of all, you won’t have to pay a processing fee every time a customer pays you, so your profit margin stays intact.
No Risk Of Funding Holds
When you take cash, you get your money right away. With payment cards, your account won’t be funded until 24 or maybe up to 72 hours later. Even after that, with card payments, you are at risk for chargebacks. A customer could reach back several months after a purchase to demand their money back so that your sales are not always final until many months after the purchase. Your processor could freeze your account if you have too many chargebacks or even terminate your account altogether. With frozen or terminated accounts, you might not get back the charges in those accounts at all.
With cash, you’ll never have to worry about any of these issues. You get your money right away, and, unless a customer complains and you decide to refund their purchase, you’re never obligated to pay back what you have already taken in.
If you take cash, you can simplify your business’s accounting needs.
There are two ways to keep your books: the cash method and the accrual method. The cash method doesn’t have anything to do with taking incoming payments only in cash. It merely means that you book a sale or expense when you actually receive or pay for the goods or services.
For instance, if you receive an order for widgets on August 31, send the order out, and receive your payment on September 15, then you book the sale on September 15. If you purchase office supplies on August 31 and pay the invoice on September 15, you book the expenditure on September 15. The cash method is considered the simpler of the two accounting methods. It gives you a realistic understanding of how much you have in the bank but does not take into account future income or expenditures.
With the accrual method, you book the sale or expense when you make the sale or incur the expenditure, even if you don’t receive the payment or don’t pay out the money until later. For example, if you receive an order of widgets on August 31, you will book this sale for August 31, even though you give your customer 30 days to pay so that they won’t have to pay until September 30. Likewise, for a purchase you make on August 31, you will book the expenditure on August 31 instead of waiting for when you actually pay, possibly 30 days later. With the accrual method, you must track your business’s finances with accounts receivables and payables.
If you take cash payments only, no matter which accounting method you use, you can simplify your accounting. With the accrual method, your accounts receivables are always up to date because you have already received the money and won’t have to keep track of them after that. If you use the cash method, you won’t have to deal with money you expect to receive in the future because, even though the method doesn’t require you to book the sale until you actually receive the money, you do, in fact, receive the money right away because you are paid in cash at time of sale.
Disadvantages Of Going Cash-Only for Payments
Even though becoming a cash-only business can reduce certain overhead and administrative headaches, they create inconveniences as well.
Most customers today no longer carry a large amount of cash and prefer instead to pay with a credit or debit card. Going cashless means that these customers won’t be able to make purchases at your business unless they either have the cash on them or can access a nearby ATM. Even assuming these customers heed the cash-only sign at the door and manage to get the cash to complete the purchase on their first visit to your store, they might not come back because they might not want to deal with the inconvenience of paying with cash again.
Few Growth Opportunities
Taking only cash can reduce your business’s growth opportunities. Cash might make sense when your customer must physically be present to get that cup of coffee or get their pet groomed, but if you have the type of business where you can sell online or even take phone orders, then taking only cash could limit your business’s growth opportunities. Many customers today prefer the convenience of shopping online. In addition, online sales can reach customers who live far from your store. Going cash-only means you might be missing these customers who can help your business grow.
Need For Stringent Cash Handling Policies
When it comes to money, some people cheat.
Handling cash means you will have to deal with counterfeits. Despite security features such as colored ink, raised printing, watermarks, and similar, counterfeit currency are still in circulation. In fact, the US Department of Treasury estimates that $70-200 million dollars in counterfeits could be in circulation today. If you take cash only, you and your employees who handle cash payments should be trained on how to spot counterfeits.
Like it or not, while we would like to think that our employees are honest and law-abiding, some do steal, and having a drawer full of cash can fatally tempt these unscrupulous employees. So, if you have a cash-only business, you would have to have strict cash handling policies that are enforced regularly and stringently. You might even have to invest in surveillance equipment to catch those employees who steal.
Limited Automation/More Potential For Errors
Sometimes, cash shortages are caused by inaccurate counting instead of theft. With a cash-only business, the person at the cash register must count carefully, both when taking in cash and counting back cash to give change. While this might not be difficult under normal circumstances, if you operate a business with rush times like lunch periods, having to count cash for every customer could make you more error-prone.
In contrast, if you take payment cards, only the exact amount would be processed, and you would eliminate a source of counting error.
Potential For IRS Audits
Like it or not, the IRS knows that it’s easier for cash-only businesses to underreport earnings and avoid paying taxes. Of course, not every cash-only business tries to avoid paying taxes, but enough have done so that the IRS typically audit cash businesses more often. Even if you report all your cash earnings honestly, you must carefully document all your transactions. Otherwise, it could be difficult to establish a pattern of honesty to convince the IRS that you haven’t underreported.
Other Considerations If You Want To Go Cash Only
So far, this article has focused on how going cash-only may affect the way you take in payments, but there are other considerations to take into account before you jump into a cash-only business.
Inventory & Employee Tim-Tracking Software: Even though you might only need an old fashioned cash register for a cash-only business, you might be missing out on the other conveniences of a modern point of sale system. For instance, some modern point of sale systems include inventory management software that automatically deducts items from your inventory as you make a sale. Other systems allow an employee to punch in and out to track their hours for payroll. If you use an old-fashioned cash register, these software systems would not be available to you.
Not Exempt From Paying Taxes: It is, of course, perfectly legal for you to pay your employees in cash. However, you must still deduct your employees’ income, social security, and Medicare taxes. Failure to do so will subject you to fines by the IRS.
Difficulty Obtaining Bank Loans: If you wish to borrow money to expand your cash-only business, you might have trouble borrowing from a bank. Unless you have excellent accounting records, it would be difficult for you to show a bank that you have adequate cash flow to repay the loan.Â Under those circumstances, they might decline to lend to your business.
Inability To Obtain A Merchant Cash Advance:Â In the same vein as getting a loan, some financial services companies offer something called a merchant cash advance. The advance is paid back by deducting a percentage from future credit card charges. For instance, PayPal has something called PayPal Working Capital and Square has Square Capital. If you do not process credit cards, then you cannot avail yourself of these programs. While getting a merchant cash advance is not the cheapest way to finance a business, it might be crucial to providing cash flow in a pinch.
Newer Tech Allows Coin-Operated Machines To Take Payment Cards: Finally, just because you run a traditionally coin-operated business like a laundromat or vending machines doesn’t mean that you are stuck in a cash-only world. Payment card readers designed for laundromats now exist. The newer vending machines can also take payment cards. In other words, while coin-operated businesses are traditionally cash only, you won’t have to settle for that if you wish to take payment cards as well.
Is A Cash Business Right For You?
Though we are transforming into a cashless society, for certain types of business, going cash-only might still make sense. While there will be inconveniences to you and your customers, an all-cash business is still the fastest and the easiest type of business to set up because it requires zero setup cost. For small businesses that sell items of lower cost to customers who visit in person, accepting only cash might make a lot of sense.
However, even if you prefer to take only cash, you might wish to consider adding payment cards as a convenient option to your customers. You can require that every use of the card be in excess of a certain amount, and, with mobile processors like Square, as long as you have a cell phone, you can quickly set up an account to take credit card sales even if you operate a seasonal, low volume business like a farm stand by the side of the road.
At the end of the day, with the different types of credit card payment processors available today, going cash-only is merely a choice, not a necessity. Is going cash-only a viable option for your business? If you are currently operating a cash-only business, how is your experience so far?
Are you ready to launch a new business, but don’t know to fund your idea? Or are you a small business owner ready for expansion who lacks the capital you need to grow?
Sure, small business loans are an option, but simply owning a business — or hoping to start your own business — doesn’t automatically qualify you for this type of financing. A lack of business credit history, a short time in business, or low revenue may prevent you from getting a small business loan. Even if you do qualify, you might get stuck with short terms and high fees and interest rates.
Don’t give up hope just yet, though. If you own your own home, there could be another funding option you’ve not yet considered: obtaining a home equity loan for business purposes. You can leverage the equity in your home to get lower rates, longer repayment terms, and higher borrowing limits than you might with small business lenders.
Sounds great, doesn’t it? Unfortunately, not everyone will qualify for a home equity loan. Others may find that a small business loan, personal line of credit, or another form of funding is better suited for their capital needs. However, if you’re looking for a creative way to finance your startup or expansion plans, read on to learn more about home equity loans and if one is right for you.
What Is A Home Equity Loan?
A home equity loan is also known as a second mortgage. To understand a home equity loan, let’s first take a look at equity. As you pay down the balance of your mortgage, you build up equity. Equity is the difference between what is owed on the home and the value of the property. For example, let’s say your home is valued at $500,000. If your first mortgage has a remaining balance of $200,000, then the equity in your home would be $300,000.
Another way to look at equity is that it is the portion of the home that you own. With a home equity loan, you can use your equity as collateral for an additional loan. If you don’t have equity in your home — that is, the value of your home doesn’t surpass the amount owed on your first mortgage — you will not qualify for this type of loan. Generally, you can expect to receive about 80% to 85% of the value of your home as a lump sum, less the amount still owed on your first mortgage. This money can be used to fund large purchases for your business, including startup costs, new equipment, facility upgrades, or purchasing commercial property.
After receiving your funds, you’ll repay the loan over a longer period of time — usually 5 to 15 years. Home equity loans come with fixed rates and are repaid on a monthly basis.
Equity Loans VS HELOCs
Another type of funding that uses the equity in your home is a home equity line of credit, or HELOC. Similar to an equity loan, a HELOC uses the equity in your home as collateral. However, instead of receiving a lump sum, you get access to a line of credit that you can use for business purposes.
After being approved for a HELOC, you’ll be able to withdraw funds up to and including the credit limit set by your lender for a set period of time — typically a year. When this draw period is over, you’ll enter the repayment phase. At that time, you’ll begin to repay the amount of money borrowed (plus interest). Once you’ve repaid borrowed funds, you’ll be able to borrow funds again.
Most HELOCs come with variable interest rates, whereas most home equity loans have fixed rates. While this provides stability, often you’ll find that home equity loans have a higher interest rate than HELOCs.
If you have a larger purchase to make, such as buying equipment or purchasing real estate, the lump sum offered through a home equity loan is the wiser choice. If you want a more flexible funding option for working capital, hiring new employees, or purchasing inventory, a HELOC may be the better option for your business.
Equity Loans VS Business Loans
A home equity loan is similar to a business loan in a few ways. With both types of funding, you receive a lump sum that can be used to fund your business purchases. Many small business lenders also offer low, fixed rates, long repayment terms, and monthly repayment schedules.
However, there are also a few distinct differences. With a home equity loan, the equity in your home serves as the collateral for the loan. For business loans, other forms of collateral may be used, including business equipment or real estate. You may also be required to sign a personal guarantee or agree to a blanket lien.
Borrower requirements also differ. When you apply for an equity loan, the lender will consider factors including your personal credit profile, your debt-to-income ratio, and the amount of equity in your home. Small business lenders may consider factors including personal credit, business credit, annual revenues, and time in business.
When Should Merchants Use A Home Equity Loan?
Each business is unique, which is why one source of funding doesn’t work for everyone. However, there are many small business owners that will find that a home equity loan is a viable way to access capital.
