Category: Finance & Capital

As an entrepreneur, you’re cut from a different cloth from people who like the predictability of working for a corporation. You’re attuned to your passion. You’re optimistic about how everything will work out; and you may even be a reverse paranoid, believing that misfortune shows up as a life lesson for your preordained success.

When running your own business here are 5 common mistakes entrepreneurs make when it comes to earning, spending and handling expenses:

Dumb Mistake #1: You have no interest in accounting.

You’re an entrepreneur because you like to make money, but this doesn’t necessarily mean that you’re automatically interested in managing it wisely, too. In fact, making and managing money call for different skillsets.

If you’re good at making money it’s because you’ve found your vision and are pursuing your passion. You are then converting this idealism into making money by up a business, and growing it through marketing and sales.

While making money is exciting, managing money, by comparison, is dull. Despite this disinterest, you still have to be able to understand accounting basics and spend time interpreting balance sheets, income statements, and cash flow statements. You also have to keep track of inflows and outflows and distinguish between investing in assets and squandering money on liabilities.

If you don’t take an interest in accounting, it will be difficult for you to get a loan when you’re ready to grow your business. A banker will not be able to make sense of your figures. After sorting out expenses and liabilities, their recalculations might show your business has a negative cash flow.

This obstacle to your success can be resolved by either learning how to using accounting software or hiring an accountant.

Dumb Mistake #2: You lose business travel receipts.

As an entrepreneur you will have to spend money on food, transportation, and lodging, as well as many incidental expenses when going on business trips. If you don’t keep track of your expenses, you won’t be able to keep a sensible paper trail. You will lose money because you won’t include your expenses when you bill clients for the work you’ve done for them that involved travel expenses. If your business trip was not done on behalf of your client, you will still lose money that could be used as a tax write-off.

This obstacle to your success can be resolved by using expense management software. You can upload photographs of your receipts from your cell phone as they occur while entering credit card expenses and travel information automatically into your corporate expense management software, you can quickly stop this unnecessary financial loss.

Dumb Mistake #3: You have no system for account receivables.

As an entrepreneur you will need to have an accounts receivable process to collect money.

This obstacle to your success can be resolved by following this simple process outlined by Barry J. Moltz in an article in Entrepreneurship.org:

“Before you do the work, ask your customer if there is anything you need to do, like providing your tax ID number, to get set up in their system. When the first bill is sent, call the company to check if the bill was received, and ask when it is scheduled to be paid. Right before it is scheduled to be paid, call again to see if the check was sent. If you find it did not make this “check run,” then ask when it will be sent.”

Dumb Mistake # 4: You commingle personal and business finances.

It’s easy to get credit cards mixed up when running your business, but salary and distributions should only be on a business account. This avoidable mistake can make your accounting much harder than necessary.

This obstacle to your success can be resolved by keeping personal and business cards in different parts of the wallet.

Dumb Mistake # 5: You still live paycheck to paycheck.

If you’re paying all your business expenses as go but not building a reserve fund, you’re not really running a business. You have merely substituted getting a paycheck from an employer to getting multiple paychecks from clients.

Your business can only grow when you have cash reserves.

There are two reasons why you need a cash reserve:

First, a cash reserve will help you handle a financial emergency. You may experience a crisis if a few clients pay late or don’t pay at all. A sudden negative cash flow will throw your business venture off course. Instead of spending your time bringing in more business, you will spend it scrambling to pay off your debts.

Second, a cash reserve will help you take your business to the next level when you are ready. A time will come when you will need the funds to grow your business. Perhaps you will need to take a few courses to upgrade your skills. Perhaps, you will need to hire your first employee to handle the increased workload. A time will come when you will need money to grow your business.

This obstacle to your success can be resolved by aside a lump sum in a savings account and then contributing to it on a regular basis.

Above All, Take Action

If you’re making one or more of these mistakes, you should take corrective action. Ideas have no value unless you act on them. When you look back on your entrepreneurial journey, you’ll be able to see a direct relationship between your success breakouts and your willingness to take timely action.

The cost of starting a small business has never been lower. In 2009, the Kauffman Foundation, an organisation that campaigns to help individuals attain economic independence by advancing education achievement and entrepreneurial success, estimated the average cost of a new business start-up at $30,000.

The actual cost of starting a new business in 2015 is potentially much lower. With the surge in e-commerce and ‘bedroom businesses’ the average cost could be as little as $1,000 – $5,000. Facebook founder Mark Zuckerberg is one of the more famous examples of a successful entrepreneur that started working on what turned out to be a million-dollar idea from his bedroom, Forbes magazine even put the cost of starting a new business online as low as $500.

But even with start-up costs low enough for just about any budding entrepreneur to take advantage of, that first round of business funding can still be hard to come by, and so quite often we turn to a lender that overlooks weak points, provides flexible terms, and offers a dream-come-true interest rate: the Bank of Mom and Dad.

