Article of the Week: Five Simple Questions to Help Determine Your Business Financing Options
By: Marco Carbajo, SBA.gov
The funding strategy a business selects is something unique to each company and needs to be precise. Before an owner sets out and applies for financing, he or she needs to know what options are available and what direction should be taken.
The good news is as a business owner, you have many options when it comes to business financing, but the key is choosing which option will work best for your situation. Each financing option has its advantages and disadvantages, and some could be a much better fit for existing businesses than to startups. It’s important to do your due diligence by conducting a fair amount of research so you can ensure you make an informed decision prior to moving forward and submitting a business credit application.
Here are five simple questions to help determine which financing option may be a fit for your business.
Do you have a detailed business plan that shows financial projections, cash amount needed and what the funds will be used for?
Having a business plan is one of the key items required for any small business loan application submitted according to the Small Business Administration website. A well written business plan shows lenders, banks or credit unions that you understand your industry, your customer, and can generate the cash flow needed to make loan payments on time. “Business plans aren’t just for startups seeking a loan—that’s really a myth about small business planning,” says Sabrina Parsons, CEO of Palo Alto Software.
How are your personal credit ratings and how much debt do you have?
Credit scores play an important role in one’s ability to successfully obtain business financing. According to the Small Business Administration (SBA), credit scores reflect how well you handle money. Business lines of credit, business credit cards, business loans, and other traditional forms of financing all require personal checks as part of the lender’s credit granting decision.
With strong personal credit ratings, banks interpret that the applicant has the proper skills to manage finances. Additionally, a business owner can improve their overall credit standing and chance of approval by keeping their credit utilization on revolving credit card accounts at or below 50% with 30% being ideal.
What kind of collateral (business and personal) do you have to support a business loan request?
Banks require collateral that can guarantee a traditional business loan if it goes into default. The amount a bank will lend to a business largely depends on the value of the collateral that the business owner is willing to pledge. Although online lenders may not require collateral for a business loan, the interest rates charged are substantially higher.
Does your business have outstanding invoices?
Rather than struggling with unpaid invoices, you can recover some of the funds by converting unpaid invoices into cash. Invoice factoring also known as accounts receivable financing enables you to sell any outstanding invoices to a private lender in return the lender will give you a percentage of the funds due to your company. Once the customer pays the invoice in full, the lender will send the remaining balance owed, less the fees due to the lender. If your business has a time gap between sales and payments, then this financing option may be an option to consider.
Does your company have healthy cash flow?
Strong cash flow shows a bank that the business has enough cash to make monthly loan payments in addition to covering its operational costs. As a business owner, it’s essential to understand how much cash is flowing through the business. “If your business has too tight of a margin, work toward lowering expenses or finding ways to grow revenue before applying for a loan,” says Jay DesMarteau, head of small business banking at TD Bank.
Remember that the business financing options listed here are not a one size fits all. All types of funding programs are different among lenders so be sure to take the necessary time to research which option is right for your business.
Article of the Week: Paid Family Leave Proposed Regulations Released
Paid Family Leave Proposed Regulations Released
The NYS Workers Compensation Board and the NYS Department of Financial Services released proposed rules regarding the implementation and administration of New York’s new Paid Family Leave law. As you know, this law is scheduled to take effect January 1, 2018 and is the most expansive paid family leave law in the nation. The law applies to employers of one or more employees and, when fully implemented, will provide up to 12 weeks of paid leave for an employee to care for a family member with a serious health condition, the birth or adoption of a child, or for a qualified military exigency.
The proposed rules from the Workers Compensation Board (WCB) address the administration of employee leave including eligibility, notice requirements, medical certification, reinstatement rights, health insurance continuation, and coordination with FMLA and other laws. You can read the proposed WCB rule here.
The Department of Financial Services (DFS) has released proposed rules that establish minimum standards for the form and rating of family leave benefits coverage. The proposed rules establish that the benefits coverage will be community rated, establishes procedures for establishing the community rate, relate to the content and sale of policy forms for the family leave benefits coverage, and authorizes the superintendent to set the maximum employee contribution for family leave benefits coverage. You can read the proposed DFS rule here.
In both cases, public comments on the rule will be accepted until April 8, 2017. The Business Council staff will be conducting an in-depth analysis of the proposed regulations, identifying our concerns, and submitting comments to the WCB and DFS.
We appreciate your feedback. Please submit your comments/concerns regarding the proposed rules to us as soon as possible. For feedback related to the WCB proposed rules, please contact
at (518) 465-7511, ext. 210. For feedback related to the DFS proposed rules, please contact
at (518) 465-7511, ext. 207.
Article of the Week: Tips To Ease Small Business Tax Season Stress
By: Chris Rush, Entrepreneur.com
Are you stressed about tax season? It certainly breeds its own intense levels of anxiety for many business owners. Whether you outsource your tax preparation to an accounting professional or handle your taxes in-house, it pays to be prepared. Preparing for tax season in the right way can save you valuable time and arm you with useful information that can enhance your business’s efficiency and success.
As you embark on this annual business exercise, here are some steps you can take to streamline tax-related jitters.
