Are You Keeping Up with Your Business Cybersecurity Needs?
The increased connectivity provided by the internet has vastly changed the way we do business. But while most of the effects are for the better — ease of information exchange, ecommerce capabilities and customer service come to mind — there are still negative aspects small business owners should know about.
Cybercrime is one of the biggest threats businesses of all sizes face. More than 75 percent of data breaches target small and medium-sized businesses which can cause major havoc for your business operations. Sixty percent of small businesses affected by cybercrime will close within six months of the breach, according to a study by McAfee.
Here are a few tips for protecting your business from cybercrime.
Protect Your Business
First and foremost: Create and maintain a secure network for your business operations. A password may seem second nature for log-on, but do you have a firewall? Only twenty percent of small businesses have network security encryption. Contact your internet service provider to check on your security options, and find out where your network protection may be falling short.
Next, talk with your employees about keeping your business safe. They should create strong passwords for work-related accounts, and avoid completing personal tasks on company computers to reduce vulnerability.
Resist the urge to provide your Wi-Fi password to customers or visitors; if you wish to offer Wi-Fi to visitors, create a second network for guest use.
Finally, encourage your staff to backup data regularly, either to a cloud service, to a backup hard drive or both. Consider scheduling a regular backup day each week to get employees in the habit.
Protect Your Customers
Once you’ve taken steps to protect your business from cybercrime, it’s time to extend that protection to your customers. For the most part, your attention to cybersecurity to protect your business will flow over to your customers as well. But even the most web-savvy customers may need reassurance.
Be sure to communicate your online safety policies and measures to your customers especially if you’re offering ecommerce services. Be open with customers who may have questions about the security of their orders or personal information, and welcome discussion.
Don’t Let Your Small Business Get Complacent
One of the toughest parts of avoiding cybercrime is keeping up with the changing landscape of how we do business online. By keeping up with business news, you’ll help yourself stay aware of potential threats to your cybersecurity system.
Not sure if you’re doing enough — or the right things — to protect your small business? Get in touch with a SCORE mentor who can help you review your practices.
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What is An EIN and Why Is It Important?
One of the key responsibilities for many new businesses or businesses that are restructuring is obtaining an Employer Identification Number, or EIN, from the IRS.
An EIN is a unique nine-digit number that identifies your business for tax purposes. It’s similar to a Social Security number but is meant for business related items only.
As a business owner, you’ll need an EIN to open a business bank account, apply for business licenses and file your tax returns. It’s helpful to apply for one as soon as you start planning your business. This will ensure there are no delays in getting the appropriate licenses or financing that you may need to operate.
Who needs an EIN?
An EIN is needed by any business that retains employees. However, non-employers are also required to obtain one if they operate as a corporation or partnership.
Not sure whether you need an EIN? Review this guide from the IRS. If you answer yes to any of the questions in the list, you need to apply for an EIN.
As your business grows, be sure to visit the IRS website and its resources for a complete list of who needs an EIN.
How to apply for an EIN
The simplest way to apply for your EIN is online via the IRS EIN Assistant. As soon as your application is complete and validated, you’ll be issued an EIN. There is no charge for this service.
You can also apply by fax or mail. If your business is incorporated outside of the United States, you cannot apply for an EIN but you can call 267-941-1099, 6:00 a.m. to 11:00 p.m. (ET) Monday through Friday. Read more about How to Apply for an EIN and How Long Will it Take to Get an EIN?
Securing an EIN is a necessary step to establishing your business and will ultimately help in keeping your regulatory, legal and financial matters in order.
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5 Ways to Establish Credit for Your Business
A creditworthy business is defined as a company that is considered suitable to receive credit because of a positive history of paying money back. For business owners it’s essential to not only maintain a favorable personal credit rating; it’s equally important in building and maintaining a strong business credit rating as well. “Just as your personal credit has a big impact on your financial health, your business credit can help you get competitive business loan rates and terms from potential suppliers,” says Marc Kirshbaum, president of Experian's Business Information Solutions group.
Credit ratings play an important role in our everyday lives. It impacts how much credit or funding we will receive, the rate of interest we’ll pay and what the terms of repayment will be. When it comes to owning a business, a creditworthy company takes on a whole new meaning. To be considered suitable to obtain credit, a company needs to show that it can properly manage its financial obligations by having positive business credit scores. Jeff Stibel, CEO of Dun & Bradstreet Credibility Corp. says, “Today, it takes a very proactive approach to building a strong credit score for your business.”
Lenders, businesses, suppliers and vendors use business credit reports as a risk assessment tool when determining whether or not to extend credit to a business and at what terms. A business without a rating or business credit file may find it difficult to obtain credit. So what can a business owner do to start establishing credit in the company’s name?
