How to start on small business

gfAccounts receivable are the lifeblood of a business’s cash flow. Sometimes referred to as A/R, “accounts receivable” is the accounting term used to refer to the money that the business should receive from its customers for the goods or services it provided.

Your business’s accounts receivable are an important part of calculating your profitability, and provide the clearest indicator of the business’s income. They are considered an asset, as they represent money coming into the company. To determine profitability, add up all of your assets, including accounts receivable, and subtract your total accounts payable, or liabilities, which are what you owe to suppliers and vendors. If the number is positive, the company is profitable. If it’s negative, then decisions must be made regarding how to increase the assets or reduce the liabilities.

Why track accounts receivable?

If you do not keep track of accounts receivable, you may forget to bill certain customers or will not know if you’ve been paid. You may end up providing your product for free and negatively impact your ability to be profitable. The longer it takes to send the invoice, the less likely it will be that your payment will be sent. Keeping track of accounts receivable is also a great way to have documentation supporting proof of income at tax time.

Accounts receivable are best managed on a consistent and routine basis. In retail, each transaction is paid for immediately. With other industries, customers apply for a credit line, and orders are placed against the credit line. The customer is provided an invoice and payment terms with the shipped product, payable at a later date. Regardless of your system, ensuring payment is crucial. Here are five tips to make sure your business stays on top of its accounts receivables:

Communicate. In a 2013 Transworld Business article, Jason Stine, business development manager for collection services company CRF Solutions, advised regular and prompt communication with clients. Stay on top of transactions; more nonpayment errors develop in the first 60 days after delivery because of insufficient or incomplete customer contact, Stine said.

Create a solid internal process. Determine the process for performing accounts receivable, and stick to it. Pick a day of the week to create, print and mail invoices. Choose another day to print an aged accounts receivable report and contact customers who are beyond their payment term window. As your small business grows, you may need to split these tasks among different people to stay on top of all the accounts.

Confirm receipt of invoices. Many companies have had success in contacting the client a week after the invoice was sent, in order to confirm receipt. Things do get lost in the mail or accidentally deleted in an email inbox. A quick inquiry about receipt of the bill also provides the chance to ask for feedback on the product provided, demonstrating your excellent customer service skills as well.

Extend credit with moderate terms. With today’s technological advances, companies can receive payment before shipping an order or starting a service. With service-based companies and high-cost goods, however, that may not always be possible. In those cases, have the client apply for a credit line. You will be able to evaluate their payment ability and set a credit limit you’re comfortable with. It also provides an opportunity to be sure both parties are clear on the terms of payment and what happens if the account goes delinquent.

Document everything. Documentation of accounts receivable helps your bookkeeper with weekly or monthly inputs for financial statements and your accountant at tax time. From first contact, keep notes on the order, conversations and agreed-upon terms. In a worst-case scenario, that documentation will also be important should you have to pursue payment through a collection agency or court.

The funds collected through your accounts-receivable process is the food that fuels the actions of your company. Inconsistent and spotty attention to the task can starve a company’s growth, while a steady and smooth process results in a well-fed machine capable of achieving all of its goals.

The great things for small business

hyThe end of the calendar year is an important time for businesses of all sizes. It’s not only prime sales season for retailers with holiday promotions but also when businesses need to start organizing the year’s financial information for tax season.

Though the April 15 filing deadline may be months away, your company should be thinking about ways to make that period as easy as possible. We spoke with business and financial experts about what small business owners should be doing right now to prepare for tax season.

The end of the calendar year is an important time for businesses of all sizes. It’s not only prime sales season for retailers with holiday promotions but also when businesses need to start organizing the year’s financial information for tax season.

Though the April 15 filing deadline may be months away, your company should be thinking about ways to make that period as easy as possible. We spoke with business and financial experts about what small business owners should be doing right now to prepare for tax season.

Automate your tax prep

In today’s world, there are countless programs, apps and services available to help make tax time less of a burden. Jonathan Barsade, CEO of sales tax solution company Exactor, advised looking into tools that allow you to automate any or all of the financial record-keeping process.

