Business.com

Business.com

How to Double the Size of Your Business Overnight With a Merger

Posted: 28 Jan 2020 02:00 PM PST

Bigger is better, as the old saying goes, and a lot of times that's true for business as well.

Traditionally when it comes to growing, you'd think about building your business through increasing sales gradually, which takes time and comes with its own set of challenges. But what if you could do it overnight? You can with a merger.

Many business owners avoid mergers and acquisitions. They believe they might lack the know-how, it might be too expensive or it could hurt their business in some way. But when done right, a merger doesn't require any upfront capital or debt and can benefit you in more ways than you think. I've seen it happen often – businesses mesh together and become stronger and more valuable than they were individually.

One of the biggest reasons to engage in a merger is to build a succession plan. If you want to climb the entrepreneurial ladder, you have to get to the point where you work on your business – not in it, necessarily. To get there you need to have capable people in place to whom you can pass a variety of business operations.

And for that, you'd typically look at people working for a business like yours and see if you can headhunt them and agree to work for you. Instead, however, you could merge with a business similar to yours and hand the other CEO the reins.

They've already been doing what you're doing. They know the business landscape, the challenges and the opportunities. A merger like that would free you up to continue growing through acquisition and keep your shareholder stake in the business.

Why not capitalize on that?

Another reason would be so you can tap into a different market. Maybe you're doing the same thing as another similar business, but they have a different focus. Remember the Facebook/Instagram merger?

Both social media platforms, but on different platforms and with different sets of user bases. Or Charter's acquisition of Time Warner Cable, which let them reach new areas with broadband by taking over existing infrastructure. A merger like this can help you reach audiences that you never could have before.

Diversifying assets is another reason. Acquiring a company in a different region or a different type of business gives you extra flexibility – when one source of revenue dips, another can pick up the slack.

And you don't have to be a huge business to carry out a merger. Ninety-eight percent of businesses in the United States have less than 20 workers, and mergers between smaller companies happen a lot more than you'd think. For every Time Warner Cable and Charter merger, there's a Joe's Lawn Service and Green Care Yards meshing their resources.

When tech firm Pitney Bowes began their acquisitions program, they realized that it was "faster, cheaper and less risky" to expand by acquisitions than organically. They're not the first to realize that. But the thing that stops a lot of people is the "how."

So, with that in mind, how do you acquire a business?

Identify your objectives.

Widely accepted among investors, there are four key reasons why you should consider a merger:

  • The financial synergy would prove most beneficial for both involved parties.
  • Financially speaking, it would adhere to what investors label "best practices."
  • The acquiring entity is looking to quickly scale their business offering.
  • Succession planning is taken into consideration.

A similar business is easier to merge with, because you've both already answered the following question: "Is this industry something we're really wanting to commit to?" Plus, a merger doesn't require any capital. It's a swap of shares into a newly created special purpose vehicle between the two merging entities.

An acquisition like Charter picking up Time Warner Cable is a great example of this kind of merger. One company acquires another that has a fair bit of overlap, and it's easy to integrate them into the operations that already exist. The leadership team knows the market already. They may even know each other by reputation, if not in person.

If you're merging into a different area, though, the acquisition has both significantly higher risk and significantly higher reward. Facebook's acquisition of facial recognition software company Face.com is an example of this.

Facebook isn't in the facial recognition business, but it realized that technology could be of benefit to its long-term goals. These types of acquisitions often run at a loss for a little while, but they're important, because they lay the groundwork for future growth.

Are you trying to bring on a business that's similar and adjacent to yours? Or are you trying to expand into a new area? That will help you choose your direction. You can break these down further into categories like vertical integration, industry roll-up, competition elimination and more, but these two questions are the first ones I ask myself when I'm thinking about an acquisition.

Focus on the fundamentals.

Now that you know the different reasons why you would merge, it's time to figure out what fundamentals matter most to you. I like the idea of synergies as it allows me to acquire companies that let me cross-sell products, combine resources and open up new markets.

I also usually want a company that's solid already. You can do well picking up distressed assets too – some people focus solely on that – but if the company has a good foundation your acquisition will be much easier. Whatever the case, the following four fundamentals should always be at the forefront of your mind as a new, inexperienced buyer of businesses.

1. Sourcing

The first thing you're probably going to want to do is contact a broker to find out which companies are looking at mergers.

In reality, however, that's the last thing you should do.

Most brokers have been in business for a while. They have a certain way they've done business and a certain deal structure they want. They aren't usually open to alternate deal structures, and it can be tough to make them back down.

Brokers tend to make a fair bit of their money from upfront fees, too, and they have the incentive to inflate company valuations, because people tend to go with the broker that gives them the most flattering valuation.

Always be looking for new deals. In my experience, this is one of the hardest parts of the process. When you start looking at an acquisition, you have to start with a fairly wide net and narrow down. As corporate finance company McKinsey notes, companies that want to do five to fifteen acquisitions a year often start with around 150 prospects.

Check public information about the company first. SEC filings, news stories, web pages and job listings are great places to start. Touch base with people who know them by reputation. Are they well liked? Do they do good work?

Then once you've figured out what your best targets are, it's time to pitch the company itself.  Ask if you can tour the facilities. Meet with management. Find out how well they'd mesh with your existing business. Check their numbers and make sure they match with the public ones. Does their culture match? Can you use their staff to improve your company?

Review their internal documents, including business owner requirements, P&Ls for the last few years, their top customers, and anything else that will help you make a decision. Much of this may be contained in a confidential information memorandum.

2. Build rapport

If you learned how to do mergers and acquisitions in an MBA program, you need to forget what you've learned. Most of the time when people learn how to do mergers and acquisitions they approach it from a procurement standpoint.

It's a high-pressure sales environment where you're finding faults, looking for loopholes and issues and trying to get an edge over the business owner. That's all well and good when you're dealing with corporate finance. But you want to target owner-managed businesses.

When you're dealing directly with the owner it's a fundamentally different process. Just like business to business sales, it's about building rapport. You need to get to know them and their business intimately.

As top salesman Grant Cardone notes, the score is in the follow up. You don't just touch base with someone once. You keep coming back, showing them that you care about them and their business.

3. Collaborative deal structuring

If you've done the step before this correctly, you've built a rapport with the owner and have a basic understanding of what they would need to consider a merger or acquisition. Now it's time to drill down.

Every business owner has problems, and when you're trying to figure out how to structure the deal you need to find their motivation. Is their cash flow poor? Are they wanting to retire? Is the business taking up more of their time than they expected?

Most business owners will probably say everything is great and they just need money. Don't believe it. Keep digging till you find the root of the main problem they're facing, then show them that you can help.

You need to work together to find a solution that works for them. Do an initial phone call, follow up with a big fact-finding phone call and build up your rapport with them, take that information away and do some homework, then meet face to face and make the offer. It's a process – a collaborative one – not just a sale.

4. Create an SPV and swap shares

The most intuitive vehicle for most mergers and acquisitions is going to be an SPV, or special purpose vehicle. This is a separate company used for acquisitions and mergers. Both companies will place their shares in the SPV, which becomes a larger holding company that encompasses both.