Here are five ways to establish credit for your business:
Take advantage of trade credit – Trade credit is the credit extended to your company by suppliers who let you buy now and pay later. Trade credit is given for a short period of time usually 30, 60 or 90 days. It’s a great way to start the process of building credit in your company’s name.
Obtain a business credit card – Business credit cards are an invaluable tool for business owners to add to their financial tool box. Statistics show that over 65% of small businesses use credit cards on a frequent basis. The use of a revolving line of credit is paramount to showing that your company can handle various forms of financing.
Use a business fleet fuel card – If you use your car for business on a regular basis why not consider a business fleet fuel card. Fleet fuel cards are mainly used for gasoline and diesel fuel at gas stations. Some fuel cards can also be used to pay for auto maintenance and expenses.
Open a secured business line of credit – To help build or rebuild your company’s credit many lenders and banks are now offering secured financing solutions. Whether your goal is to supplement cash flow, cover unforeseen business expenses, or expand your business this may be a great option to jumpstart the credit building process.
Use your business data to obtain funding – Certain lending platforms allow you to link your business’s online services such as ebay™, PayPal™, Amazon® and business bank accounts to qualify for a line of credit immediately. Although this type of credit provides your company with ongoing access to funds the repayment terms are much shorter than a revolving line of credit; typically six to twelve months.
Remember; pay all your bills and invoices in a timely manner. Although each business credit reporting agency collects and receives its data differently, the trade references your company establishes can be used on future credit applications.
By establishing a creditworthy company, a business is building a powerful financial asset that taps into the power of business credit. The fact is creditworthy businesses have a much greater credit capacity compared to a business owner that relies on personal credit alone.
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Understand the Law Before Dropping or Reducing Employee Benefits
Small businesses facing poor or uncertain financial circumstances may be forced to consider drastic employment decisions including layoffs and benefit reductions. If your business faces such decisions, it important to understand your legal rights and obligations concerning employment law.
Layoffs, Furloughs, and Reducing Employee Hours
If your business is considering layoffs, review the Worker Adjustment and Retraining Notification Act (WARN), which requires employers with 100 or more employees (generally not counting those who have worked less than six months in the last 12 months and those who work an average of less than 20 hours a week) to provide at least 60 calendar days advance written notice of layoffs at single site of employment. Though the federal law may not apply to your small business, many states have enacted similar legislation to apply to businesses with less than 100 employees.
Furloughs and Hour Reductions
The rules on for reducing employee hours or imposing a furlough depend on whether an employee is considered exempt (salaried) or nonexempt (hourly).
As an employer, you are legally allowed to reduce the work schedule of hourly employees or impose a furlough to temporarily stop work. However, if you reduce your employee hours but not their workload, they may not be able to finish their tasks on time. If they need to work extra hours to accomplish their work, you must compensate them for that time.
Reducing the hours of salaried employees (employees who receive the same amount of pay each week is more complicated. Since salaried employees receive the same pay each week, regardless of how many hours they work, cutting hours but maintaining salaries will not save your business money. If you reduce the hours of salaried employees and as a result pay them less, their exempt status could be reconsidered as hourly. If that is the case, then they would now be eligible to receive overtime pay. Many employers choose to avoid this option as it could lead to higher and unexpected labor costs.
A furlough of salaried employees would not jeopardize their exempt status because exempt employees are not entitled to compensation for any week in which no work is performed. If you begin furloughs for extended periods of time, you may be required to comply with federal or state WARN laws.
Generally, employers have the right to institute pay cuts for hourly employees, as long as the wage meets minimum wage standards. In some states, you may be required to provide advance written notice to employees. Check with your state department of labor for the laws in your area.
If you cut the pay of an exempt employee to the point where they are receiving less that $455 per week, they could be considered an hourly employee as explained above. However, if you need to cut pay as a result of an economic downturn, you may be exempt from the overtime rules if the cut is maintained each month as the new salary (and does not increase or decrease each week) and if it is in response to your business’ long-term needs. If you choose to go this route, speak with your state department of labor to ensure that you are in compliance.
Another alternative is to reduce exempt employee pay without dictating the hours they work. The downside, of course, is that without a corresponding reduction in schedule, exempt employees may become demoralized by the appearance of working the same amount for less pay.
Unlike mandatory benefits like worker's compensation and social security taxes, employers are not required to provide fringe benefits such as paid time off, severance pay, retirement plans, and holiday pay. Oftentimes, businesses choose to offer these perks as recruitment incentives.
Generally, while employers can change or eliminate paid time off (PTO) policies, they cannot take away PTO hours if they have been accrued. Employees will be entitled to their PTO leave, or you will have to pay them for the unused time. Note that the same rules may not apply to unused sick leave.
If you currently offer retiree health benefits, nothing in federal law prevents you from cutting or eliminating those benefits unless you have made a specific promise to maintain the benefits, according to the Department of Labor.