“Trying to stay on top of tax rules and rates and then … completing tax returns and filing them on time is a mind-boggling task, especially for small businesses that operate across multiple locations and do business across state lines,” Barsade told Business News Daily. “The way taxes should be dealt with in this modern age of technology is to automate the process. The earlier the business owner proceeds towards automation, the less time they will need to work in tax season, which means more time remaining to focus on your business.”

Richard Milam, office productivity expert and president and CEO of EnableSoft, an automation software company, advised taking a look at your current systems to see what can be updated and optimized between now and the end of the year.

“Get the tools you need … to get ahead of [the year-end rush] so you’re not playing defense,” Milam said. “Identify what systems need to be updated, so when it comes time to close the books, the data is in place and it’s clean. Make sure it’s been reviewed and is ready for audit — in any business, that interruption is costly.”

Review your business expenses

As every business owner knows, tax season means taking stock of the company’s income, expenses and deductions. To get ahead of this task, business owners should do this throughout the year, thus ensuring a smooth ride when it comes time to file taxes.

“The biggest part of preparing for taxes is what should already have been done — that is, keeping track of all business expenses throughout the year,” said Steve Gibson, director of online form builder JotForm. “If everything [has been] entered into your accounting system in a timely fashion, then the hardest part is done. If not, you need to set aside some time to gather and enter everything correctly.”

“Match purchase orders with invoices and shipping notices, and include the customer payment receipts,” added Evan Singer, general manager of small business loan application service SmartBiz. “File these together to make everything easy to locate, and give it to your accountant.”

Implementing a good filing system, whether digital or paper, is key to making sure you can easily locate and organize all of your business expenses, Singer said. He noted that cloud-based accounting software like QuickBooks Online and Xero are affordable options for small businesses looking to sync and track bank account activity, expenses and invoices.

Learn which tax law changes will affect you

Tax laws are constantly changing, and it’s wise to stay alert and up-to-date on changes that could affect your business. For example, Nicole Odeh, a tax and accounting expert for The Neat Company, a business software and services provider, reminded business owners that new reporting requirements for the Affordable Care Act have begun to take effect, and if your company offers health insurance, you’ll need to make sure you’re meeting those requirements.

“Additionally, although it does not affect this upcoming tax season, there have been some filing deadline changes for the following tax season, and this will be a huge change in thinking and planning for many small businesses,” Odeh said. “Calendar-year partnerships [those whose tax year ends on December 31] will be required to file by March 15, which is one month sooner than they are used to.”

Moreover, the 2015 increase in the standard mileage rate could affect companies with vehicles used for business purposes.

“Cars, vans and some classifications of trucks can now be compensated 57.5 cents per business mile driven,” Gibson said. “This is up from 56 cents per mile in 2014.”

If you’re unsure of what any of these tax law updates could mean for your business, be sure to consult a financial professional.

Personal finance advice tips

cv1. Create a financial calendar. If you don’t trust yourself to remember to pay your quarterly taxes or periodically pull a credit report, think about setting appointment reminders for these important money to-dos in the same way that you would an annual doctor’s visit or car tune-up. A good place to start? Our ultimate financial calendar.

2. Check your interest rate. Q: Which loan should you pay off first? A: The one with the highest interest rate. Q: Which savings account should you open? A: The one with the best interest rate. Q: Why does credit card debt give us such a headache? A: Blame it on the compound interest rate. Bottom line here: Paying attention to interest rates will help inform which debt or savings commitments you should focus on.

3. Track your net worth. Your net worth—the difference between your assets and debt—is the big-picture number that can tell you where you stand financially. Keep an eye on it, and it can help keep you apprised of the progress you’re making toward your financial goals—or warn you if you’re backsliding. We explain more here.

How to … Budget Like a Pro

4. Set a budget. Period. This is the starting point for every other goal in your life. Here’s a checklist for building a knockout personal budget.

5. Consider an all-cash diet. If you’re consistently overspending, this will break you out of that rut. Don’t believe us? The cash diet changed the lives of these three people. And when this woman went all cash, she realized that it wasn’t as scary as she thought. Really.

6. Take a daily Money Minute. This one comes straight from LearnVest Founder and C.E.O. Alexa von Tobel, who swears by setting aside one minute each day to check on her financial transactions. This 60-second act helps identify problems immediately, keep track of goal progress—and set your spending tone for the rest of the day!