The SPV tracks its assets, liabilities and equity on a separate balance sheet. At this point, both your original company, and the company you're merging with, are part of that same overarching holding company. But they still have their separate balance sheets.

This is a flexible way of acquiring or merging with businesses. You can set up as much or as little control as you like for each company, and with the SPV structure encompassing both companies, you don't need the same amount of capital you would for a straight-up merger.

Add your company to the one you want to merge with in the SPV and voila. You're now a bigger, more imposing company that's double the size.

Sometimes, if the company is distressed but has good fundamentals, it can be shockingly cheap to acquire, especially when you're talking about small or midsize businesses. Sometimes a company can even be acquired for little to no money down, as recently took place as part of a Harbour Club case study for entrepreneur-turned-investor, Lee Johnson.

In his situation, Johnson managed to acquire four different businesses in four months, one of which was producing $3 million in annual revenue – all for no upfront money, allowing him to finalize the purchase without going into any kind of debt. Remember, though you may go back and forth or negotiate on the offer at this point, valuation can be a fortunate "sticking" point.

After you've made the offer, you may need to register changes with your state. If you're using a holding company it will simplify things, as you won't need to change bank accounts, licenses and permits, or do a legal closing of the old business.

Take your business to new heights.

Whatever process you take, with the right acquisition you can immediately turn your business into a significantly bigger, better version of itself. You can open up new markets, vertically integrate your operations, diversify your operations and reap all sorts of benefits.

If you've never thought about it, why not? Take the opportunity and use acquisitions to supercharge your business's growth!

How to Stay Relevant in Your Industry

Posted: 28 Jan 2020 07:20 AM PST

You probably ask yourself how to establish yourself in your industry and stay relevant for a long time. The answer is not simple. It requires a lot of hard work, dedication, and patience to develop your unique voice that will resonate loudly. In my opinion, one of the crucial things to build your presence is to be completely dedicated to your vision.

How to build a name in your industry

No matter which industry you are in, it is very important to stay focused. You probably have some completely unique vision, and that is your real power. Not too many people have the same idea about some relevant stuff, and that is where you should put your focus.

Be open to new tendencies and explore the ways to develop your idea. There is always room for progress, which is why I advise my friends to always look for new ways to do the same thing. If you want to develop a product or service that will make a difference in the market, be the pioneer and chase what you want to achieve. This way, people will remember you and your work won't stay unnoticed.

Once you establish your name in your industry, that is the moment when the real game starts. It is crucially important to deliver the same value over and over again and to have the right vision of the future. No other person can create a better improvement of your product or service than you can, which is why you should always look for ways to stay on the right track.

One of the most important things is consistency. When I started my Disrupt project, I had the same vision over time. I wanted to create a place where entrepreneurs and relevant figures come to share their success stories with other people. Many readers found the content extremely helpful and that was a huge satisfaction for me. Moreover, it was a huge obligation too.

So many people are part of Disrupt today, and I have a mission to connect them all. I want to create a place where people come for inspiration, which is why my Disrupt brand makes a real difference in today's media. I want to share the secrets that added value to my success. The following points are the things that help you build your presence and make you stay relevant in your industry.

1. Be there for people.

No matter what you do in your business, people need you. There is probably a huge demand for something on the market, and people look for ways to satisfy their needs. Be there for people who need your advice, guidance, product or service.

Always listen to what people have to say, and be ready to improve yourself along the way. The ultimate way to deliver value is to solve people's problems. If you can help someone live a happier and more satisfying life, you will get plenty of rewards.

These rewards don't come always in the form of money, especially if you are at the beginning of your career, but the rewards are always coming in the form of recognition. People will start to remember your name and turn to you every time they need some solution.

2. Stay on the right track.

There are so many distractions on the way to success. Many people will come to you saying that you are not capable enough, not skillful enough or not lucky enough. Just do not listen to these kinds of people. Numerous ways to reach success are in front of you, and you should find the way that is best for you.

If you have a vision of your name in your industry, be persistent and build your dreams step by step. We were all unknown at some point in our careers, but the consistency and dedication led us to success. It is a matter of time and the right decision-making process that will make a difference. You should be constant and always committed to long-term success. That is how you build your reputation.

3. Consult the right people.

You probably have the person you look up to. This is the person you should consult about your progress. When I started my career in Puerto Rico, I didn't have many people in my surroundings who had the success I wanted to reach. That is why I built a community of people who were more successful than me at the time. The community started to grow, and that is how Disrupt was made. Today, I speak to people like Casey Adams, Ralph Dibugnara, Tai Lopez and Grant Cardone to get the inspiration for my work.

It is more than important to have the right support on your way to success. Always listen to people who have already made their name in the exact industry. By listening to their advice, you can also present yourself in a better way and build a community of successful people. And, trust me, these people are not vain. They like to share their secrets because they want to see the world full of successful individuals like they are.

How I built my name

If you know the world of entrepreneurs, you know the name of Anthony Delgado. How I built my name is a story I don't tell every day. It is a story that is quite long and full of struggles. My journey wasn't easy and it didn't start with huge money or huge support. I was quite alone on my journey, but I knew one thing that could always make me happy—staying true to myself.

Paul Getter, founder of The Internet Marketing Nerds, says, "Being relevant or making a sincere connection in your industry comes through keeping your finger on the pulse, following trends, and just being authentic. Authenticity is always relevant!" He has always been an inspiration to me.

On my journey, I always knew my potential and wanted to explore it completely. That is my drive that keeps me alive today. I still haven't reached my true potential, which is why I always look ahead for new challenges. I search for ways to improve myself and give people even more than they expect. If you are ready to serve people on a more personal level, if you can affect their lives positively, you will always find the fans and dedicated followers. That is how you build your name and stay relevant for a long time. Only delivering an extraordinary value can get you an extraordinary reward.

My name is still in the process of making. I want to give people enough information and resources so they can follow their dreams and build their success too. Disrupt is the place where so many valuable things are shared every day that everyone can find something relevant to themselves. My dream is to make people more satisfied with their lives and that is why I always search for ways to do things in a way that has never been done before. With this method, I build my unique presence and stay relevant to people who want success. 

Always commit to your dreams

The ultimate advice I would like to tell people who want to stay relevant in their industries is to commit completely. There is no easy way, and most of the time, there is no instant way. You should invest years and years of good practices and the implementation of different strategies to see what works the best. After some time, you will see what resonates with the people the most and what brings you the best rewards.

No name in any industry is built in one day. Successful people invested numerous years of struggle, education and experimenting over different stuff. In the end, they established their names as the leaders in the exact industries. You should follow their journeys and make something unique in your industry. Build a product or service that has never been built before, deliver some unique value that will be revolutionary, create something that can change the world for the better. We are all capable and talented enough to change people's lives. It is only a matter of our dedication that we invest in our dreams.

Staying relevant in your industry is not only important for your career. It is also crucial for your presence on the market. So many new kids are coming on the stage to steal the show and become popular, but none of them will make a success if they do not commit completely. This means staying up late creating ways to improve yourself, always looking in the mirror with the true and honest look.

