Where's It Coming from?

Financing
Raising money is not easy and it's not fast. It's unlikely you'll be able to get financing within a six-week time frame when seeking investors. Understand the difference between debt and equity financing. Debt financing usually includes, a loan, line of credit, or equipment financing. The money must be paid back whether or not the business flourishes. You often begin making payments on the debt soon after receiving the loan so you have an additional monthly expense. You give up no ownership of the company, however.

Equity financing is usually referred to as getting an "investment." With equity financing, you give an investor a piece of the ownership of the company and a share of future profits and, often, a say in decision making. But if the company fails, you do not have to pay anyone back.

When you first start looking for financing, you may be tempted to take any money you can find. The various sources of money seek different rates of return on their loans or investments, have varying levels of sophistication and comfort with risk, and provide you with significantly different advantages and disadvantages.

Financing Sources
Your Own Assets: It's better to start or grow a business with your own money. If you have sufficient assets, particularly savings or other income that don't require you to take on additional debt, you're in the best financial position. You don't go into debt, and you don't give up equity. If your savings are owned jointly with a spouse or partners, be certain to get their acceptance and understanding of your plans.

Sales/Income: The very best way to fund a business is from sales revenues. If you can grow your company based on money received from customers, then you don't take on debt and you don't give up equity. This is not as impossible as it sounds, especially if you are starting a low-cost business. The key is to try to line up clients before you actually set up shop, and to grow only as big as your revenues permit.

Credit Cards: Experts will tell you credit cards are a terrible way to finance a business----they cost a lot (high interest rates) and put your personal credit at risk. The truth is most people use credit cards at one time or another to pay business expenses, particularly in the start-up phase. And credit cards can be a useful way to handle short-term cash flow problems; if you realistically expect income soon, credit cards may be an easier or better alternative than other loans or taking on an investor. Credit cards are generally an expensive form of financing. You can incur very high charges if you are even a day or two late on your payments. Credit card debt easily gets out of hand, and you have to pay the money back.

Friends and Family: Getting family and friends involved in your business is dangerous, but there are exceptions. If the person understands your business, truly comprehends the risks, and is someone with whom you can communicate well, the situation may work. Always have loan or investment papers drawn up with the terms of the repayment or investment absolutely clear.

Banks: Realistically, banks loan money only to companies that have been in business for at least one or two years and have been successful. As your company grows, you'll likely want a line of credit from a bank to help you manage your cash flow. If you do get a bank loan for a new business, you'll almost certainly have to give a personal guarantee and have to put up personal assets as collateral. The Small Business Administration provides loan guarantees to banks to encourage them to make small business loans. To find out more about SBA loans, visit www.sba.gov But keep in mind, the government doesn't give out business loans---it just assumes a percentage of the risk on behalf of the lender.

Strategic Partners: There may be other business that want you to succeed, and they may be willing to help you get underway. Perhaps they are a supplier, customer, or business serving the same market. In some cases, they may directly invest in your business or give you loans. Perhaps they would let you use their offices or equipment or otherwise help offset some of your expenses in return for the benefits you bring them.

"Angels": Angel is the term applied to private individuals who invest their own money in new companies. Because it is their own money, they often have a wider range of kinds of companies they'll invest in, and seek more diverse types of returns on their investment, than professional investors such as venture capitalists. They usually invest a smaller amount of money than professional sources. Angels are generally much more accessible and more appropriate for small companies. A number of "angel networks" or organizations have sprung up in large cities.

Venture Capitalists: Venture capitalists are professional investors using institutional money. They generally only invest in companies needing substantial sums of money to grow very large very quickly, and will serve very large markets. They do provide early stage investments as well as financing for companies that are growing. They are particularly active in technology-related businesses. Venture capitalists have high expectations of return on their investment but are willing to take substantial risks. Venture capitalists take an active role in managing the companies they invest in, often even replacing or removing founders from management.

 Knowing Where It's Going

Bookkeeping/Accounting
Keep track of the money you make and what your spend it on. The computer program QuickBooks has become the standard for small business accounting, and your accountant and or/bookkeeper is likely to be very familiar with it.

Accounting Method:
You will need to determine if your accounts will be kept on a "cash" or on and "accrual" basis. A "cash basis" means you enter expenses and income as they actually are paid or received. This is by far the easier method of accounting. Most small companies can keep their accounts on a cash basis.  An "accrual basis" is when you enter expenses and income as they are incurred----whether or not they are paid or received. This is more complicated, but the IRS requires certain businesses (especially those with inventory) and larger companies to keep their accrual basis.

