Is Incorporating Your Small Business Best For You?

There comes a point in time when every small business person contemplates on whether to incorporate their business or not. A lot of times small businesses start out sole proprietorships, and then become incorporated as the business expands and develops. Small business incorporating can be a difficult decision, and with this article you’ll gain a little bit of knowledge on the advantages and disadvantages. There are many advantages to incorporating your small business, but limited liability is one of the biggest advantages. When you have sole proprietorship to the company all the liability of the company is on the owner. When incorporating the business, your only liability is to however much you invest in the company. With sole proprietorship, all of your personal belongings, such as car and home, can be turned over to help pay the debt of the business. As a shareholder in the business, you have no responsibility whatsoever for the debts of the business, that is of course unless you give a guarantee. Another advantage to incorporating a small business is the ability to raise money so much easier. With the ability to raise money much easier, this increases the odds of the corporation growing and expanding. Yes, you’re saying any sole proprietorship can borrow money and incur debt like any corporation. However, with a corporation you can sell shares and raise equity capital, which is a big advantage in that you generally don’t have to repay equity capital and it has no interest. There are many tax advantages with becoming a corporation that you can take a look at as well. Some of these advantages include income splitting, potential tax deferral and more. Along with the reasons above, a corporation can have an unlimited life. The life of a corporation is not dependent on particular individuals, but the company as a whole. With this, the company has the opportunity of lasting forever just as long merges with another company or goes bankrupt. Now that I’ve buttered up the idea of incorporating your small business, let’s take a look at some of the possible negatives. As you incorporate your small business, there now will be two tax returns to file each year, one for your personal income and one for the corporation. This may not be a huge deal, but unlike a sole proprietorship a corporation cannot deduct its losses from the personal income of the owner. Plus, having another tax return is the last thing another business owner wants to deal with. As a corporation is much larger and more complex then a small business, therefore the cost to create one is much higher. Just to set up the corporation will cost a lot more, then you have to tack on the increased maintenance fees, accounting fees, and more. As with everything else, a larger business means more paperwork that must be taken care of. Corporations must keep a minute book, which contains the corporate bylaws and minutes from corporate meetings. Reports and tax returns must be completed neatly and in a timely fashion. All of the business bank accounts and records have to be kept separate from personal accounts and assets. That may sound like a load, but that is just the start of the increased paperwork that comes with the territory of incorporating your small business. While there are many advantages and disadvantages to incorporating your small business, the decision ultimately goes to you. It is a decision that could make or break your business, therefore much more research is recommended. However, small business incorporating should be a thing that suites you and others associated with you best.