If you can be honest with yourself, you know that you are capable to stay relevant to other people. Give people what they need and always try to improve their lives. This is how you improve yours and this is how you build your name that can stay relevant for a long time.

How to Become a Bookkeeper

Posted: 28 Jan 2020 07:00 AM PST

It wouldn't be wrong to state that bookkeeping is quite an acclaimed profession and with the influx of several entrepreneurial ventures into the global landscape, the role of bookkeepers is turning into an indispensible one. Needless to say, bookkeeping is a challenging profession but also comes with its set of rewards, provided individuals take the bookkeeping business seriously enough.

What does a bookkeeper do?

Firstly, it is important to note that bookkeepers are mostly hired by businesses that are looking to invest time and money into cash flow analysis and accounting of the existing financial transactions. Therefore, a bookkeeper is expected to be well-versed with the concepts of financing, including accounts receivable, accounts payable, bank reconciliations, and more.

The amount of tediousness, however, is determined by the size and spread of the organization in picture. While targeted financial activities are mostly initiated, a bookkeeper also needs to take care of the daily financial errands for the concerned organizations. Put simply, someone looking to get a fair idea reading bookkeeping 101 must understand that financial activities like maintaining sales ledgers, invoices, remittances, statements, purchase ledgers, journals, general ledgers, double entry bookkeeping, and even bank reconciliations are taken care of, by an experienced bookkeeper.

Who qualifies as a bookkeeper?

The first thing about bookkeeping is that it comes across primarily as a relationship business where the person in-charge is responsible for nurturing the financial whereabouts of the concerned organization between the business owners and the suppliers. However, there are average bookkeepers and then there are exceptional ones who are extremely proactive in nature.

Needless to say, a bookkeeper is the one who keeps a track of the company finances besides gathering information regarding the upcoming transactional activities. However, an exceptional and sought-after bookkeeper indulges himself or herself in a host of other activities which fall outside the financial purview. Unlike a freelancer or a bookkeeper who is meant to outsource the basic financial errands for an organization, an established professional is expected to fulfill three of the most essential company roles:

He or she is responsible for gathering every bit of financial information that concerns the organizational well-being.

The bookkeeper is also an intermediary interpreter who is capable of understanding the requirements of the business owner and translating the same across diverse platforms; in order to build lasting and rewarding relationships.

Lastly, a bookkeeper in most cases is given the responsibility of assisting businesses when it comes to making prudent decisions besides stopping clients from making financial errors in the process.

It wouldn't be wrong to state that a good bookkeeper is less of an employee and more of a financial guide to the business owner. In the truest possible sense, it wouldn't be wrong to consider him or her as the financial advisor of the concerned firm who is instrumental when it comes to making the business succeed beyond imagination.

How to start a bookkeeping venture

Before we start talking about the prospects of a futuristic bookkeeping venture, it is important to note that according to a survey conducted by the Bureau of Labor Statistics, employment percentage in regard to bookkeeping are expected to drop by at least 8 percent by 2024, due to the emergence of automated software. However, despite this setback, bookkeeping will continue to a sought-after profession courtesy of the intuitiveness and other aspects associated with the same, in addition to typical financial accounting and management. That said, bookkeeping standards, if maintained by concerned businesses, can also help them acquire relevant ISO certifications as International Organization for Standardization takes a host of company functions into account with financial aspect being one of them. Even Nguyen Viet Tiep, Director, ISO CERT VN, believes that bookkeeping is one organizational tool that determines the credibility of international certifications for the concerned firms.

In the subsequent sections, we would throw some light on the best possible strategies to become a bookkeeper, besides targeting both the certified and uncertified techniques in play:

1. Pursue training.

Training to be a bookkeeper is something that cannot be ignored if an individual is seriously considering the same as a career option. The first priority for someone looking to be a bookkeeper is to opt for a certification or even an associate degree, focused at the concerned profession. Moreover, pursuing a specialized course at an auditing or accounting firm can also come in handy for the concerned individuals. Aspiring professionals, however, must make sure that the select courses include subjects like fraud prevention, inventory management, financial analysis, payroll management, and more. Certified training must also include familiarity with the concepts of Microsoft Excel and QuickBooks.

2. Obtain experience.

The best approach, in addition to bookkeeping certification, is to obtain relevant professional experience by working closely with firms of repute, either as a freelancer or a full-time trainee. Enrolling for relevant internships during the academic coursework is yet another approach that makes it easier for an individual to gather valuable, hands-on experience. Most importantly, a novice can easily evolve into a well-informed bookkeeper by working closely with firms that require proper handling of financial reports, invoices, balance sheets, and more.

3. Obtain certification.

Another way of proving authority in the bookkeeping domain is to get hold of professional certification. While there are quite a few certifying agencies spread far and wide across the globe, the most credible ones include AIPB which validates the credibility of the individual in the concerned domain. The best thing about getting certified is that it paves way for faster raises and promotions in the bookkeeping arena.

Accounting vs. bookkeeping

Firstly it is necessary to understand the accounting and bookkeeping are two of the most integral parts of a company's financial landscape. However, the role of a bookkeeper supersedes the role of an accountant as initial information regarding the finances and other monetary aspects are first tabulated by the bookkeeping expert. This information is usually sent across to the accountant who then maintains the cash flow register for the business. However, a majority of startups hire only one individual for taking care of the bookkeeping and even the accounting requirements of the firm.

What are the associated bookkeeping rates?

For a freelancing individual, the bookkeeping rates depend on the intricacy of the work and even the frequency at which he or she needs to report to the concerned organization. Moreover, a full-time bookkeeper can charge quite exorbitantly as he or she is required to gather the financial whereabouts of the firm besides processing the same as a part of the overall cash flow management system. In case an accountant isn't available, the bookkeeper can always quote a higher amount as he or she is then entrusted with additional responsibilities.

Inference

For an aspiring bookkeeper, it is important to note that the profession comes with a host of rewards even if the exterior looks way too demanding for an ordinary individual. While certification and training are the bookkeeping prerequisites, it eventually comes down to the real-time, hands-on experience for someone who is looking to pursue the concerned profession. At the end, it is the love for mathematics, accounts, and numbers that determine whether an individual will be an average or exceptional bookkeeper.

Last but not least, bookkeeping certification costs are always on the higher side given the popularity of the profession. This is why a company recruited bookkeeper or even a freelancer charges way more than an average accountant who is only in charge of the accounts, finances, and other simplistic aspects of the cash flow management.

How AI is Learning to Dominate Paid Ads

Posted: 28 Jan 2020 06:00 AM PST

Paid ads have been a staple of online advertising for more than a decade. Over that time, advertisers have learned how to design and target them even more effectively. Now, though, that is changing.

Artificial intelligence is transforming the way that paid ads are delivered, giving advertisers more control than ever before as to when and where they are delivered to target audiences. Though these abilities are new, advertisers need to become familiar with them and fast. Advertisers who do not take advantage of these new abilities to leverage customer insights risk being left behind, and their ad campaigns are going to lose ground to more advanced competitors. 

