Business Basics: Reasonable Compensation

This week we are looking at reasonable compensation, a legal necessity for anyone running a Corporation. Reasonable compensation is connected to one of the most fundamental parts of working for a company – getting paid – and yet it’s so widely misunderstood. When you form an Corporation, you create a separate, legal entity that ‘earns’ money. You then pull your wage from those earnings and pay whatever payroll taxes you owe. reasonable compensation

In order to close a loophole wherein those running the corporation could ask for an extremely low salary, pay next to no payroll taxes, and then close the wage gap with distributions, the IRS requires that all corporate officers and executive be paid ‘reasonable compensation.’ But what constitutes reasonable compensation is a little more murky.

Who needs to be concerned with reasonable compensation?

Anyone that is runs, or helps run, a C-Corporation or S-Corporation must be reasonably compensated for their work. Continue reading

Factoring and Asset Based Lending:Two Methods for Quickly Accelerating Your Cash Flow

Man holding tablet pc and credit card indoor, Shopping onlineWhen your cash flow does not meet your working capital and growth requirements, you can turn to financing through factoring or asset-based lending for a solution.

Many of your customers delay payment on their invoices for 30, 60 or even 90 days – putting a strain on your business’s ability to meet its own financial obligations. Factoring and asset-based lending (ABL) are two solutions that can help you quickly replenish your cash flow. Continue reading

Business Basics – Estimated Tax Payments

Estimated tax payments are one of the biggest shocks for new business owners. They know that they have to pay taxes, they just don’t realize they have to send in a check four times a year! Most businesses that expect to more than $1,000 – or $500 if the company is incorporated – in taxes have to make estimated payments to the IRS. And, since the next quarterly payment is due on September 15th, we thought it’d be a good idea to do a quick rundown of what estimated tax payments are.

Estimated Tax Payment

What are estimated tax payments?
Exactly what they sound like. These payments are simply what you’d normally owe on your income. However, since you don’t have an employer to withhold and send in what you owe, you have to do it instead.
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ABCs of Small Business Industry: B is for Banking

As we enter week four of our series, we decided to look at a slightly different industry – banking. Now, focusing on banking may seem a bit odd. After all, most people don’t consider banking as something an entrepreneur can even get into. And while there are loads a regulatory loopholes to jump through, plenty of entrepreneurs do start their own bank! And running a bank can be quite lucrative. So if you have experience in the financial industry, and are looking for a change, this could be just the post for you! banking

How do you start a bank?

Like any business, you need to identify a need. Most communities are served by big-name banks like Chase or Bank of America, and people gravitate towards names they recognize. But even if it feels like your community is over saturated with corporate banks, there could be a place for a small, community bank, like if you decide to focus on serving a particular section or area of the community. Some people also like being able to meet face-to-face with a high-level executive to talk about loans or their account – something they’d never be able to do at a corporate bank.

If the market looks good, you then need to work on getting everything organized. Most states require banks to have multiple directors, who then put in an initial offering to get the bank started, usually around 25% of the bank’s starting capital. Since banks need a lot of capital to run, this is usually a substantial amount of money. Most banks sell off shares to raise the rest of their capital.

When your ducks are in a row, you file for a state or federal charter. Filing this form typically costs thousands of dollars, and requires a substantial amount of preparation. You’ll need to include information like feasibility studies, applications for the directors, projected costs, projected salaries – the state or federal government effectively needs to decide whether or not you’ll be successful before granting a charter. After this, you apply for deposit insurance from the FDIC, which requires banks to prove they have enough capital to cover any risk and losses. It will take a few months before the charter application is processed and, once it is approved, you normally have about a year to start the bank officially.

What business structures are best suited for banking?

Because banks are required to have directors, executives, and shareholders, a bank has to be some sort of corporation. However, in some states, a bank is an entity in itself. Though it is run in the same way a standard corporation is.

How stable is the banking industry?