If you haven’t yet opened the doors to your business because of startup costs, a home equity loan may work for you. No time in business, business revenue, or business credit history is required to qualify.
A home equity loan may be a good choice for you if you want a low-cost loan option. If you’ve shopped around for other financial products and aren’t satisfied with short terms, high interest rates, excessive fees, or repayment schedules, a home equity loan could give you the affordable capital you’re looking for. You’ll receive a low fixed rate and a longer period of time to repay your loan. You may even qualify for additional savings if you work with the lender of your first mortgage.
However, there are also times when maybe a home equity loan isn’t the best fit. If you have an established business and a solid personal credit profile, you could qualify for other types of funding such as Small Business Administration loans. These loans come with low interest rates, repayment terms up to 25 years, and are easier to qualify for than traditional bank loans.
You may also explore additional funding options if you need more specialized financing. For example, if your business needs new equipment, equipment financing may be a better option. You could potentially qualify for low rates and favorable terms without putting your personal assets on the line. With equipment leases, you can even turn in your equipment and enter another lease for new equipment — a smart idea if you need to upgrade frequently.
Finally, a home equity loan won’t work for borrowers with a poor credit score or a spotty credit history. Most lenders look for a good credit score in the 700s, although some may work with fair credit borrowers. However, borrowers with lower scores frequently need more equity, a lower DTI, and must meet other requirements to qualify. Your application may also be declined if you have a recent bankruptcy or foreclosure, defaults on past loans, or other negative items on your credit report.
Home Equity Loans For Business: Pros & Cons
By now, you should have a good understanding of what a home equity loan is, how it can help your business, and what you need to qualify. If you’re still on the fence about submitting an application, consider these pros and cons before making your decision.
Low Interest Rates: Low interest rates mean that your cost of borrowing is lower. You could save thousands of dollars in interest by taking out a home equity loan versus other types of funding.
Long Repayment Terms: Most home equity loans have repayment terms of 5 to 15 years, although this varies by lender. With a longer repayment term, you can stretch out the cost of your business expenses through easy, manageable payments.
Startup-Friendly: Since factors like time in business aren’t a consideration for approval, startups and new business owners may qualify when other lenders turn them down.
Flexibility: You aren’t restricted in how you use the funds from your home equity loan.
High Borrowing Amount: Depending on the amount of equity you’ve built up in your home, you could qualify for a larger sum of money than other lenders offer you.
Risk Of Losing Your Home: If you pay your home equity loan as agreed, you won’t have any problems. However, if you default on your loan, you risk losing your home.
Fees: There are associated costs and fees with taking out a home equity loan, so be prepared. This may include application fees, closing costs, and prepayment penalties for paying your loan off early.
Going “Upside Down”: If the value of your property drops after taking out a home equity loan, you risk being “upside-down” on your loan. This means that you owe more than the property is worth.
Alternatives To Home Equity Loans
Still undecided if a home equity loan is right for you? This funding certainly isn’t for everyone, and you may find that another financial product is better suited for your needs. Before taking the leap into a home equity loan, consider these alternatives and whether one may be right for you.
Business Lines Of Credit
With a business line of credit, you’ll have access to funds that you can use as needed. Your lender will set a credit limit, and you can make draws up to this credit limit. As a form of revolving credit, your funds become available to use as you pay off the borrowed amount, giving you continuous access to cash when you need it.
If you need access to cash on-demand, a business line of credit may be a more suitable choice than the lump sum offered through a home equity loan. You may also consider a business line of credit if you don’t own your own home or don’t have enough equity.
This may also be an option for borrowers with a poor credit profile, as some lenders may consider the performance of your business when approving your application. However, if you don’t meet time in business or revenue requirements, your application will be declined. You’ll also find that many business lines of credit have higher rates and fees and shorter terms than home equity loans.
If unpaid invoices are causing cash flow issues, consider invoice financing. With this service, you’ll receive a portion of the outstanding funds upfront — usually 80% to 90% of the invoice total. Once the invoice is paid, you’ll receive the remaining funds, less any fees charged by the lender. Your invoices serve as the collateral.
This is an option typically available to B2B and B2G businesses. You may also have to meet other requirements in terms of revenue, time in business, and the quality and quantity of invoices. Invoice financing is a great way to get access to cash. However, be aware that this can be an expensive form of borrowing depending on the factor rate assigned by your lender. This is also a short-term solution, so if you need longer repayment terms, consider applying for a home equity loan or another financial product.
Business Credit Cards
If you have recurring expenses that require a more flexible form of funding, consider applying for a business credit card. With a business credit card, you can make as many purchases as you need up to your assigned credit limit. Qualifying for a business credit card is fast, and you can begin using your card immediately without waiting for further approval from the lender.
You may even consider applying for a rewards card, which scores you cash back or points to apply toward rewards like travel, shopping, and more.
High interest rates are a drawback of some business credit cards. For larger purchases, another form of funding may be more affordable.
Small Business Administration (SBA) Loans
Small Business Administration (SBA) loans offer high borrowing limits and low interest rates to fund business expenses. SBA loans have similar rates and terms to traditional bank term loans. However, these loans are backed by the government, making it easier for small business owners to qualify.
There are many different types of SBA loans, from smaller microloans to the popular SBA 7(a) loans that provide up to $5 million repaid over a period of up to 25 years.
In order to receive an SBA loan, factors including time in business and personal credit history will be considered. The process for receiving an SBA loan is lengthy and can take 30 days or longer from application to funding. However, this may be a great alternative if you don’t own your own home or don’t have enough equity to qualify for a home equity loan.
A home equity loan certainly has its benefits — startups can qualify, interest rates are low, and terms are favorable. However, there may be other options that make sense for your business. As with any other loan, shop around your options, compare lenders, and understand the terms of your loan before signing a contract.
The post The Complete Guide To Home Equity Loans For Business Purposes appeared first on Merchant Maverick.
Startup capital is a necessity for virtually all businesses. However, the cost to start a business varies widely depending on what kind of business you are starting. For example, a home-based endeavor such as a dropshipping company or an Amazon business can cost less than $1,000 to get off the ground; the same goes for a business that doesn’t require an office or much equipment, such as a pet sitting business. On the other hand, opening a business that requires more equipment and office space—such as an autobody shop or a coffee shop—could cost $100,000 or more.
In this post, I’ll go over the main costs associated with starting a business and what you can expect to pay for each of them.
Surprisingly, there aren’t too many official statistics available on how much it costs to start a business, probably because the costs vary so much. There was a study conducted by the Ewing Marion Kauffman Foundation way back in 2009 that found the average cost to start a business at that time was $30,000.
Below, we’ve put together our own startup business cost figures, but keep in mind that the amount you’ll spend will vary greatly depending on various factors, such as your industry and location.
Common Small Business Expenses
Business Licenses & Permits
Equipment & Supplies
Office Space & Utilities
$5,000 initially, then $2,000 monthly
$700 initially, then $200 monthly
Professional Services (e.g., legal services)
Total estimated cost: $28,200
Business Licenses & Permits
As a new business owner, you will need to register your business in your state and apply for a local business license/permit in your city or county. Depending on your industry, you may also need to obtain an industry-specific business permit. These initial business registration costs are usually minimal (less than $500).
There are several types of business insurance for startups and which type(s) you need depends on various factors. Insurance is a significant, ongoing business cost. Most businesses will need general liability insurance and business property insurance, and if you have employees, you will also need to pay for workers compensation insurance and health insurance. Commercial vehicle insurance and product liability insurance are some other business types you may or not need.
Equipment & Supplies
All businesses require some sort of equipment or supplies, but these costs vary significantly depending on what type of business you have. Examples of equipment and supplies include:
Restaurant kitchen equipment
Medical equipment & supplies
Product manufacturing equipment
Point of sale equipment (cash register, credit card reader, etc.)
The type of equipment and other materials you need to run your business really depends on your industry—for example, if you’re starting a wedding planner business, you’ll probably just need a computer and office supplies, whereas a trucking company will need commercial vehicles, etc.
Office Space & Utilities
If you need to rent or buy an office space, this will be a significant ongoing expense, and a big startup cost too, as you will need to pay a security deposit, first and last month’s rent, etc. Internet, gas and electricity, a business phone, and data plans will also factor into the infrastructure costs of your office space. Most businesses start out as home-based or rent a business space initially, instead of purchasing or building property.
If you sell a physical product, you need a certain amount of inventory to start out with (and have on-hand on an ongoing basis). Retail stores need a certain number of finished products on hand, while food-based businesses such as food trucks, for example, need to stock up on raw ingredients before they can open up shop. This, of course, does not apply to information-based businesses, such as consulting businesses or various other service-based businesses.
You may or may not start your business with any employees. If you do have employees, you need to factor in payroll costs, payroll taxes, insurance costs (workers comp. and health insurance), and training costs.
Modern business marketing includes not only business cards, advertisements, signage, etc., but also digital marketing costs such as SEO, social media marketing, and website maintenance costs. As far as your digital marketing, at the very least you will need a website and social media presence. Tip: Be sure you register your domain early on in the process of starting your business, as your website will be the foundation of your online marketing.
Some different types of business software you might need to launch and run your business include:
eCommerce/shopping cart software
Website builder software
Project management software
Email marketing software
Industry-specific business software (for example, specialized software for dentists, auto mechanics, etc.)
Some small business software programs combine multiple functions. For example, a restaurant management software system might include POS functionality as well as accounting, inventory, employee management, and maybe even email marketing functions. An accounting program like QuickBooks combines accounting, payroll, and invoicing functions, with POS functionality as an add-on.
Generally, most business software apps are no longer large programs that you install onto a computer as a one-time expense; rather, today’s business software is usually app/cloud-based, meaning you can sign in from any internet-connected device. And rather than paying for the software as a large, one-time expense, today’s software-as-a-service (SaaS) model is based on monthly payments with no down payment or long-term commitment. So, initial investment for business software will likely be much less than you would have paid for a comparable program 15 or 20 years ago. Some business software is even free to use.
In addition to software, don’t forget to factor in the cost of the associated hardware you’ll need to run the software into your equipment costs. For example, most businesses will need point of sale equipment, a laptop or iPad, a wireless router, etc. For very small businesses requiring only a basic app to take payments, it’s possible that the only hardware you might need is your smartphone.
This category can include legal fees, consultancy fees, accountant fees, and fees for any other professional services you use to help launch your business. While some businesses require minimal professional services, most businesses should at least consult a lawyer and/or professional accountant during the startup phase.
You’ll more than likely find out that there are more startup costs than you initially anticipated. Thus, it’s important to have a certain amount of your budget set aside for miscellaneous expenses that will inevitably come up. Some various costs you’ll need to include in your budget may include:
Credit card processing fees (once you start making sales)
Of course, you’ll also need to make sure you have enough money to support yourself before your business becomes profitable, so make sure this cost is included as well.
How To Calculate Startup Costs
The SBA has a very useful startup cost worksheet that outlines common business startup costs with sample figures that you can personalize to calculate the true cost of starting your business. Simply enter the estimated cost for each category (rent, utilities, inventory, employees, etc.) and you’ll be able to get a rough estimate of how much money you might need for your initial investment.