Create Real Magic And New Customers

Do you want a small business opportunity that could create more business for you? It is a chance to sell to the government. Bring in new customers is always the number one goal of many business owners. It is the life blood of any operation and if you want your business to stay healthy then you must bring in fresh new customers and keep them coming back with a great service or product. I would like to introduce you to the 59.005 Business Development Assistance to Small Business program. This program is excellent for bringing in new business and revenue. Get help from this program to sell to the government. They will assist your small business in obtaining a "fair" share of contracts and subcontracts for Federal government supplies and services and a "fair" share of property sold by the government. What an excellent opportunity this is! I would rather sell a lot more to meet my goals than to have to get a small business loans or small business grants. What they can do for your company is: (Restriction of bidding/award to small business only) (1) Your application will set-aside the chance to increase the Federal procurement and disposal requirements awarded to small business for a great small business opportunity; (2) You will receive consultation with procuring activities on structuring of procurement and sales planning to optimize small business participation; (3) They will also review and analyze you small business capacity, credit, integrity, perseverance, and tenacity when challenged by contracting officers and certifying competence of such firms to perform as prime contractors, as appropriate, and monitoring performance of certificate of competency holders throughout contract life; (4) They will also review of subcontracting plans and programs of large prime contractors to determine the extent that they are providing subcontracting opportunities to small businesses, veteran-owned businesses, service-disabled veteran-owned businesses, HUBZone qualified businesses, small disadvantaged business, and women-owned small businesses; (5) When they give you consultation and advice for small businesses requesting assistance on government procurement or property sales matters, you must keep in mind that all consultants are not the same. It is very important to get one that you like and is passionate about their job. (6) They will also help you with specific contract administration problems; (7) They will see if you qualify for the SBA's procurement and financial programs; (8) By doing this they want to breakout of items from a the same old stale source of buying in favor of full and open competition in order to achieve savings; (9) One of the goals that they have is to review small business programs at Federal buying activities to evaluate effect on small business participation and recommend changes; and (10) management of the Central Contractor Registration's Dynamic Small Business Search, a nationwide Internet database of information on small business, a marketing tool for small firms and a "link" to procurement opportunities. It pays to at least get registered and listed in this data base. Existing and potential small businesses are eligible to apply. A small business is a business entity organized for profit, with a place of business located in the United States and which makes a significant contribution to the U.S. economy through payment of taxes and/or use of American Products, materials and/or labor. Generally, an employee based size standard not in excess of 500 employees is used for manufacturers for wholesalers, average employment not in excess of 500 is used; for general construction, a revenue based size standard not over $28,500,000 is used; for specialty trade construction, revenues not over $12,000,000 is used; for retail and services contracts, revenues not over $6,000,000 is used; and for agricultural enterprises, gross annual sales not over $750,000 is used. Self-certification of documentation is sufficient for representation as a small business, women-owned small business, veteran-owned small business and service-disabled veteran-owned small business. SBA certification is required for status as a HUBZone small business, 8(a) small business, and Small Disadvantaged Business. The range is about 15 days for certificate of competency; no approval is required on other programs for this .small business opportunity. The government grants that guarantees this small business opportunity programs for small business grants totaled: FY 04 $4,606,675,000; FY 05 est $3,250,000,000; FY 06 est $3,000,000,000. Administrative Expenses: FY 04 $38,013,000; FY 05 est $34,188,000; and FY 06 est $36,406,000 In fiscal year 2004, $11.2 billion in government grants for prime contracts was set-aside for procurement limited to small businesses to give you an excellent small business opportunity. Title 13, Code of Federal Regulations, Part 125; "Government Contracting Programs;" Government Contracting and information for this small business opportunity from SBA offices. Forms to obtain necessary assistance are provided by SBA field offices. To find where they are listed you can go to Associate Administrator for Government Contracting, Small Business Administration, 409 3rd Street, SW., Washington, DC 20416. Telephone: (202) 205-6460 http://www.sba.gov Other small business opportunity programs that are related to selling to the federal government are: 17.301, Non-Discrimination and Affirmative Action by Federal Contractors and Federally Assisted Construction Contractors can use this small business opportunity; 17.303, Wage and Hour Standards; 36.001, Fair Competition Counseling and Investigation of Complaints; 39.001, Business Services is another small business opportunity; 43.002, Technology Transfer is the chance to participate in another small business opportunity; 59.006, 8(a) Business Development is a good small business opportunity that you should consider.