The interesting one if your have business loan

If you’re looking for cash to fund business growth, odds are you’ll do it with a bank loan or a line of credit. But, especially for smaller businesses, merchant cash advances are another popular source of funds.

A 2015 Federal Reserve Bank of New York study found that, although loans and lines of credit are the most popular financing method among small businesses (57 and 52 percent, respectively), 7 percent had used merchant cash advances in the previous year. Smaller businesses were more likely to do this: 10 percent of microbusinesses (revenues below $100,000) took out merchant cash advances last year.

Either a loan or a cash advance may be a good choice, depending on how proceeds of the loan will be used.

“Loan purpose should drive the whole conversation,” said Ty Kiisel, head of financial education for OnDeck, an online provider of business loans. “That is going to tell you how much money you need and how much you can afford to spend for it.”

The mechanics of merchant cash advances

Although both financing methods involve receiving and repaying a sum of money, merchant cash advances are not the same as loans. Rather, the business receives an advance against its future credit card sales, and the provider draws money from the business’s future credit card transactions as repayment. Payments are made daily or sometimes weekly.

The repayment amount is based on a percentage of daily credit card sales called the holdback, which may range from 5 percent to 20 percent. For example, if a business does $10,000 in credit card sales, and the holdback is 10 percent, the repayment amount would be $1,000. The holdback percentage doesn’t change. However, the payment amount may vary depending on the volume of credit card transactions.

The cost of an advance, called the factor rate, is also a preset figure. Also called the buy rate, it is usually expressed as a figure such as 1.2 or 1.4. An advance with a factor rate of 1.3 means the business will repay $13,000 for every $10,000 advanced for a period of a year.

Comparing costs

The way merchant cash advances are priced can make it difficult to compare their cost with business loans. An advance charges all interest on the full amount up front, while a loan charges interest on a smaller amount each month as the principal is paid off. So a $30,000 charge for a $10,000 advance is not equal to a 30 percent annual percentage rate (APR) business loan. Instead it is closer to a 50 percent APR. With additional fees, the effective rate can go much higher.

Jared Hecht, co-founder and CEO of New York City-based Fundera, an online platform for matching businesses with loans and advances, says users of advances often don’t realize the true cost.

“We’ve seen customers who have taken out merchant cash advances and are paying an APR north of 150 percent and not even knowing it,” Hecht said.

Advances are short-term financing, and so are best suited for short-term for needs such as acquiring inventory. Most are designed to be repaid in six to 24 months. And unlike most loans, paying off a merchant cash advance early will not produce any savings. The factor rate is the same whether it takes the full intended term to pay back the advance or a shorter or longer time.

Because an advance does not require set monthly payments, a business will pay more when sales are good and less when sales are down. This can help to avoid cash crunches that might be more frequent with set monthly payments.

“For a business that is seasonal, that can be a lifesaver,” said Andrew Rafal, president of Bayntree Wealth Advisors. “If they have a down month, they’re not going to have to cover the fixed cost of a small business loan.”

Overall, a business loan can be significantly less costly than a merchant cash advance. Hecht advised always checking to see if a business loan is available before taking an advance. For instance, he says some merchant cash advance users could quality for SBA-backed loans carrying a rate of 7 percent.

“A merchant cash advance can be tempting, but there are numerous pitfalls that can leave small business owners in poor financial shape,” Kiisel added.

Direct Public Offer to You

Ever since the Jumpstart Our Business Startups Act (JOBS Act) was signed into law in 2012, there’s been a great deal of buzz about Title III, the final provision of the law to be implemented. This so-called “equity crowdfunding” measure would open new pathways for small businesses to raise capital from nonaccredited investors. On Oct. 30, the U.S. Securities and Exchange Commission (SEC) approved the final rules for Title III, signaling that the long wait for equity crowdfunding would soon be over.

But the public’s anticipation of Title III belies the reality that it is already possible to raise capital from nonaccredited investors. By using certain federal securities exemptions — referred to generally as direct public offerings (DPOs) — businesses (and, in some cases, nonprofits and cooperatives) can employ a number of cost-effective strategies that allow them to directly appeal to potential investors, all the while tailoring the terms of the offering to their specific desires.