It’s also a good idea to make a sales forecast, in which you estimate how much you will sell in the first 6â12 months of opening your business. How long will it take for your business to make a profit? How long ’til you can pay off your startup expenses? With your prospective revenue in mind, you’ll have a better idea of how much you can afford to spend on ongoing expenses such as payroll and inventory.
If the total seems unaffordably high, look for areas you might be able to cut costs. For example, could you operate your business out of your home for the first six months? Could you subcontract workers instead of hiring employees? Could you use dropshipping to deliver goods to customers directly from the manufacturer, instead of buying inventory upfront?
Once you have a good idea of how much startup capital you might need for your first 6â12 months in business, you can decide how you will finance your venture.
What To Do If You Donât Have The Money
Startup funding can be difficult to procure from a traditional bank, especially if you don’t have any significant assets or previous experience owning a business. However, that doesn’t mean you don’t have any options. Online technology has actually made it a lot easier to find small business funding. Here are some options you might try to finance your business.
Online Loan: This category includes both online business loans and online personal loans. Generally, online business loans for startups are limited to short-term, high-interest loans; you won’t qualify for better terms unless you’ve been in business at least two years. Still, it’s definitely worth looking into to see what kind of loans and rates you might qualify for. Some online lenders might even offer access to SBA loans for entrepreneurs, such as SBA microloans. Look at our startup business loan comparison chart to find some startup-friendly loan options.
Business Credit Cards: If you just need a few thousand dollars to get started, a business credit card can be a smart choice. You can use a business credit card to charge startup expenses, and/or to get a cash advance (though make sure you check the terms on the advance because they usually charge high interest). You could also use a personal credit card, though business credit cards typically have more business-specific benefits, such as cash-back for common business expenses. Look at our best small business credit cards comparison to see some of the top business cards’ requirements and perks.
Equipment Financing: If your main startup expense is the equipment you’ll need to run your business — for example, restaurant kitchen equipment, manufacturing equipment, office equipment, etc. — then you can simply finance the equipment itself, in the form of an equipment loan or lease. Similar to automotive financing, equipment financing involves monthly payments (either to lease or own), and does not typically require good credit or any collateral other than the equipment itself. Check out our equipment financing comparison chart to see your best options.
Line Of Credit: A business line of credit is similar to a credit card in the sense that you can have it on hand to pay for expenses, but you only have to repay what you use. Like a business loan, you can get a line of credit from an online lender or a traditional bank. However, startups will have better luck finding a line of credit online; there are several online line of credit providers that only require only 6 or fewer months in business, whereas banks typically will not extend a line of credit to startups. Check out our line of credit comparison page to find some startup-friendly LOC options.
Other startup financing ideas:
Loan from friends/family
Personal retirement savings— rollover a retirement account using a ROBS (rollovers as business startups) plan
Our team at Merchant Maverick has also written many informative articles about startup financing that can help you on your journey:
Crowdfunding For Startups: 8 Tips For Launching
Don’t Let Bad Credit Stop You From Getting A Startup Loan
The Best Business Cards For Startups And Entrepreneurs
SBA Loans For Startups
How To Find A Startup Grant
14 Types Of Alternative Financing For Small Businesses
The Best Business Credit Cards For People With Bad Credit
Tax-Deductible Startup Costs
If your total startup costs are $50K or less, you can write off up to $10,000 of startup costs on your taxes in the year that you start the business, including up to $5,000 in business startup costs and another $5,000 in organizational expenses (legal fees, state incorporation fees, etc.). If your startup costs exceed $50,000, the amount of your allowable deduction will be reduced by that dollar amount, and if your startup costs are more than $55,000, you are not eligible for the deduction.
Certain startup expenses are not tax-deductible—for example, the costs to qualify for doing business in your industry, such as real estate licensing costs, are not deductible as a startup expense. Additionally,Â business assets (one-time business expenditures such as vehicles and equipment) are not deductible as startup expenses, but may be deductible in a different category (amortization).
(In case you were wondering, business loan interest is, indeed, tax-deductible.)
It may be a cliche, but it is also true that “it takes money to make money.” Startup business costs can range from under $10K to over $100K, depending on a number of factors. It’s okay if you don’t have all the money right now: the important thing is to put together an accurate estimate of how much you will need, what you will spend the money on, and how/when you’ll be able to repay any borrowed monies with your revenue. You can then incorporate this estimate into your business plan and the loan proposal you will use to demonstrate to lenders that you are a good candidate for financing.
With the numerous financing options available to entrepreneurs these days, there is a great chance that if you have a sound business plan and accurate, reasonable startup cost estimate, you will be able to find a lender that can meet your startup financing needs.
The post How Much Money Do You Need To Start A Business? appeared first on Merchant Maverick.
One of the wealthiest states in the nation, Maryland is considered one of the best U.S. states to live and work in. Being one of the 13 original colonies, Maryland is also among the nation’s oldest states; however, that doesn’t mean it rejects the new. Its largest city, Baltimore, was named by Forbes as one of the “Top 10 Rising Cities for Startups” in 2018, and Governor Larry Hogan recently described Maryland as being among “the top states in the country for entrepreneurial business growth,” touting the success of his administration’s “Open For Business” initiative.
Maryland’s proximity to Washington D.C. is an advantage for small businesses that are eligible for federal contracts, and its GDP is well above the national average. Maryland ranks second per capita and fourth overall in Small Business Innovation Research Program (SBIR) awards. Maryland also has a growing and highly educated workforce, meaning there is a great selection of talent available for hire.
While Maryland presents a lot of opportunity for businesses, it is not without its downsides. Maryland can be a costly place to run a business, when you take into account the state’s high rent, high business taxes, and high labor costs. If you’re not one of Maryland’s independently wealthy (though MD does have a disproportionately high number of such residents), it can be a struggle to obtain enough startup capital to open a new business in Maryland, or to keep your existing small business afloat in the face of high operating costs.
For Maryland entrepreneurs who need a business loan, I’ve put together this resource with the best loans for Maryland small business owners. These include the best online loans, bank loans, grants, and other small business resources. I highly encourage you to read on if you are a Maryland entrepreneur in need of business financing.
Online Business Lenders For Maryland Businesses
Online business loans are the quickest and easiest way Maryland business owners can obtain business financing. Though these loans typically have higher borrowing fees and shorter repayment terms compared to a traditional bank loan, their convenience makes them worth it for some business owners—particularly for business owners who need capital ASAP or who can’t qualify for a loan from a bank or credit union. If you have a newer business or less-than-excellent credit, an online loan is likely your best financing option.
Read this section to learn about some of our favorite online lenders that extend loans to businesses in Maryland.
Lendio is an online loan aggregator, aka a loan marketplace, where businesses in all 50 states can search for and apply to multiple online loans with a single application. Lendio does not originate loans, but rather, they will connect you to their lending partners that meet your needs.Â It’s a good place to start if you’re not sure how much financing you might qualify for or which type of financing (bank term loan, short-term loan, line of credit, merchant cash advance, etc.) would best suit your business needs.
Lendio’s borrower qualifications vary since they work with a wide range of lenders, but Lendio recommends applicants meet the following minimum borrower requirements:
Time in business: 6 months
Credit score: 550
Business revenue: $10K/month
We like Lendio for the excellent lenders they work with and the broad range of business financing products they provide access to, from short-term loans to long-term SBA loans, and many others in between. Lendio can connect qualified borrowers with loans as large as $5 million and, the average time to funding is 2â7 days.
Must be in business at least 12 months with a revenue of $10,000 per month.
Must have a personal credit score of 600 or above.
Businesses with fair credit and/or unpaid invoices
Breakout Capital, also available to businesses in all 50 states (and D.C.), is a short-term lender that distinguishes itself by being transparent and reputable in a sea largely made up of unscrupulous, predatory lenders. Their terms and rates are clearly disclosed and they have excellent customer service in case you have any questions.
Breakout’s financing products include short-term business loansup to $250,000, and FactorAdvantage invoice factoring loans up to $500,000. FactorAdvantage loans are a combination of invoice factoring and Breakout Capitalâs business loans. Breakout loans are flexible in that they act similar to a line of credit, making it easy to borrow more capital after you repay your first loan.
To qualify for a short-term business loan with Breakout Capital, you need:
Time in business: 1 year
Credit score: 600
Business revenue: $10,000/month
Regarding FactorAdvantage, because this loan is designed to be used in conjunction with invoice factoring services, Breakout Capital does not require any specific time in business, revenue, or credit score. Funds are typically received within one business day after the final closing contracts for the loan are signed.
AMEX Business Loans
Time in business: 24 months
Business revenue: $50,000 per year
Personal credit score: Good to excellent
Other: Must accept Amex cards or have an Amex business credit card (depends on the type of financing you are applying for)
Established businesses that use or accept American Express
American Express Business Loans are available to businesses in all 50 states. They are not pricey credit card advance loans, but rather, they are actual term loans, including both short-term and medium-term loans. You do, however, need to either have a business AMEX card or accept AMEX cards at your business in order to qualify.
AMEX loans are convenient, fast, and reasonable in terms of their terms and fees. Depending on which loan you apply for, you can qualify for financing up to $50K (medium-term “Business Loans” product), $750K (short-term “Working Capital” loan), or $2 million (short-term “Merchant Financing” loan, similar to cash advance). The time to funding is typically about 2 days.
To qualify for AMEX business financing, you’ll need the following requirements:
Time in business: 2 years
Credit score: N/A
Business revenue: $50K/year
Youâll also need to be an American Express business credit card holder for Working Capital and Business Loans. For Merchant Financing, youâll need to accept American Express cards. Depending on the product, you may also need to do at least $12,000 in card-based sales annually.
Time in business: 12 months
Business revenue: $100,000 per year
Business industry: Must not be in aÂ restricted industry
OnDeck is the largest and probably the most well-known online small business lender, offering short-term loans and revolving lines of credit to eligible businesses in all 50 states. OnDeck is a hugely prolific, publicly traded company that has relatively few negative complaints considering their enormous footprint. Like the other online lenders on this list, OnDeck has the advantages of being fast, convenient, and willing to lend to businesses that cannot qualify for a bank loan. OnDeck offers short-term loans up to $500K and lines of credit up to $100K.
Here’s what you need to qualify for an STL or LOC from OnDeck:
LoanBuilder is actually part of PayPal’s business loan arm, but unlike PayPal Working Capital loans, you do not need to be a PayPal business in order to qualify for a LoanBuilder loan. In fact, you need very little in terms of qualifications to qualify for a LoanBuilder loan—businesses with less than a year in business and sub-600 credit scores can qualify.
LoanBuilder offers short-term loans up to $500K, with no origination fee.
An interesting benefit of LoanBuilder is that you can tinker with your loan amount and repayment term to “build” your own perfect loan before accepting the loan offer.
Here’s what you need to qualify for a LoanBuilder loan:
Time in business: 9 months
Credit score: 550
Business revenue: $42K/year
Funding can be as fast as the next business day after you turn in all your documents and sign the contract. As with the other lenders on our list, LoanBuilder serves all 50 states.
