Are you thinking about forming a business partnership? Starting a business with a partner affords many benefits. In a perfect world, that means sharing the expenses, ideas, workload, responsibilities, and profits. In the real world, it can mean personal liability for the partnership’s activity, emotional ups and downs, personality conflicts, and differing ideas about the company’s product line, vision, and future. Before you decide to form a business partnership, it is helpful to learn about the different types of business models and the advantages and disadvantages of going down the partnership path. What Is a Partnership? There are three standard types of legal entities called partnerships. You must register with the business agency in your state for any of them.
  1. General Partnership.
    In a general partnership, each partner shares equally in the profits, liability, and responsibilities involved in running the business. Unequal partnerships are also available, in which different percentages are assigned to each partner, as laid out in an official partnership agreement.

  2. Limited Partnership.
    Also called partnerships with limited liability, limited partnerships have a more complicated setup than general partnerships. Here, each partner has both limited liability and limited input on decisions for running the company. Limits are defined based on the percentage each partner has invested. Limited partnerships are often preferred by individuals interested in short-term projects.

  3. Joint Ventures.
    Very similar to the general partnership, a joint venture lasts for a particular period or the duration of a single project. These can merge into a regular, ongoing partnership, but doing so requires a new registration of the business.
Benefits of a Partnership When you are evaluating all of the work needed to get a business up and running, a partner can look very attractive. Having someone whom you can share the workload, decision-making, expenses, and the emotional roller coaster of starting a business can mean the difference between making the big jump or letting it stay a dream. Other strong points in favor of a partnership include: Drawbacks of a Partnership Choosing the right partner will be the key as to whether your partnership succeeds or fails. It can be detrimental to the success of your business if your partner does not mesh in skills, outlook, commitment, money, and goals. That is just one of the issues you can face when working with a partner. Others you may encounter include: Reasons for Starting a Partnership Just as there are good and not-so-good partners, there are good and bad reasons to enter into a partnership. Good reasons: Bad reasons: Deciding to form a business partnership is one of the most significant decisions you can make for your business. Deciding on a partner is equally, if not more, important. Weigh the pros and cons of having a business partner. Choose someone you trust who adds additional skills to your business and has a personality that meshes well with yours. That is the formula that the most productive, successful partnerships have in common.

Partnership Pros and Cons

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What are the three most important factors when starting a business? Some will tell you it’s location, location, and location. In many ways, it is true. The spot you choose has a significant impact on the success of your business. That is especially true if you are a service business like a restaurant or a store, but also true for factories and business-to-business firms. Factors To Consider There are many factors to consider in terms of choosing a business location, each of which will impact your success and decision-making. Points That Impact Your Business When deciding on a location, some things can have a significant impact on the success of your business. Where you set up your business can be the make-or-break decision for future success. Put the time into considering all the factors. Research more than one spot. Confer with your accountant, lawyer, the local chamber of commerce, and other local business resources. Talk to business people in the same area. The more research you conduct, the better chance you have of finding a profitable location.

Location, Location, Location

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Cash flow is an ongoing concern of most every business owner, whether they are just in the startup phase or have been in business for years. A business line of credit can fill those gaps when you are experiencing a cash crunch or get hit with unexpected expenses. Benefits of Having a Line of Credit One of the biggest advantages of a line of credit is the fact that you have control over your business. A business line of credit saves you from retrieving money from your personal savings account, using credit cards as a means of funds, or approaching family and friends if you have a sudden need for cash. Unsecured lines of credit are much like a cash advance but at a fraction of the cost. They offer funds that are quickly available when you have unexpected expenses. Unlike a cash advance on a credit card, they have no cash advance fee and offer standard payment rates and APRs. With a cash advance, these amounts can often be hard to figure out. If your business is new, a business line of credit is an excellent way to build a positive credit history. Obtaining a Line of Credit Like any credit or loan, most of the lending decision is based on how much of a risk you are. If you have a high personal credit score and your business is profitable, you are likely to qualify. You might also receive a better rate and a larger amount. Most likely you may have to secure the loan personally, especially if you are a startup with a sparse track record. Here are four things you should prepare for when applying for a business line of credit: Using a Line of Credit Effectively Once you get the line of credit for your business, use common sense to make the most of it. Use your line of credit efficiently with the help of these three tips. A line of credit is an asset to every business. Take the necessary steps secure one and then use it sensibly. It not only provides cash to meet seasonal demands and delays in collecting receivables, but also provides you with peace of mind.