Sanity Check - Buying a Business

In the business broker community there is a review process that helps a buyer determine if a business purchase makes sense or not. This check can be done by a Fortune 500 company where everything is figured down to the penny and takes 1000 hours of research or it can be done by a small main street shop buyer who figures it out in 1 hour. Each item in this review process requires a decision. This decision can be based on extensive research or just on a reasonable guess. The beauty of this process is; how long you want to spend on doing this activity is totally up to you. As we review this process, I will explain the variables of this system so you can make the necessary decisions where needed. Remember, this is only a tool to help you make decisions about a business purchase; it is not a sure-fire foolproof system. I will just lay it out for you and you make your own decision as to the validity of this formula for analyzing a business purchase that you may want to make. The Sanity check requires two mathematical formulas, which require dollar amounts or other numbers to be entered in each formula. The math is calculated and then the results are compared against the purchase price. If it doesn’t work out the way you wanted, you have the option of then going back and change some of the numbers and do the calculation a second time. The two formulas are: 1. SP + WC – BF = CR Sale Price + Working Capital - Borrowed Funds = Cash Requirement 2. SDE – FMW (FO) – DS - ROI = Extra Profit/Loss Sellers Discretionary Earnings - Fair Market Wage (for the owner) - Debt Service - Return on Investment (Cash Requirement x Interest rate -Stated as a Percentage) = Extra Profit/Loss Since each item in the formula needs to have a dollar amount determined, we will define the terms and then discuss how the dollar amount is derived at. Terms Definition: Sale Price: The price that is being asked for the business or the price the buyer is thinking of offering. Depending on when you do this analysis. If you are trying to determine an asking price you would calculate all the other numbers in these two formulas to determine what should be your offering price. We will do examples to make this clear later in this article. Working Capital: The short-term assets minus the short-term liabilities is the accounting definition. The simple explanation would be the amount of money necessary to be invested by the buyer to run the daily operations of the business, once purchased. This would include monies tied up in inventory, and accounts receivables. Money invested to pay the landlord’s or utility company’s deposits. Also included is the money spent on the business purchase to cover the loan origination costs and purchase escrow fees when buying the business. It is the total funds invested into the business to keep it running. The down payment given to the seller is not part of this number, since it is included as a separate item. Calculation notes: 1. Cost of inventory: $_________________ (+) 2. Accounts receivable: $_________________ (+) 3. Landlord deposit: $_________________ (+) 4. Utility Deposits: $_________________ (+) 5. Escrow fees to purchase: $_________________ (+) 6. Loan origination costs: $_________________ (+) 7. Short term liabilities* $ _________________ (--) Total Working Capital $_________________ * Short-term liabilities are defined as liabilities that are to be paid off within 1 year – accounts payables and the part of any notes payable that are to be paid within 1 year. Borrowed Funds: The loan made for a business purchase from a bank or private party. The private party can be the seller or some friend or relative who might be willing to make a loan. This is borrowed money that must be paid back to someone at some time in the future. Cash Requirement: This is the invested cash required to both buy a business, and working capital-to run the business. The amount of cash needed to make the business purchase and run the operations of the business after deducting all borrowed funds, regardless of source. Sellers Discretionary Earnings / Owners Total Benefits: This is the total of all the non-business related benefits going to a business owner or his family on an annual basis that have been paid for, by the business. Included in this is definition are taxable profit from operations, unreported cash income, owners salary, salaries to non-working family members, any amount over the fair market value of salaries paid to working family members, family auto expenses, family telephone, family office expenses, health and life insurance for any or all family members, pension plan/ profit sharing contributions paid for the benefit of family members. This can also be stated as the reason why most people go to work everyday; they get family support for working. Calculation notes: 1. Taxable profit from operation $_________________ (+) 2. Cash $_________________ (+) 3. Owners Salary $_________________ (+) 4. Salaries of non-working family members $_________________ (+) 5. Amount over the fair market value of wages of working Family members $_________________ (+) 6. Family Auto Expenses $_________________ (+) 7. Family Telephone Expense $_________________ (+) 8. Family Office Expense $_________________ (+) 9. Health and Life insurance of Any/all family members $_________________ (+) 10. Pension plan/profit share family members $_________________ (+) Total Seller Discretionary Earnings: $_________________ Return on Investment: We need to have this stated as a dollar amount in Formula two. ROI is calculated as follows: Cash Requirement X “a Percent” - the greater the risk, the higher the percent First we must determine what the interest rate return we wish on our investment. This is a very subjective percentage and a change in this number can change the whole result of this analysis. If it is of any help, many financial investors in “Corporate America” feels they need to get a 20% return on their invested capital. Companies do not always make money and therefore the possible loses are built into the ROI. Some of the reasons are: companies are bought and go broke, overseas competition causing expectations of growth and income not to be met, and lastly government regulations periodically close whole industries. These are just some of the many risks involved in owning a business. Putting your money in a bank has little risk, because the Federal Government insures your deposits in the bank. The stock market has a lot of risk that many people do not fully understand, causing them to accept a long term ROI of 10-13% from mutual fund investments. A 95% drop in stock prices like the dot.com stocks or what happened when we had the oil embargo in 1992 are indications that the stock market can be a much higher risk than people realize. I personally feel that owning your own business and buying real estate are much lower risks, providing a much higher return. The proof of this can be found in the number of people who got rich in real estate and the over 25 million small business owners across this country. Figure out what ROI you want and insert this number as .20 amount to represent 20% or .06 to represent 6% ROI. This is an annual return on invested money. Once you have a percentage return on your investment we need to multiply it