Time in business: N/A
Business revenue: N/A
Personal credit score: 600 – 680
Personal income: $20,000
LendingPoint does not operate inÂ Colorado, Connecticut, Iowa, Louisiana, Maine, Maryland, Massachusetts, Nevada, New York, North Dakota, Rhode Island, South Carolina, Vermont, West Virginia, Wisconsin, and Wyoming
Prosper is a personal loan option available to borrowers in Maryland (and all other US states, except Iowa and West Virginia). Because these are personal loans, you can use them for almost any purpose you like, including to fund a business. You also don’t need any business qualifications in order to qualify for a Prosper loan, making this option suitable for startups, even if your business is only in the idea stage. You will, however, need to have at least fair personal credit.
Prosper sells term loans from $2Kâ$40K with monthly repayments. Though you can’t get a large loan through Prosper, the monthly repayments are a refreshing attribute, as most other online loans require daily or weekly repayments.
To qualify for a Prosper loan you’ll need:
Time in business: N/A
Credit score: 640
Business revenue: N/A
Usually, the time it takes from application to funding is a week or less. However, because Prosper has a peer-to-peer model wherein investors choose which loans they want to fund, it can take up to 14 days for investors to decide if they will fund your loan.
Must be in business at least 2 years.
Must have a personal credit score of 650 or above.
Must have a business credit score of 150 or above.
SmartBiz, available in all 50 states, combines the best of both worlds when it comes to business loans: the convenience of an online application, and the low-cost and comfortable repayment schedule of a long-term loan. Specifically, SmartBiz offers SBA loans up to $5 million, including general business loans and commercial real estate loans. SmartBiz also partners with banks to sell non-SBA bank term loans up to$200K.
SmartBiz’s main benefit is its efficient, simplified SBA (Small Business Administration) loan application process. If you can qualify for a bank or SBA loan, SmartBiz offers a quicker application as well as a speedier time-to-funding. Also, while SmartBiz isn’t as easy to qualify for as some online loans, you may still qualify even if you have fair personal credit, and there is no specific revenue requirement.
Borrower qualifications vary somewhat depending on which type of loan you apply for:
Time in business: 2â3 years
Personal credit score: 650â675
Business credit score (on certain loans): 150
Business revenue: N/A (but sufficient to support repayments)
Time-to-funding can take from one to several weeks, depending on how fast you submit all the necessary documents. Still, this is faster than applying for a bank/SBA loan through traditional channels.
Banks & Credit Unions In Maryland
Whereas online loans are ideal for Maryland businesses that have subprime credit or not much time in business, bank loans are more appropriate for established businesses with excellent credentials. If you apply for financing through a bank or credit union, you might qualify for a longer-term loan with low interest, especially if your bank is an SBA (Small Business Administration) loan partner. As mentioned, some reputable online lending companies such as Lendio and SmartBiz have the option of connecting you with bank loans, including SBA loans—a type of government-backed business loan offered by certain banks.
The following are some popular Maryland business bank loan options. We don’t have too much information about local Maryland banks, as we don’t typically review local banks in depth. Nevertheless, choosing a local bank versus a large national bank can have its advantages in terms of more responsive and personalized customer service, so it’s definitely worth checking out these options on your own.
Howard Bank, Baltimore’s largest independent bank, is an SBA-preferred lender and also offers non-SBA business loans. Howard Bank offers business loans for a variety of business purposes, such as working capital and equipment financing, as well as commercial real estate loans.
Howard is a strong option to consider if you want to choose a local Maryland bank for your business financing needs. Howard Bank also participates in Baltimore County’s Small Business Loan Fund, discussed in more detail below.
In addition to Baltimore County, Howard Bank also has numerous other branch locations throughout central Maryland.
T.D. Bank, N.A. is the American branch of Canadian bank Toronto-Dominion Bank. This New Jersey-based bank division operates in 15 states, including Maryland, as well as Washington D.C.
Maryland small businesses with good credit may find T.D. Bank to be an excellent smaller alternative to the “Big 4” banks, as they offer low interest rates to qualified borrowers. T.D. bank also participates in Baltimore County’s Business Small Loan Fund, discussed in more detail below.
In 2018, J.P Morgan & Chase unveiled plans to open more than 70 locations in Maryland, D.C., and Virginia. Chase already has locations in the Capitol but will open its first Baltimore-area branch in 2019 (in Hunt Valley).
For businesses looking for the convenience of a large, national bank, Chase offers excellent business financing solutions to small and large businesses (including startups), with low interest rates. However, you will need good credit to qualify for Chase’s financing products, which include business term loans, SBA loans, and lines of credit. Chase also offers its customers some excellent business credit cards.
See our Chase Business Loans review for more information on Chase’s business loan requirements.
Baltimore County Small Business Loan Fund
Baltimore’s Small Business Loan Fund is a partnership between the County of Baltimore and some of the area’s leading banks, including T.D. Bank, Howard Bank, Wells Fargo, Bank of America, PNC Bank, and others. These are real estate and fixed-asset loans with a maximum amount of $1 million, or 40 percent of the project cost, whichever is lower. To qualify, applicants must obtain a loan commitment for at least half of the project cost from a participating Baltimore bank. You can find a full list of participating banks on Baltimore County’s website.
Nonprofit Lenders In Maryland
Nonprofit lenders may be able to offer low-interest loans to qualified small businesses. While not all Maryland businesses will be eligible, the good news is that Maryland has at least several nonprofit organizations that offer low-interest small business loans to businesses that don’t qualify for bank financing. There are also government-funded loans specifically for nonprofit organizations in the state of Maryland.
Baltimore Community Lending, Inc.
Baltimore Community Lending, Inc. is a certified nonprofit Community Development Financial Institution. This enterprise’s wholly owned subsidiary Baltimore Business Lending, LLC provides capital to startup and emerging small businesses in the city of Baltimore that have good credit but lack the equity or collateral to obtain traditional financing. Loans are made via partnerships with approved microlenders and technical assistance providers.
NIMBL is a loan from the state of Maryland available to nonprofit organizations only. Specifically, this program is for nonprofits that have been approved for other government grants or contracts but have not received the funds yet (hence the “bridge” loan designation). This program provides interest-free loan up to $25K to qualified nonprofits in the state of Maryland. You can find more information about this program on the Maryland Department of Commerce website.
Rockville Economic Development, Inc.
Rockville Economic Development, Inc. (REDI) was founded in 1997 as a nonprofit entity to support existing small businesses as well as to attract new businesses to the city of Rockville, MD. REDI offers several different loans and grants to Rockville businesses; Rockville businesses should check REDI’s website to see which financing programs they might be eligible for.
In addition to these nonprofit loans for businesses in the city of Rockville, other cities and counties in Maryland, including Frederick, Montgomery, and Baltimore, have similar low-interest or interest-free loan programs for businesses in those areas.
Small Business Grants In Maryland
Generally, grants for for-profit businesses are hard to come by and even harder to get approved for. However, Maryland seems to have an exceptional number of government-funded grant programs designed to promote economic development in the state. I’ve highlighted some of the most relevant programs below, and you can find a full list of all state business grant programs on Maryland’s Department of Commerce website.
Video Lottery Terminal Fund
Maryland’s Video Lottery Terminal Fund (VLT) uses proceeds from the state’s video slot machines to assist small, minority, and women-owned businesses located throughout the state of Maryland (and especially in the areas surrounding Maryland casinos). You can find more information on this grant on Maryland’s Department of Commerce website.
Rockville Small Business Impact Fund
The Rockville Small Business Impact Fund is a new program that will offer financial assistance to qualified, small- and medium-sized businesses in Rockvilleâs performance districts, particularly start-ups and businesses lacking access to the capital they need to sustain growth.
Per the program’s website:
During the Impact Fundâs pilot year, it will support private-sector solutions to community challenges through a grant focused on fostering economic vitality and community engagement in Rockville Town Center.
Montgomery County MOVE Program
MOVE is a one-time grant for businesses that are new to Montgomery County and lease up to 10,000 square feet of office space for a minimum of three years, excluding retail and restaurant industries. (Rockville, MD has a comparable program.) Eligible businesses may receive a grant of $8.00 per square foot for Class A or B space, and up to $4.00 per square foot for Class C space. You can contact the Montgomery County Economic Development Corporation for more information on this grant.
Advantage Maryland (also known as MEDAAF) is a broad, state-funded program that funds grants, loans, and investments to support economic development initiatives in the state of Maryland. Only businesses in eligible industries and priority funding areas will qualify. Contact the Maryland Department of Commerce for more information.
Export MD Program
The Export MD grant is designed to reimburse Maryland businesses for international marketing expenses. Funded in part through a cooperative agreement with the SBA, Export MD awards eligible Maryland businesses with up to $5,000 in reimbursement for expenses associated with an international marketing project—for example, trade show fees, airfare, translation of brochures, and website development. Maryland DOC accepts applications for this grant on a monthly basis.
Loans & Resources For Startups In Maryland
Brand-new companies have special hurdles when it comes to obtaining startup capital and other startup necessities. Fortunately, there are both state-funded and private nonprofit organizations in Maryland to help you find startup capital, register your business, and get your business off the ground!
Maryland Business Express
Hosted on the Maryland Department of Commerce website, Maryland Business Express is an online resource that provides a comprehensive set of resources for individuals who want to start a business in Maryland. You can do everything from register your business, to establish tax accounts for your business, to obtain Maryland business licenses online.
In other areas of the same website (Maryland DOC), you can also find loan and financing resources for Maryland business startups.
Maryland Capital Enterprises, Inc.
Maryland Capital Enterprises, Inc. (MCE) is a nonprofit lender providing small business loans to startups in Maryland. These loans of up to $50K are for for-profit startup businesses that have tried to obtain capital from a bank but were unable to. Visit the program’s website for more info.
Frederick County Small Business Loan Guarantee
The Frederick County Small Business Loan Guarantee program provides funds for the purchase of real estate, machinery, equipment, inventory, working capital, and renovation of real estate to startup businesses located in a Frederick County priority funding area (priority funding areas cover most municipalities and major transportation corridors in the county). The loan guarantee is for up to 80% of the loan with a maximum of $50,000.
Baltimore County Boost Fund
The Baltimore County Boost Fund provides loans of up to $250K to small businesses (classified by SBA standards) in Baltimore County and can be used for startup funds, as well as other business expenses. Baltimore-area small businesses are eligible, as are minority-owned businesses, woman-owned businesses, and veteran-owned businesses in Baltimore. Baltimore County also has a few other loan programs startups in the area may qualify for.
What To Consider When Choosing A Lender
There’s a lot to consider when choosing a small business lender. Among the most important factors are :
How much you’ll pay for the loan (in interest and other fees)
Ease of application
Do you qualify?
Generally, you want to choose the lowest-interest loan you qualify for, but you’ll also want to consider the lender’s overall reputation and whether you can comfortably afford the loan repayments. If you are time-pressed (and who isn’t?) you should also take into account how fast the loan will come through, and how convenient the application process is.
Different types of loans have different pros and cons you’ll need to weigh—for instance, an online loan you qualify for today might be easy to apply for and will hit your account within a couple of days, but carry a high interest rate or factor rate, with a short repayment term. You may have to wait a couple of years before you can qualify for a bank or SBA loan, but it will have a lower interest rate and more comfortable repayment schedule.