A direct public offering is the process of using a federal securities exemption to directly sell equity to virtually anyone. These offerings are approved by state regulators, so the rules vary a bit depending on each state’s relevant statutes.

“It’s a very flexible strategy,” Brian Beckon, vice president of Cutting Edge Capital, told Business News Daily. “[The terms of the offering] are really up to the entrepreneur. This is what’s great about a DPO; you don’t have a negotiated investment. What the regulators approve is the offering, which is non-negotiable and exactly what the entrepreneur wants.”

Investors can choose to buy in or opt out based on those established terms, but the issuer remains in the driver’s seat every step of the way. Beckon’s firm advises clients on the steps involved in undergoing a DPO, from reviewing financials and preparing documentation to attaining approval from regulators. Once regulators in the state where the offering will take place grant a permit, all that’s left to do is pitch to potential investors, with the aim of accumulating capital.

How to Start On Business Lenders

When consumers apply for credit cards or loans, their credit scores are often the single most important factors in deciding whether their applications are approved. But what about when you’re applying for a business loan?

While business lenders will certainly take your personal credit into consideration, it’s far from the only factor they will consider. Ted Peters, chairman and CEO of the Bluestone Financial Institutions Fund, outlined what is known as the five “C’s of credit” that commercial lenders look at to make a credit decision.

Cash flow. Lenders look at your historical and projected cash flow, as well as your sales numbers, to determine your ability to pay them back in a timely manner.

Collateral. Depending on the strength of your cash flow, banks may look at your current assets — mortgage, working capital, inventory, etc. — to see if anything can be used as collateral to secure your loan, should you have trouble paying it back. [First Small Business Loan? 7 Things to Consider]

(Business) Credit. In addition to your personal credit and payment history, lenders will check if your business entity has established any past credit, including on-time bill payment for any B2B services. Many lenders use reports from business data company Dun & Bradstreet to access this information, Peters said.

Character. Your overall character and reputation in the community matter to the people taking responsibility for funding your business. This is part of the reason lenders will set up an in-person meeting to discuss your application and credit needs.

“Lenders meet with people [to] look them in the eye [and determine], ‘Is this someone we trust and want to do business with?'” Peters said.

Capacity. Peters noted that this is typically the least important factor in a credit decision, but lenders still want to know the capacity your business has to grow. A local ice cream franchise, for instance, has a limited capacity to boost sales, but a global e-commerce or tech business could grow exponentially in just a few short years.

Don’t miss the tax for your small business

In preparation for the April 15 tax deadline, Business News Daily consulted small business tax experts to find out what things business owners should pay attention to now as the 2016 tax season approaches. Some of these issues involve recent tax changes, while others are issues small businesses should watch for in the future.

Tax extenders

Two important tax breaks for small business have been extended: Section 179 and bonus depreciation. Section 179 allows businesses to deduct the full price of any qualifying equipment or software purchased or leased during the year. The tax-extension bill makes permanent the $500,000 maximum deduction for new and used equipment that was purchased or leased in 2015. Bonus depreciation, which was extended through 2017, allows business owners to depreciate 50 percent of the cost of new equipment purchased in 2015. The two tax incentives can be used together.

“Now that small businesses know they can write off … eligible equipment, we may see a lot more spending by small businesses,” Priyanka Prakash, finance specialist at FitBiz Loans, told Business News Daily. “The nice thing is that Section 179 applies to almost any kind of equipment, from office furniture to software to vehicles.”

Other notable tax extenders include the research and development credit, work opportunity tax credit, energy production tax credits, and a deduction for local and state sales tax. Grafton “Cap” Willey, a managing director at CBIZ MHM, said the extensions — even the temporary ones — are an important step in helping small businesses plan ahead.

“[The extensions] will help with some tax planning over the next few years,” Willey said. “Small businesses have been crying out for some consistency in the tax code, so that they know what the rules are when they make their decisions.”

However, he added, the 2016 elections could change the political landscape in such a way that more changes and inconsistencies might be on the horizon.