Taxes
You may be surprised by the variety of taxes you face. There are income taxes, sales taxes, payroll taxes, property taxes, personal property taxes, inventory taxes, special use taxes, general business taxes, and others. Understanding key tax concerns is critical for most businesses. You will make some decisions---or alter them----based on tax implications. Some business expenses are fully deductible, others are only partially deductible, others have to be depreciated over a number of years, and others are not deductible at all. You should have at leas a fair understanding of those issues as you make choices in your business.

If you purchase a very expensive piece of equipment, for instance, expecting to deduct the total cost of that from your income, you may be rudely surprised that the expense has to be spread out over as many as five to ten, even twenty years.

Tax codes are complicated and always changing. Certain tax laws apply to incorporated businesses and not unincorporated ones, or vice versa, and business tax laws differ from regulations for individuals. And of course, every U.S state has its own tax laws as well. Plan on spending some time with your accountant talking about taxes.

Many businesspeople find it helpful to set up separate savings accounts just for income taxes. With each check they receive, they set aside a certain percentage in this separate tax account, so when income tax time arrives they have the money necessary to pay their bill. As a business, you often have responsibility for collecting and then paying taxes owed by others. If you are a retailer, you must charge and collect the sales tax on items you sell to consumers. Set up records to keep track of those taxes that you've collected---and pay them by the dates due. Some taxes incur substantial penalties for late or underpayments, so be certain to keep track of when taxes are due and give yourself enough time to prepare them.

Insurance
One of the most frustrating expenses you'll incur when running a business is the money you spend on insurance. If this is your first business, you'll be absolutely overwhelmed by the different types of insurance you'll need or want. Many trade associations offer lower-cost insurance specifically for the needs of companies such as yours. Consider the following aspects: Incentive, insurance you want because it's desired by your workers such as medical, dental, life insurance, and retirement; Protection, insurance in case something unexpected happens: liability, accident, fire, theft, business interruption; Legal Necessity, insurance others require---perhaps your landlord, such as fire or liability, or required by state law, such as worker's compensation if you have employees.

Banking
 Essentially, a bank makes its money on interest. It takes money deposited and lends out a certain amount of the money, charging the borrower a certain interest rate. It then pays you, the depositor, a small part of that interest and keeps the rest for itself. Notice how the posted rates at your bank pays depositors a low interest rate and charges the borrowers a much higher rate. Banks also make money on service fees.

Savings Accounts: A savings account is essentially a place to store your money and earn interest at the same time. Checking Accounts: A checking account lets you write checks which are drawn from funds in your account. The interest you receive in a checking account (if any at all) is usually very small, so it is not a good idea to keep an unnecessarily large amount of money in your checking account. It is best to keep the bulk of your money in your savings account, for example, and transfer it as you need it. Some banks offer "free checking," but it is important to read the fine print and get all the details because there may be a number of hidden charges and fees making the service costly. Money Market Accounts: Money market accounts offer a higher rate of interest than ordinary savings accounts, but they also require a larger minimum balance and have certain restrictions on withdrawals. Certificates of Deposit: Certificates of Deposit (CD's) are the highest interest-bearing accounts you can put your money into, and still have the FDIC guarantee that your money is secure. You can open up a Certificate of Deposit with a term of a week or ten years. Typically, people will get three-month CD's, six-month CDs, one-year, three-year, or five-year CDs. The longer the term, the higher the interest rate.

 Tips and Terms

Terms
Asset: Property with market value that can be sold for cash. This can include stocks, bonds, real estate, and privately held stock. Liquid assets can be sold quickly, whereas illiquid assets, such as real estate or small business, usually take some time to sell.

Capital Ratio: A ratio that is calculated by dividing the bank's capital by its total assets. This ratio measures the bank's availability of capital and financial strength.

Collateral: Something of value that is pledged against a loan in case of default such as real estate you own.

Consumer Price Index (CPI): The Bureau of Labor Statistics' market basket used to measure changes in the prices of goods and services bought by a typical family of four.

Estate Planning: The art and study of preserving wealth for family and future generations to come. It involves planning tools and techniques that can not only reduce estate taxes, but also make things a lot simpler after your death.

