Small business owners, even ones who have set up a separate bank account for their business, often hold off on procuring a business credit card, choosing instead to use their personal card for business transactions. The arguments for doing so range from not wanting to give up spending rewards offered by personal cards to not seeing the advantage in a business card, since they must be personally guaranteed by the business owner anyway.It is true that small businesses do not typically qualify for credit cards that are not personally guaranteed by the business owner. This is unlikely to change as the issuing bank is entitled to financial protection in a case where a small business fails. Therefore, a small business owner is just as responsible for their business debt as they are for their personal expenses.It is also true, at present, that business credit cards are not bound by the same consumer protection laws which govern personal cards (although expanding these protections to include small business cards has been proposed). These 2 facts may make business owners even more wary of opting to utilize a card specifically in the name of the business.But there are several excellent reasons to utilize a business credit card for your small business.Tracking your business expenses on a personal card may seem simple on the surface; you only need to carry and use a single card and the expenses are all there on the statement so you can sort out which is for business and which personal at the end of each billing cycle. But there are definite disadvantages to this practice.Having company expenses mixed in with personal makes it very easy to miss business purchases on your monthly statement. You may be omitting some transactions that should be classified as business expenses, ultimately affecting your tax liability and your bottom line. In addition, because you track your personal expenses and your business expenses, these “cross-over” expenses are essentially being double-posted each month – once to ensure you track the business expenses, and then again to make sure you are accurately tracking your personal cash flow. This practice is costing you valuable time each month that could be spent growing your business. With a business credit card, your expenses are cleanly and easily separated and tracked for accounting and tax purposes, saving you time.Tracking company purchases on your personal plastic does nothing for establishing credit in the name of your business. If you do plan to grow your business and will someday be looking for a loan or credit line to help you reach your goals, a business credit card is a great way to establish an ongoing record of financial responsibility.There are a multitude of business credit card options available from financial institutions, including some that offer the same types of spending rewards as are available from a personal account. When choosing a card, choose one with options that match your spending patterns. And consider your local bank, the same one where you keep your business bank accounts, as a source. This bank will be a great resource when you are ready to grow your business, and setting up business credibility though a well-managed business credit card now will begin to establish an ongoing relationship that will be of great benefit to you in the future.
We wanted to revisit the issue of owner financing for one major reason:It might just be the last way (and best way) for a budding entrepreneur to purchase a business these days.Face it – banks are not lending to those seeking to purchase a business and, to even get them to look at your deal, you better have twice or three times the collateral in relation to the potential loan amount (regardless if the business is extremely profitable or not) – and just because they might look at your business loan request does not mean they will approve it.Even non-bank lenders are not lending for the purchase of a business unless it comes with a huge amount of real estate and then they will only fund based on a small loan-to-value of that real estate.That leaves two options for most people wanting to buy the business of their dreams:1) Friends and Family (what some call Friends, Family or Fools). However, unless you have a very rich uncle, most of your friends and family are also facing financing restraints and either will not or cannot help you make a big purchase like buying a business.2) Owner financing. Where the current owner of the business is willing to sell it to you on terms (meaning they – not the bank – hold the note).This is what we will discuss here – as this might really be the only way left to purchase a business today.Owner financing can benefit the purchaser (you) in several ways:1) Easier to qualify for as you don’t have to jump through all the hoops that banks or lenders will make you jump through like cash flow analysis, property appraisals, debt-to-income ratios, personal financial statements, etc.2) Better terms than most banks will offer – thus, saving the new owner (the purchaser) both time and money – not to mention less in regards to reporting (ongoing financial statements and tax returns) and fewer covenants.3) More than just financing, since the current owner still has a stake in the business’s success, they will provide invaluable guidance and advice well into the future.Plus, if the current business owner believes in the business (and you can get them to believe in you) – this should be a no brainer for the owner. If they hesitate without giving a very good reason, that might be a red flag to you as it might show that the current owner does not believe in the long-term viability of the business (they know something is wrong or in decline).Let look at an example to show how owner financing works:Let’s say you find a business for sale – a business that you know you will have the necessary passion to work hard at and grow beyond where it stands today.The price of the business is $100,000 – yet, you tried to get a bank loan, a SBA loan and even a non-bank loan and have heard nothing but “NO.”Here is where you approach the current business owner and entice them to sell you the business while carrying the note.How your deal should work:You tell the current owner that you will provide some down payment (this is to show good faith as well as provide a little cash incentive to the current owner).This down payment should be around 10% but could be less depending on how much you can raise. But, raising $10,000 is much easier than raising $100,000. Plus, any bank or non-bank lender would require you put up more than 10% – so 10% is really a win for you!Now, if you put 10% down, that means the current owner would have to finance the remaining 90% or $90,000.Here is how to approach that:State that you will pay both principal and a comparable market interest rate (let’s say for this example – 10% APR) amortized over (7) seven years (choose a term that makes the payments work for you as well as for the current owner).But, you will also include a balloon payment in (3) three years – allowing the owner a full exit if necessary.The longer term (7 years) gives you breathing room by making your payment affordable (the longer the term, the lower the payment).The balloon payment (meaning that even though the loan amortizes over 7 years, the remaining balance after 3 years will be due in full – the balloon term) gives the current owner a way out in a short period as well as provides you time (3 years) to establish yourself in the business – so that when the time does come, you have a track record that you can take to the bank to finance that balloon balance.Plus, if both of you are happy with the way things are going; you can always refinance the balance (balloon) with the current owner at the 3 year anniversary date.Now, if agreed, you get the business (what you were working for to begin with).The current owner not only sells the business – but, (given our example above) earns $22,700 in interest above the original purchase price – interest that you would have paid to the bank anyway if you were approved for a bank loan – might as well pay it to the current owner.From our example, your monthly payment would be around $1,500 a month – very affordable and at the 3 year balloon date, the reaming balance would be approximately $60,000 – much easier to get a business loan approved for than the original $100,000.In the end, you, as the new business owner are no worse off and now have bought yourself some time to show both the selling business owner and the banks that you are a true success.The other side:Why, you might ask, would a current business owner, looking to get out of the business, be willing to owner finance?Two main reasons:1) The business owner, given this economy and the fact that banks are not lending, might not be able to sell the business any other way.2) The business owner benefits additionally as he/she receives not only the principal from the loan (what they wanted in the first place) but will also earn interest from the financing as your interest payments go to them and not the bank (e.g. major selling point).In good times, for a business to succeed, the business owner has to be creative in all aspects of the business. In bad times, like now, to be a successful business owner, you have to get doubly creative, especially when it comes to financing.If you have no other choice or options, it never hurts to go to the current owner and ask them to finance – what do you really have to lose?Just come prepare with a deal that benefits both you and the owner because owner financing just might be the best and last way to finance a business purchase today.