In order to choose the best loan you qualify for, you’ll need to consider multiple offers from different lenders. As mentioned, using a loan aggregator service like Lendio one good way to compare different business loans at the same time.
Of course, you’ll also want to make sure you even qualify for a loan before you start seriously considering them, or you’ll just be wasting your time. Be sure to check your credit score and also check that you meet a lender’s borrower requirements—which are almost always clearly stated on their website—before applying.
It’s safe to say that Maryland is indeed “open for business,” as its business-forward mayor states. While Maryland does have a relatively high cost of doing business compared to many other states, there are numerous loans and even grants available to Maryland businesses.
The D.C.-adjacent state has a lot going for it when it comes to attracting small businesses, including a wealthy populace, potential for government contracts, access to a major seaport, and many government programs to promote economic development, particularly for businesses owners who struggle to qualify for traditional means of capital. Whether you choose to go the bank loan route, apply with an online lender, or try to qualify for government-backed financing, you have many financing options at your disposal as a business owner (or aspiring business owner) in the Old Line State.
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If you are a small business with a physical storefront, a location where you store your goods/supplies, or a strong inventory of vehicles and equipment, buying a commercial property insurance plan should be part of your risk management plan. Commercial property insurance is designed to protect your business from accidents, theft, fires, and some (but not all) Acts of God.
If the worst-case-scenarios for your property come to fruition, a solid commercial property insurance plan creates a way for your business to run and thrive despite the setbacks.
What Is Property Insurance?
Commercial property insurance is a policy of coverage that protects your business assets in the event of property damage. Accidents, fires, and vandalism are all covered by property insurance, and the policy not only provides compensation for damage to buildings but also damage done to products inside the building. Structures, fixtures, and equipment inside the building are protected under property insurance, but it’s best to check the policy and speak to an insurance expert to make sure your most important assets are included in the policy’s coverage.
When you file a claim, you can choose to receive the cash value of the destroyed items or the replacement value (how much it would cost to replace new). However, policies are often specific in what they’ll cover and what they won’t cover. Read on to see what is and isn’t covered in most policies.
What Property Insurance Covers
In general, the commercial policies will cover accidents, damage, and theft to your building and assets inside your building. In most cases, commercial property insurance policies will cover the following (although, as with any policy, ask questions about the coverage):
Damage and destruction from a fire
Losses and damage from theft and vandalism
Damage from tornados or a hurricane
Damage from aircraft or other vehicles crashing into your building
Damage from riots/civil unrest
What Property Insurance Doesn’t Cover
Most commercial property insurance policies will not cover everything and the list of things not covered is extensive. Most policies don’t cover flood, tsunamis earthquakes, and sewer backups among other things.
Sometimes the exact same damage is covered or not covered depending on how the damage occurred. For example, if your toilet backs up and sewage destroys your property, it isn’t covered. But if that same toilet backs-up because of vandalism, that is covered. Since policies vary by carrier, it’s important to learn exactly what is and isn’t covered by your insurance provider.
Who Needs Property Insurance?
Most businesses need a basic type of commercial property insurance if they have a physical location for their business. The coverage will protect business assets in the event of damage to the property. Buildings, machinery, and some electronics are covered under the policy.
If your business is leasing or renting a commercial space, you will need to check with your landlord to see who is expected to carry the burden of insurance. Some landlords will still expect you to pay rent on a damaged building (and it is becoming more common that you will need to supply proof of insurance before signing a lease), so understanding your business insurance policy will help with surprises. Even if commercial property insurance is not required by a landlord, you don’t want to find yourself under-insured.
You should get commercial property insurance if you need to protect the following items:
A commercial space (that you either rent or own)
Computer and electronic equipment
Office furniture and supplies
Inventory and stock
Property Insurance VS. Business Owners Policy (BOP)
Many business owners find that it is better to bundle their commercial property insurance policy with a general liability policy. This is known as a Business Owners Policy (BOP) and is often the most economical way to protect your business from the biggest claims for and against your business.
What Is A Business Owners Policy?
A Business Owners Policy (BOP) is a bundled policy that includes both property and liability insurance. Check with specific insurance providers about what their particular BOP entails. Under a BOP, many business owners can add extra insurance coverage that exceeds the basic coverage of a commercial property policy. (And if you have employees, a BOP can also negotiate worker’s compensation insurance into the bundle.)
What Does A Business Owners Policy Cover?
All Business Owners Policies (BOP) have general liability insurance and commercial property insurance bundled into one policy. General liability coverage protects your business from the cost of a lawsuit due to accident or injury to someone’s person or property. Additionally, a BOP includes commercial property insurance which provides protection to your assets in the event of damage to your property. Most BOPs also include business income insurance or additional coverage against theft through crime insurance. (Each policy is different and most can be tailored to fit your business risks.)
Additional Types Of Property Insurance
When you start shopping for commercial property coverage, you’ll want to know what you can add to your policy to make sure it is the best fit for your business. Most commercial property policies don’t cover earthquake damage or flooding. Are you in an area where the fault lines aren’t predictable? You’ll want extra coverage. Is your business’s location prone to flooding? You’ll want additional flood insurance.
It’s important to ask about additional policies to cover the following possible situations if they are risks for your area/business type:
Water damage due to flooding/tsunamis
Damage from earthquakes
Acts of war
Loss of business income from closure
Which Type Of Property Insurance Is Right For You?
Type of Insurance
What It Covers
Who It Is For
Protects your business from the threat of a lawsuit
Protects your building and things inside your buildings from damage and accidents
Businesses with a physical property site and products located in those physical locations
Provides resources if your business is forced to stop or relocate
Businesses located in riskier areas and businesses who might work with vendors in risky areas
Commercial Auto Insurance
Provides protection from accidents on your commercial vehicles
Businesses that rely on automobiles to do business
Provides protection to you and your employees should they become injured on the job
Professional Liability (E&O)
Protects your business during a lawsuit if your business commits errors or malpractices
Any business that provides a service
Product Liability Insurance
Protects a business from a lawsuit related specifically to the product it sells
Any business that manufactures, sells, or distributes a product
Home-Based Business Insurance
Protects any business-related items inside your home not covered by home owner’s insurance
Any business owners running out of their own homes
Business Owners Policy
Includes both general liability and commercial property insurance
Provides a bigger ceiling for the legal costs of a lawsuit that extends your liability coverage
Whether you are buying a commercial property policy separately or as part of a business owner’s policy, knowing which types of insurance are available will help you make the most informed decision for your business. Here are the types of policies you can add to your general liability policy.
Direct Damage Property Insurance:Â This is your standard commercial property insurance. The policy covers any direct damage to your business location and damage to business property.
Business Interruption Insurance/Business Income Insurance:Â After a disaster, the business may need to close its doors for a bit. This insurance covers the lost income due to a closure and it also helps provide protection for expenses related to the closure (temporary locations, moving supplies, etc.).
Extra Expense Insurance:Â For businesses that cannot afford to close (a 7-day business like a clinic or a security center), in the event of a disaster or interruption to the business, this policy helps provide the finances to move to a new location or minimize the financial effects of a shutdown. It is similar to business interruption service but targeted specifically toward the extra expenses of moving a business to a new location.
Leasehold Interest Insurance:Â If a business loses its lease (especially if they had a nice lease, under market-value), this insurance covers the financial loss of losing the lease. It can also help pay back a business owner for betterments to the space that they are leaving.
Fine Arts Coverage:Â If you decorate your space with tapestries and rugs and paintings, you might need fine arts coverage if you’d want to replace it after a disaster. Because fine art needs a valuation, someone who purchases this floater coverage would want to itemize their art. However, this is specifically designed for people who use fine art as decoration and have no intention of selling it. (That would require a larger insurance policy.)
Contractors Equipment Coverage:Â This additional coverage specifically covers and replaces equipment and tools that are either damaged or goes missing on a job site. For contractors and construction businesses that might have expensive tools in a variety of locations, this floater will specifically insure machinery and tools.
Cyber Liability Coverage:Â If you are the victim of hacking or a data-breach, and your customer data is leaked (including social security or credit card numbers), it can cost your business a lot of money to comply with federal guidelines. This coverage helps pay legal fees and protects you from lawsuits arising because of the data breach. If your business is online or you collect information online, this is an important addition to your plan.
Electronic Data Processing Coverage:Â This insurance protects the equipment and the data that you collect. This is a policy that bridges a gap in your commercial policy between what electronic equipment is insured after an accident or disaster. With this add-on, your computer hardware,Â as well as software and data information, is all insured.
Employee Theft Insurance:Â If a dishonest employee steals equipment, money, or securities, the losses are covered under this additional policy added to your commercial property plan. This plan will even cover the losses if you don’t know which employee committed the crime, and it is part of the crime add-ons to a commercial property policy.
Inland Marine Insurance:Â A commercial property policy will only cover items at a specific business location, so what if your equipment and business materials travel from one place to another? This type of insurance covers things in transit or an instrument of transit or any equipment that is moveable.
Debris Removal Insurance:Â This section of property insurance covers the cost of removing debris after an accident or Act of God. While property insurance may cover the cost of repair, without this specific add-on to your policy, the cost to remove garbage and debris may fall on you as a business owner.
Buying Property Insurance
Once you’ve decided to invest in commercial property insurance, you’ll now need to decide what type of coverage is best suited for your business and make a list of assets you’d like to protect. After that, read our article on the steps needed to buy insurance. There are four quick steps to getting yourself secured with the right policy.
Assess your risk and choose which insurance you need.
Gather the necessary business information (in this case, you’ll need specific details about your commercial property including square footage).
Comparison shop the costs. (You can use comparison sites like Coverwallet, Coverhound, and Insureon, or contact your local insurance provider to see what commercial plans are available.)
Purchase your insurance!
Commercial property insurance is important to provide needed protection for your building and the assets inside your building. Whether it’s a fire or an unruly mob of people, if your property is damaged, don’t be left to pick up the pieces on your own. Find a policy that will give you peace-of-mind and adequate coverage to the things that matter most.
The post Everything You Need To Know About Small Business Property Insurance appeared first on Merchant Maverick.
Do you have a tendency to share your knowledge and experience with others? Do you enjoy giving advice that helps others better their businesses â¦ or their lives? Did you know that you could get paid just for sharing your expertise?
While it may sound too good to be true, thatâs exactly what a consultant does. A consultant is an expert that provides knowledge, expertise, and training to others for a fee. Consultants advise their clients on a variety of topics, from how to implement the latest technology to how toÂ create a successful marketing campaign.
Becoming a consultant does not require special training, credentials, or education. You simply need to be an expert in your field. You also need to have passion — not just for your industry but for helping others truly find the right solutions for their problems.
Consultants are organized, know how to network, and are always willing to learn more about their field to provide the best services to their clients.
If this sounds like you, becoming a consultant may be your new career path. The great thing about consulting is that anyone with knowledge and expertise can do it. Starting your own consulting business has low overhead costs and doesnât require a lot of capital from the get-go. In fact, you can even start your own business from your home office.