Take stock of your financial situation.
Make sure the information you have about your employees and contractors is current and correct. Did anyone move, get married or have children? For employees, double-check items, such as employee name, address, social security number, lived-in and worked-in jurisdictions, paid time-off information (to determine whether appropriate withholdings or deductions were applied), status (active, terminated or on leave of absence), filing status (exempt or non-exempt), number of exemptions, year-to-date wages and taxes, and pre-tax year-to-date amounts, such as contributions to 401(k) and benefits plans.
Confirm independent contractor classifications.
The misclassification of employees as independent contractors is a major area of enforcement for government agencies. If you already work with independent contractors, evaluate current relationships since they may have changed over time (You may want to refer to the Internal Revenue Service common law requirements). Double check contractors’ names, Taxpayer’s Identification Numbers (TIN) (which is either their social security number or Employer Identification Number), addresses, state and local work locations, and earnings totals for each jurisdiction. Double check wages paid to employees and contractors (Form W-2, Form W-3, and Form 1099) and compile rent or property documents, income and expenses. Finally, examine reimbursements to employees and contractors.
Organize your paperwork.
Keep your records organized so the preparation process can be more efficient. Should you be audited, you may not have to scramble to assemble your documentation. For your reference, this list includes forms that must be filed. It’s a good idea to check the websites for your applicable state or local guidelines:
- Employer's Annual Federal Tax Return (Form 944); only file Form 944 annually if you do not file Form 941 quarterly
- Employer's Annual Federal Unemployment (FUTA) Tax Return (Form 940)
- Federal Wage and Tax Statements (Form W-2)
- Transmittal of Income and Tax Statements (Form W-3)
- Federal 1099-MISC form
- Federal 1096 form
- Employer information about health care coverage enrollment for their employees, such as Forms 1095-C and 1094-C if you are an applicable large employer
- One form for each employee to report health care coverage; provide Form 1095-C if you are an applicable large employer, or if you are self-insured, you will need to give your employee(s) Form 1095-B
- Some states require income tax returns
- Some states require unemployment tax returns
- Form 943 if you are in the agriculture industry
- Employer's Quarterly Federal Tax Return (Form 941)
- Some states require income tax returns
- Some states require unemployment tax returns
- Most local income tax returns need to be filed quarterly
Clarify exemptions, deductions, and rebates.
View your employees' 2016 earnings and deductions in your books. Bonuses are generally considered supplemental wages and are subject to federal taxes, as well as certain state taxes. In addition, you must account for certain fringe benefits, retirement plans and any other necessary adjustments to employee wage and tax amounts.
Think long term.
Make it a habit to follow these tips and remain organized. Understand your long-term business goals and make sure tax preparation reflects these goals by consistently updating your paperwork, tracking your employee and contractor base, and looking ahead to the next major milestone in business reporting. You may also want to consider including future leaders in the tax preparation process so they can familiarize themselves with exemptions, deductions and rebates when they take on a leadership role.
Don’t go it alone.
The regulations and paperwork surrounding tax preparation can be daunting. Don’t be afraid to ask for help or use additional resources to inform your decisions. Outside consultation can often be the easiest quickest option, and at the risk of misclassifying workers and incurring a penalty, sometimes more cost effective.
Devoting the time and resources necessary for tax preparation can help you start 2017 on the right foot. Organizing and evaluating the status of your business early will ensure that tax preparation runs smoothly and accurately.
Article of the Week: Health Savings Account Information
Brought to you by the insurance professionals at Bouchey & Clarke Benefits, Inc.
Health savings accounts (HSAs) are a growing trend in health care. An HSA is a tax-exempt
savings account established for the purpose of paying for the qualified medical expenses
of an individual and/or his or her spouse and tax dependents. HSAs are designed to
provide eligible individuals with the following federal tax benefits:
- HSA contributions are tax-free.
- Interest and other earnings on HSA contributions accumulate tax-free.
- Amounts distributed from an HSA for qualified medical expenses are tax-free as well.
In addition to tax benefits, HSA plans have grown in popularity because they offer potential health care cost savings to both employers and employees. For example, individuals covered under an HSA are more likely to seek preventive care, choose generic drugs, not misuse the emergency room, and use online tools to research health care providers.
HSAs are offered in combination with high deductible health plans (HDHPs). To be HSA eligible, an individual must be covered under a qualified HDHP and not also covered by another health plan that is not an HDHP (with a few exceptions, including disability, dental care, vision care and long-term care insurance). HDHPs generally have lower monthly premiums and higher deductibles than traditional health plans.
HSAs can cover medical expenses until the HDHP deductible is reached. The idea of this design is that the HSA pays for routine, smaller health expenses, while the HDHP offers protection in the event of a catastrophic medical expense, such as an unexpected illness, injury or hospitalization.
Because HSA amounts are non-forfeitable, amounts contributed to an HSA can increase savings for future health care needs, even into retirement. In general, money placed into an HSA can be withdrawn at any time. Any HSA withdrawal used for a purpose other than to pay for qualified medical expenses is taxable as income and subject to an additional 20 percent penalty. After an individual reaches age 65, the additional penalty tax does not apply to HSA withdrawals.
