Archive for October 2012

How to Avoid Mixing Business and Personal Finances

Yes, personal and business finances have to be Separated! Let us see how to do so.
As times become economically harder and harder, the average individual begins to seek the answer to gaining their wealth and security. Regardless of where a person lives in the world, making a comfortable living is their goal. It is human nature to desire security and many would risk almost anything for a guarantee of financial success.

Thousands of enterprisers are born every day. Where are these individuals gaining the money that they need to start and sustain these businesses? A big percentage of innovative businesses are started with borrowed money. It is highly recommended that you seek the borrowed money from a bank or credit union. In addition to loans, there are many grants available to help a new business owner. Before the doors of a business open, research financial outlets for acquiring your needed funding, this protects your personal savings and assets.

Another popular mistake many new business owners make is to acquire the initial seed money from personal savings accounts or borrow using personal assets as collateral.Have you ever thought of what is going to happen to your child's future if his college fund is spent to fund a business that fails? Or have you thought of what is going to keep you alive in your retirement if you spend your life's savings on a business that fails? Every individual that opens a business must face the fact that even Walt Disney experienced bankruptcy on the way to his riches.
Experts recommend to never borrow money using personal assets, instead use signature loans, incorporate your business or acquire a partner. If a business is incorporated than stock can be sold to fund the business. This acquires seed money and allows you not to risk your personal assets which you worked your entire life to acquire. If incorporating your business is not an option, consider acquiring a partner.Partnerships accomplish gaining further funding and another person to take on the burden of the work. Studies have shown that partnerships have the highest chance for success when starting a new business.

Last, but not least, the worst mistake that most entrepreneurs make is to assume that their business is supporting them before it is secure. The temptation to combine personal and business expenses is extremely high as it offers a wealthier lifestyle.Millions of people are seeing the wrong in this premature assumption with the emergency decline in the world economy. At this time, many businesses are beginning to fold, causing the careless owners to lose everything.

To protect yourself, keep separate bank accounts, credit accounts and most importantly keep your expenses separate. No matter how successful your company becomes, combining personal and business expenses and finances is not recommended. Your best protection is to pay yourself a salary and watch the salary grow. As your salary grows, your personal savings will grow offering you the lifestyle you dreamt of. True, long lasting success is built, not carelessly, but it is bought with life savings.

Tips For Analyzing Tax Returns and Personal Financial Statements

(1) Tax Returns Form 1040
Most lenders require the business principal (s) to provide most current three-year personal and business returns. The returns are subjected to thorough analysis to determine creditworthiness of the borrower (s) and the owners. Here are just a few of the silent points to note:

• Look at the top left corner of the return to find the form number and description. For example, Form 1040 U.S. Individual Tax Return.
• Verify year, owner, filing status (singly or jointly) and if signed
• Ensure all schedules are attached including Schedule K-1 (K-1 is not part of Personal Return)
• Must have Schedule K-1 for any entity listed on Schedule E
• Verify income by cross checking with W-2s and Business tax returns, if business and real estate income is reported
• Verify ownership of assets and test reasonableness of values
• Check if sources of income match assets
• Adjusted Gross Income (AGI) is not actual income or cash received
• Individual tax return is usually prepared using cash basis except for depreciation
• Income from sale of assets is net of depreciation and selling expenses
• Some types of income are deferred
• Income reported must therefore be adjusted to cash to determine funds available for debt service
• Income from sole proprietorship or partnerships is excluded from cash flow
• Some non cash items can be included, e.g. certain insurance benefits, personal use of company vehicle and stock options
• There is little or no correlation between income reported on Individual Income Tax Return #1040 and cash
• Schedule K is a very important part of the puzzle. It records contributions, distributions and repayment of debts to owners.
• The credit analyst ignores the tax deductible portion of the loss from rental properties or investments shown on Form 8582and instead considers cash flow of the properties as shown in Schedule E or K-1.
• An analyst should be interested in the amount of tax owed, not the minimum tax calculation
• Borrower's share of Interest paid to partnerships and corporations should be excluded from cash flow
• Determine actual cash received from capital gains and whether they are recurring
• Distinguish between taxable portion and rollovers of IRA Distributions
(2) Personal Financial Statement (PFS)
This is a summary of personal assets and liabilities and income/expenses that provide information on income and assets that may be pledged as collateral. Often, the statement will not differentiate the assets and liabilities of the owner from that of the business.
An ideal Personal Financial Statement should be;
• addressed to your bank, preferably in your bank's format
• dated prior to the loan and signed by the borrower and his/her spouse if assets are owned jointly or if they are co borrowers. The signature(s) affirms that the statement is true and correct; it is presented for the purpose of obtaining credit and that the borrower will notify the bank of any material change on the borrower's financial condition.
• current, preferably not more than 90 days old or is inconsistent with the loan policy
• accurate with no arithmetical errors and assets and liabilities must balance
• supported by schedules of assets and liabilities, insurance policies, cash deposits, investments, unused lines of credit, loan balances, terms, lenders, contingent liabilities etc
• obtained at least once a year together with business financial statements and tax returns
• reviewed with borrower for completeness; to understand the reporting method and supporting documentation
• tested for marketability of assets, solvency, liquidity, debt/equity, verifiability and continuity of income and expenses.
• adjusted to exclude value of assets that have no value to the bank, those that cannot be easily liquidated or co-owned assets, personal assets, non-marketable securities, pledged CVLI (Cash Value Life Insurance), accounts receivable, closely held companies and pledged assets
• subjected to a verification process of asset ownership, asset values and liabilities. Use tax returns, credit report, searches and published comparable sales.