Business Lines of Credit

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Improving your collection of receivables is essential if you want your business to thrive. Effective receivables collection not only provides you with the necessary cash flow for everyday business operations, but also furnishes you with crucial working capital to grow your company. Here is a look at the problems you might encounter getting your money and what you can do to streamline payment. Impediments to Payment There are many reasons a customer does not pay an invoice right away or in the period you designate, whether that is Net 10, two weeks or 30 days. The most likely reason is that they are trying to hang on to their money to pay their bills. In that case, a gentle reminder will often get the payment in the mail or paid online. On the other hand, it could be that the customer is a bad credit risk that is a habitual late payer. If you suspect this is the case, devise stricter guidelines for extending credit. If you have a very small business, not extending credit and expecting payment upon receipt is often the only sensible choice. Your customers have a budget and must manage money just like you. To take care of their cash concerns, they may put off paying you in a timely manner. Though this is often a part of operating a business, it can have a negative impact on your ability to pay your suppliers and your employees. Collections Best Practices To improve your accounts receivable collection strategy, take note of the 12 best practices tactics you can implement for your business. Collecting receivables is a tricky topic when dealing with customers. However, every business needs to have a set of guidelines in place that sets standards for extending credit, getting payment, and collecting late invoices. Assure your business of a steady flow of cash that will allow you to produce more inventory, sell more, and keep the budget cycle moving forward.

Effective Receivables Collection

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To propel your startup into the marketplace, you need working capital. It is hard to ask friends and family to get onboard on a speculative venture, even if you are sure that it is a winner. Without a track record, banks are often not keen on lending to new businesses. Investors are hard to find, and it is challenging to get noticed on crowdfunding sites. That leaves you with credit cards. According to the National Small Business Association, credit cards are the number one method for funding a new business in the U.S. If you have no other way to bring your dream to life, it can be a viable way to give your vision traction. However, it requires research, number crunching, and a good, hard look at the benefits and drawbacks. Here are a few things to consider before you pull out the cards for your new business venture. Pros and Cons of Using a Personal Credit Card for Business Using credit cards to finance a business has both advantages and disadvantages. You’ll need to weigh the benefits against the risks, for you and your startup. Benefits of Using a Personal Credit Card for Business Downsides of Using a Personal Credit Card for Business Alternatives to Credit Card Financing Besides credit card financing, there are other ways, potentially less risky, to fund your new business.
  1. Unsecured SBA loan. For example, SAM’s Club has partnered with Superior Financial Group to provide these loans, which require a personal guarantee. Most are in the $10,000 to $20,000 range. Check with the SBA to see what options are open to you.

  2. Crowdfunding. Kickstarter has provided funds to a broad range of people who have a great idea but little financing. Two others are Indiegogo and RockthePost. Crowdfunding requires a strong online presence, persuasive copy, and perseverance to sell your idea.

  3. Factoring. For a startup, this may not offer much help if you don’t have any receivables yet. However, if you do, you can often get immediate cash for your invoices at a discounted rate.

  4. Use your retirement funds. This is a big risk too, and it isn’t advisable to jeopardize your retirement. However, for many people their 401(k) offers a vast amount of money. You might have the option to borrow money against your 401(k) instead of withdrawing it.
You need money to start a business. Using credit cards is simple and doesn’t involve others in the risk of launching a new business. Be sure to look at the pros and cons from every angle before deciding if it is the right option for you.

Using Credit Cards for Financing

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The marketplace is competitive. Prospective customers expect you to extend credit to them. However, is it the right decision for your business? Offering credit to your customers has its pros and cons. If you choose to do it, establishing the right processes will be critical factors for a successful operation. Making the Decision Credit comes in many forms. For example, perhaps you think of checks as cash, but they are a form of credit. Credit cards are, of course, credit. Billing by invoices is a very common credit practice. Accepting these methods of payment comes at a price. You are trusting individuals and businesses to pay you at a certain point for your goods and services, which they are already using or have used. The positive aspects of extending credit include: The drawbacks of extending credit include: Setting Up Credit Practices If you decide to extend credit, you need to have a system in place before you take your first order and send out your first invoice. Here are four points to include in your system.
  1. Determine creditworthiness. Run a credit check on each business before you offer credit. Just because an individual is pleasant and hardworking doesn’t mean they are worthy risks.

  2. Set up guidelines and stick to them. Mark your invoices with the due date. Show at which point it will be considered delinquent. Put the contact information for your accounts receivable staff clearly on each invoice. This encourages customers to call when they have questions or need help.

  3. Set up an accounts receivable department or hire out the work. You want it professionally run, with good communication among customers, accountants, and management.

