After last week’s really inspiring Small Business Week celebration we received a lot of feedback from all of you that participated. I wanted to take away some of your questions from last week and make sure that we cover some of the topics that were brought to my attention. Thanks again for making this past week’s festivities so engaging; without you this idea would not have materialized into the successful event that we plan to make an annual celebration at Laughlin Associates.

Small Business Q & A 

Q: If I am the 100% owner of a company and I am about to take out a business loan, is it possible for me to be personally liable for paying back the loan if for some reason my company is unable to repay it?

A: This question has two answers depending on your situation. If you’re operating your business as a sole proprietorship or as a general partnership, the fact is, you’ll be personally liable for any loans or other transactions taken on by the business. If you’re business is a properly structured corporation or limited liability company, then the owners are considered to be separate from the business and should not be held personally liable for the loan, as long as you don’t sign a personal guarantee.

Q: I own a small home-based business. What are the reasons I should consider incorporating?

A: Most people incorporate to reduce their liability. Owning a corporation creates a legal separation between you and the company. This protects you from being personally responsible for the actions of your business. Only assets that belong to the corporation will be at risk for satisfying corporate debts or liabilities.

Corporations are taxed at the corporate rate, which in some cases, is much lower than the rate for sole proprietors.

An owner who also works at the business can become an employee, which makes it possible for them to obtain reimbursements for many expenses, including health and life insurance.

Overall, a corporation will provide valuable asset protection and tax benefits that will far outweigh the initial cost of incorporating.
 

Q: I have been told that my Corporation needs to comply with Corporate Formalities. Could you tell me what this means and what I need to do to maintain compliance?

A: Following corporate formalities really revolves around keeping and maintaining the proper corporate records. You should have a record book to keep documentation of all major business transactions conducted by the corporation. Items like corporate resolutions, state annual filings, financial statements, and stockholder information are all documents that need to be kept current and organized in your corporate record book.

Failure to follow corporate formalities could have a harsh outcome. Your corporation could lose its corporate status, meaning you could suffer the loss of limited liability. This could leave you and your shareholders personally responsible for the corporation’s debts. It is also possible to lose all corporate tax benefits.

For more information or to get clarification on any particular areas of concern please call us at 1-800-648-0966 to speak to a Senior Business Consultant today.

 1. Buy into a monthly subscription to an email campaign software system like Mail Chimp, iContact, Strong Mail, Results Mail or you can even use EventBrite for quick updates on your events and promotions.

2. Place ads with local magazines, the newspaper, radio stations or on Facebook and LinkedIn.

3. Remember advertising only works if you’re advertising to your TARGET demographic! Do some research before you spend $$$.

4. Send out press releases for free via sites like www.PRweb.com. 

5. Define your budget and stick with it. Social media is free, so try using these methods and see how much traction you can gain through outlets like Facebook, Twitter and LinkedIn.

6. Join groups and bounce ideas off of other business owners. Entrepreneurs are usually very creative thinkers!

These are the classics that you don’t want to collect: classic blunders that can trip up a small business. These are mistakes that, while new to you, happen over and over again.

History doesn’t have to repeat itself, though. Here’s a complete list to help you learn from others’ blunders.

Mistake One: Trying to compete without a game plan.  Put your plan in writing.

Mistake Two: Starting a business in a field that you know little or nothing about and failing to bone up on the topic before you start your business.

Mistake Three: Failing to make up for your own weaknesses when hiring your management team.

Mistake Four: Going first class from the get-go.

Mistake Five: Proceeding with insufficient capital.  It’s hard to raise money, so owners of fledgling businesses will generally opt to forge ahead even though they know deep down in their hearts that their pockets aren’t deep enough. They’ll just assume that they’ll make up for the economic shortfall down the road. However, without adequate financing, your company will never make it to the next capital fueling stop.

Mistake Six: Placing love over logic.

Don’t fall in love with an idea.  Do your homework.

Mistake Seven: Placing logic over love.

While you need a cold, objective eye on your product, you also need to have passion if you expect to convince others to try your product.

Mistake Eight: Taking the shotgun marketing approach.  Trying to be all things to all consumers generally fails. A small business needs to have a laser-like focus on customers, their needs and how the company can fulfill those needs.

Mistake Nine: Refusing to admit you’re wrong.  It’s bad enough to misjudge a market or a product but owners of small companies tend to compound that error by failing to admit it and then failing to make changes that could save the business.

Mistake Ten: Overestimating your company and underestimating your competitors.

Mistake Eleven: Not keeping a tight rein on costs.  Early successes can lead a company to forget frugality and let costs spiral out of control. In fact, revenue may soon fail to keep up with the rapid pace of your expenses, leading your company into deep trouble.

Mistake Twelve: Letting early successes go to your head.  A new business will start reaping in orders and its owner will decide he can slack off on marketing. 

Make sure you don’t add your business to this collection of classics.

What you implement today could mean big savings next year when it comes time to file your tax return.

It is important as a business owner to do your homework on all the taxable deductions available to you. This will help at tax time but it will also allow you to plan your expenses out for the year.

-Dues you pay to a union or a professional organization in connection with your employment.

-Subscriptions to magazines and other publications that are related to what you do at work.

-The cost of protective work clothing, such as hard hats or safety shoes and glasses, and the cost of uniforms you’re required to wear to work.

-Tuition for classes that maintain or improve the skills that are required for your present job.

-Expenses you incur while looking for a job in the same line of work you normally do.  This can include resume costs, career counseling and employment agency fees.