Starting a business is tough.. no exaggeration. To start and run a business is both nerve-racking, petrifying.. and a dozen other emotions. It doesn’t matter if you are drafting the initial business plan, just opened the doors, or been around for awhile. Planning will alleviate much of the risk, but not all. You can’t control everything in life, nor in business.Want to grow your company? Here are five guidelines to help you do that. Many accomplished business owners wished that someone had told them this at the beginning.. and look at us giving them away to you.Guidelines to Grow Your Business1. Realize that you can’t do it allBeing your own boss is part of the appeal to start a business. The owner of a small business will have to be contented to wear many hats – that of a sales assistant, bookkeeper, marketing director. However, this does not require that he or she should do it all on his or her own. Now is a good time to consider outsourcing some pieces of your business to a virtual assistant and a bookkeeper.You will certainly be able to do it alone for a short time and even manage to flourish, but in order for the business to develop, it can’t go on like that forever. It is crucial to know when to find capable people with the same vision. You can only do so much and if you want the business to thrive, you will have to accept that you need help.It should not be necessary to relinquish your new found freedom or your control to get help, but you are only one individual.2. Don’t spread your doubtsConfidence, drive and passion are needed when launching and running a prosperous business. It is, however, normal for doubts about this new undertaking to creep up on you, but essential to know to whom and where to voice these uncertainties.Don’t tell influential people outside the company like a capitalist that might invest in your venture or the local credit union’s manager. They will only finance someone who is confident about his or her business. So keep your game face on when you approach investors for much needed money. In the same way the employees must be sure that they can believe in you. Don’t when times get tough, don’t express your emotions and doubts openly for all to hear.It would be lying to say that not everyone have fears and uncertainties. A business owner, however, should arouse confidence in his or her employees. So think about how you act when you are with them, especially when things aren’t happening like you would like it to.3. Work towards that business you would wantThere’s an expression that says that you should fake it until you make it. You should adopt this principle, particularly in the beginning of a business venture.Don’t intentionally deceive clients about the business’ scope or what services you can offer them. New clients should be instilled with confidence in your business, until your reputation has been established. So, run the business as if it is already the business you would want, even if it is not there yet.Apply this concept to all aspects of your business venture – from the way potential clients are greeted to the language used on advertising materials and the company website. If a confident air is projected when new customers are dealt with, a first impression is made that will offset the small size or lack of experience.It is not necessary to approach all dealings as the president of a worldwide organization, but think big when you want to grow your business. Make sure any material or employee who have direct contact with your clients, represent your business the way you would want to.4. Deal with the negative answer of noIt is only you who can decide to open your own business, an adventure that you yourself decide to go on. Regrettably, to make your dream come true, you’ll have to involve other people whose opinions will have to be heard about the way things happen.Starting out as the owner of a business you will often hear “no.” Potential customers and clients will not be interested, your idea will be passed on by investors, and your banks loan applications will be turned down. Don’t feel dejected because rejection is essentially fabulous.How so? For the reason that every time you hear “no,” you must choose to appreciate it as a break. Maybe your bank loan application was turned down, not because of your idea but because of a problem with the business plan. Perhaps a non-interested client could force you into developing your pitch or making your offered services more convincing.A business owner should look at rejection as inevitable, but it is your choice how to react to it.5. The business bank account isn’t for your personal useThis is a big one, so read it again. And again. Once your business is going strong, the temptation will be there to use your business account for personal use, to borrow money from the business or treat yourself with lavish payments, but don’t do it, especially in the beginning.Even a successful business will admit that to grow cost money. Every time you take from the business’ money, the chances of growth diminish. You should be sure to adequately compensate yourself for the work you do, but your salary must be modest and reinvesting in the business must be your main concern.To grow a business will cost money because everything needed for growth like equipment, talent and space costs money. Therefore the smaller amount you put back, the slower the growth. The more money put back, the faster the operation can be expanded and the more profits can be made.