Wednesday, October 30, 2013

Guest Blog: Stop Being a Business Owner and Start Building a Brand

Beth read this great blog and we wanted to share it with our readers.  Well said, Robin Wilson!

The Great Recession forced people take the initiative to go into business for themselves and take advantage of the entrepreneurial climate. Now there’s a new phenomenon facing many of the self-employed: they’ve become successful but can’t seem to take it to the next level. While they’ve done a great job building a business, they have yet to build a brand. Building a brand is what all small business owners need to strive in the new economy to get noticed, gain recognition and enjoy a new level of success.
Having a strong customer base for your product or service is important, yet the better route is becoming a brand name that is recognized everywhere.  More opportunities will come to your business once you create an established brand.  Here are five strategies to stop being just a business owner and start building start a brand:
-       Build partnerships inside and outside of your industry – The old saying “it takes a village” is the best advice to turn your business into a brand.  The more key partnerships you build both inside and outside of your core area of expertise, the more opportunities will come your way.  In the digital age, this is becoming even easier thanks to social media platforms, blogs and other online sites like YouTube.
-       Increase visibility – Speaking engagements, sponsoring giveaway bags at events or media appearances are some great options if you do not have the budget for traditional advertising. The more you get your name out there, the more recognized you become.  Plus the upside to speaking engagements and media is they are both implied endorsements.  While advertising offers visibility, the downside is that anyone can purchase an ad.
-       Products – Don’t just offer a service; turn it into a product. Anyone can become an author or produce an audio program these days.  Our core business is interior design, but we have leveraged our expertise with a licensed line of kitchens, furniture, hypoallergenic bedding and bath products. Plus, we wrote a book and are working on a line of mommy & baby products since I am a new mom. Get creative and see what products you can introduce to the market.
-       Persistence – It’s called brand building for a reason: it takes time and your foundation must be based on expertise in a core area.  We all want it to happen overnight and to be the next big thing. But it takes a lot of persistence and years to build real customer loyalty.  If it’s rushed or faked, people will see right through it.  If done correctly, you’ll have a loyal following that will support your business over time.
-       Tag consistently – What catch phrase are you using to describe your company or product? However you brand yourself, keep it consistent. I’m tagged as Robin Wilson, an eco-friendly or healthy space designer. Use the same language in all that you do, and the social media marketplace will begin to understand your branding.
As business owners, we tend to do everything we can to serve our customers. And while that is very important, make just a small amount of time each day to implement some of these strategies, and you’ll start to make the transition from business to brand, and watch your company grow.

About the Author:  Robin Wilson is a nationally recognized healthy space designer and president of Robin Wilson Home in New York City.  She has a line of hypoallergenic luxury comforters sold in Bed, Bath & Beyond stores in North America.   

Wednesday, October 23, 2013

Don't rush your startup

We met recently with a potential client who is starting up a new business with several partners.  They are excited about the business and eager to get started.  So eager that they have begun operating without really getting the business foundation established.

Just as a building needs a strong foundation, a business does also.  A business foundation consists of three cornerstones: The business plan, the operating agreement and the working capital.  The business plan will detail what the mission of the business is, what the structure will be (legal entity), who the management will be and how the business will market itself. The operating agreement will detail how much each owner put into the business, how much of the business each person owns, how decisions will be made, how each owner will be compensated, how profits or losses will be allocated.  The final cornerstone is the working capital which means how much money is needed to get the business up and running until it is operating at a profit and where is the money coming from?

The partners in this potential business don't have the legal entity established.  They need to decide if they should they be a multi-member LLC operating as a partnership for the IRS or a multi-member LLC operating as an S Corp for the IRS or an actual S Corp or a C Corp? The correct entity will be clear once they decide exactly how the business is going to handle expenses and how to best compensate the partners/owners.

They also haven't put together a business plan which will lay out how they will manage the business and how they will be compensated.  How they will make decisions, who is responsible for what?  What happens when there is a disagreement?  What happens if they need to put more money into the venture?  How does one member leave the business if they decide to?  Lots of decisions to be made and it is really important to do this upfront.  A good operating agreement will detail exactly how all these things will be handled so that when the situation arises, the procedure is already established.

Finally, they have not determined what the start up budget is and how it will be funded.  Many a great idea has failed to succeed because there wasn't enough money to keep the business running until it was profitable. Part of a typical business plan is the pro-forma financial statements which forecast what the profit and loss, balance sheet and cash flow will look like for the business for the first three years of operation.  The creation of these statements determines how much money the business will need to start up and continue operating until it can support itself with its own revenue and cash flow.

We have seen businesses start without an operating agreement and it never ends well.  Problems will arise and if you haven't established how the problems will be dealt with, the partnership is apt to fail.  We have also seen businesses fail because they hadn't put together a business plan which showed how the business needed to start and how it needed to be run.  Seeing a great product or service fail because the business ran out of working capital before it could support itself is very sad.

It is understandable that people get excited about starting a business and putting together the business plan and operating agreement are not glamorous or fun.  They are critical to the success of the business and the partnership so don't rush your start up and do the ground work first.

Tuesday, October 8, 2013

Taxes for small businesses, part II

Last week we talked about how income taxes work for the owner of a small business.  It is a subject which confuses many and can cause problems if not handled properly.

This week, we will focus on estimated taxes and how best to handle them.  Employees have their income taxes obligations handled via payroll deductions.  Every paycheck, an employee will have payroll taxes deducted which covers medicare and social security.  They will also have the amount they have requested deducted for income taxes.  When the employee goes to file an income tax return, the amount of taxes owed is reduced by the amount already paid via paycheck deductions.

The owner of a small business handles income taxes differently.  They generally do not get a true paycheck and instead receive what the government and accountants refer to as an owner's draw.  There are no deductions for medicare, social security or income taxes deducted from an owner's draw.  As we said last week, the government doesn't care about draws when taxes are calculated.  Small business owners take care of medicare and social security obligations once a year when they file their income taxes and pay Self Employment tax which is added onto the income tax everyone pays.  To handle income taxes, it is usually recommended that small business owner's make quarterly estimated income tax payments.  Once a quarter, you fill out 1040-ES and make a payment to the federal government.  How much?  That is always an interesting question.  You need to cover 90% of the current year's income tax with estimated taxes or 100% of the prior year's tax obligation.  Many tax preparers focus on the 100% and calculate the estimated taxes to cover this obligation.  This method removes any penalties from under payment but may leave the tax payer with a large bill come April.

We believe it is better to look at the current year's income and if it is significantly more profitable than the previous year, pay more in estimated taxes.  If the tax payer has the ability to plan and save and prefers to set the money aside and pay the additional taxes in April, that is perfectly fine.  Many small business owners are busy running the business and don't keep an eye on the checking account and may find the additional cash has been eaten up by operating costs and they are in a panic come tax time.

Some owners find it helpful to have a separate checking or savings account to taxes.  They transfer money into this account for payroll or sales taxes if they do not have to remit these monthly so the funds are available when the taxes are due (quarterly or annually).  Others do the same with income taxes, they essentially withhold from themselves so they have the money not only when the quarterly estimated taxes are due, but also when the tax return must be filed and paid.

Estimated income taxes are paid on April 15th, June 15th, September 15th and the following January 15th. IRS Publication 505 covers estimated taxes in detail.