Review the top 10 mistakes to avoid while preparing you tax return. The Financial Planning Association provided this list:

1. Assuming you don’t have to pay the alternative minimum tax. Although aimed at wealthy earners, more middle income taxpayers are being hit by this tax.

2. Forgetting to five-year average.

If you took all the money out of a qualified retirement account, you may qualify for five-year averaging.

3. Claiming your home-office reduction. When you sell a home, you generally don’t have to pay taxes on up $500,000 profit you’ve made since you bought it. However, you may have to pay capital gains taxes on that portion of the house which you’ve taken as a home-office deduction.

4. Forgetting to include your mutual funds reinvesting dividends. In taxable accounts, these dividends and gains are taxed in the year they are distributed. When shareholders sell their fund shares, they should add the dividends and gains into the original investment.

5. Failing to take gambling losses. Americans gambled over $630 billion in 1998 and lost $51 billion. Gamblers can deduct losses up to the amount of their winnings only if they keep acceptable records of their losses. (Something to remember when you attend a seminar in Nevada.)

6. Overpaying your social security. Wages over $72,600 are not subject to Social Security tax and there is no limit to Medicare. When you work for two or more employers, each employer withholds based on what you earn from them not your combined earnings.

7. Forgetting to claim your carry- overs and credits. You can claim more than $3,000 in investment losses in a single year but you can carry the unclaimed amount over into future tax years.

8. Assuming you can’t make more retirement contributions. You can make 1999 contributions to an IRA, simplified employee pension (SEP) and Keogh as late as your tax filing date plus extensions.

9. Not calculating whether to file jointly or separately. Most couples file jointly but sometimes it pays to file separately especially if one spouse has significantly more income or deductions that the other.

10. Failing to do the basics. Review all allowable deductions, double-check your math, sign the return (don’t sign it if someone else did the return and you don’t understand it) and keep good tax records.

Remember that doing your taxes might not be the best do-it-yourself project. In most cases, you’d be better off consulting a professional.

You’ve got the skills, the products and the services to make you stand out in a crowd. But you compete against companies with more money, more personnel, more name recognition, and more clout. Fortunately, with the right technology, the right attitude and the right image, your clients never need to know that your corporate headquarters is a walk-in closet.

Here are ten ways a small office/home office (SOHO) can look, feel and act a lot bigger than it is. Some require cash; others just demand a commitment to professionalism. Together, they’re an investment in the success of your business.

 1. Get a real phone system
When it comes to telephones, associated equipment, and services, it’s time to splurge. Experts suggest you buy or lease the best system or service you can justify.  For example, the phone system for a technology company in New York includes a company directory that you can dial by name. Every extension on the system goes directly to the desk of the owner and only employee.  This gives clients the first impression that they’re dealing with a company. While that option can cost around $3,000, there are plenty of affordable options. At the very least, you need more than one phone line or DSL which enables you to split your voice and digital capabilities. Nothing spells ‘amateur’ like having to say, “Call me before you send a fax.”  Separate lines for home and business are the best arrangement. A residential line is cheaper, but only a business phone will get you into the business listings in the phone book.

If that’s not in the budget, ask your phone company about getting more than one number on the same line with distinctive rings. That way, you know when the kids can get it and when you need to answer the phone with a formal business greeting.  Also look into voice mail because answering machines don’t work when the power goes off.

2. Polish your presentation
Whether it’s a web site or your business cards, your message should be polished and professional. Among the most common mistakes home-based companies make is using web sites and printed materials created with cheap template programs.

3. Use technology
Many SOHOs stay organized with the help of Palm Pilots; and application service providers (ASPs) help small companies access the high-cost technology that often gives big companies the edge. Most small companies don’t have IT or MIS people.  Software is expensive to buy and install. With a web-based service, you can rent or lease it. It’s leveling the playing field for companies that would have had to plunk down $15,000 to $20,000 to set it up.

4. Utilize your corporation
“Your Biz, Inc.” carries more weight than simply “Your Biz.” It also cuts out 1099 processing, which signals that you’re a sole proprietor. If you don’t want to deal with separate income tax returns and quarterly reports to the IRS, unemployment fund contributions, and annual registrations with the state division of corporations, at least use a DBA.

5. The right address is everything
If you have an address that sounds professional, use it. If, however, you live on Pleasant Hill Road or Periwinkle Lane, you might want to consider renting a post office box. In any situation, experts suggest adding a suite number.

6. Use the royal ‘we’
Always use “we” when referring to yourself in discussions with your clients or prospects. Also, never make big decisions on the spot. If they say, “Well you’re the president, can’t you make the decision?” say, “I need to consult with my executive committee on these matters,” and let it be that. The executive committee may be your dog, but at least you’re not getting bullied by a client because you’re a small shop.

7. Meet on their turf
Unless your space offers some unique advantage for a meeting, don’t meet clients at your office. Go to them, or borrow space at an office to meet. If you take a client to lunch, experts suggest using a corporate charge card to pay for meals with clients. It’s more impressive and makes your expenses easier to track.

8. Accept credit cards
People don’t expect that from a sole proprietor. Besides, if you’re doing business on the Net, you’re dead in the water if you don’t.

9. Consider a toll-free number
It says you want people to inquire about your company to the extent that you’ll pay for the inquiry.

10. Exceed expectations
Answer their questions before the question is even asked.  Tell your clients all your assets, that you have online help, e-mail, and an 800 number for orders, for example. Make your key message customer service, ensuring each time someone uses your product or service, that’s it’s a positive experience and one they can pass along to their friends.