Fiduciary: An Advisor who is also a fiduciary must place the interests of the client ahead of his or her own interests. All Registered Investment Advisors are Fiduciaries when managing client investments.

Fixed Annuity: A contract with a life insurance company whereby you give a sum of money, and based on your age, life expectancy, and current interest rates, you'll eventually receive monthly payments for as long as you live. you decide when you want to receive payments, and until then, the money grows tax-deferred.

Gross Domestic Product (GDP): The total value of goods and services produced by a country during a year. The GDP's rate of growth is more popular in the news than the actual total GDP number.

Inflation: An increase in the volume of money and credit relative to available goods, which results in a substantial and continuing rise in the general price level. Inflation is not a simple rise in prices, as most people believe. The rate of inflation is measured by the month-to-month percentage change of the consumer price index (CPI).

Liquid Assets: Those assets that can be instantly converted into cash. Illiquid assets are just the opposite; they are not easily converted into cash.

Revenue: Total amount of money received from sales.

Profit: Money you have left after deducting your costs.

More Terms to Come Soon....

Tips
  

66 Ways to Save Money

Airline Fares

1.      You may lower the price of a round trip air fare by as much as two-thirds by making certain your trip includes a Saturday evening stay over, and by purchasing the ticket in advance.

2.      To make certain you have a cheap fare, even if you use a travel agent, contact all the airlines that fly where you want to go and ask what the lowest fare to your destination is.

3.      Be flexible, if possible. Consider using low fare carriers or alternative airports and keep an eye out for fare wars.

Car Rental

1.      Since car rental rates can vary greatly, shop around for the best basic rates. Ask about any additional charges (extra driver, gas, drop-off fees) and special offers.

2.      Rental car companies offer various insurance and waiver options. Check with your automobile insurance agent and credit card company in advance to avoid duplicating any coverage you may already have.

New Cars

1.      You can save thousands of dollars over the lifetime of a car by selecting a model that combines a low purchase price with low financing, insurance, gasoline, maintenance, and repair costs. Ask your local librarian for new car guides that contain this information.

2.      Having selected a model, you can save hundreds of dollars by comparison shopping. Call at least five dealers for price quotes and let each know that you are calling others.

3.      Remember there is no "cooling off" period on new car sales. Once you have signed a contract, you are obligated to buy the car.

Used Cars

1.      Before buying any used car:

o        Compare the seller's asking price with the average retail price in a "bluebook" or other guide to car prices found at many libraries, banks, and credit unions.

o        Have a mechanic you trust check the car, especially if the car is sold "as is."

2.      Consider purchasing a used car from an individual you know and trust. They are more likely than other sellers to charge a lower price and point out any problems with the car.

Auto Leasing

1.      Don't decide to lease a car just because the payments are lower than on a traditional auto loan. The leasing payments may be lower because you don't own the car at the end of the lease.

2.      Leasing a car is very complicated. When shopping, consider the price of the car (known as the capitalized cost), your trade-in allowance, any down payment, monthly payments, various fees (excess mileage, excess "wear and tear," end-of- lease), and the cost of buying the car at the end of the lease. Keys to Vehicle Leasing: A Consumer Guide, published by the Federal Reserve Board and Federal Trade Commission, is a valuable source of information about auto leasing.

Gasoline

1.      You can save hundreds of dollars a year by comparing prices at different stations, pumping gas yourself, and using the lowest-octane called for in your owner's manual.

2.      You can save up to $100 a year on gas by keeping your engine tuned and your tires inflated to their proper pressure.

Car Repairs

1.      Consumers lose billions of dollars each year on unneeded or poorly done car repairs. The most important step that you can take to save money on these repairs is to find a skilled, honest mechanic. Before you need repairs, look for a mechanic who:

o        is certified and well established;

o        has done good work for someone you know; and

o        communicates well about repair options and costs.

Auto Insurance

1.      You can save several hundred dollars a year by purchasing auto insurance from a licensed, low-price insurer. Call your state insurance department for a publication showing typical prices charged by different companies. Then call at least four of the lowest-priced, licensed insurers to learn what they would charge you for the same coverage.

2.      Talk to your agent or insurer about raising your deductibles on collision and comprehensive coverage to at least $500 or, if you have an old car, dropping this coverage altogether. Taking these steps can save you hundreds of dollars a year.