by the Cash requirement in order to come up with a dollar amount return needed. This restated is Dollars invested x percentage (stated as a decimal) = Dollar return on investment. Examples: 1) Investment of $50,000.00 @ 6% Return On Investment (ROI) would be calculated as follows: $50,000.00 X .06 = $3,000.000 (Dollars return on investment) 2) Investment of $50,000.00 @ 20% Return On Investment (ROI) would be calculated as follows: $50,000.00 X .20 = $10,000.00 (Dollars return on investment) Debt Service: The reason we need this number is because this is a financial expense of owning a business. It is not an operating expense of the daily business operations but if you have debt, in your business, you must be able to make the payments, out of the business operations profit. Usually this payment is mostly interest and a smaller portion is the principal reduction of the loan balance. Most professionals deduct the whole payment when doing this analysis, because the business must generate enough profit to make the whole payment. My personal preference is to just deduct the interest portion and to add the principal portion of the payment to working capital amount needed. This counts as more money being put into the business just like financing inventory and/or accounts receivables. For simple one-hour analyses it is not worth splitting up the payment. In the case of a very large principal reduction payment it could be unreasonable to not split it up. It is up to you. You can always try it both ways, since this is a process to raise your understanding, not to come up with a fixed answer of, yes! it is a buy or no! it is not a buy. Fair Market Wages: This is an amount that the new or old owner would be paid, if he were an employee not the owner. If the owner were the company salesman and also the company bookkeeper working a total 60 hours a week, a reasonable salary would have to be determined for each job. As an example only, lets say that an outside salesman, in your industry, could make $40,000 per year. And a bookkeeper usually charges $15 per hour. The salesman might very well work 50 hours at this job to earn this salary. If a bookkeeper would work 10 hours per week doing the bookkeeping that would mean 520 hours per year (10 hours x 52) times $15.00 per hour which comes to $7800 per year for the bookkeeper. The two Fair Market Salaries would come to $47,800 ($40,000 + $7,800). Sometimes the market salaries are not so easy to figure. Lets take an owner who owns a 99-cent discount type store. This shopkeeper works 70 hours per week behind a counter in the store. You can hire a counter person for $7.00 per hour so this becomes (70 hrs x $7.00 per hour x 52 weeks). Then you start discussing that this $7.00 per hour counter person would not be able to do the buying. You might want to figure a purchasing agent's salary. This can be done or you can just do simple numbers, leaving the salary only based on a counter person’s wages. DOING THE MATH By now you have the information to come up with numbers to put into the formula. Let us create a scenario. This was a transmission shop. The customers pay COD-upon pick up of the car. The parts inventory is from old transmissions and show on the books as worth nothing. The seller-owner is asking $75,000 for this business that he is able to takes out $50,000 in profit or benefits. In an interview, the owner mentioned that if a buyer will put $40,000 as a down payment he would carry the $35,000 balance at 5% interest for 5 years. By observation, we can see that the current owner sits in the office and does the bookkeeping, orders parts and makes bank deposits. He has a manager who bids jobs and handles production. No one is going out and calling on prospective business, which is one thing the owner should be doing with his time, but he is not doing. Lets go through what the numbers are with this example. Math Formula #1: Sale Price + Working Capital - Borrowed Funds = Cash Requirement Sales Price: $75,000 Working Capital: The business requires $10,000 cash infusion upon close of escrow, mostly to pay the landlords deposits and start a new marketing campaign. Borrowed Funds: $35,000 So, the calculation for formula #1 looks like this: Sales Price: $75,000 Working Capital (+) $10,000 Borrowed Funds (-) $35,000 =Cash Requirement: $50,000.00 Math Formula #2: Sellers Discretionary Earnings - Fair Market Wages For Owner - Debt Service - Return on Investment (Cash Requirement x Percentage) = Extra Profit/Loss Seller Discretionary Earnings in this case is, let us say, $50,000.00. Fair Market Wage: You can calculate what you consider fair or you can put all of the other numbers into the equation and see what is left for salary. If you like the salary you buy the business, if not you do not. If we were to calculate what the owner’s salary should be I would not pay much for what he does. Even though he puts in 50 hours a week he really only works 15 hours a week of true production. I am figuring 5 hours for bookkeeping and banking and 10 hours for ordering parts and answering phone calls. At $15.00 per hour he is earning $225.00 a week ($15.00 x 15 hours) and that multiplied times 52 weeks comes to $11,700 per year. Debt Service: My financial calculator says that if you borrow $40,000 for 5 years (60 months) at 5% and the balance at the end of the 60-month is zero, the monthly payments come to $660.49. Since the formula requires yearly figures we multiply by 12 and get $7,925.92. Most of this payment is principal reduction but we are going to just deduct all of the payment as is generally accepted in the industry. Return on Investment: We are going to use the 20% figure we discussed above. Formula one determined that $50,000 was needed as an investment which is multiplied by 20% (.20) = $10,000 per year return on investment. Formula #2 (Sellers Discretionary Earnings - Fair Market Wages (For Owner) - Debt Service - Return on Investment (Cash Requirement x Percentage) = Extra Profit/Loss) would the look like this: Seller Discretionary Earnings: $50,000.00 - Fair Market Wages: $11,700.00 (-) - Debt Service: $ 7,925.00 (-) - Return on investment: $10,000.00 (-) = Extra Profit/Loss: $20,375.00 This means that after deducting from the income, wages, financing costs and a return on your cash investment the business still generates $20,375 more profit. Now would you buy this business under these circumstances? It would appear, yes! Of course this is based on a few assumptions, which might not be true. Lets look at them again. The owner is only working 15 hours a week or he is only doing 15 hours of real work even though he is sitting around all day. The other assumption is that a 20% return on your investment is a sufficient return for the risk. We can also consider that if the new owner puts in an extra 25 hours a week doing productive sales the business should be able to afford to pay him another $20,375 for the first year. It would appear that if the sales work was done then the profit should greatly increase in the second year or maybe even the second month. Conclusion: This is a tool to help you analyze a business. It is not the end-all of a business appraisal or evaluation. Just a tool to help increase your understanding of a business’s value that you may be seeking to purchase. Have fun with it.