This is already occurring but is going to shortly become apparent to everyone in the ad world. In the near future, AI is sure to dominate the delivery (and perhaps, eventually, even the design) of paid ads, but they are only able to do this with a skilled and experienced human controller. As a result, rather than seeing AI tools as competitors, advertisers must learn to work collaboratively with them. 

In this article, we'll look at the reasons why advertisers need to be aware of how AI is learning to dominate paid ads, how AI tools are doing this and how this impacts online advertising in the future.

Why advertisers need to know about AI

There are several reasons why advertisers need to care about the rise of AI tools in paid ad marketing. At the broadest level, it should be recognized that the 'traditional' model of paid ads, in which an advertiser specified a set of broad criteria for when and where these should be deployed, is dead. The agility and power of AI-driven paid ad campaigns far outstrips the ability of even the most experienced human advertiser, and any agency or company that is not taking advantage of these tools is likely to be left behind.

You should not, however, see these tools as a replacement for advertising professionals. As we've pointed out in our article on the impact of AI in customer service, in many cases, utilizing these tools allows you to free up time that you would otherwise spend responding to everyday customer queries and other basic tasks.

Beyond this pragmatic concern, there are a few key ways in which AI tools can make your paid ad campaigns more effective and more cost-efficient. With more detailed analysis of your target markets, and the ability to deliver paid ads directly to them, you can leverage your paid ad spend and get better results for the same investment.

It might even be, in fact, that using AI in your paid ad campaigns is going to lower your marketing spend. As AI targeting improves, a higher percentage of your ads reach the right audience at the right moment and in the right place. In the long run, this may mean that you can reduce the amount of paid ads you use.

Finally, by putting in place AI-driven tools today, you are preparing yourself for the future. As we see, the future landscape of paid ad campaigns is going to be driven by AI at its most basic level. Though these tools are already quite powerful when it comes to improving the efficacy of these campaigns, this is only likely to grow in the coming years. By familiarizing yourself with the technology now, you can ensure that your team is among the first to take advantage of any future developments.

How AI works in paid advertising

Paid ad campaigns rely on data for their efficacy. Instead of firing out millions of ads that are of little (or no) benefit to your target audiences, AI-driven paid ad campaigns can learn how to best speak to your customers and target paid ads where they are most effective.

If you are running a paid ad campaign, you are probably already using AI tools whether you realize it or not. Google AdWords, for instance, makes use of Google's proprietary AI system to gather data on website visitors and send ads to specific groups of consumers. As this technology develops, it is able to gather more and more information on individual users and to target ads even more specifically.

There are also plenty of widely used tools that already rely on AI systems. Most people don't realize, for instance, that Grammarly (an advanced text editor) uses AI to generate suggestions. Similarly, many of the best hosting services provide a set of AI-driven tools for analyzing traffic to your website and automating the delivery of ads to specific audiences. 

The value of AI technologies in all these processes is that they use existing data to make highly accurate (sometimes spookily accurate) predictions of future consumer behavior. Given enough data, AI tools can now estimate a user's income bracket, homeownership status and more. 

These tools are very valuable for advertisers, but they also have other uses: They have been implemented in order to enforce internet censorship in many countries, and are also being used to secure data systems against attack. For advertisers, though, their primary value is that AIs can target ads to specific audience groups. But it doesn't stop there: The more advanced AI marketing systems then look at the success of your paid advertising and automatically direct resources where they are most effective. 

The Three A's

In order to understand why AIs are having such a huge effect on paid ad campaigns, let's take a closer look at the way that these systems work. This can be best summarized by looking at three aspects of these systems: attribution, automation and audience.

Each of these builds on the last, so that improved attribution analysis can build into automated systems that are then able to target paid ads much more effectively.

1. Attribution

The great strength of AI is that it can quickly and effectively analyze huge data sets. One such data set is generated by paid ad attribution models. These are the models that are used to give credit to the click (or series of clicks) that brought a customer to your site. Google, for instance, uses a number of attribution models in order to provide this information.

If you've ever seen one of these reports, the need for AI tools is clear enough. The journey of a typical customer is often complex, involving several different keyword searches and multiple click-throughs. As a result, it's often difficult for individual marketers (or even data teams) to analyze how effective your paid ads are. AI tools can help with this process by quickly processing attribution data and providing you with valuable insights that improve the efficacy of your paid ad campaigns.

2. Automation

AIs can also be used to automate many of the tasks that marketers used to do by hand. Taking the attribution data I've described, for instance, AI tools can quickly build customer personas that are far more detailed than those that can be created by hand. AI tools can automate aspects of the marketing process beyond working with attribution data. They can also be used to automate the process of lead generation, and some of the most advanced tools can even discover and identify new targets based on their browsing history. 

Implementing this kind of automation can give your marketing campaigns a powerful boost, but it needs to be done in a sensitive and transparent way. Customers are increasingly concerned about how companies use their data, and are taking active measures to improve cybersecurity and avoid precisely this kind of automated prospect discovery. Presenting customers with ads that are "too personal" can freak them out if you don't explain where you got the data from. 

3. Audience

Perhaps the most powerful functionality that AI tools deliver in relation to paid ads, though, is their ability to automatically target specific audiences at specific times. There are plenty of examples of this. In fact, one of the earliest AI systems, which Amazon used to deliver recommendations to their customers, was a basic implementation of this idea. 

Today, the ability to target hyperspecific audiences at hyperspecific times has been transformed by AI. AI tools can be used, for example, to send paid ads to customers when they are close to a Starbucks, offering them a deal on their favorite drink. This kind of real-time targeting is essentially impossible for humans, and can ensure that paid ads are directed to target audiences at exactly the correct time and place.

Though this kind of geographically specific targeting is becoming quite common, the parallel rise in consumer use of VPN technologies has made delivering ads in this way more difficult than it used to be. Many customers are now using VPNs specifically to hide their location, whether to avoid geographical blocks on Netflix or as a cost-effective way to increase their own cybersecurity. 

In response, tools have been developed (which also rely on AI) to overcome the anonymity that VPNs afford. Making use of these tools can restore the ability to deliver highly targeted ads to your customers at critical times. 

The future of paid ad campaigns

In the future, paid ads are going to be more targeted, and more specific, than ever before. By utilizing the kind of AI tools we've described, advertisers can develop truly individualized personas for all of their potential customers and retarget each of them with ads at precisely the times that they are most likely to make a purchase. 

This is already apparent in some innovative paid ad campaigns, such as the one run by Starbucks. But the vast datasets that AIs allow advertisers to work with is going to extend their capabilities far beyond individual consumers. Another future area for development is the way that AI is accelerating B2B demand generation and outreach marketing strategies used by digital marketers.

This is already apparent in a number of recent marketing campaigns in the financial industry where mobile advertising platforms are leveraging consumer spending data to advertise on many popular stock trading apps, often unbeknownst to users. However, as the technology develops, it's likely that the same kind of detailed personas that can be built from consumer data are going to also be available for B2B clients. 