If you need to change any fringe benefits, wages, or hours, research your state's employment laws to ensure you are in compliance. Remember to apply benefit packages consistently to your employees to prevent discrimination claims.
For more information, contact an attorney and/or accountant for legal and financial assistance.
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Basic Information About Operating Agreements
If you are seeking a business structure with more personal protection but less formality, then forming an LLC, or limited liability company, is a good consideration. Regardless of your business structure, some paperwork like an operating agreement is expected. Here are the basics every LLC owner should know about operating agreements:
What is an operating agreement?
An operating agreement is a key document used by LLCs because it outlines the business' financial and functional decisions including rules, regulations and provisions. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners. Once the document is signed by the members of the limited liability company, it acts as an official contract binding them to its terms.
Why do you need an operating agreement?
- To protect the business' limited liability status: Operating agreements give members protection from personal liability to the LLC. Without this specific formality, your LLC can closely resemble a sole proprietorship or partnership, jeopardizing your personal liability.
- To clarify verbal agreements: Even if members have orally agreed to certain terms, misunderstanding or miscommunication can take place. It is always best to have the operational conditions and other business arrangements handled in writing so they can be referred to in the event of any conflict.
- To protect your agreement in the eyes of your state: State default rules govern LLCs without an official operating agreement. This means that each state outlines default rules that apply to businesses that do not sign operating agreements. Because the state default rules are so general, it is not advisable to rely on a governing body state to manage your agreement.
Tip: Consult with an attorney and accountant to assist with the financial and legal matters of your agreement.
What does an operating agreement entail?
Operating agreements are contract documents that are generally between five and twenty pages long.
What is included in an operating agreement?
The functionality of internal affairs is outlined in the operating agreement including but not limited to:
- Percentage of members' ownership
- Voting rights and responsibilities
- Powers and duties of members and managers
- Distribution of profits and loses
- Holding meetings
- Buyout and buy-sell rules (procedures for transferring interest or in the event of a death)
Are LLCs required to form an operating agreement?
The requirement of an operating agreement depends on the state it was formed in. While many states do not require operating agreements, some, such as Missouri and New York. This information can generally be found on your secretary of state website.
Tip: It is unwise to operate without an operating agreement even though most states do not require a written document. Regardless of your state's law, think twice before opting out of this provision.
Where should operating agreements be kept?
Operating agreements should be kept with the core records of your business. They are not required to be filed, nor will they be accepted by your state.
Tip: Operating agreements should be kept confidential.
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How to Start a Business in the U.S. as a Foreign National
The U.S. prides itself on being a nation born of immigrants and entrepreneurs. Opening its doors to foreign nationals seeking to live the American dream is something that continues to this day.
But if you’re looking to start a business in the U.S. as a foreign national or alien, you’ll no doubt have questions. What are the immigration requirements? How do you get started? What tax obligations must you adhere to? Can you get financing from U.S. banks?
While it’s advisable to get the help from trusted experts including lawyers and accountants, here are some basic considerations to get you started.
Can I Start a Business in the U.S. as a Foreign National?
Aside from U.S. citizens or naturalized citizens, individuals with the following immigration status can start a business in this country:
- Green Card Holders – Also known as “permanent residents”, green card holders can work, live and study in the U.S. while maintaining their foreign citizenship. They can also join the armed forces and start a business.
- EB-5 Investor Green Cards – The EB-5 Immigrant Investor Program is administered by the U.S. Citizenship and Immigration Services (USACE) and enables entrepreneurs, their spouses, and unmarried children under 21 to apply for a green card. Up to 10,000 visas are issued each year. Applicants have to meet very specific criteria including making an investment in a commercial enterprise in the U.S. ($1,000,000, or at least $500,000 in a targeted employment area (high unemployment or rural area) and plan to create or preserve 10 permanent full-time jobs. The process is fraught with pros and cons. Consult an immigration lawyer to understand the full implications of an EB-5 green card. Learn more about getting a green card through investment.
- Other Immigrant and Non-Immigrants Visas – The USCIS’s Entrepreneur Visa Guide provides a menu of possible visa pathways for foreign entrepreneurs. Whether you are looking to explore or start a business, or are already in business and want to immigrate permanently, your options are extensive.
Once you’ve found the right visa pathway there are a number of steps to setting up a business in the U.S. If you’re a green card holder, you’ll take the same steps that an American citizen would (check out SBA’s Starting a Business Guide and don’t miss these 10 Steps to Starting a Business).
For everyone else, there are a number of key considerations you should be aware of:
Structuring your U.S. Business
One very important step in getting started is determining how to structure your business. You can choose to operate your business as a sole proprietorship, LLC, Corporation, partnership, or S Corporation.