3.      Make certain that your new policy is in effect before dropping your old one.

Homeowner/Renter Insurance

1.      You can save several hundred dollars a year on homeowner insurance and up to $50 a year on renter insurance by purchasing insurance from a low-price, licensed insurer. Ask your state insurance department for a publication showing typical prices charged by different licensed companies. Then call at least four of the lowest priced insurers to learn what they would charge you. If such a publication is not available, it is even more important to call at least four insurers for price quotes.

2.      Make certain you purchase enough coverage to replace the house and its contents. "Replacement" on the house means rebuilding to its current condition.

3.      Make certain your new policy is in effect before dropping your old one.

Life Insurance

1.      If you want insurance protection only, and not a savings and investment product, buy a term life insurance policy.

2.      If you want to buy a whole life, universal life, or other cash value policy, plan to hold it for at least 15 years. Canceling these policies after only a few years can more than double your life insurance costs.

3.      Check the National Association of Insurance Commissioners website (www.naic.org/servlet/cis.Main) or your local library for information on the financial soundness of insurance companies.

Checking

1.      You can save more than $100 a year in fees by selecting a checking account with a low (or no) minimum balance requirement that you can, and do, meet. Request a list of these and other fees (including ATM and debit card fees) that are charged on these accounts.

2.      Banking institutions often will drop or lower checking fees if paychecks are directly deposited by your employer. Direct deposit offers the additional advantages of convenience, security, and immediate access to your money.

Savings and Investment Products

1.      Before opening a savings or investment account with a bank or other financial institution, find out whether the account is insured by the federal government (FDIC or NCUA). An increasing number of products offered by these institutions, including mutual stock funds and annuities, are not insured.

2.      To earn the highest return on savings (annual percentage yield) with little or no risk, consider certificates of deposit (CDs) or U.S. Savings Bonds (Series I or EE).

3.      Once you select a type of savings or investment product, compare rates and fees offered by different institutions. These rates can vary a lot and, over time, can significantly affect interest earnings.

Credit Cards

1.      You can save as much as a thousand dollars or more each year in lower credit card interest charges by paying off your entire bill each month or by using a check, cash or debit card for purchases.

2.      If you are unable to pay off a large balance, pay as much as you can and switch to a credit card with a low annual percentage rate (APR). You can obtain listings of low-rate credit cards through www.cardlocator.com or www.bankrate.com (click on credit cards), which provide information at no charge to consumers.

3.      You can reduce credit card fees, which may add up to well over $100 a year, by getting rid of all but one or two cards, and by avoiding annual, late payment, and over-the-credit limit fees.

Auto Loans

1.      If you have significant savings earning a low interest rate, consider making a large down payment or even paying for the car in cash. This could save you as much as several thousand dollars in finance charges.

2.      You can save as much as hundreds of dollars in finance charges by shopping for the cheapest loan. Contact several banks, your credit union, and the auto manufacturer's own finance company.

First Mortgage Loans

1.      Although your monthly payment may be higher, you can save tens of thousands of dollars in interest charges by shopping for the shortest-term mortgage you can afford. On a $100,000 fixed-rate loan at 7% annual percentage rate (APR), for example, you will pay over $75,000 less in interest on a 15-year mortgage than on a 30-year mortgage.

2.      You can save thousands of dollars in interest charges by shopping for the lowest-rate mortgage with the fewest points. On a 15-year $100,000 fixed-rate mortgage, just lowering the APR from 7% to 6.5% can save you more than $5,000 in interest charges, and paying two points instead of three would save you an additional $1,000.

3.      If your local newspaper does not periodically run mortgage rate surveys, call at least six lenders for information about their rates (APRs), points, and fees. You may also check www.bankrate.com for mortgage information in your area. Then ask an accountant to compute precisely how much each mortgage option will cost and its tax implications.

4.      Be aware that the interest rate on most adjustable rate mortgage loans (ARMs) can vary a great deal over the lifetime of the mortgage. An increase of several percentage points might raise payments by hundreds of dollars per month.

Mortgage Refinancing

1.      Consider refinancing your mortgage if you can get a rate that is at least one percentage point lower than your existing mortgage rate and plan to keep the new mortgage for several years or more. Ask an accountant to calculate precisely how much your new mortgage (including points, fees and closing costs) will cost and whether, in the long run, it will cost less than your current mortgage.