Franc Jo has worked as a banker for over 20 years and has owned small businesses. Currently, he is the senior underwriter with and author of many articles relating to loan matters.

In his many years as a commercial lender he reviewed thousands of business plans, financial statements, cash flow projections, and other borrower information. Over the years he acquired valuable experience in all types of lending, credit review, credit analysis, credit underwriting and impaired asset management. And as an entrepreneur he learned firsthand how to start businesses from scratch and grow them to successful enterprises.

Smart Personal Finance Leads To Smart Business Finances

The financial world may be a mystery to us when we are children but we get a crash course in it as adults. When we venture out on our own, there is no one to help us create and maintain a budget or pay our bills. If we eventually tire of working for someone else and decide to start our own business, business-related finances supplement our personal finance dealings. Without some knowledge or guidance, the world can become very confusing.

One of the best ways to get a strong foundation regarding finances is to read. There are plenty of paper and eBooks dealing with business and personal finance. Entrepreneurs can also find prepackaged systems for starting an online business that includes tutorials regarding the financial aspect of a company. With this subject, it is much wiser to look before you leap, so read, read, read.
Whether they are offered online or at a local college, finance classes will also be helpful. Many cover the ins and outs of the global financial sector, while others have a personal or business focus. Learning how to manage personal finances will only help with managing those for the business. Many of the concepts are applicable to both areas of life so do not hesitate to take every class that can be found. When the courses are required for a new career, they are often deductable on income taxes, an added bonus.

Retaining a finance advisor is a smart move for anyone managing a substantial financial portfolio. The world of investing and money management is complex, so it helps to have professional assistance. This person may also be able to offer insight into business matters, providing twice the return on the investment. Some of the most well-known entrepreneurs credit their success to great advice regarding finances. Never hesitate to ask the advisor questions because that is the only way to learn.

A finance calculator is a tool used for financial matters in addition to basic mathematics. People use this device so they do not need to remember and perform complex calculations by hand. It saves them time and money when calculating present value, future value, payments, cash flows, and other terms for loans, mortgages, investments, and business endeavors. Business owners should keep one of these handy because it will be needed throughout the years.

Just as a financial advisor is a go-to resource regarding investments and other money matters, an entrepreneurial mentor can be invaluable for business matters. It helps to learn from the best, so business owners should seek out a successful entrepreneur with time to spare and learn everything there is to know about running a company.

Finance is as crucial an aspect in the business world as it is in our personal lives. By taking the time to educate ourselves, obtaining the proper tools, and consulting with the most knowledgeable people, we can successfully manage both work and personal finances. This will make our lives much easier, allowing us to focus on enhancing our quality of living.

Jan S. Moy has over 30 years experience in dealing with people in distress, pople in addictions, businesses in change and curhes needing help with employing new staff. He has developed treatment for drug addicts, trained people in communications skills, tought self improvement programs and has been used as public speaker. During the last couple of years, he has been involved in network marketing both traditionally and on the internet. This has lead to knowledge on how to start and run home based businesses.

Personal Finance & Small Business Online Accounting Software

Save time & money
Online personal finance software can save you plenty of time and money by supplying you with the tools you need to analyze your money. The personal finance software will analyze your income and expenses to calculate where you can adjust your expenses in order to meet your short and long term financial goals. Financial software will provide you with graphs and charts of your income and expenses so you can see where most of your money is spent or invested and what you can do to save or spend more money. If you hope to save money, either short or long term, and need assistance in doing so then using online personal finance software will provide you with the assistance you demand.