The Affordable Care Act

The implementation of the Affordable Care Act (ACA) will affect some small businesses at tax time. The most notable issue for many businesses is that they could face tax penalties for failing to provide health insurance to employees or for failing to report to the Internal Revenue Service what type of coverage they have provided for employees.

“[The ACA] in 2016 now applies to businesses that have 51 to 99 employees,” Ravi Ramnarain, CEO and founder of Ravi Ramnarain, CPA, LLC, said. “Businesses that are not in compliance with the necessary requirements are subject to heavy fines.”

Janemarie Mulvey, former chief economist for the U.S. Small Business Administration’s Office of Advocacy, said that since the start of 2016, businesses with 51 to 99 employees are required to offer health insurance to at least 70 percent of their full-time–equivalent employees or face a tax penalty of $2,000 per employee. Mulvey has published a reference guide for small businesses called”Health Reform: What Small Businesses Need to Know Now!”

Business owners should understand the reporting requirements that come along with the ACA, in order to avoid tax penalties, she added. The act requires employers to report, on each employee’s W-2 form, the cost of the health coverage the employer provided. A breakdown of what the employer and the employee each paid is required in Box 12 of the form. Failing to report this information could lead to fines of $200 per employee, Mulvey said. The IRS recently extended the reporting deadline to May 31, 2016, for paper filings and June 30, 2016, for electronic filings.

“Because the IRS is now the gatekeeper for insurance coverage, they are going to start collecting info from employers about what kind of insurance they provided,” she said.

Miguel Farra, chairman of the tax and accounting department at public accounting firm Morrison, Brown, Argiz & Farra LLC, agreed that the ACA insurance and reporting requirements could be burdensome to small businesses. He recommended consulting an accountant or insurance expert to make sure the coverage you provide meets the minimal essential coverage. In many cases, he said, a skilled insurance agent can also help businesses determine whether it is a better financial decision to provide insurance to employees or just pay the tax penalty.

Manage your financial so well

Accounting is vital to a strong company, keeping track of the business’s finances and its continued profitability. Without accounting, a business owner would not know what money was coming in or going out, or how to plan for the future. The actions taken by accounting professionals — from bookkeepers to certified public accountants (CPAs) — make it possible to monitor the company’s financial status and provide reports and projections that affect the organization’s decisions.

What do accountants do?

The American Accounting Association defines accounting as “the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.” This is often done by logging a business’s accounts payable, accounts receivable and other financial transactions, typically using accounting software.

While bookkeepers tend to focus on the details, recording transactions in an efficient and organized manner, they may or may not see the overall picture like accountants do, said CPA Stan Snyder.

“Accountants use the work done by bookkeepers to produce and analyze financial reports,” Snyder said. “Although accounting follows the same principles and rules as bookkeeping, an accountant can design a system that will capture all of the details necessary to satisfy the needs of the business — managerial, financial reporting, projection, analysis and tax reporting.”

One part of accounting focuses on presenting the company’s financial information in the required ways to those outside of the company. In order to present this information in a format everyone can understand, accountants follow a set of guidelines. In the United States, most accountants abide by the Generally Accepted Accounting Principles. There are different sets of accounting standards for companies that operate overseas, as well as for local and state government entities.

CPA Harold Averkamp said accounts also provide a company’s internal management team with the information it needs to keep the business financially healthy. Some of the information will originate from the recorded transactions, while some will consist of estimates and projections based on various assumptions, he said.

To come up with a company’s status and projections, accountants rely on various formulas. Accounting ratios help uncover conditions and trends that are difficult to find by inspecting individual components that make up the ratio. Accounting ratios are divided into five main categories:

  • Liquidity ratios measure the liquid assets of the company versus its liabilities.
  • Profitability ratios measure the organization’s ability to turn a profit after paying expenses.
  • Leverage ratios measure total debt versus total assets, and gauge equity.
  • Turnover ratios measure efficiency by comparing the cost of goods sold over a period of time against the amount of inventory that was on hand during that same time.
  • Market-value ratios measure the company’s economic status compared with others in the industry.

Is small merchants the best for your business

Swiping credit cards will soon be a thing of the past.If your business isn’t ready, it won’t just be left behind — it may become history, too.