Finally, in the not-too-distant future, it may even be that AIs will be able to design content. There are already tools, like those described above, that track the engagement of specific consumer groups with specific types of paid ads and make suggestions as to which types of ads need to be improved. Going a step further, into a world in which AIs can develop hyperpersonalized ads designed to resonate with specific individuals, is likely to take a few years yet. 

But the implications of this advance is sure to be widespread and groundbreaking: Ultimately, it might be that AIs can produce paid ads that are specifically designed for individual consumers. It might be, in fact, that within a few years the ads that we see are just for us.

The bottom line

Paid ads are all about maximizing your marketing spend, and incorporating AI tools into your processes can have significant impacts on the process of developing a marketing budget. By ensuring that you are talking directly to your target audience and by continually assessing how effective your marketing content is, you can make sure that every dollar you spend on paid ads is going to come back to you in increased profits.

Transitioning From Corporate America to Franchise Business Ownership

Posted: 28 Jan 2020 06:00 AM PST

The new year is here, so many people are taking stock of their personal and professional lives to determine their direction for 2020 and beyond. Will this be the year you finally run that 5K? Is 2020 when you'll tackle that home remodel you've been discussing for years?

Is it finally time to open that franchise business you've dreamed about?

Taking on a 5K is a terrific goal, and home improvement projects bring lots of happiness, but neither is as life-changing as abandoning life as an employee for the thrill of entrepreneurship. That's something I've helped people do for more than two decades now, so I understand how hard it can be to break the chains of traditional employment – especially when that job is in corporate America.

Corporate jobs are often loaded with fringe benefits, making it difficult for employees to leave. Health insurance, retirement plans and company vehicles are just a few of the perks I've heard candidates discuss as reasons they were apprehensive about going out on their own. I like these perks as much as anyone, but I'm not going to limit my potential as a business owner to keep them. And with a whopping 30.2 million small businesses open in America today, there are obviously others that agree.

If you're at that point in your life where you're thinking seriously about franchise business ownership, here are some great places to start.

1. Decide what's important to you.

Certainly, everyone wants to make money in a business venture, but true success is how the business helps you design the lifestyle you've always wanted. Answering these questions will help you narrow your focus and select the franchise model that works for you:

  • Are you the type of person who wants to build a business empire, or are you looking for something smaller and easier to manage?
  • Do you imagine yourself playing a role in the daily operations of the business, or are you hoping to hire people for the day-to-day management while you handle the back-end operations?
  • How important is it to have your weekends free? How about being home in time for dinner every night?
  • Are you excited to go to a place of business every day, or do you prefer a remote environment?
  • Is there a personal or philanthropic motivation you want to consider in the type of good or service you provide? 

2. Address your fear.

You don't have to scream it from a mountaintop; just have the courage to acknowledge that you're afraid to leave the security of a job for the uncertainty of small business ownership. Ask yourself what specifically scares you. Is it financial? Are you overwhelmed by the possibilities? Unsure where to start? Do you have self-doubt?

All of this is normal, much more normal than having no fear at all. You owe it to yourself to face the fear even if you don't decide to become an entrepreneur. Learn what it takes financially to open a franchise. Understand how to narrow the field and select the right business for yourself. Franchisors look for people whose skills match up well with their franchise system and offer initial and ongoing support. That way, neither you or the franchisor will have any doubts about your ability to succeed as one of their franchise owners.

3. Speak with your family.

Franchise business ownership is an amazing life change. It will allow you to take control of not just your professional life, but your personal one as well. Discussing your desires to be a franchise business owner with your family at the beginning of the process could alleviate your fears and generate support from loved ones. You'll be able to set your own hours, giving you more time for family. You'll be making the hiring decisions, which could involve bringing family on board. You might even decide to go all in and make your entire franchise business family owned and operated. Whatever you choose will impact the people who live in your home, so let them in on what's happening.

 

Editor's note: Are you ready to research franchising business opportunities? Fill out the below questionnaire to have our vendor partners contact you with free information.

 

 

4. Learn from your community.

Most people know at least one business owner, whether it's a friend or family member. Even if you don't, there are resources in your community to help you learn about the business culture. Joining your local chamber of commerce or just attending some of its events will introduce you to local business owners.

If there's a local business you know has a good reputation, spend time there. Sign up for its email communications. You could even visit the owner during their downtime to learn about their experiences. Large communities will have offices of economic development teeming with great information to help you determine what types of businesses can thrive in your area.  

5. Consider your finances.

No, you don't have to figure out exactly how you're going to purchase a franchise business. That's something you can work through with either your franchise consultant or the franchise system you're considering. However, this is a great time to get your personal finances in order so you can understand your current financial position. Many franchise systems have financial benchmarks in place to ensure they are considering qualified candidates capable of purchasing and operating a franchise. You'll want to determine your net worth (assets minus liabilities) and your level of liquid capital (readily convertible assets, like cash or savings accounts). There are many financing options to consider, like 401(k) rollovers and Small Business Administration (SBA) loans. All of this information will help you determine which franchise systems best suit you financially.

6. Try the best of both worlds.

Ever heard of semi-absentee franchise ownership? This is by far one of the most popular ways to enter the franchising world, because it allows owners to spend only 10-15 hours per week working on their business without having to work in their business's physical location. In other words, you can keep your day job and still be a business owner. Another option is to keep your job through the early period of your franchise ownership, then expand your franchise business to multiple units while enjoying more free time for the people and things you love.

7. Get help from an expert.

One of the most famous lines from the franchise industry is that franchising is about being in business for yourself, but not by yourself. The same is true for franchise business exploration. You don't have to sift through more than 3,000 franchise brands via internet search to figure out which one is right for you. Franchise business consultants like myself help candidates determine what they want from a franchise business and how their skills match up with different systems. Best of all, there is no cost to franchise candidates for working with franchise business consultants. As with real estate agents, if a franchise business consultant helps a candidate find something they decide to buy, great! If not, that's fine as well. Either way, the services will never cost you a dime.

Franchise ownership is a terrific adventure for people invested in maximizing their professional potential with the system and support of experts. Utilizing these tips will help ensure your franchise journey stays on the right path.

Small Business Taxes: Changes in 2020

Posted: 28 Jan 2020 05:15 AM PST

  • The Tax Cuts and Jobs Act (TCJA) changes to the tax code have impacted deductions for pass-through companies.
  • Deductible losses are limited to $250,000 if you file as a single person or $500,000 if under a joint filing.
  • State and local tax (SALT) deductions are limited to $10,000.
  • Transportation fringe benefits, like those afforded to commuters, can no longer be deducted as a "qualified transportation fringe benefit."

The start of a new year means a new slate of challenges and goals for small business owners everywhere to tackle. While it's easy to set your eyes on future goals, there's one thing that almost immediately deserves your attention as a small business owner: your personal and business taxes.