Without an established track record, start-ups often have trouble getting a traditional bank loan or funding from venture or angel investors. This often means turning to friends and family members which can often lead to strained relationships with those close to you.

Research conducted by AXA Business Insurance shows that almost a quarter (24%) of small business owners rely on friends and family for finance, with 39% of those surveyed saying they feel uncomfortable about asking their nearest and dearest to bankroll their business aspirations and 63% admit to feeling guilty.

So what is the best way to borrow money from friends and family for your next million-dollar idea?

• Talk about it – Have an in-depth discussion with your potential lender before you take their money. Make sure they understand what you need it for, how you’ll use it, how you’ll pay it back and when. Explain your business plan as best you can and discuss any risks involved for both of you.
• Set boundaries – Be realistic about your expectations and understand the unsaid assumptions made on either side. Does your lender think they have a right to a say in your business? Do they expect some kind of a ‘thank you’ they haven’t mentioned.
• Prepare the proper paperwork – Take professional advice and draw up a contract that covers the amount borrowed, the repayment period, the interest if any and the other obligations on both lender and borrower. Online services, such as Prosper Inc. and Virgin Money, offer to structure arrangements between borrowers and individual lenders, who are often relatives or friends.
• Involve others – Having a neutral person to review and witness the agreement is incredibly beneficial to protect both parties.
• Protect yourself and your investor – You can’t predict the future but it is important to take logical steps to protect yourself from unforeseen circumstances. Double check you are meeting all your contractual obligations and are covered should the worst happen. Research and have the correct business insurance to make sure you are doing all you can to look after your business so both you and your investor are protected should you need it.

Article Contributed by Cameron Johnson

It’s vital that your start up business have the right amount of cash to operate. It would be terrible to open your business and have to close a few months later because the estimated costs of running the business were too low. You’ll need to cover expenses while you’re earning enough to break even. That could take upwards of six months to realize.

Calculate Expenses

You’ll need office equipment, software to run your business, supplies, inventory and permits to name a few things your business will need. If you’re opening a brick and mortar business, you’ll need money for rent, utilities and shipping costs. If you’re starting your business online, you’ll need internet service, website services and shopping cart software. Both business types will need business cards, stationary, signs and office supplies.

The plan for the year has to be as detailed as possible. While you can only guess the amount of products or services you’ll sell each month, you have to be as accurate as possible based on studying the market, competition and demand. To budget money for the entire year, you’ll have to estimate a projected earnings report for the next twelve months. It would include fixed expenses, varied operating expenses versus estimated earnings for each month too.

Operating expenses will include things like automobile insurance, advertising and employee wages including your own. You’ll need money for your marketing plan. While social media might be fairly inexpensive, it’s not completely free. The business will need various marketing plans to be successful, and the costs should be listed under expenses. You’ll need a writer to write copy for your website, closed captioning companies for your videos and editing companies for your marketing copy. If you want to create online advertising through social media, those ads will need to be added into the budget. It’s impossible to make money without spending money through advertising and marketing your business.

Calculate Taxes

Estimating taxes can be the hardest part of owning a business. A tax specialist can look at your business and figure out the estimated taxes you should pay quarterly. When a business owner goes from being an employee to a business owner, they don’t always understand that they are responsible for social security and Medicare deductions. Estimated quarterly taxes make it much easier for a new business to pay their taxes instead of waiting until the end of the year to pay one large, lump sum to the IRS.

The Monthly Budget

When you figure out your startup costs for an entire year, you’ll be factoring the estimated sales against the monthly expenses. For the first few months, you can assume that you won’t be making much money at all. You’ll have to make sure you’ve gotten a loan or generated a certain amount in savings for the lean months when you can’t expect to make any money.

Insurance Concerns

Whether you’ll be running an online business or brick-and-mortar business, you’ll need to consider general liability insurance for the business itself. You might need commercial auto insurance, property insurance or workers’ compensation. There are a variety of other insurance needs depending on the industry. You’ll need to research and budget for insurance concerns.

The hardest part of the startup is estimating how much you’ll need to start your business and keep it flowing for the next six months to a year without much revenue entering the doors. You have to research the answer to every question when it comes to startup expenses. You can’t leave anything to chance. If you don’t know the answer, research and research again until you have a solid plan in place for your business.

About the author:

Cameron Johnson is a business consultant and entrepreneur. Over the course of his career he has conducted case studies on both social media optimization and non-profit marketing. Cameron has also had the opportunity to speak at international business conferences and was recently recognized as one of the world’s top 100 advertising experts to follow on social media.

Small Business owners may have appointed accountants to take care of finances; however, it is imperative that you, as the owner, have the basics of managing finances in place, so that you can stay on top of things. It is important to understand how to interpret financial statements, set-up accurately, maintain the payroll system, amongst other things so you don’t feel at a disadvantage when it comes to making important decisions for your business.