But maybe your goals are much bigger. Maybe you want to have the top consulting firm in your area. It doesnât matter if you want to simply be your own boss and make a decent income or if you want to grow your business to epic proportions — this guide is for you.
Weâll explore the steps you need to take to get your business off the ground. From finding your niche to funding expenses and spreading the word about your business, this guide explores what it takes to open and operate a successful consulting business. Letâs jump in and get started!
Pick Your Niche
Weâve all heard the saying, âJack of all trades, master of none.â When clients are seeking a consultant, they donât want someone that knows a little bit about everything. Instead, they want to work with a consultant that knows everything about one thing. This is why itâs so important to pick your niche.
To get started, consider your skills and knowledge. What industry are you familiar with? Clients are looking for an expert in their field, so identifying the industries you already know is important when selecting your niche.
Next, you need to consider what problems and pain points your chosen industry is facing. You can do online research to find out what challenges are common in this industry. Check out blogs and industry forums to get an idea of common complaints and problems. You can even talk directly with people in the industry to find out what obstacles and setbacks they face.
Once armed with this information, you need to identify your own skills and knowledge that could be applied to this field. For example, letâs say youâre knowledgeable about the construction industry. One of the common pain points in this industry is a lack of communications. Are you familiar with mobile and cloud-based software? Great! You could use this knowledge to help businesses streamline communications and improve efficiency.
When you start your consulting business, your goal shouldnât just be something generic like, âI want to help other business owners.â Instead, you should have a more specific purpose in mind. âI help businesses in this industry find and implement the newest and best software solutions to grow their business in just 3 months.â This also serves as your value proposition. In other words, this is the value you offer; something that sets you apart from other consultants. Remember to effectively communicate to your clients what you can do for them.
Still unsure of where to get started? Consider one of these niches for your consulting businesses:
Human Resources (HR)
After youâve selected your niche, do your research to find out what certifications and licenses you need to legally operate your business. In most instances, youâll find that a business license in your state of operations is all that you need to open your consulting business.
One last thing to remember is that even if youâre knowledgeable about your niche right now, industry trends and changes can occur in an instant. Make sure you stay up-to-date on whatâs happening in the industry to ensure youâre always qualified to assist your clients.
Make Your Business Plan
Even if your consulting business seems pretty straightforward, itâs still necessary to have a business plan. There are a few reasons you need a business plan. The first is that your plan maps out your goals and how you plan to reach those goals. A business plan is also necessary when you seek funding through banks or other lenders.
Because every business has a different vision, no two business plans are exactly alike. However, there are a few common components that should be included in all business plans. Those components are:
Executive Summary: Highlights what will be discussed in your plan and summarizes what your business hopes to accomplish
Company Description: Includes key information about your business and the customers that you will serve
Competitive Analysis: Who are your competitors, and what are their strengths and weaknesses?
Organization & Management: An outline of the setup of your organization and names and summaries of the job responsibilities of your management team
Market Analysis: An analysis of your industry now and in the future
Marketing Plan: An outline of the marketing strategies you will use to draw clients to your business
Financial Projections: Your expectations for future revenue based on market research
Register Your Business
Before you launch your business, you have to register with federal, state, and local agencies. You will need to register your business name with the state in which you operate. In addition, you must register with the Internal Revenue Service to get an Employer Identification Number (EIN) if you ever plan to hire employees. It’s imperative to obtain licenses and permits to operate your business based on state and local regulations. You must register your business if you plan to seek business funding now or in the future — or if want to open a business bank account. Establishing a business is legally required, but it also makes you look more professional and legitimate to your clients.
One important step to take when registering your business is choosing your business structure. Your business structure will be important in determining what youâll pay in taxes. Your business structure may also offer protection from personal liability for the debts and obligations of your business. The different types of business entities include:
This structure is the easiest to form and does not require filing with the state. With a sole proprietorship, profits and losses from the business are reported on the business ownerâs personal tax return. The major drawback of this business structure is that the business owner â you â are held personally liable for the debts and obligations of the business.
A partnership is established by businesses with two or more owners. There are three common types of partnerships: general partnerships, limited partnerships, and limited liability partnerships.
General Partnership (GP): This type of partnership has the fewest ongoing requirements. These are also the easiest to form and donât require state filing. The drawback is that partners in a GP are personally liable for the debts and obligations of the business.
Limited Partnership (LP): In a limited partnership, only the general partner(s) has unlimited liability. The other partners — known as limited partners â have limited liability. This simply means that personal assets canât be used to cover the debts and liabilities of the business.
Limited Liability Partnership (LLP): In a limited liability partnership, all partners have limited liability. However, partners may be held liable for their personal actions. This structure is reserved for professional service businesses.
Limited Liability Companies
A limited liability company, or LLC, is independent of its owners. The personal assets of the owners are kept separate from business debts. An LLC is taxed similarly to sole proprietorships and partnerships.
If a corporation is the right structure for your business, there are two options to consider: C corporations and S corporations.
C-Corporations: C-corporations are independent of their owners. There is no limit on the number of shareholders in a C-corporation. C-corporations are taxed on shareholder dividends and corporate profits.
S-Corporations: An S-corporation is also independent of its owners. Owners report their share of the profits and losses on their own personal income tax returns. There are limitations to the number of shareholders with this structure.
When choosing your business structure, you need to keep a few considerations in mind. If you have multiple owners, a partnership is a good route to take. If you want to protect your personal assets but donât want a higher tax rate, consider establishing an LLC. If you plan to raise large amounts of capital in the future, a corporation might work best for you. You can learn more about what business structure best fits your needs by consulting with an attorney or accountant.
Get Business Insurance
Business insurance is critical for the protection of your business. From property insurance that protects your office building to liability insurance that safeguards you from lawsuits, there are a few different types of business insurance to consider for your consulting business.
General Liability Insurance
If you operate a brick-and-mortar business, you need general liability insurance. This protects your business in the event that something happens to a client on your property. For example, if a client slips and falls in your office, they could file a lawsuit against you. With general liability insurance, you wonât have to pay all associated costs out-of-pocket.
Professional Liability Insurance
Professional liability insurance is also known as errors and omissions (E&O) insurance. This type of insurance protects you from lawsuits that may be filed by clients. Letâs say that you consult with a client on a project, and the project ultimately ends up failing. The client believes that the failure of the project was your fault and files a lawsuit. If you have E&O insurance, attorneyâs fees, settlement expenses, and court costs will be covered up to the full amount of your policy.
If you have employees, workerâs compensation is another type of insurance your business needs. Workerâs compensation covers the medical expenses, wages, and legal fees of an employee that is injured on the job or suffers a work-related ailment. Most states require all W2 employees to be covered under workerâs compensation insurance, but laws vary by state.
Commercial Property Insurance
If you have a commercial property for your consulting business, consider getting commercial property insurance to protect your assets. This type of insurance protects you from losses that may occur from burglary, fire, or natural disasters.
Separate Personal & Business Expenses
It may be tempting to simply use your own personal bank account and credit cards for your business. Since the business is yours, thereâs no harm in mixing your business and personal finances, right?
Actually, the wisest move is to keep your business and personal finances separate. One of the most important reasons for doing this is because it will make filing your taxes much easier. Imagine that the deadline is ticking to file your return with the IRS, and you (or your accountant) are stuck spending hours separating business and personal records. If youâre audited after filing, having separate records for business and personal income/expenses will make the process go much more smoothly.
Keeping your business and personal finances separate is also helpful in limiting your liabilities from creditors. If there is no clear separation between you and the business, creditors could potentially use your personal assets for unpaid debts and obligations, even if your business is structured as a corporation or LLC.
Separation of personal and business expenses is also important for building your business credit. If youâre using your own personal credit cards, you may increase your personal credit score. However, this wonât affect your business credit history. If you plan on applying for business loans in the future, boosting your business credit profile is critical to qualifying for higher loan amounts and the best rates and terms.
The first step to separating your business and personal finances is to open a business checking account. This bank account can be used for depositing money, writing checks to vendors, making online payments, and keeping an eye on the expenses and income of your business. To open an account, you will need your EIN, Social Security Number, business address, and business license. You may also need other documentation, such as a copy of the articles of incorporation on file with your state.
Even though you can keep an eye on your finances through your business bank account, itâs also important to set up a dedicated accounting system for your business. This will allow you to closely keep track of the money coming in and going out of your business. You may opt to hire a bookkeeper for this task, or you can use accounting software to track everything yourself. Weâll go into more details on this type of software a little later.
Finally, you can apply for a business credit card to cover recurring expenses for your business, such as your lease or utility payments. Using and paying off your business credit card responsibly will help strengthen your business credit profile.
Unsure of which card is right for you? Start with these recommendations.
Chase Ink Business Cash
Chase Ink Business Cash
15.49% – 21.49%, Variable
Required credit: Good, excellent
Bonus offer: $500 cash back if you spend at least $3,000 in the first three months of opening your account
Purchase intro APR: 0% for the first 12 months
Balance transfer intro APR: 0% for the first 12 months
Foreign transaction fee: 3%
5% cash back on the first $25,000 spent in combined purchases at office supply stores and on internet, cable, and phone purchases each account anniversary year
2% cash back on the first $25,000 spent in combined purchases at gas stations and restaurants each account anniversary year
1% cash back on all other purchases
Notable Perks & Benefits:Â
Employee cards at no additional cost
Travel and purchase coverage
More card details (click to expand)
The Chase Ink Business Cash card rewards you just for using your card on business expenses. You can receive 5% cash back on internet, cable, phone services, and purchases from office supply stores. However, this is capped at the first $25,000 spent each anniversary year.
You can also earn 2% back on purchases at gas stations and restaurants. This is also capped at the first $25,000 spent per anniversary year.
For the rest of your purchases, you can take advantage of unlimited 1% cash back rewards. As a new cardholder, you can receive a bonus of $500 cash back if you spend $3,000 within 3 months of opening your account.
This credit card has a 0% introductory APR for the first 12 months. After the introductory period, interest rates are 15.49% to 21.49% based on creditworthiness. There is no annual fee associated with this card.
Additional benefits for Chase Ink Business Cash cardholders include free employee cards, purchase protection, and extended warranty protection. You must have excellent credit to qualify for this credit card.
Spark Cash Select For Business
Spark Cash Select From Capital One
15.24% – 23.24%, Variable
Required credit: Good, excellent
Bonus offer: $200 cash back if you spend at least $3,000 in the first 3 months of opening your account
Purchase intro APR: 0% for the first 9 months
Balance transfer intro APR: 0% for the first 9 months
Foreign transaction fee: None
Unlimited 1.5% cash back on all purchases
Notable perks & benefits:
Rewards can be requested as cash back or applied as statement credits
Employee cards at no additional cost
Comes with Capital One and Visa business benefits
More card details (click to expand)
Capital Oneâs Spark Cash Select for Business is designed for borrowers with excellent credit scores. One of the standout features of this card is the unlimited 1.5% cash back you receive just by using your card. You can cash out your rewards at any time.
If you become a new cardmember and spend $3,0000 within the first 3 months of opening your account, youâll receive a $200 cash bonus.
Youâll also be able to enjoy a 0% introductory APR for the first 9 months. After the introductory period, your APR will be from 15.24% to 23.24% based on creditworthiness. This card does not have an annual fee, and you can receive employee cards at no cost.