Track sales & expenses
Small business online accounting software will help you run your company by keeping track of your sales & expenses. If you are currently storing your companies sales and expenses on an excel spreadsheet than the online accounting software will easily be able to import this data and get you started. Once this data is in the online accounting software then it will organize and analyze all your information. The software will highlight problem areas and show you where you are spending or not saving enough money. This information is critical to the success of any large or small business. The online accounting software will also let you create and manage invoices using professional templates. This will make it easy to have the bill in your client's hands in no time. The small business online accounting software is a necessity for any business that wants to succeed.

Work from the office, home or road
The great thing about online personal finance software is you can work from anywhere and have access to your data. You don't need to worry about your hard drive crashing, losing any data or having it stolen when you're not there. Your information is being stored on multiple high-security servers so anywhere you can access the internet you will have access to your finance software.

Using Personal Finance Tips To Grow Your Small Business

Every business guru states that you should keep your personal finances separate from your business finances. And, we could not agree more.

However, separating your business life from your personal life should only be about monetary transactions. We all learn life lessons (knowledge) that not only work in our personal lives but can easily translate to our business lives as well.

Knowledge is power after all and if it can help get you get ahead in your business then it really does not matter where that knowledge originated from.

To that note, there are many personal finance tips that relate very well to managing the financial aspect of your business.

Let's review a few of them:

1) What You Need vs. What You Want:

You may want a Lamborghini but know that it is not a good vehicle for a small, growing family - it's not good on gas, has no room for groceries and cannot take the kids to soccer practice. It just does not make sense for you - even though you would really like to have it.

The same goes for our business. You may want that 50,000 square foot building or that $50,000 piece of equipment. But, if your business cannot use those items to generate more revenue then they cost - then those types of purchases just do not make sense for your business.

And, it is just not capital purchases either. Do your employees really need a foosball table in the break room? Or, does your business really need that $500 per month T-1 line when a simple $50 per month DLS line would work just fine.

Being in business is not about satisfying what you want but taking asset that you need and leveraging them to grow the business - by bring in more revenue then that revenue costs to get.

If you don't need it for your core business - then don't waste your scarce money on it!

2) Living Pay Check To Pay Check:

If you over spend in your personal life, you usually run out of money before that next pay check comes in.

What happens is as soon as you get your pay check, you immediately look for ways to spend it - most of the time for things that leave you little or nothing to show for it. Some even spend their pay before they get it in their hands. Sure you had a great time, but that money runs out and runs out quickly.

Then, about half way between pay checks, a week after your last pay period and a week before your next pay day - you have an opportunity to do something really amazing - something that would either improve your life or maybe even bring in more money for your personal use.

But, you have to decline because you have no money to take advantage of it and the opportunity will not wait for you to get your next check.

This is a great lesson for business. Far too many businesses spend their revenue before or immediately after they get it - regardless if that spending does anything to perpetuate the business.

Example: I worked with a brand new business owner who was helping doctors and other medical professionals collect payments from insurance companies. I took this business owner around to all the independent doctor offices I could find and helped him pitch his services. One of these contacts bit and gave him some business. The doctor provided him with about $10,000 worth of claims to collect on. Immediately, this business owner was able to get about 90% of those claims to pay from which he received a 10% commission.

Now, instead of taking that $900 and putting it into his business - to grow his business or setting some of it aside for new opportunities - he used those funds, for personal reasons like a new gym membership, took his friends out to dinner and purchased the latest cell phone with a very expensive plan, not for his business, but for his personal use only.

What happened is that this doctor, who was really impressed with this business owner's ability to collect, referred him to a college friend and colleague in a town about 85 miles away. However, this business owner had to decline the new business, not because he couldn't do it or because he was too busy, but because he did not have the cash to drive to the other town.

Not only did this mean that the business owner missed out on new business, but the referring doctor, feeling let down, did not give him any additional business after this incident.

3) More Money Will Improve Your Life:

In our personal lives, if we find ourselves short of cash, we tend to look for more money. Get a bank loan or maybe even a payday loan. While this may work temporarily, giving us more money to spend, if we don't change what we spend our money on, very quickly we end up right back in the same situation - short of cash and a life that is not improved but maybe worse off as we still have to pay for that new money.

In business, many entrepreneurs find that their expenses outweigh their revenue - especially if revenue is slipping. But, instead of looking at the business - what it is spending its money on or why it is losing or not growing revenue - the business owner thinks that just getting more money is the only answer.

If the business owner goes out and gets a business loan or brings in new partners or outside investors yet does not fix the problems that cause the cash flow issues in the first place, not only will more money not help the business but could drive it further into its financial hole - causing more problems and maybe even resulting in the business being shut down.

4) If It Doesn't Work, Don't Keep Doing It:

Too many people throw good money after bad. It is OK to make mistakes. You learn from them and move on. But, if you don't learn and continue to do the same thing, you are destined to fail again.