The deadline to implement EMV chip readers is finally here, and merchants who have yet to make the switch will be held liable for fraud-related losses from purchases made at their stores. For some small businesses, covering these losses may be enough to close up shop.

For instance, say customers are forced to swipe their credit cards because your terminals aren’t equipped with EMV chip readers. By the time you find out about the security breach at your store, an identity thief has already stolen your customers’ information and had the time of his life going on a $50,000 shopping spree. Guess who’s responsible for that $50,000, plus any associated fees and fines? Your business. And it’s totally not worth it.

To help you better understand EMV — and what it means for your business — here’s a quick primer on EMV standards and expert advice specifically for small business owners.

What is EMV?

Since individual organizations can only do so much to halt cybercriminals, the credit card payments industry has instituted EMV policies to fight credit card fraud. The government has also stepped in to lead a nationwide effort to better protect consumers. In October 2014, President Obama issued an executive order to implement enhanced security measures for consumer finances. Part of this order, which is detailed in a White House fact sheet, requires payment card issuers to embed cards with more-secure EMV microchip technology by October 2015.

EMV, which stands for Europay, MasterCard and Visa, is a global credit card standard that enhances the security of in-person card transactions. EMV technology allows sensitive cardholder data to be stored in a chip, rather than in the traditional magnetic stripe found on most payment cards today.

How EMV works

EMV technology is very simple on the customer’s end. Instead of swiping the magnetic strip of a credit card, one end of the card is “dipped” into the EMV reader so it can scan the embedded EMV chip.

In an article on, author Sienna Kossman explained that every time an EMV card is used for payment, the chip generates a unique transaction code that cannot be used again. This provides a huge advantage over traditional cards, whose magnetic stripes contain unchanging data that can be stolen and replicated over and over again by hackers.

EMV cards provide an additional layer of security by requiring a PIN input instead of a signature when authenticating purchases, said Dax Dasilva, founder and CEO of point-of-sale system provider Lightspeed.

For EMV technology to work, the point-of-sale (POS) system where the card is used must be equipped to read and communicate with the microchip, said Tyler Vaughey, vice president of U.S. small merchants for American Express.

Card issuers are beginning to issue chip-embedded credit and debit cards, but not all merchants have made the switch to EMV POS terminals yet. Once the industry-wide EMV policy takes effect, any merchant without chip-enabled systems may be held liable for any fraudulent transactions that occur, Vaughey said.

Switching to EMV

An American Express survey found that small businesses know how real the possibility of a breach is. Sixty-seven percent of U.S. small merchants said preventing and protecting against credit card fraud was very important to running their business, and 52 percent felt they are more vulnerable to fraud than larger companies. But this group in particular is woefully unprepared for the transition to EMV technology: Nearly half of the merchants surveyed were unaware of the fraud liability shift occurring in October, and 38 percent either haven’t decided or do not plan to upgrade to EMV-enabled POS systems.

Those who do not plan to upgrade pointed to the hefty price tag (57 percent), difficult software upgrades (29 percent) and consumer education challenges (28 percent) as their main barriers to implementing EMV technology. While the switch will indeed require an up-front investment, it’s more than worth it if you want to save yourself legal and financial trouble in the future.

“Switching to EMV will mean adding new in-store payment technology and internal payment-processing systems all while complying with new liability rules, but it’s a crucial investment,” Dasilva told Business News Daily. “As of now, if your … systems are not updated by Oct. 1, 2015, your business … would be required to pay to cover all fraudulent activity out-of-pocket. Small businesses often can’t afford to take on this kind of liability, and being ahead of the game will make your small business appear even more trustworthy and established.”

Do you need Tax Checkups

It is never too early to start thinking about your annual business taxes. Day-to-day decisions can have a significant impact on your overall tax obligations. Instead of being surprised at tax time, you should be planning throughout the year to make sure you’re ready.

“When a small business owner plans for tax season strategically and consistently throughout the year, they can create a much better financial outcome for their company,” Jamal Ayyad, vice president of service delivery for SurePayroll, said in a statement.

Regardless of the time of year, here are six “checkups” you can do to make sure you’re ready for your next tax deadline.

