Month: March 2019

Make sure you get your company started on the right foot!

Everyone knows there’s a certain level of risk when you start a business. No matter how good your ideas might be, or how savvy you are to marketing and entrepreneurial tactics, there is no absolute guarantee that you will succeed. But many people do feel that the benefits of owning your own business far outweigh the risks. It’s all a matter of making sure you set yourself up for success early on, and that means avoiding early-stage entanglements. When you know what issues and situations to prepare for, you’ll be setting yourself— and your business— up for long-term gain.

By Mary Juetten

Risks enter the frame on the first day that you start to seriously operate your business by taking it from an idea that kicks around in your head to one that is spoken out loud and made tangible on physical or digital media. You may not consider it to be a business as such without the associated trappings, like websites or an office or at least a business card. But your business has its origins in those early moments, and you have to start immediately treating it like the nascent venture that it is in order to avoid some of the very early risks that can threaten to derail what you’ve only just created.

That very, very early-stage business might not feel like an entity separate and apart from yourself, but treating it and the money you’re spending for the project as an extension of your own personal finances is a mistake that can lead to messy accounting and unnecessary personal risk for you and your family. Obviously, you’re not going to have financing at that stage beyond what you’re putting into the venture yourself, but not keeping clear records of what you’re spending on your project and what those expenditures are for could lead to a headache come tax time.

To that end, forming a business entity as soon as you start developing your idea is a smart measure that will pay dividends. Having an LLC or other entity allows you to keep your personal and business expenses separate and avoids putting the finances of you and your family at risk. It might feel premature to take such a formal step so early in the process, especially if you’re still operating from a spare desk at your home or a separate folder on your laptop, but if you are serious enough to commit your time and money to make your idea work, you should be responsible enough to formalize it as the professional venture you want it to be. However, you also need to have a business bank account and keep the money separate from your personal accounts.

While you may have disentangled your business from your personal finances, there still exists the risk that your other professional life might quash your entrepreneurial dreams before they even have the chance to begin. While there are plenty of exceptions, anecdotal evidence would suggest that most ventures start as the side projects of those working in jobs that want to strike out on their own. And while trying to juggle a day job and a new venture can be hard enough in and of itself, there are other risks that come along with starting your own business while working for someone else’s.

Read the full article here.

Read more about Flagship Financial Partners and the services we can provide for your business.

Here are tips for working most effectively with others when it comes to your business.

Have you always dreamed of starting a business on your own, as a solo entrepreneur? It can feel like the perfect chance to build on your ideas and have everything exactly as you want it, without asking for input from others.For many of us, a solo business venture can feel like a perfect enterprise. However, being the lone individual on a project also puts a lot of weight on your shoulders and there’s a lot of stress involved with being completely on your own.

If you, at the very least, need help from someone else in getting your business up and running, then you’ll need to work with others and do so in the most effective way possible. Below are some tips for doing just that.

By Mary Juetten

Co-founding a business with a like-minded collaborator can be an exciting prospect, with seemingly boundless potential and promise lying before you. But not all partnerships are built to last, as productive as they may be; indeed, if movies have taught us anything, even levels of success that should make everyone happy aren’t enough to keep brilliant and productive pairings together when ego, power, and personal differences come into play.

Like marriage, co-founders should go into any partnership with their eyes open, prepared for a split even if it never materializes. But it’s easy to be seduced by the fun and camaraderie of the early days, and there aren’t many pairs thinking of divorce during their honeymoon period. For that reason, there aren’t as many co-founder agreements as there should be, as founders convince themselves that the thing they’ve seen play out numerous times before could never happen to them, even though the parties in each of those cases likely through the same thing.

A painless split is rarely possible where business is involved. Any sufficiently large company is a mess of entanglements, especially when co-founder agreements are missing. Ownership stake and the assignment of intellectual property are particularly thorny issues that require a pre-arrangement; we’d like to think that we could be reasonable in the event of a split, but hurt feelings and disputes can get in the way of magnanimity. And without the surety of signed agreements, the legal disputes that come with a co-founder departure can end up in legal fights that can threaten to bring the entirety of the business down.

Hiring employees for your company might seem like an easier matter to handle, a more straightforward relationship. And with the right people, it can be that: smart, hardworking professionals that bring complementary skills and diligence to the tasks you assign them. Good employees are necessary for any business that wants to grow. But each new person brought into your company brings their own set of risks unless handled correctly.

Employment agreements are another item that founders should have ready to go for the first day that they start the interview process. However, for any number of reasons, too many entrepreneurs decide to forego the paperwork or forget about it entirely. Whether that is due to a lack of knowledge or understanding about the importance of agreements or a consequence of the chaotic spirit that can pervade an early-stage startup trying to find its feet, the lack of written agreements with employees can end up haunting your company in the future.

Ownership rights over work made for hire aren’t always as straightforward as one would think, and without an agreement in writing that delineates ownership of work, you might end up in a situation where an employee owns the logo they designed for your company or the copy they wrote for your marketing materials. And that’s to say nothing of potential problems with trade secrets or inside information walking out the door as your employee leaves. Without the restriction of confidentiality and non-compete clauses, there’s nothing to prevent a former employee from taking what they learned to another company in the same industry. Ideally, you have the sort of employees who would respect the propriety of knowledge gained at your offices but, as with co-founders, relationships can change as feelings grow sour, and relying on goodwill and decency isn’t any way to run a business, at least successfully.

Adding people to your venture, whether it be one or more co-founders or multiple employees, will undoubtedly make the process of running your business more complicated. But they can also make it better, provided that you’ve taken the necessary steps to protect yourself from the inevitable vagaries of human relationships, both personal and professional.