I have a neighbor that did not want to purchase a $1,000 riding lawn mower - he had other things to spend his money on. So, he found a used mower in the paper and paid $500 for it. Two weeks later it broke down and would cost about $200 to fix it. Instead of fixing it, he went back to the paper and purchased another used mower for $500. Again, this one broke down and he did not want to spend the money to fix it - said it was a waste. However, this time, he went to Craig's list and found another used mower - but this one was only $400. And, boy was he happy.

But, in the end, he spent $1,400 and a lot of time instead of buying a brand new $1,000 mower. Plus, I don't think this $400 mower is working anymore as he has not mowed his grass for months.

In business I see companies throw tons of money at their advertising but never get any additional results from it - they just think that is what they should be doing.

So, instead of finding out where their potential customers are they stick with the same old thing - throwing good money after bad.

Thus, they advertise in the same paper each month but see no new revenue for that expense.

All things in business should be measurable. If they measure up to expectation, then continue to do them. If they don't, scrap them and try something else.

If you spend a $1,000 a month in print advertising and it is not bringing in at least $1,000 in new revenue - then why keep doing it. Try something else, like advertising online (in places your customers hang out) or on TV during a show your customers watch. Then, measure the results. If they are better then what you were doing, your business is just that much better off.

There are things in business that should be keep separate like your business bank account, business expenses, financial statements and business credit cards. This just keeps your records more easy to manage and by not co-mingling funds, can keep you out of trouble with the IRS.

But, when it comes to knowledge, regardless of where you learn it, if it can be used to better your small business, then by all means - co-mingle that knowledge and grow your company into the success that is could always be.

Joseph Lizio holds a MBA in Finance and Entrepreneurship, is the founder of Business Money Today, has a strong commercial lending background and is regarded as an expert in business and finance - specifically business loans and working capital.

Entrepreneurs Find Personal Loans Can Help Finance Business Startup Expenses

Being short-term loans that assist your immediate cash needs, personal loans can help finance business startup expenses. Typically personal loans are a single payout loan with a high rate of interest. The borrower usually returns the loan with interest in one go rather than paying monthly installment. In general, personal loans are not recommended due to their high interest rates. A borrower may find it difficult to repay the whole debt in a single shot, however, with business startup's the case is indeed different! Let us see how different finance options can save the day for business startup's.

Typical Business Start-up Expenses

Once you have decided to start a business you will most likely have a solid business plan that will detail your initial financial requirements. Typical business start-up expenses can be broadly divided into overheads and variable expenses. One thing that remains constant with almost every new business, is that you need some money to purchase inventory, lease a building, start an advertising program and work towards your first sale. Personal loans are extremely useful in financing those overhead expenses that usually occur at the beginning as a one-time cost. Variable expenses are those that continuously occur in the process of conducting a business and are generally tied to sales projections.

For instance, in case of a software business start-up, the administrative costs, licensing costs, initial infrastructure setup cost would constitute overhead costs. On the other hand client visits, traveling for demonstrations etc. would constitute variable costs that will keep occurring every time there's a potential client and may not be predictable. Also, irrespective of sales, overhead costs will still remain to keep your setup active!

Before you borrow any money, it is vital to have a repayment plan as well as projected business plan, to understand how your cash flow will operate. Once you segregate your expenditure into fixed overhead costs and variable expenses, you need to sort out the expenses that will be one-time events. A business loan or credit line can help with these one-time costs provided your business is able to afford it once projected sales begin to be realized! You need to anticipate all possible scenarios and ensure enough cash flow over the period of few months before you take a personal loan.

Types of Personal Loans

The beauty of this financing, is that it often can be obtained with or without security collateral. A secured personal loan involves borrowing against an asset such as your property. If you default on your repayment, the lender can claim your asset! On the other hand, unsecured financing, does not need collateral, however, the lender generally protects his loan from possible default by charging you a high rate of interest. In the event of a default, the lender may resort to legal channels to recover the amount.

If you are confident of repayment, it is best to go for a secured personal loan wherein you can negotiate a low annual percentage rate (APR) while pledging your property or car or any other asset.

If your business startup requires funding that cannot be met by a single personal loan, you may even borrow more than one loan. The more you expose yourself to the debt scenario, the more financial risk you're exposing yourself and your business to. It is important to conduct thorough research and prepare for contingencies. It is always best to dig into your own savings or borrow from close relatives if they're willing and able however, for those that need instant cash and a huge amount at that, a personal loan could be a lifesaver. In fact, if you successfully repay your personal loan within the stipulated time, you could even get a good credit score which in turn will be better for the future of your business!

You can utilize these resources to research more information on online loan lenders or current unsecured personal loan options to help explore your financing options.


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