1. Ensure that ownership records and hiring/employment practices are up-to-date

In order to guarantee that your business is complying with guidelines that are constantly changing, plan regular reviews of documents and applicable rules, said Scott Augustine, a shareholder with Chamberlain Hrdlicka law firm.

2. Calculate your projected payroll taxes

Small businesses that are having trouble paying their payroll taxes may be able to take advantage of an IRS installment plan, Ayyad said. If you owe less than $25,000 in combined tax, penalties and interest, and filed all required returns, you may be eligible. Visit the IRS website for more details.

3. Do a compliance checkup

The Affordable Care Act, the IRS and the U.S. Department of Labor have rules regarding independent contractors or 1099 employees. Make sure your firm or organization operations are in compliance to avoid costly penalties and fees, Augustine said.

4. Keep up with your home state’s tax issues

Some states take loans from the federal government to meet unemployment benefits liabilities. Ayyad noted that if your state has taken, but not repaid those loans, there will be a reduction in the credit against the Federal Unemployment Tax Act tax rate. This means employers in those states will have to pay more. A number of states may be affected, including Arizona, Arkansas, California, Connecticut, Delaware, Indiana, Kentucky, New York, North Carolina, Ohio, Rhode Island and South Carolina, as well as the U.S. Virgin Islands.

5. Review non-competes and confidentiality agreements

This is especially important for those that have been written by attorneys outside your state of operation to avoid possible theft of important assets, Augustine said. As part of this, he also advised reassessing document-retention policies to make sure they balance exposure with business needs. This will help you avoid issues in tax matter and litigation, he said.

6. Think about succession planning

What would happen to your business if you had an unexpected health crisis or accident? Augustine said business owners should be discussing and determining what actions may need to be taken to ensure the firm continues on. There are also tax benefits to succession planning, so discuss with both your attorney and your accountant, he added.

Organizing tax records now can make filing taxes much easier and faster later on, Ayyad said.

“When small business owners get their information together well ahead of time, they greatly improve the odds of filing a complete and accurate return,” he said. “Being compliant is the law, but instead of merely checking taxes off of a list of things to do at the end of the year, a savvy small business owner knows that preparation and planning ahead are key components of success.”

Choose the service

Choosing a factoring service doesn’t have to be complicated. Here are three things to consider when selecting one for your business:

  1. What type of factoring does your business need?
  2. How much of your outstanding invoices do you need funded and when do you need it?
  3. How much are you willing to pay?

We will help you answer these questions below, but if you already know what you need and just want to see our recommendations for the best factoring service, visit our best picks page.

The first step to choosing the right factoring service for your business is figuring out which type of factoring you actually need. For instance, do you need a factoring service that covers all of your outstanding invoices upfront, or will a partial payment suffice? Do you prefer to keep receiving payments from customers, or will you hand collections over to the factoring company? And do you want to be held responsible to the factoring company if customers don’t pay? These are just some of the considerations we’ll cover below.

First, to help you better understand the many different types of factoring, here is an explanation of how factoring works, followed by a breakdown of the most common factoring services.

How factoring works

Factoring is an alternative method of financing that allows business owners to sell their invoices, or accounts receivable, to a third party, the “factor.” Factoring helps to fuel growth by providing the funds necessary to keep businesses going while waiting for customers to pay for outstanding invoices.

Here’s how factoring works in real life:

EcoNuts, an organic soap nut retailer that appeared on Season 4 of ABC’s “Shark Tank,” was unable to secure an investment deal, but still had a large purchase order from a major retailer on the line. The company opted to work with factoring company BlueVine to successfully fill the order.

“When [EcoNuts] came to us, they were limited by their working capital they had on hand to meet that demand,” said Edward Castaño, vice president of marketing at BlueVine. “They had so many outstanding invoices from TJX [parent company of TJMaxx, Marshalls, HomeGoods and the Sierra Trading Post], that it made it hard for them to fulfill orders.”

According to Castaño, EcoNuts didn’t have the cash to purchase the supplies and cover the salaries to fill the new orders, which put their growth trajectory at risk.

“[EcoNuts] used our invoice financing solution to unlock the cash trapped in their invoices to fulfill new orders and maintain their growth trajectory,” he said.