Very. Because banks have to apply for a charter, an outside organization effectively reviews their business plan and target market, and determines whether or not the idea is viable. Banking costs a lot of money, but if you get a charter, you can usually bet that you’ll be successful. The rate at which banks fail has also slowed substantially as the economy has recovered.

Interested in community banking? Have any questions about the banking industry? Leave a comment below, or give us a call at 1-877-692-6772!

3 Ways to Insure Your Home-Based Business

3 Ways to Insure Your Home-Based BusinessListen up, especially if you run a business from your home: About 60% of home-based businesses lack adequate coverage, according to a survey from the Independent Insurance Agents & Brokers of America. Don’t be part of that 60%.

Here’s why it matters. What if a deliveryman slips and falls on your front step while delivering parts for an order? What a child gets hurt at a home daycare? In either scenario, the business owner could find his or her finances on the line because of a lawsuit. Many home-based business owners leave their livelihoods to chance because they believe their ventures are covered under their home insurance policy – a big misconception. A typical homeowner’s policy, for example, provides only $2,500 coverage for business equipment, which is usually not enough to cover everything a business owner might use. Additionally, the homeowners policy won’t provide any coverage for liability issues associated with the venture.

If you work from home or own a home-based business, keep the following are three basic options for insurance coverage in mind.

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3 Things to Consider When Choosing Finance Software for Your Business

3 Things to Consider When Choosing Finance Software for Your BusinessBy Mike Spalding

There is one area of business that very few business owners, managers or entrepreneurs really enjoy working on and that’s finance. Unless you happen to be an accountant, this is probably one aspect of business management that you try your best to ignore.

But it’s important that all businesses, charities and enterprises don’t ignore or do poor work on their finances either. For a small business it could be the difference between thriving and going bust. For a charity it could be the difference between helping those in need and falling short.

So with that in mind, how can technology help you to manage your all important accounts?

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4 Things Entrepreneurs Need to Know About Buying Accounting Software

4 Things Entrepreneurs Need to Know About Buying Accounting SoftwareAre you an entrepreneur? Yes? Okay. I’m going to tell you something that sounds crazy–or at least like a line–but which I know to be unequivocally true. The right accounting software package will help make your dreams come true. See, I told you it would sound a bit crazy! Let me explain it a little more.

What feeds the fire of every start-up is an inspiration of what the company can be and what it can do better than any other on the market. But nothing douses that fire like drowning in inefficiency and tedious administrative processes.

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How Small Business Owners Can Achieve Debt Stability Without CARD Act Protections

Odysseas Papadimitriou, CEO of CardHub.com

Small business owners are basically living in the dark ages.  No, I’m not referring to the aversion many mom and pop stores seemingly have to the power of web-based marketing or even how tough it is to become successful in the currently gloomy economic climate.  Rather, I’m talking about the fact that politicians and financial regulators don’t seem to think that small business owners are worthy of the same rights and protections as the general consumer population.

While the CARD Act of 2009 has proven to be a huge success – adding transparency and fairness to the personal finance industry – it doesn’t apply to credit cards branded for business use.  That’s alright, you might be thinking; small business credit cards are just different, right?

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Business Basics: Why Do You Even Need an EIN?

An Employer Identification Number, or EIN for short, is basically a social security number for your business. Like with social security numbers, the IRS uses EINs to track what businesses need to certain types of tax. However, not all businesses are technically required to have an EIN as sole proprietorships can be identified by the owner’s SSN instead. That doesn’t mean, though, that you should avoid filing for one, as there are three main reasons why obtaining an EIN is important for a small business.

It allows the business to hire employees.

If you run a sole-proprietorship and you are the only employee that works for the business, all of the profits and losses are going to be reported as part of your personal income. You then pay whatever state and federal taxes you need to, just like you would if you received an income from anywhere else. However, when you hire an employee, you are responsible for withholding any necessary taxes from that employee’s income. The IRS then cannot simply use your SSN to keep track of what they are owed as there are now two different employees, and that’s where the employer identification number comes in. EINs let the IRS and other tax-collecting bodies know what businesses need to be sending in the usual payroll taxes.
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