How A Decision Can Save Your Life

Mr. Galen Litchfield, the manager of Asia Life Insurance, was in Shanghai when Japanese troops invaded. This was in 1942, after the invasion of Pearl Harbor. A Japanese Admiral was sent to liquidate the company’s assets. Litchfield was ordered to assist in this liquidation. He didn’t have any choice. He could either cooperate or face the grim consequences of certain death. He was ordered to compile a list of the company’s assets—but there was one block of securities worth $750,000, which he left off the list because they belonged to the Hong Kong organization and were not part of the Shanghai assets. Still, he feared the Admiral’s wrath should the omission be discovered. And it was discovered—soon afterward. Litchfield wasn’t in the office when the discovery was made; only the head accountant. Litchfield received the chilling new on a Sunday afternoon. The accountant told him that the Admiral had flown into a terrible rage. He had stomped and cursed and branded Litchfield a thief, traitor, and scoundrel. Litchfield knew the consequences of defying the Japanese Army. They were grim. He would be fling into the Bridgehouse! The name alone filled people with fear. It was a torture chamber. Litchfield had personal friends who had committed suicide rather than be taken to the Bridgehouse. Other friends had died in the Bridgehouse after only ten days. Now it seemed Litchfield himself was destined for the chamber of horror. Litchfield went to the typewriter in his room in the Y.M.C.A. He wrote out two questions. The first: What am I worrying about? The second: What can I do about it? He had used this technique for years whenever he had a problem. Now, the answers might save his life. Writing down the answers to these questions clarified his thinking. He wrote that the problem was that he was afraid that he might be thrown in the Bridgehouse. “What,” he asked himself, “would he do about it?” He spent hours answering the second question. He came up with four possible courses of action and weighed each one. One, he could try to speak to the Japanese Admiral. But the Admiral spoke no English. He could use the interpreter, but this might only irritate the Admiral, for he was an irrational and cruel man who would rather let the sadists in the Bridgehouse deal with interrogations. Two, he could try to escape. But his chances were slim. The Japanese kept track of him all the time. He had to check in and out of his room at the Y.M.C.A. If he did get caught trying to escape, he would be shot. Three, he could stay in his room and never go near the office again. But, if he did, the Admiral would become suspicious. Soldiers would be sent to get him and they would throw him into the Bridgehouse. Four, he could go down to the office on Monday morning as usual, pretending that nothing was wrong. Perhaps, the Admiral would have cooled off by then. Perhaps, he would be too busy to remember. Or, perhaps, the Admiral would give him a chance to explain why he made the omission in the list. After long deliberation, the fourth option appeared favorable. It offered him the best chance of survival. As soon as he had made the decision and made a commitment to follow it, a wave of relief swept over him. Exhausted, he went to bed and slept well. When he entered the office on Monday, the Admiral was there, smoking a cigarette. He glared at Litchfield but said nothing. Six weeks passed, and still the Admiral did nothing to bring up the topic. Then—the Admiral was sent back to Tokyo. The Success Principle Make a decision and act on it. It could even save your life. The Principle At Work Galen Litchfield’s experience illustrates the importance of arriving at a decision. He was caught in a no-win situation. Any decision could have been the wrong one. There was no way for him to resolve this dilemma. However, not making a decision is also a decision. It is choosing to act impulsively, and not rationally. There are also consequences to this.