As you operate throughout the tax year, you're responsible for sales tax, payroll taxes, Social Security, employment taxes, the federal income tax, Medicare taxes and a slew of other tax obligations. Doing your business's taxes may not be the most appealing task, but it's an incredibly important one in the grand scheme of things. After all, the IRS always gets its cut to help fund the federal budget. One misstep in your tax filing efforts can lead to lofty fees, and if left unattended, the eventual closure of your business.

As you get ready to file your small business taxes, it's imperative that you keep pace with changes to the federal tax code to avoid those pitfalls. To help you, we've compiled the most pressing small business tax changes. With this information, you should be one step closer to ensuring you are ready to file your taxes before the deadline on Wednesday, April 15.

How to file your small business taxes

If you've filed personal taxes before, you've likely collected your W-2s (and any additional documentation), filled out a 1099, plugged some numbers into an online tax application and waited for your return to come in.

Tax preparation for your small business taxes isn't too dissimilar from that same process.

You want to collect all your small business documentation. Any records you have detailing your business's income and expenses, such as the previous year's capital expenses, are crucial to this endeavor, as accurate record-keeping will keep you and your business out of trouble with the IRS. [Want to learn more about tax software to help you fill out your taxes? Check out our best picks and reviews on our sister site Business News Daily.]

Once you have all of the documentation in front of you, including your gross receipts, make sure that you're filling out the right paperwork. The U.S. Tax Code is complicated, and it comes with a slew of forms to fill out depending on various tax realities. Depending on the structure of your business, you'll need to fill out a certain tax form based on the type of small business tax that applies. As a small business owner, you'll likely fill out a Schedule C form.

If you run a limited liability company (LLC), you're a sole proprietor, or you're one of the millions of self-employed individuals, you can also use a Schedule C form, but if you run a corporation, you must use Form 1120.

After completely and accurately filling out the correct form, it is up to you to ensure the documentation gets to the IRS on time. Schedule C forms are part of your personal IRS tax files, so it becomes part of a regular 1040 return. Your deadline is the same as everyone else's on April 15.

S corporations must file by the 15th of the third month following the close of the tax year. For small businesses that file quarterly, your estimated tax deadlines are April 15, June 15, September 15 and January 15.

You can always seek the help of a tax professional or tax advisor who can guide you through the process. If you're worried that you'll make a costly mistake that could result in hefty levies and potentially spelling doom for your business, making sure you have someone who can at least double-check your return is a huge boon to any small business owner.

Trump's tax law, small business tax deductions and pass-through businesses

Ever since he took office in 2017, President Donald Trump has tried to position himself as a leader for the working class. While his opponents challenged that notion, especially after the passage of the Tax Cuts and Jobs Act (TCJA) and its corporation-friendly provisions, some changes to the tax code have impacted small businesses.

If you're at the helm of a small pass-through business, there are some major changes you should be aware of. For the uninitiated, pass-through businesses are among the most prevalent type of business in the U.S. If your business is a sole proprietorship, a partnership or an S-corp, then you have a pass-through business. In this sort of structure, your business doesn't immediately send a portion of its revenue to the IRS, and, instead, sends it to you and any co-owners for you to file later.

While the TCJA cut corporate taxes from 35% to 21%, pass-through companies were not subject to that kind of reduction. Instead, the legislation changed the limits on interest deductions and net operating losses. Scheduled to expire by 2025, these changes introduced a new deduction for pass-through business income. Under the previous tax law, pass-through business income could be taxed at ordinary rates with a max rate of 39.6%. According to the Tax Policy Center, under the TCJA, "joint tax filers with taxable income below $315,000 ($157,500 for other filers) can deduct 20% of their qualified business income (QBI)." With this deduction, the top individual income tax rate on business income dropped from 37% to 29.6%.

If revenue exceeds those income thresholds, the deduction is limited to either 50% of the business's employee wages or 25% of the wages with 2.5% of the business's qualified property, whichever is greater. Further, the tax rate deduction can be lessened "depending upon the type of business, the wages paid, and the investment property owned by the business," according to the Tax Policy Center. Once taxable income reaches $415,000 for joint filers or $207,500 for other filers, the deduction no longer exists.

Being able to deduct from your tax burden is a great way to ensure you're taking the most advantage of the tax code. As a small business owner, recent changes to small business deductions could have a huge impact this year.

Perhaps one of the biggest deduction changes is the state and local tax (SALT) deduction. As of last year, filers are limited to $10,000 in SALT deductions. If you're running a pass-through company in a high-tax state, you're more likely to get the most out of these deductions. As the name implies, this deduction relies on your local and state tax laws, so be sure to refresh yourself on those.

The TCJA also deals with the amount of losses a pass-through business can use to offset alternative income sources. Under the prior law, all active losses were deductible from other income. Under the TCJA, deductible losses are limited to $250,000 if you file as a single person or $500,000 if it's a joint filing. Unused losses, however, can be used in future years.

Fringe benefit deductions have been changed

Fringe benefits, like those afforded to employees to entice them to join the company or to retain them, have also had deduction rules changed. These come alongside your other tax obligations, like unemployment taxes and Social Security.

Transportation fringe benefits, like those afforded to commuters, are no longer allowed to be deducted as a "qualified transportation fringe benefit." Conversely, qualified bicycle commuting reimbursements can be deducted as a business expense from 2018 to 2025. These reimbursements are required to be included in the employee's wages.

Achievement awards can also be excluded from employee wages for the purpose of taxation, though this can only be done if the award was "tangible personal property," according to the IRS. The employer can also deduct rewards, subject to certain deduction limits.

International considerations

If your small business conducts operations overseas, you know you're in a special tax situation. Thanks to the TCJA, your business has additional considerations to deal with when filing taxes. Previously, the income generated at multinational businesses were done so with all income in mind. As a result, all income was taxed regardless of where it was earned, though the government offered a tax credit for foreign taxes that were also paid.

The TCJA, however, now operates on a special territorial tax system where American corporations still owe taxes on profits they earn at home. What's exempted, however, are dividends that U.S. companies receive from foreign corporations in which they own at least 10%. The minimum tax on "global intangible low-taxed income" was imposed at 10.5%. Up to 80% of a company's foreign tax credits can be used to offset that tax, however.

When it comes to international taxes, it's probably best if you hire a CPA, tax advisor or other tax professional to ensure you don't experience any problems down the line.

Managing your losses and business expenses

Losses are a natural occurrence for small businesses. They're unavoidable. Recent changes to the small business tax code mean there are guidelines and limitations on how those losses are accounted for when tax season rolls around.

Unless you're running a corporation, you're likely going to be subjected to excess business loss limitations. According to the IRS, an excess business loss is "the amount by which total deductions, attributable to all their trades or businesses, exceed their total gross income and gains, attributable to those trades or businesses, plus $250,000 (or $500,000 in the case of a joint tax return)."

Net operating losses (NOLs) can no longer be carried over from a previous year. The only NOLs that can be carried forward, according to the IRS, are those that took place in tax years ending after Dec. 31, 2017.

Along with losses, certain business expenses have been altered since the TCJA's passage. Entertainment or recreation expenses were pretty much eliminated, even though taxpayers can still deduct half of the cost of business meals if the taxpayer or an employee was there and the food or beverages "weren't extravagant," according to the IRS. Any food and beverages purchased during entertainment events as an entertainment expense isn't allowed either.