Additional HSA Basics
- HSAs are controlled and owned by the individual or employee. HSA owners are responsible for annually reporting HSA contributions and distributions to the Internal Revenue Service (IRS) as an attachment to their IRS Form 1040 (U.S. Individual Income Tax Return).
- HSA contributions are non-taxable, and can be made by the HSA owner, an employer, a family member or any other person for months during which the owner is HSA-eligible.
- Annual limits apply to HSA contributions. The amount of the annual limit is federally mandated, and depends on whether the HSA owner has individual or family HDHP coverage.
- HSA funds, including interest and earnings, accumulate tax-free from year to year. HSAs are not subject to the “use it or lose it” rule applicable to health flexible spending accounts (FSAs). HSAs are portable, meaning individuals keep their HSAs even if they change jobs, change medical coverage or make other life changes.
- Even if an HSA owner is no longer HSA-eligible (for example, because the owner is no longer covered under an HDHP), he or she can still use accumulated HSA funds to pay for qualified medical expenses on a tax-free basis.
- HSAs are an inheritable asset. If a surviving spouse is the beneficiary, the spouse becomes the owner of the account and can use it as if it were his or her own HSA. For other beneficiaries, the account will no longer be treated as an HSA, and will pass to a beneficiary or become part of the deceased individual’s estate.
- HSAs can help individuals become better health care consumers by giving them more of a stake in controlling their health care costs. Since they are responsible for more out-of-pocket costs due to the higher deductible, many employees become more conscious of the health care dollars they are spending.
HSAs are not for everyone. The decision of whether to choose HSA/HDHP coverage is different for each individual, and may depend on the predictability of health care costs. If an individual is generally healthy and/or has a reasonable idea of health care costs, then HSA/HDHP coverage may make more financial sense than traditional health plan coverage.
HSA Annual Limits for 2016 and 2017 Single Coverage
- HDHP minimum deductible: $1,300
- HDHP maximum out-of-pocket maximum: $6,550
- HSA maximum contribution: $3,350 for 2016 ($3,400 for 2017)
- HDHP minimum deductible: $2,600*
- HDHP maximum out-of-pocket maximum: $13,100
- HSA maximum contribution: $6,750
*For family plans that have deductibles both for the family as a whole and for individual
members: If either the family deductible or the deductible for an individual member is less
than the minimum required deductible, then the plan is not an HDHP.
Example: A family plan has a family annual deductible of $3,500 and an individual
deductible of $1,500 per family member. This plan is not a qualified HDHP.
Individuals who are 55 years old and older are allowed to contribute an extra $1,000 per
year to their HSA, to help them save for retirement.
For more information about HSAs, contact Bouchey & Clarke Benefits, Inc. today.
Article of the Week: Four Ways to Practice Work-Life Balance in Your Small Business
Many small business owners will tell you the rise of the internet has changed how they work. Newer entrepreneurs may not even be able to imagine moving about their day without email, social media or mobile banking.
But while these tools make it easier to do business in many ways, the pressure of always being “on” can amplify stress for small business owners. Time management can be particularly challenging for entrepreneurs who may be building a business while keeping another job, raising a family or pursuing education, just to name a few examples.
If you’re feeling the pressure, try one or more of these time-management techniques to help you balance work alongside everything else.
1. Batch like tasks
Set aside time each day, week or month, and protect it! Use that time for tasks that take concentration, calculation, analysis or just tend to fall by the wayside when you get busy.
Confident you multitask like a pro? Try tracking your time for an entire day to see how you really spend your time – and how often you get distracted. A hard look at your minute-by-minute workday might surprise you!
2. Set communication guidelines
You’ve heard about people who turn off their WiFi after a certain time of day; or about people who don’t even let their cell phones into their bedrooms.
It may take some time for you to determine the right way to “switch off” after your workday. Whatever works for you, consider communicating it clearly to your small-business team.
Television producer Shonda Rhimes keeps it simple with this autoresponder on emails sent to her after normal business hours:
“I don’t read work e-mails after 7 p.m. or on the weekends, and if you work for me, may I suggest you put down your phone?”
Similarly, you could encourage employees to use an email scheduling tool to compose messages if they have a burst of inspiration or feel more productive late in the day. Such tools hold outgoing emails until a specified time so that others don’t see incoming mail alerts at all hours.
3. Start delegating
Training staff members on various tasks takes time, but the return on investment can be huge for a business owner. Delegating tasks can empower employees to take ownership of their roles. Just be sure to have an accountability system in place to make sure tasks are completed properly in the period following training.
4. Host regular office hours
Bombarded with questions from every direction? Choose a certain time of the week or month to host office hours. Invite employees to chat, customers to drop in for coffee, or vendors to show you their new product. By having a set time for these encounters that may often seem like interruptions, you can do your best to eliminate them from batching sessions or periods when you’re trying to unplug.
Figuring out how to balance work with family and personal life is always easier said than done. How do you make time for what’s important to you? If you’re not sure how to get started and feel overwhelmed by your small-business tasks, consider sitting down with a SCORE mentor. They’ve probably been in your same position before!