Home Equity Loans

1.      Be cautious in taking out home equity loans. The loans reduce or may even eliminate the equity that you have built up in your home. Equity is the cash you would have if you sold your house and paid off your mortgage loans. If you are unable to make payments, you could lose your home.

2.      Compare home equity loans offered by at least four reputable lending institutions. Consider the interest rate on the loan and the annual percentage rate (APR), which includes other costs, such as origination fees, discount points, mortgage insurance and other fees. Ask if the rate changes, and if so, how it is calculated and how frequently, as this will affect the amount of your monthly payments.

Home Purchase

1.      You can often negotiate a lower sale price by employing a buyer broker who works for you not the seller. If the buyer broker or the broker's firm also lists properties, there may be a conflict of interest, so ask them to tell you if they are showing you a property that they have listed.

2.      Do not purchase any house until it has been examined by a home inspector that you selected.

Renting a Place to Live

1.      Do not limit your rental housing search to classified ads or referrals from friends and acquaintances. Select buildings where you would like to live and contact their building manager or owner to see if anything is available.

2.      Remember that signing a lease probably obligates you to make all monthly payments for the term of the agreement.

Home Improvement

1.      Home repairs often cost thousands of dollars and are the subject of frequent complaints. Select from among several well established, licensed contractors who have submitted written, fixed-price bids for the work.

2.      Do not sign any contract that requires full payment before satisfactory completion of the work.

Major Appliances

1.      Consult Consumer Reports, available in most public libraries, for information about specific brands and how to evaluate them, including energy use. There are often great price and quality differences among brands.

2.      Once you've selected a brand, check the phone book to learn what stores carry this brand, then call at least four of these stores for the prices of specific models. After each store has given you a quote, ask if that's the lowest price they can offer you. This comparison shopping can save you as much as $100 or more.

Electricity

1.      To save as much as hundreds of dollars a year on electricity, make certain that any new appliances you purchase, especially air conditioners and furnaces, are energy-efficient. Information on the energy efficiency of major appliances is found on Energy Guide Labels required by federal law.

2. Enrolling in load management programs and off-hour rate programs offered by your electric utility may save you up to $100 a year in electricity costs. Call your electric utility for information about these cost-saving programs.

Home Heating

1.      A home energy audit can identify ways to save up to hundreds of dollars a year on home heating (and air conditioning). Ask your electric or gas utility if they can do this audit for free or for a reasonable charge. If they cannot, ask them to refer you to a qualified professional.

Telephone Service

1.      At least once a year review your phone bills for the previous three months to see what local, local toll, long distance, and international calls you normally make. Call several phone companies, including wireless companies, to find an inexpensive calling plan that meets your needs.

2.      If you make very few toll or long distance calls, avoid calling plans with monthly fees or minimums.

3.      Check your phone bill to see if you have optional calling services you don't use. Each option you drop could save you $40 or more each year.

4.      Before making calls when away from home, compare per minute rates and surcharges for different prepaid phone cards and calling card plans to find the one that saves you the most money.

5.      Dial your long distance calls directly. Using an operator to place the call can cost you up to $10 extra.

6.      If you use a wireless phone, make sure your wireless calling plan covers the calls you typically make. Understand promotions, peak calling periods, area coverage and roaming, and long distance requirements to avoid paying too much.

Food Purchased at Markets

1.      You can save hundreds of dollars a year by shopping at the lower-priced food stores. Convenience stores often charge the highest prices.

2.      You will spend less on food if you shop with a list.

3.      You can save hundreds of dollars a year by comparing price-per-ounce or other unit prices on shelf labels. Stock up on those items with low per-unit costs.

Prescription Drugs

1.      Since brand name drugs are usually much more expensive than their generic equivalents, ask your physician and pharmacist for generic drugs whenever appropriate.

2.      Since pharmacies may charge widely different prices for the same medicine, call several. When taking a drug for a long time, also consider calling mail-order pharmacies, which often charge lower prices.

Funeral Arrangements

1.      Make your wishes known about your funeral, memorial, or burial arrangements in writing. Be cautious about prepaying because there may be risks involved.

2.      For information about the least costly options, which could save you several thousand dollars, contact a local memorial society, which is usually listed in the Yellow Pages under funeral services.

3.      Before selecting a funeral home, call several and ask for prices of specific goods and services, or visit them to obtain an itemized price list. You are entitled to this information by law and, by using it to comparison shop, you can save hundreds of dollars.