Moving expenses and any expense reimbursements should be included in employee wages. This was formerly not the case, though active-duty members can still deduct moving expenses from their income.

Fines and penalties paid to the government can't be deducted, nor can payments made in sexual harassment or abuse cases. [Still have questions about tax changes in 2020? Check out our accounting Q&A on the business.com forums to ask your specific questions. Real-world experts are here to help.]

17 Techniques for Protecting Online Client Payments

Posted: 28 Jan 2020 05:00 AM PST

Online security remains a major concern, especially when it comes to e-commerce. Businesses need to ensure that their client payment system is as secure as possible: After all, a business is responsible for the safety of their clients first and foremost.

 Losing access to client data like passwords and logins can make future clients wary of doing business with your company. Losing their payment information, resulting in them being the victims of credit card fraud or identity theft, can leave a company struggling – potentially for years. That's why companies need to understand which security measures are particularly crucial when setting up their site or using a third party to handle their payment process.

To help entrepreneurs figure out what's important to pay attention to when protecting their clients' online payments, 17 experts from Young Entrepreneur Council share their insights into what organizations can do internally to help keep data secure or look for when selecting the best payment service provider for its needs.

Get certified.

"E-commerce security hinges on trust-building. For your customers to feel safe purchasing from your system, invest in an SSL security certificate in addition to any other regulatory compliance certificates to help bolster your credibility. This way, you can acquire a green padlock symbol next to your website's URL, which goes a long way toward building trust." – Amine Rahal, Little Dragon Media

Work with a reliable hosting provider.

"Your hosting provider plays an important role in ensuring payment security. There are hosting platforms that are built specifically with payment security in mind. A good hosting provider will offer several payment gateway options and integrate with major third-party software for secure payments. E-commerce businesses especially need to find reliable hosting platforms." – Blair Williams, MemberPress

Protect unstructured data.

"Unstructured data is easier to breach than structured data. Most unstructured data lives in our email inboxes, and much of it is highly sensitive. While your firm's internal documents may be kept safe, exported unstructured data (e.g., an Excel sheet) sent privately via email is susceptible to hacking and theft. Instead, use secure cloud storage systems to transfer sensitive customer-related data." – Tyler Gallagher, Regal Assets

Use 256-bit cart encryption.

"Using SSL, 256-bit encryption should be the standard in all online payments. All the big guys do it. It's the safest tech at the moment. The SSL badge on your site's payment pages gives customers an extra feeling of security. There's no reason not to use it! If you can do a bit of research and get comfortable with your hosting provider's C-panel, you can (and should) easily set this up in no time." – Adam Guild, Placepull

Partner with a transaction service.

"You can use third parties to secure and store important, confidential customer information. Because it can be risky to store this information, using a third-party transaction partner helps to break it up and keep it out of hackers' hands." – Stephanie Wells, Formidable Forms

Help educate customers.

"Many customers don't understand online security as well as they should, and although it isn't your job as a business to educate them, you can still do your part. You can answer basic questions about secure online payments on your FAQs page or during checkout. That way, you'll ease your customers' doubts." – Jared Atchison, WPForms

Use decentralized technologies.

"Consider blockchain technology for securing your user data and payments. Decentralized systems are the best tools we have to protect against hacking. To corrupt or destroy a blockchain, the hacker would need to access millions of computers, not just one. Corrupting a whole system is highly unlikely, making this the best technology for securing information and your end user." – Matthew Capala, Alphametic

Use a gateway account.

"You should try not to save customers' credit card data in your database. It's not necessary with most payment gateways. You can safely secure those in a payment gateway account in the form of a token. It means that even merchants don't have access to the actual number but can do everything it needs to do (setting up recurring payments, processing an additional transaction, processing a refund, etc.)." – Shu Saito, Godai

Enable limited access.

"Only your founders and those with special access privileges should have the ability to access customer data. And these accounts should be double protected with two-factor authentication." – Matt Diggity, Diggity Marketing

Use an established third party.

"Despite downsides to third-party payment processors (such as fees), established ones will have robust security protocols in place. For example, Stripe or PayPal have thrived due to their ease of use and customer-centric convenience. They stay updated and even have large customer service teams to assist along the way. In the case of a hack or dispute, they will often side with the customer." – Jared Polites, LaunchTeam

Wipe consumer payment input.

"Our system wipes out consumer payment methods as soon as their purchase clears. We do everything we can to stop cybercriminals, but nothing is 100% safe. I believe that by erasing consumer data after their purchase, we are protecting our clients' information in the event of a breach." – Chris Christoff, MonsterInsights

Have multiple authentication layers.

"This system requires multiple means of authentication in an effort to take the protection of clients' online payments to the next level. After logging into a website with their username and password, clients are then asked to provide a one-time access code the website sends to their cell phone, for example. Creating multiple security layers like this offers greater assurance for your clients." – Blair Thomas, eMerchantBroker

Enable two-factor authentication.

"One of the best ways to stop hackers in their tracks is by using two-step authentication. Our employees must use this system, and we encourage our customers to take advantage of this system when they sign up. Two-factor helps protect online payments, because it requires a second login device to access sensitive information." – John Turner, SeedProd LLC

Use AVS checks.

"To protect your clients' online payments and reduce fraud, use AVS checks. AVS stands for address verification service, and the process verifies the billing address against the cardholders' data from the issuing bank. If the person placing the order and the cardholder list the same address, they're likely to be the same person – typically the criminal doesn't have access to the billing address." – Thomas Griffin, OptinMonster

Use the right payment processor.

"I recommend using authorize.net for their payment options. The platform comes with an advanced fraud detection suite, which is great for safety, and the service can cater to your business's unique sales needs. Customer information and transaction safety are my top concerns, and based on my experiences and the ones of my clients, authorize.net has a good reputation when it comes to safeguarding data." – Matthew Podolsky, Florida Law Advisers, P.A.

Implement SSL protocol.

"Implementing SSL protocol on your site helps customers trust your site more. They'll know that their payment information is encrypted and protected. SSL makes use of an algorithm that checks that every transaction passes an integrity test before transmission. This ensures that your clients' online payments don't get stolen and makes the transaction safe." – Syed Balkhi, WPBeginner

Look for a 'one view' policy.

"Look for a merchant processor that allows one view only of credit card details before the information is deleted. Many of the main credit card processing companies offer this, but not all. Businesses like PayPal and Square offer this, but you have to sign up for it. This strategy works well; it takes the challenge of protecting customer information out of your hands." – Andrew Schrage, Money Crashers Personal Finance

Applying for an SBA Loan vs. Funding from an Alternative Online Lender

Posted: 28 Jan 2020 05:00 AM PST

  • A minimum credit score of 140 is required to qualify for an SBA loan, and it can take up to three months for your application to be approved.
  • You'll have to fill out SBA Form 912, SBA Form 413, SBA Form 1919, and gather financial projections and historical data for an SBA loan.
  • For alternative financing, you generally only need three or four documents, and the process takes minutes instead of days.
  • Alternative loans offer multiple creative options for small businesses, such as invoice financing and lines of credit.