  4. Create a collection plan and implement it. Get all the pertinent information from your customer before you start doing business. Send out invoices on time. Give each customer a copy of your payment policies, which includes late fees and penalties. Get everything in writing in case the collections go to court later.
Knowing Credit Laws You are required to comply with all consumer credit laws. They dictate how you advertise interest rates, how you handle claims that there was a mistake in billing, and the method you use to collect debts. ScoreInfo, created by FICO, offers an excellent overview of consumer credit laws. There are many aspects of the debt collection process that consumer credit laws and the Federal Trade Commission (FTC), regulate. Be sure you keep on the right side of them. Dealing with Collections Your credit system needs to include a process for dealing with a customer who can’t or won’t pay a bill. Your procedure needs to take into consideration the local consumer protection agency rules for debt collection and well as FTC guidelines. Collecting a debt can be time time-consuming and expensive. In some cases, it is just easier to write it off. For example, if a customer declares bankruptcy, you may or may not be eligible to collect even a small percentage of what they owe. If you get awarded money, you still may need to pursue the customer to collect it. What’s the takeaway? It is easier to prevent the problem in the first place by extending credit wisely. Check out every prospective customer. Be very conservative in your choices. You are not required to extend everyone credit. While most customers come to expect credit, it is essentially a benefit from your business to theirs, and not merely a right.

Extending Credit To Your Customers

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Depending where they are in their startup phase, new businesses often get several types of investment funding. Though some entrepreneurs can bootstrap, that is fund themselves from savings and continue growing out of first revenues; many need outside sources of capital to hit the ground with products and services ready for market. Here is an overview of what you might encounter when it comes to partners, investors, and funding stages. Do You Need an Investor or Partner? Both partners and investors provide working capital that enable you to pay your employees, suppliers, business taxes, and even yourself. While investors typically provide an infusion of funds in exchange for a future return or ownership share, a partner often offers skills, experience, and know-how to help grow the business. Whether you require an investor or partner depends on your business needs and goals. Pursue an investor if you intend to: Enlist a partner if you intend to: Overall, if you want to maintain control of your business and only need funding, look for lenders or investors. If you are looking for someone to share the responsibilities of running the business and need the help of human capital, then choose a partner. Investments Based on the Stage of Your Company Your company has several stages in its funding cycle. Every company may not go through all these stages, but you should understand who funds businesses at various stages of growth. The amount of money you need and the people who can provide it may change as your business transitions from one stage to the next. Idea stage. You are the one involved at this stage, just you, your idea, your finances, and a dream. Co-Founder stage. Getting it up and running often takes some help in the form of a co-founder. Their enthusiasm, skills, contacts — and maybe even cash — can help get you on a more solid foundation. Because you have nothing of substantive value yet, this person is taking a risk. To compensate for this, you may give them equity. Family and friends stage. Before you get a working product to show real investors, you might very well run out of money. One option is to turn to your parents, siblings, relatives, and friends who might invest what they can afford. Hopefully, it is enough to keep working on your prototype. Angel stage. As time passes, you may have exhausted money received from family and friends, yet you are still not ready for market. Your next step may be to look for an angel investor to put in a more substantial investment. You might also get accepted into a startup incubator or accelerator program. These types of programs can provide you with working space, advice, and possibly even some money. Venture capital stage. By this time, you have a working model of your product and can attract the attention of a venture capital group. This stage might have several levels of investment that occur over time, with either the same or different venture capitalists adding additional funds at the next level. IPO stage. At this point, you are a real working company. You decide to go public to let your early employees, and you, cash in on the success of your business and the stock they’ve been holding. It can also give your company a significant injection of funding to make a major push in marketing, research, and manufacturing. Things To Look for in An Investor If you’ve decided to accept outside investment, make sure the people you are getting money from are a good fit for the long-term financial health and growth of your business. Here are five points to consider when working with venture capitalists and angels.
  1. Look into their background. Investors will check you and your company out thoroughly. Do the same with them. You want no surprises. Ask other startups that they are working with if they are good communicators. Are they reasonable and intelligent? Are they stable and courteous?

  2. Competition is good. Let them know that other investors are strongly considering investing in your startup. Much like a resume, a little creativity is helpful. Negotiate to get the best deal.

  3. Don’t be emotional. Yes, it is your dream. However, you are talking money now, so detachment and pragmatism are the watchwords.

  4. Understand everything. Ask questions. Have a lawyer and an accountant look over everything. Read each word before you sign.

  5. Get your own lawyer. Moreover, particularly one who has experience with startups. You need someone on your side who can not only explain the deal terms and conditions to you, but negotiate terms to make them more favorable to you and your business.
The bottom line: funding is out there, but it often comes with strings attached. Make sure being attached to those strings is something with which you are comfortable.