You may have found the best advice regarding life insurance.

You may have found the best advice regarding life insurance. When you are trying to find top advice concerning life insurance, it will be easier said than done extricating superior advice from foolish life insurance suggestions and support so it is important to know how to judge the advice that is offered. Now we'd like to offer you some advice which we think you should use when you are trying to find information about life insurance. You need to understand that any recommendation we present to you is only pertinent to internet help on life insurance. We are unable to offer any guidance or advice for conducting research offline. A great hint to follow when you're presented with help or advice about a life insurance web is to verify the ownership of the website. Doing this could reveal the owners life insurance credibility The quickest way to work out who owns the life insurance web site is to find the sites 'about' page. Any worthwhile website providing information on life insurance, will almost always provide an 'about' or 'contact' page which will record the site owner's contact details. The details should divulge major points about the owner's skill and understanding. You can then arrive at a decision about the webmaster's familiarity and qualifications, to provide advice to you regarding life insurance.

What Factors Determine Term Life Insurance Rates

Term life insurance policies provide a limited coverage period, which is determined by the policy owner. Term life insurance rates are actually the cheapest form of life insurance, but there are different rates for different people. This is because once the term of the policy is up you don’t receive any payout from the policy. If you take out life insurance at a young age, you will get much better term life insurance rates than if you wait until you are older. The total cost of your term life insurance rates can be tricky. Some term life insurance policies appear to cost more, but may, in fact, be cheaper when you look at the total cost of the term life insurance policy. For example, annual renewable policies increase your premiums every year and thus may appear to be more expensive than level term policies where the premiums never increase (although the initial premiums for a level term policy will be higher). But, in fact, level premium policies may involve higher costs over the policy's full term, and become particularly expensive when you try to renew your policy at the end of the term. This is why you do have to compare term life insurance quotes. Some of the factors that influence your term life insurance rates are: · Whether or not you smoke. Tobacco users are twice as likely to die as non tobacco users while they are insured. Life insurance companies take this into account when they set their premium and cash benefits levels. You can save from 20% to 30% on premiums by quitting smoking. · Medical Record. If you have a terminal illness, it is unlikely that any life insurance company will issue a policy. In the case of heart disease, you will get a policy but your rates will be high · Occupation. if you work in a dangerous occupation, such as working on a ship that carries gas, this will put you into a higher bracket when it comes to getting rates for term insurance. You will have to shop around to compare term life insurance quotes if you are in this category. Term life insurance rates vary a lot, and you can do something about your premiums by taking some decisions to become more healthy, like giving up smoking.