Seek Business Funding
One of the best things about setting up your consulting business is that you may be able to get started with very little capital. Ultimately, though, this depends on the goals of your business. For example, if you plan to only consult with clients online, you can work right out of your home office. This eliminates the need for a dedicated commercial office, which comes with expenses such as monthly rent and utility payments.
On the other hand, you might want to open a brick-and-mortar business immediately. This would require more capital from the start. Even if you start small, you may later expand your business by purchasing or leasing a larger building and hiring employees.
Whether you start off big or you plan to grow in the future, youâll need capital. In some cases, you may be able to use your revenue to fund your expenses and growth. In other instances, youâll need a financial boost from a business lender.
Fortunately, there are many financing options out there if you know where to look. Letâs explore the types of funding available to you, along with our lender recommendations.
If you would prefer to not work with a lender, using personal savings is an option available to you. If you use your own money, you donât have to worry about making payments to a lender. Youâll also save money because you wonât pay interest or fees that are charged by a lender. On the downside, if your business isnât successful, you risk losing your savings.
Friends & Family
Have a friend or family member with cash to invest? Pitch them your business idea and let them know why investing in you is a great idea. Have your business plan in hand and present your ideas to them just as you would any other lender. If they decide youâre worth the investment, make sure to get everything in writing to protect all parties.
There are two ways to get loans from someone you know. You can choose debt financing, which means that youâll make payments toward your principal balance plus interest on a regularly scheduled basis, just like a traditional loan. Or you can receive money in exchange for ownership in your business â also known as equity financing. While you wonât have to repay immediately, your friend or family member will collect a share of the profits over time. Depending on your agreement, they may also have some level of control in the decision-making process of your business.
Unsure of which route to take? Learn more about debt vs. equity financing to determine which option is best for your business.
Rollovers As Business Startups (ROBS)
What if there was a way to get the capital you need to start or grow your business without taking on debt? Sounds too good to be true, doesnât it? But with a rollovers as business startups (ROBS) plan, you can do just that. The only catch? You have to have a qualifying retirement plan.
Early withdrawal of your retirement funds results in penalties. However, a ROBS plan allows you to leverage your funds without having to pay these penalties.
With a ROBS plan, you set up a new C-corporation. Then, you create a retirement plan for your newly created corporation. Next, you roll over funds from your existing retirement plan. These funds can be used to purchase stock in your new business, providing you with the capital you need to start or expand your business.
The best part of a ROBS plan is that youâre using your own funds. This means no debt, no interest or fees, and no repayments to a lender. However, you are putting your retirement funds at risk if your business fails.
Recommended Option: Guidant Financial
Time in business: Unknown
Credit utilization: Less than 50%
Credit score: 690+
Borrower requirements (click to expand)
Many small business owners that get capital through a ROBS plan hire a ROBS provider to do the heavy lifting. Guidant Financial is a ROBS provider that can help you get started.
To set up a ROBS plan with Guidant Financial, you need to have a retirement plan or pension account with at least $50,000. Most plans qualify, including:
Guidant Financial can help you roll over up to 100% of your account balance. In addition to having a qualifying plan, you must also meet these requirements:
Must be an employee of the business
Must have a business to fund
You can use your funds for any business purpose, whether youâre buying an existing business, funding startup costs, or paying expenses related to expansion.
To get started, you must pay a $4,995 startup fee. Since this isnât a loan, you wonât have to make debt repayments. However, you will have to pay a monthly administration fee.
If you donât qualify for a ROBS plan or youâre seeking other types of funding, Guidant Financial offers other options including Small Business Administration (SBA) loans, unsecured business loans, and equipment leases.
Lines Of Credit
A line of credit is one of the most flexible forms of financing. This is a type of revolving credit (similar to a credit card) that allows you to make multiple draws. As you repay your principal balance (plus fees and interest), funds will become available to use again. Fees and interest are only charged on the borrowed portion of funds.
With your line of credit, you can initiate draws as needed. Once you draw funds, theyâll be transferred to your bank account and are available to use in 1 to 3 business days in most cases.
You can spend up to and including the credit limit set by your lender. Most lines of credit can be used for any business purpose but are particularly useful for unexpected expenses, filling revenue gaps, or covering extra expenses due to a seasonal increase in business.
Recommended Option: Fundbox
No time in business requirements, but must have used a compatible accounting or invoicing software for at least 2 months, or a compatible business bank account for at least 3 months.
Business revenue: $50,000 per year
No specific personal credit score requirement
Borrower requirements (click to expand)
Fundbox is a lender that has lines of credit up to $100,000 for qualified small business owners. The lender charges set draw fees starting at 4.66% of the borrowing amount. You can choose to repay Fundbox over terms of 12 or 24 weeks, and payments are automatically deducted from your linked business checking account.
You can be approved instantly and put your line of credit to work for you immediately. Once you initiate a draw from your account, funds will hit your bank account within 1 to 3 business days.
Qualifying for a Fundbox line of credit is easy. The minimum requirements are:
Must have a business checking account
Must have a U.S.-based business
At least 2 months of activity in accounting software or at least 3 months of transactions in your business bank account
At least $50,000 in annual revenue
Your credit limit will be based on the performance of your business.
Whether your consulting business is home-based or you operate out of a commercial property, you will need some equipment to get started. Some equipment you may need for your business includes a computer, printer, office furniture, and computer software. If you donât have the funds available in your bank account, consider applying for equipment financing.
Equipment financing is a type of funding used to purchase equipment, furniture, and fixtures for your business. Equipment loans can also be used to purchase a commercial vehicle if one is needed to drive to meet your clients if you don’t want to take out an auto loan. There are two types of equipment financing available: equipment loans and equipment leases.
With an equipment loan, youâll make regularly scheduled payments to a lender over a set period of time, such as five years. Each payment will be applied to the principal â the amount you borrowed â as well as fees and interest charged by the lender. Once youâve made all payments as scheduled, the equipment belongs to you. You can continue to put the equipment into use or sell it.
With equipment leases, you also make scheduled payments to a lender. However, your lease terms are typically a few years shorter. Once youâve made all scheduled payments, you return the equipment and sign a new lease for new equipment. You never truly own the equipment, but this is a good option for anyone that wants to update their equipment every few years.
Recommended Option: Lendio
Time in business: 6 months
Business revenue: $10,000 per month
Personal credit score: 550
Borrower requirements (click to expand)
Lendio isnât a direct lender. Instead, itâs a loan aggregator that can connect you with its financing partners to help you get the best financing offer for your situation.
One of the financial products offered through Lendio is equipment financing. You may qualify for funding of $5,000 to $5 million for the purchase of your equipment. Loan terms are 1 to 5 years with interest rates starting at 7.5%.
Your funds can be used for almost any equipment purchase, including software, furniture and fixtures, and even appliances and HVAC units for your office.
To qualify, you must meet these minimum requirements:
Time in business of at least 12 months
At least $50,000 in annual revenue
Personal credit score of 650 or above
If you donât meet these requirements, Lendio may still have an option for you. Just fill out a quick application to find out what you can qualify to receive. Lendio also offers additional financial solutions, including SBA loans, lines of credit, term loans, and startup loans.
Personal Loans For Business
If youâre a brand-new business, you may not qualify for other financing options. This is because lenders look at annual revenue, business credit profile, and your time in business to determine if youâre a risky borrower. If you donât meet these qualifications, you wonât be able to get affordable small business funding.
However, there is an alternative solution. You can apply for a personal loan to use for business purposes. With this type of financing, a lender considers your personal credit history and income to determine if you qualify.
In most cases, you can use a personal loan for business for any purpose, from purchasing needed equipment to hiring new employees, using as working capital, or paying startup costs.
Recommended Option: Upstart
Time in business: N/A
Personal credit score: Minimum 620
Business revenue: N/A
Borrower requirements (click to expand)
Upstart personal loans are available in amounts from $1,000 to $50,000. APRs range from 7.54% to 35.99%. Repayment terms are 3 or 5 years.
Upstartâs lending partners consider more than just your credit score when determining whether to approve your loan. Your years of credit, education, area of study, and job history are also considered during the application process.
To qualify for an Upstart personal loan, you must have:
Personal credit score of 620 or above
Solid debt-to-income ratio
No bankruptcies or public records
No delinquent accounts or accounts in collections
Less than 6 inquiries in the last 6 months
Business Credit Cards
Weâve already discussed business credit cards earlier as part of keeping your business and personal accounts separate. Business credit cards are great to have on-hand for unexpected expenses or recurring expenses for your business.
You can even score rewards just for using your credit card. Look for a rewards card that offers cash back or points to use toward perks like travel to get the most out of your card.
Recommended Option: Spark Classic
Spark Classic From Capital One
Required credit: Fair
Bonus offer: None
Purchase intro APR: N/A
Balance transfer intro APR: N/A
Foreign transaction fee: None
Unlimited 1% cash back on all purchases
Notable perks & benefits:
Free employee cards
Fraud coverage and alerts
Capital One and Visa business benefits
More card details (click to expand)
Capital Oneâs Spark Classic for Business card is available to business owners with average credit. This card offers a 25.24% variable APR and no annual fee. Using your card responsibly helps build your business credit profile so you can qualify for other cards and financing offers in the future.
You can earn unlimited 1% cash back on all purchases with no minimum required to redeem. Other benefits include fraud coverage and alerts and employee cards at no additional cost.
Choose Business Software
Choosing the right business software can help you run your consulting business more efficiently. The first type of software you should invest in is accounting software or an online bookkeeping system. This allows you to keep track of your income and expenses, run financial reports, send invoices, and access your financials for tax purposes. As your business grows, you may opt to hire a bookkeeper or accountant, but in the beginning, you may be able to tackle this task yourself using the right accounting software.
New to accounting? Download our free ebook, The Beginner’s Guide to Accounting, to get a handle on the basics.
Youâll also need software thatâs used for managing clients — from keeping updated contact information all in one place to setting and tracking appointments. There are programs designed specifically for consultants that offer client management, project management, tasks, and other features.
To accept payments other than cash, youâll also need payment processing software. This software communicates between your bank and the bank of your client, allowing you to accept debit cards, credit cards, and other forms of payment. If your business is going to be based solely online, you can sign up for an online payment solution.
Finally, if you plan to do online consulting, you must invest in video conferencing software. There are multiple options available — some at no cost and others that charge a monthly fee.
Set Your Rates
In order for your business to be successful, you have to have revenue. Without revenue, you wonât be able to pay your expenses or the salaries of yourself or your employees. Without revenue, you also wonât be able to grow your business.
To make sure your business is successful and profitable, you need to set your rates. This can be a balancing act for most consultants. If you set your rates too high, it may scare away potential clients. If you shortchange yourself and set your rates too low, clients may not take you seriously or you might not bring in enough revenue to cover your expenses.
To set your rates, first decide how your pay structure will look. You have three options: per project, hourly rates, and retainers.
If you charge per project, you will need to figure out how long the project will be, what expenses may be incurred, and other factors. You may choose to bill for the entire project or break it down into monthly payments.