Working With Outside Investors

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To lease or buy equipment: It can be a puzzling question for a startup or existing business. The answer, primarily, depends on your current and long-term needs and financial situation. It is not just about the monthly payment. You need to factor in maintenance, flexibility, tax deductions, and other issues. Here’s a breakdown of the pros and cons of both leasing equipment and purchasing equipment. Pros and Cons of Leasing Equipment Equipment Leasing Pros
Equipment Leasing Cons Pros and Cons of Buying Pros of Buying Equipment Cons of Buying Equipment Investing in major equipment for your business keeps it relevant in the marketplace. However, the costs can be formidable. Be sure to research what equipment you need and the most cost-effective way to get it, whether that is leasing or purchasing. Take into account maintenance and taxes, as well as the cash involved.

Lease or Buy Equipment

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Every accountant will tell you the same thing: always keep your business and personal expenses separate. Also, each small business owner or one-person operation will nod her head and agree wholeheartedly. Meanwhile, back to business as usual. It can be hard to do. As sensible and logical as it sounds, and as highly recommended as it is, it is not easy for the entrepreneur to carry out. They often have a very rough and tumble life in the marketplace. It can be difficult deciding where your personal day ends and your business life starts. Moreover, when cash is hard to come by, it makes sense to rob Peter to pay Paul and vice versa. However, there are consequences to this mingling of moneys. The tax people do not like it. Your accountant gets mad. Your business suffers. Keep them happy and your business prospering. Here are five ways to ensure that your business money stays separate from your personal money. Best Practices
  1. Keep two bank accounts: a business account and a personal account. This is the basic way you can make sure the money from your life does not get mixed up with your business operations. If you put money into the correct account and take it out of the proper account, you are home free. One of the first things the IRS looks for is a separate business checking account.
  2. Have two sets of financial record keeping, one for business, and one for personal. Most small businesses use a system like Quicken, Microsoft Money, or QuickBooks for their accounting. So do many households. Be sure that you keep the record keeping entirely separate. This is essential for tax reporting purposes and also improves your financial organization. If you do not know where the money is going in your business, you cannot tell if you are making a profit. With a complete record from your financial reporting system, everything is in one place, listed by date and category. It makes filling out tax forms easy. If you leave the separating out of expenses, from personal to business, until March or April, you stand a good chance of making mistakes. It also requires major amounts of time that could better be spent running your business.
  3. Get a business credit card. Small companies and one-person operations often have trouble qualifying for a business credit card, but keep trying. It is a help for record keeping, gives you proof of expenses when the IRS comes calling, and also builds your business credit history. You can also get a deduction on your taxes with a business credit card from any interest charges.
  4. Incorporate. This is the complete way to ensure that your personal and business expenses do not mingle. As a separate legal entity, your business will have its documented life. Two of the most popular and useful incorporation structures for a small business are the LLC and the S corporation. It is best not to do this as a do-it-yourself project. Get a team composed of lawyer, accountant and financial planner to help you decide which form makes the most sense for you business needs.
  5. Pay yourself a salary. This is easy if you have incorporated, but is advisable even if you are a sole proprietorship. Pay yourself a wage. Don’t go over that amount with your personal expenses. Exceeding it just encourages you to dip into business funds to pay your current grocery or rent bills. When tax season rolls around, each of these five practices will make filling out forms easy and headache-free. Your company’s finances will be well-organized, enabling you to have a clear view of how it is doing, where the weak spots are, and where it is excelling.

    6. Keeping Your Business & Personal Finances Separate

    View Resource Keeping Your Business & Personal Finances Separate
    Cash flow is the lifeblood of most businesses. In the ideal world, it circulates smoothly. Customers pay their bills regularly which builds positive cash balances in your books. This cash is the money used to pay your suppliers, employees, and to fund your growth. That in turn, keeps your customers buying and paying. However, there are many twists and turns with the cash flow process. That is why it is important to know how to utilize it best to keep your business solvent and thriving. Basics of Cash Flow and Definitions It is helpful to understand the terms used when accountants, bankers, and business owners talk about the cash flow process. Comparison of Cash Flow to Profit Profit is different from cash flow. You may realize a healthy profit at year end, yet face an unhealthy cash flow at various times of the year. Understanding your business finances is not as simple as just looking at a profit and loss statement. Fundamentally, profit is simply your revenues minus your expenses. However, cash flow depends on a broad range of factors including: In essence, profit refers to income and expenses at a point in time. It is static in this regard. On the other hand, cash flow is dynamic. It involves the timing of the movement of money in and out of the business. Tips to Improve Cash Flow A healthy cash flow is an integral part of any successful business. Implement these suggestions as applicable to help you manage and improve the cash flow of your business. Remember, cash flow is the heartbeat of any business, large or small. Monitor it regularly, and do what it takes to keep a smooth flow of money circulating through your company.

    Managing Cash Flow

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