Read through the following money management essentials which may come in handy for small business owners:

Payment Gateways: There is no denying that you will have to look into the payment options you are providing to your customers. If your services or products are available through an app or on the web, you will have to give a thought to which payment gateway you want to opt for. Furthermore, can the consumer pay by credit card, debit card, checks and what are the other options you would want to give them? You will also have to look into how you would like to tackle non payment issues.

Accounting Tools: Chances are you already have an accountant, but if you are looking to manage your accounts by yourself, an understanding to do the same efficiently is quite essential, since your business decisions will be based on your growth numbers. Thanks to plenty of accounting software available in the market, accounting can be easy and simple and won’t require pulling your hair out when it comes to crunching numbers. Needless to say, if you can’t work the details out with the help of these tools, it is best to hire a good accountant to assist you with managing your finances.

Managing Finances: Business owners should ensure that their personal finances are in place, so it doesn’t negatively impact the on-going business. At the same time, even ensuring that you are on-top of your payments to suppliers and other parties is important. If you are ever in need, you have various tools at your disposal to understand the best way to consolidate debt and take the right action to drop the worries about your debt and be debt-free soon, so all your energies can be directed towards operating your business.

Managing Deposits and Debt Collection: For those businesses providing services, it becomes important that you secure a deposit. This ensures that the client is retained. The formal contract with the client, along with mentioning the required deposit amount should spell out the details in case the client would like to cancel the service.

Small business owners at some point in time may come across clients not paying for the services or products provided, even after you have extended credit to accommodate their requests. It is important that you put down the rules in place with regards to extending credit to your clients as well as collecting debt.

The tips above should get you thinking about lining your finances in order to allow you to focus on operations and other equally important aspects of your business.

Article Contributed by Spotcap

Those who are buying in to “disruptive” technologies have figured out how to stay ahead of the  global market. According to a recent report by CB Insights, funding for FinTech in 2015 will soon pass the $12.4 billion raised in 2014. With straightforward and rapid access to services which provide an array of distinct options, entrepreneurs and small business owners now have the tools to interact with their finances on a new level.

1. Tap into Cloudfunding

Recent forecasts by Cisco Global Cloud Index show that the global big data market for SMEs will grow at a compound annual rate of 43% by 2018. Big data gives businesses the opportunity to find trends and quality analytics. Using online accounting solutions like QuickBooks or Kashoo which are based on cloud software, small businesses can manage their business finances, all in one easy-to-use place. With these tools time and money can be saved by getting instant insights to the status of their business.

2. Follow the Crowd

Digital Crowdfunding platforms have become an attractive option for entrepreneurs at early stages of business growth. Industry estimates suggested that global crowdfunding reached close to $34.4 billion, allowing owners to raise investment and access capital from a large number of investors. These platforms are also a great PR tool to help new businesses spread their name to both clients and investors. Companies such as Crowdcube or Tilt allow entrepreneurs to connect with a crowd of capital sources.

3. Consider Delayed Payouts a Thing of the Past

Waiting for customers to pay can be an added difficulty to any SME. New fintech companies like Charter Capital or Payplant have sped up the collection of payments for small businesses by turning the receivables to cash instantly. These firms offer cash advances to small companies that can’t afford to wait 60 or 90 days for invoices to be paid. Once the invoices are paid, the lenders are paid back. In this way, SMEs become more flexible and are able to meet the demands of their customers.

4. Break the Bank

The Federal Reserve Bank of New York reports that small business borrowers spend up to 25 hours of their time just on paperwork for bank loans. Due to the entrance of fintech players, this slow process is becoming a thing of the past. Online lending platforms like Spotcap leverage big data to provide financing solutions for small businesses. Instead of looking at historical financials going back five years, these alternative lenders focus more on real time financial performance over the last twelve months.

5. Say Goodbye to Cards and Cash

According to a study by eMarketer, more than 73% of the UK’s population will make an online purchase this year. By accelerating and moving away from cards and cash, most SMEs are turning to these online payment services which provide speedy, efficient and borderless business solutions for both consumers and owners. There are many services which have unique characteristics to fit SMEs’ needs, from developers of smart device software like Paypal that can greatly increase mobile conversion, to others like Transferwise, which allow users to reduce international transfer fees.

About Spotcap

Spotcap enables small business owners to grow their business by providing fast and flexible financing. The financial technology company has developed a sophisticated and dynamic decision process assessing the real-time performance of businesses to grant short term credit lines and loans. Spotcap was launched in Madrid in September 2014 and expanded to the Netherlands and Australia in 2015. The company is led by CEO Toby Triebel and COO Dr. Jens Woloszczak in Berlin. The team – currently consisting of 60 credit and online experts – is expanding its operations geographically. Spotcap is backed by Rocket Internet – the world’s leading global internet platform outside of the US and China.

Read more about Spotcap: www.spotcap.com