You can also charge an hourly rate. Take a look at your expenses and determine how much you would need to charge to be profitable. Also, be aware that the higher your rate is, the more your clients will expect from you. If you have the credentials, training, and education to justify charging $500 per hour, your clients will have high expectations of what youâll provide.
Finally, you can also work on a retainer basis. With a retainer, you will work a specific number of hours for one set monthly fee.
When calculating your rates, make sure to list all of the expenses of your business. You will need to make at least enough revenue to cover these costs.
You also need to find out what your competitors are charging for their services. You can do this by going online to their websites, checking out their brochures, or making a quick phone call. Unless you have an obvious advantage over other consultants in your area, you want to make sure that your fees are competitive.
Bolster Your Web Presence
Prospective clients are going to have a difficult time finding you if you donât have a web presence. This doesnât mean that you have to invest thousands of dollars in setting up a fancy new website. However, you do need to have at least a basic website and social media profiles to provide clients with critical information about your business.
You can get started by setting up free social media pages on sites including Facebook and Twitter. Your pages should include your contact information, the services you offer, and office hours. As your business grows, you can post news and updates, videos, photos, and other media to draw in clients.
You also need to set up a company website. You could pay a web designer, but at this stage, you can certainly tackle the task yourself. Easy website builders make it simple to set up your website in just minutes, even if youâve never created a website before. Make sure that you include your contact information, areas served, and the services you offer. If you have any credentials or training, add that information to your website, as well.
Later, you can add additional features to your website, such as videos, online appointment scheduling, and client testimonials.
If you want to learn more tips and tricks, check out our article on creating and maintaining your online presence.
Market Your Business
Building your web presence is one way to get your name out to the public, but you should also implement a marketing and advertising campaign to further boost your business. The strategy you choose is based on a number of factors, including your marketing budget and your goals for the campaign.
One great way to market your business is through Facebook ads. You can easily set your budget and select your target audience. It only takes a few minutes to get your Facebook ads up and running. Learn more about social media marketing for your business.
Another advertising method you can use is a newsletter. Your newsletter doesnât need an over-the-top design. Instead, a simple newsletter with important information is most effective. Use your newsletter to discuss current industry trends, current news about your business, and other relevant information. You can send a physical newsletter by mail, but this comes with costs including paper and envelopes, printing, and postage. A more affordable option is to offer an email newsletter. Make sure to include a sign-up option on your website and social media pages.
Another idea is to print up brochures for your business. Your brochure should include your services, your value proposition, the industries you serve, and biographical information, such as your credentials or training.
You can also take your knowledge and leverage it as a guest speaker at an event. You can speak at dinners, luncheons, and other functions for industry events or service organizations. If you donât want to be a public speaker, you can attend industry events and network with potential clients. Networking is key to running a successful consulting business.
Cold-calling is also a way to attract new clients. Prepare your script before calling local businesses that could use your services. The goal of cold-calling is to get a meeting with the decisionmaker to sell yourself and your services to gain a new client.
Finally, word-of-mouth advertising is one of the easiest ways to bring in business. Satisfied clients that tell their friends, family, and colleagues about you or who take the time to write a referral or testimonial that you can use on your website can help drive more clients to your business.
Sharing your knowledge and expertise with others can be extremely lucrative if you know how to set up your consulting business. With careful planning — selecting your niche, setting your fees, and effectively marketing your business — youâll have a better chance of reaching new clients and meeting your financial goals. Good luck!
The post How To Start And Fund A Consulting Business: The Step-By-Step Guide appeared first on Merchant Maverick.
Before you launch your business, you have to check a few items off your to-do list. Perhaps you have to purchase inventory, find a commercial building to lease, and explore different types of business software. Maybe you operate a home-based business so your list isnât as extensive. No matter what type of business you plan to open, though, thereâs one thing all business owners must do: select a business structure.
Thereâs no getting around choosing your business structure. The way your business is set up determines both how youâll file your taxes and how much youâll pay. Your business structure may provide you with personal liability protection against the debts and obligations of the business. It will also determine specific requirements for your business, from registering with your state to ongoing requirements (like holding meetings and recording meeting minutes).
If your business has just one owner, one business structure to consider is the sole proprietorship. But before you make that critical decision, itâs important to understand what a sole proprietorship is, registration and paperwork requirements associated with this structure, and the benefits and drawbacks of being a sole proprietor.
While the business structure you choose should ultimately be whatâs best for your business, we hope to make the decision process a little easier by breaking down exactly what to expect as a sole proprietor. Keep reading to find out more.
Sole Proprietorship Definition
Merriam-Webster defines a sole proprietorship as âa business owned and controlled by one person who is solely liable for its obligations.â
Letâs break down this definition. A sole proprietorship is a business that belongs to and is run by only one person. If your business has multiple owners, youâll be unable to operate as a sole proprietorship.
In aÂ sole proprietorship, the owner alone is liable for the obligations of the business. A sole proprietorship is not a separate legal entity. This means that the ownerÂ — you — is responsible for the debts, obligations, and liabilities of the business. Your personal assets may be seized to fulfill debts, and lawsuits can be brought against you personally.
Many people choose this structure because a sole proprietorship is the quickest, easiest, and most inexpensive way to start and operate a new business. A sole proprietor is not required to register with the state. Simply engaging in business activities legally establishes a sole proprietorship. However, the sole proprietor is still required to apply for the appropriate business licenses and permits needed to legally operate in their state.
Sole proprietors can operate under their own legal names or can create a fictitious trade name when doing business. Using a trade name does not establish a separate legal entity, and the business owner will still be held responsible for the liabilities of the business.
Sole proprietors do not have to file separate tax returns for their businesses. Instead, these business owners report business profits, losses, and expenses on a Schedule C form. Self-employment tax for the sole proprietor is reported on a Schedule SE. The Schedule C and Schedule SE are both filed with the business ownerâs Form 1040. Weâll dive deeper into the benefits and drawbacks a little later in this article.
Next, weâll compare sole proprietorships to other business structures so you can better determine which works best for you.
How Is A Sole Proprietorship Different From A Partnership?
The biggest difference between a sole proprietorship and a partnership is the number of owners of the business. A sole proprietorship has a single owner. A partnership has two or more owners.
Comparing a sole proprietorship with a limited partnership (LP) and limited liability partnership (LLP) reveals a few additional differences. With these types of partnerships, limited partners are protected from personal liability. These partnerships are also more expensive and more complicated to form because they require registering with the state.
Other than the number of owners, a sole proprietorship and a general partnership (GP) are very similar. Neither has to be registered with the state to exist. The profits and losses for a sole proprietorship and general partnership are also filed on personal tax returns.
How Is A Sole Proprietorship Different From A Corporation?
A sole proprietorship is very different from a corporation. A corporation is the most expensive business entity to form, whereas a sole proprietorship is very inexpensive. Corporations must be registered with the state. There are also multiple ongoing requirements corporations must meet, such as holding meetings and having a board of directors. Sole proprietors do not have to register and there are no ongoing requirements.
Corporations may have multiple owners, whereas a sole proprietorship has just one owner. Corporations can also raise capital through the sale of stock — something a sole proprietor can not do.
Corporations also offer the best personal liability protection for its owners. As previously discussed, sole proprietors are held personally responsible for the liabilities of the business.
Another big difference between sole proprietorships and corporations is how each business structure is taxed. Sole proprietors are able to report business profits and losses on their personal tax returns. Corporations are taxed differently — a corporation is the only business structure that must pay separate income taxes. If dividends are paid to shareholders, shareholders must report this on their personal tax returns, resulting in double taxation for the corporation.
How Is A Sole Proprietorship Different From An LLC?
A limited liability company, or LLC, combines benefits of different business entities. An LLC must register with the state, and there are some fees associated with starting an LLC. This is in contrast with sole proprietorships, which are not required to register and are the least expensive to start.
Another difference between the two is that LLCs have liability protections in place to protect the personal assets of the owners. Sole proprietors do not receive these same protections. LLCs may also have multiple owners, whereas a sole proprietorship is limited to a single owner.
There may also be differences in how the LLC is taxed. Owners of an LLC can choose how they are taxed. In some cases, they may opt to be taxed as a sole proprietorship. In other cases, however, owners may choose to be taxed as a partnership or corporation.
What Types Of Businesses Are Sole Proprietorships?
A sole proprietorship is best for businesses with one owner that wants full control of the business without complicated requirements or additional expenses. Self-employed business owners, home-based businesses, independent contractors, and even some franchise owners may choose this business structure.
Any business can be a sole proprietorship provided there is just one owner and the owner is aware of the benefits and risks of this business structure. Smaller businesses are better suited for sole proprietorships. Companies that plan to grow much larger and want to take out business loans or raise large amounts of capital in the future would benefit from another business structure, such as a corporation or LLC. Some common small businesses that are sole proprietorships include:
Home Healthcare Businesses
Freelance Writers, Editors, Or Designers
Computer Repair Technicians
Regardless of what type of business you operate, the business structure you select should be based on the long-term needs and goals of your business.
Benefits Of Sole Proprietorships
After breaking down the definition of a sole proprietorship, you should have at least some idea of why business owners would choose this structure. However, letâs take a closer look at the full list of benefits of operating your business as a sole proprietor.
Less Expensive: Sole proprietorships are the easiest and least expensive forms of business structures. This is ideal for business owners that aim to keep their startup costs as low as possible.
No Registration Required: Sole proprietors simply need to participate in business activities to exist. No state registration is required. However, any applicable permits and licenses will need to obtained to legally operate in your state.
No Ongoing Requirements:Â Sole proprietors are not required to hold meetings, record meeting minutes, or have a board of directors.
Full Control Of The Business: As a sole proprietor, you will be the sole owner of your business. There are no additional owners or shareholders to consider. You get to make all business decisions and you receive all of the profits.
Easier Tax Returns: Sole proprietors can file their business profits, losses, and expenses on their personal tax returns with just two additional forms.
Drawbacks Of Sole Proprietorships
While being a sole proprietor definitely comes with its benefits, there are also drawbacks to consider when youâre weighing out your decision. Those drawbacks include:
No Liability Protection: As a sole proprietor, you will be held responsible for the debts, obligations, and liabilities of your business. If you default on a loan, lenders can come after your personal assets, such as your bank account, vehicle, or real estate. If your business goes bankrupt, your personal finances could be affected. Finally, lawsuits can be filed against you personally, which would also put your assets at risk.
Financing Challenges: As a sole proprietor, getting business financing can be a challenge. Most lenders — from traditional lenders like banks to online alternative lenders — only provide financing to registered entities. Sole proprietors also canât sell stock in the business as a way to raise capital. As a sole proprietor, you may have to get more creative with your financing, such as launching a crowdfunding campaign or taking out a personal loan for business.
For many aspiring business owners, operating a sole proprietorship is the right path to entrepreneurship. However, what works for some doesnât always work for others. After weighing out the pros and cons of a sole proprietorship, consider consulting with an accountant and/or attorney to help determine if a sole proprietorship will meet the needs and goals of your business.
Ready to learn more? Download our free beginner’s guides for business. You can also learn more about the different types of business structures to help you further pinpoint which option is best for you.
The post What Is A Sole Proprietorship? appeared first on Merchant Maverick.