There are many options available to small business owners looking for funding to grow their business, and sorting through the various options (and which lender is right for you) can be difficult and time-consuming. 

Having all of the necessary information (and documentation) gathered before you begin the process can eliminate major headaches. To help you navigate the U.S. Small Business Administration (SBA) loan application process, business.com has created a free, downloadable checklist, which you can find at the end of this article.

In addition, we've outlined the steps involved in applying for an SBA loan versus an alternative lender, and the pros and cons of each option to help you decide which is right for you when considering all your financing options.

What is an SBA Loan?

An SBA loan is guaranteed by the U.S Small Business Administration; SBA loans tend to offer more flexible limits and repayment terms and lower interest rates than conventional bank loans. The SBA does not provide small business lending. Instead, they guarantee a business loan provided through an SBA-preferred financial institution or preferred lender. (If the borrower defaults, the government will pay back up to 85% of the loan.)

It's often difficult to qualify for an SBA loan, so you should take steps to ensure that you and your business are prepared by checking first that your personal and business credit scores are up to par. 

Applying for an SBA loan can be a complicated and involved process, particularly compared to seeking a loan from an alternative online lender. The SBA provides an overview of what to expect when you embark on the business loan application process.What is an SBA 7(a) loan?

If you decide to apply for an SBA loan through a bank, you will likely apply for a 7(a) loan, one of the most popular SBA loan programs.

One of the reasons 7(a) loans are so popular is that they provide an increased guarantee against default. If your business has less than perfect credit or a lack of cash flow history, lenders may be more forgiving. However, lenders are not required to accept 7(a) loans.

Editor's note: Need a business loan for your business? Fill out the below questionnaire to have our vendor partners contact you with free information.

 

What is the maximum SBA 7(a) loan amount?

You can apply for an SBA 7(a) loan of up to a maximum of $5 million, with an SBA loan guarantee of 75%. For loans up to $150,000, the SBA guarantees 85%. Interest rates are based on the size of your loan, the prime rate and the loan maturity. The terms are 25 years for real estate and equipment, and seven years for working capital. You make monthly payments until the loan is paid off.

How long does it take to get an SBA 7(a) loan?

Applying for an SBA 7(a) loan is a long and difficult process. As a business owner, plan to spend about 25 hours all told between preparing the documentation and filling out the loan application, and expect to wait anywhere from two to three months for your application to be approved. Approval time varies based on your situation and your lender.

SBA 7(a) loan eligibility requirements

To be eligible for an SBA 7(a) loan

  • Your business must be defined as a small business by the SBA.
  • You must be operating for profit in the United States (or its possessions).
  • You must be able to invest in your business.
  • You are able to repay the loan.
  • You are able to prove that the loan is for a sound business purpose, such as equipment purchases ­­
  • You must not be delinquent on other debt obligations to the U.S. government (i.e., student loans).How to apply for an SBA 7(a) loan

Start by making sure you have all required documents, primarily your personal financial statement and a business plan with financial statements. You will then fill out the SBA Loan Application Form 1919.

Next, check your business and personal credit scores before you get too deep into the loan application process, because the entire process could be derailed by bad credit.

"Most entrepreneurs don't realize that if they apply for an SBA 7(a) loan for $350,000 or less, their business and personal credit will be prescreened to calculate a FICO LiquidCredit SBSS small business score," said Gerri Detweiler, education director at Nav.

This credit score has a range of 0 to 300, and a minimum score of 140 is required to pass the SBA loan requirements. [Read related article: The SBSS Score Explained: What It Is & Why It Matters When Applying for a Loan.] "Just as it's a good idea to review your personal credit scores before you apply for a mortgage or car loan," said Detweiler, "it's a good idea to check your FICO SBSS score before you apply for an SBA loan. If it's not strong enough, it's advisable to work on building better credit before you apply." 

What you need to apply for an SBA loan

The SBA has a lengthy checklist of required documents.

Be ready to provide personal background and financial statements, including a statement of personal history (SBA Form 912) and a personal financial statement (SBA Form 413). You'll need to write up a business overview and history, in which you explain the story of your business and its challenges, with an explanation of why the SBA loan is needed and how it will help the business grow.

Next you'll need to prepare your business's financial statements. The first of these is a profit and loss (P&L) statement current within 90 days of your application, as well as supplementary schedules from the last three fiscal years.

You will then need to put together projected financial statements, which consist of a one-year projection of income and finances. As an applicant, you must attach a written explanation as to how you plan to reach your revenue projections. Your loan application history is also relevant to the SBA, so you should include records of loans you have applied for in the past.

Your application must also include the names and addresses of any business subsidiaries and affiliates. Provide resumes for all the business principals, as well as income tax returns.

Next, include three years' worth of signed personal and business federal income tax returns of your business's principals. You'll need to provide your business certificate or license, too. If your business is a corporation, stamp your corporate seal on the SBA loan application form.

Finally, include a copy of your business lease or a note from your landlord stating the terms of the proposed lease.

Because the application for this loan program is lengthy and involved, it's best not to tackle it in a day or two. Work on one piece of the SBA 7(a) application checklist at a time. Enlist the help of your bookkeeper or accountant. Pay attention to details, and don't rush it. The SBA is trying to make the process easier these days with SBA Express and SBA Lender Match, so spend some time familiarizing yourself with these new streamlined options before you begin.

What is an alternative loan?

An alternative loan, also known as a nonbank business loan, is a loan that is issued outside of a bank. Many small businesses use alternative loans when they cannot qualify for a conventional business loan or SBA loan. Alternative loans are available via financial groups, nonprofits, community groups or individual investors. Peer-to-peer lending, the practice of lending money to businesses through online matching services, is a popular option. [To learn more about alternative lending options check out this related article.]

Alternative loans from online lenders have become popular for their accessibility and ease of use, and there is a steadily increasing number of providers for these loans.

What you need for an alternative online lender loan

Applying for a loan through an alternative online lender is a faster, easier option than applying for an SBA loan. Generally, only three or four documents are required, and the process can take minutes instead of days. It's possible to get your funding in under 24 hours.

Alternative loans offer multiple creative options for small businesses, such as invoice financing and lines of credit, which can be helpful depending on your business's unique needs.

As an example, here's what you'll need in terms of documentation should you choose an alternative lender, such as LoanMe:

  • Bank statement (two months of recent statements)
  • Voided check
  • Proof of valid ID showing you are over 18 years of age

Because only three documents are required, you can complete the online application and upload the required documents in as little as five minutes. [Want more details about business loans and financing options? Check out our reviews and best picks.]

However, interest rates for alternative loans are usually higher than traditional bank loans. Further, rates vary depending on the lender and your credit score.

Also compare APRs, or annual percentage rates, among the lenders you are considering, and be sure that you understand the repayment terms of your loan. Free calculators can help you, and you can use the free downloadable template below as a reference.

 
Posted by: at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)