Read the full article here.

So how do you most effectively work with others when it comes to running your business? Let us know in the comments below, and be sure to check out our Business Owners page to see how the partners at Flagship Financial can help you!

Considering a loan to fund a business-related expense? Read this first.

A business loan might be at the forefront of your mind when, say, you need to replace an old piece of equipment, but you’re probably you wondering how that loan will affect next year’s taxes. Fortunately, most loans won’t change what you owe in taxes. You may actually be able to deduct your interest payments and lower your tax burden!

Taking on a business loan will always carry risk, but the ability to write off your interest payments as business expenses should make the added cost a bit more palatable.

By Jared Hecht

Is The Interest On My Business Loan Tax Deductible?
Yes, for the most part, you can write off your business loan interest payments as a business expense. There are some qualifications your loan must meet, however, according to the IRS:

• • You must be legally liable for the loan.
  • You and the lender must agree that you intend to pay off the debt.
  • And you and the lender have a true debtor-creditor, or lender-borrower, relationship.

Essentially, your loan must be a legitimate loan from a legitimate lender. You cannot borrow money from friends that you may or may not fully repay and deduct your interest payments to them.

Of course, this doesn’t mean you can’t borrow money from your friends or family if you’d like—just understand that they are not considered “real” lenders like banks or online lenders, and thus you won’t be able to deduct your interest payments. The reason for this is the IRS has no way of knowing if these informal agreements are just a way for you to avoid paying taxes.

Additionally, you have to actually spend the funds you’ve received on your business. If your loan just sits in your bank account, that’s considered an investment, not an expense—even if you’re making payments on the loan principal and its interest.

When Is My Interest Not Tax Deductible?
There are certain exceptions to the rule that your business loan interest payments are tax deductible.

• • When you refinance your business loan: You can’t deduct interest you pay with funds borrowed from the original lender through a second loan. Once you start making payments on the new loan, those interest payments are deductible.
  • Points or loan origination fees: If you take out a loan to buy commercial real estate, the points and loan origination fees cannot be deducted as business expenses—they have to be added to the value of the property and deducted over time with asset depreciation.
  • Capitalization of interest: You can’t deduct capitalized interest, which is interest added onto the cost of a self-constructed, long-term asset.
  • Fees incurred to have funds on standby: If you have funds available on a standby basis and your lender charges you a fee to keep them available, you cannot deduct them as interest payments.

What Types Of Business Loans Have Tax-Deductible Interest Payments?
With exceptions that relate to your specific loan and how you’re using it, nearly every kind of small business loan will have interest payments that you can deduct. Let’s review how that would work for the most common types of business loans:

Term Loans
A term loan is a lump sum of funds that’s deposited in your bank account, which you pay back on a set schedule, with a set interest rate, over a period of months or years.

When you agree to a term loan, you will have a loan amortization schedule so you understand how much of each loan repayment is principle and how much is interest. Typically, term loans will be structured so you pay more interest towards the beginning of your repayment schedule, which means larger interest deductions are possible upfront.

However, you will likely pay interest every year that you are repaying your loan, so prepare to have loan deductions each year until you are debt-free.

SBA loans, which are term loans partially guaranteed by the Small Business Administration, function much the same way—and you can deduct your interest payments accordingly.

Lines Of Credit
A business line of credit is typically a revolving form of credit, allowing you to draw on a pool of pre-approved funds from you lender—similar to a credit card, but typically with much higher funding limits. You draw your funds, repay the draw on a schedule, and can draw again as needed.

Because you only pay interest on what you withdraw, your interest payment deductions will depend on how you use your LOC. Confirm with your lender what you pulled before filing your taxes.

Short-Term Loans
Short-term loans are similar to regular term loans, with one obvious caveat: They have shorter repayment periods, oftentimes lasting less than a year. Therefore, you may deduct all the interest paid within the same annual tax filing.

Also, some short-term loans use a factor rate to determine interest payments, rather than an APR. Again, speak with your lender to determine your exact interest rate to know what you’ll be deducting come tax time.

Personal Loans
You can use a personal loan to fund your business, and in some cases, people go this route to avoid having their business credit history scrutinized by lenders.

If you use your personal loan 100% to fund your business, your interest payments are deductible. If the loan is being used for mixed purposes, you can only deduct a portion of the interest. If you use a personal loan to buy a vehicle that you occasionally use for business, you can deduct a proportional percentage of the loan on your business taxes.

Loans For Buying Existing Businesses
If you want to buy another business with the goal of actively running it, you might take out a loan to help you do so, and interest payments on that loan will be deductible.

If you want to buy another business but don’t expect to actively run it, that’s considered an investment, not a business expense. You may or may not be able to deduct interest on that loan, so speak to your accountant to see what your specific situation calls for.

Merchant Cash Advances
MCAs, where a lender advances you capital in exchange for a portion of each day’s credit card sales until you repay the debt, can have extremely high APRs and are often best saved as a last resort. Additionally, their “fees” aren’t technically interest payments, but purchases of your future receivables. Therefore, most CPAs can’t or won’t write your payments off on your return. You’re paying interest with none of the tax benefits of actual interest—so avoid this option if you can.

Taking on a small business loan should always be a net gain for your business—a means to achieve better results in the long run. That being said, there is certainly an upfront cost to them, and interest payments are the clearest example of that cost.

The fact that you can write those costs off as tax deductible is a huge benefit to small business owners, so make sure to discuss the tax ramifications with whatever product select with your accountant and team to make sure you are maximizing your tax savings.

Read the full article here.