While the process of incorporation is the same as it is for U.S. citizens and is handled at the state, not federal level, it’s important to understand and get advice about the ownership status and tax ramifications of your chosen entity. For example, an S Corporation is an increasingly popular choice for entrepreneurs, but its shares can only be held by U.S. citizens and resident aliens, while an LLC or C Corporation has no restrictions on non-U.S. citizen owners. This guide offers more insight into the main business entities operated in the U.S. and how to apply.
Establishing a U.S. Business Bank Account
Another key consideration is establishing a U.S. bank account. First and foremost, banks require valid ID. For a U.S. person that’s typically your social security number, driver’s license, passport, etc. For a non-U.S. national you’ll need a tax identification number (more on that below) and a government-issued document bearing a photograph. For a business account, you may also need to produce your articles of incorporation, U.S. business address, and more. Check with your bank to find out more as requirements vary.
Establishing an Online Retail Presence
Establishing an online retail presence in the U.S. is a popular choice for many foreign business owners. U.S. consumers are more likely to purchase from a U.S. ecommerce site than one that’s based overseas. You can read more about general resources for online businesses, including privacy and advertising regulations here, along with specific information on international sales.
Understanding U.S. Taxes
This is where you should most definitely get the advice on a tax practitioner who understands business tax law. Here’s a high level view of your key obligations:
- Business Tax Filing and Payments – All non-resident aliens must file and pay state and federal taxes on business income. You will be taxed at regular U.S. corporate rates but only on income from U.S. sources that is connected with that business, and at 30% on income not connected with that business (source). Much depends on the extent of the non-U.S. person’s presence in the U.S. The U.S. tax system is complex, so please consult an expert to determine your obligations.
Depending on the nature of your business, you are also obliged to pay sales tax, self-employment, social security, and Medicare taxes, make estimated tax payments, pay excise duties, etc.
The Internal Revenue Service (IRS) guide to Business Taxes can help introduce you to each of these. Check with your state and local government with regards your business tax obligations at that level, including sales tax, income tax, property tax, etc.
- Apply for a Tax Identification Number – Most U.S. business (including permanent residents or resident aliens) require an employer identification number (EIN) from the IRS to support tax filing and reporting. This identifies the business entity (think of it as the business equivalent of a social security number). For non-resident aliens, an Individual Taxpayer Identification Number (ITIN) will suffice. The IRS issues these 9-digit tax processing numbers to individuals who are required to pay U.S. taxes but who are ineligible for a SSN, including non-resident aliens.
Getting Access to Financing
Access to capital is essential for small business growth, regardless of the nationality or immigration status of the owner(s). Being a non-U.S. citizen doesn’t preclude anyone from getting capital, although banks may enforce more stringent eligibility requirements so they can be assured you are not a flight risk!
In fact, the SBA oversees a number of small business loan programs that alien-owned U.S. businesses may qualify for, most notably its most popular program – the 7(a) loan program. During the application process, legal permanent residents must evidence their immigration status (usually your valid card) and majority ownership; while non-immigrant aliens or foreign nationals, need to pass more requirements. This includes providing evidence that they have been in business for 12 months prior to submitting the application, assuring an eligible manager will be in place indefinitely, providing a personal guaranty, and sufficiently pledging U.S.-based collateral to ensure that the total value of the loan can be paid back in the event of liquidation for the life of the loan.
Disclaimer: None of the above constitutes legal or tax advice and is not guaranteed. Readers are cautioned not to rely on this information. Please consult a professional for the latest information on immigration, business, and tax law.
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Absenteeism in the Workplace: 7 Ways to Resolve this Bottom Line Killer
Employees are the lifeblood of a small business but they are also human and need time off to deal with sickness, manage family needs, and fulfill civic commitments like jury duty.
Personal time off is essential, but what happens when it becomes a problem? Persistent absenteeism (habitual and intentional time off) is a chronic problem for U.S. employees costing $3,600 per hourly employee per year, and $2,650 per salaried employee per year (source).
Not only does absenteeism effect your bottom line, it increases everyone’s workload leading to poor quality output and a sour atmosphere all round!
Absences occur for many reasons – burnout, stress, bullying, low morale, job hunting, etc. There’s also a generational element when it comes to absenteeism. Research suggests that millennials are more likely to skip a day when they feel anxious, whereas as baby boomers value showing up for work, even when they are under the weather.
Whatever form absenteeism takes, it’s bad for business. But here are seven ways to resolve persistent absenteeism:
1. Try to Identify the Root Cause
There’s often a good reason behind that call you just got from an absent employee excusing themselves from work and your gut instinct can guide you on this one. However, if you are noticing an excessive pattern and finding it hard to take your employee’s word for it, then it’s time to take action. If an employee is just not bothering to show up or giving you advance notice, then an intervention is essential. Start keeping a paper trail and records of absences.
2. Give Employees an Opportunity to Explain Themselves
The first thing you can do is give employees an opportunity to explain themselves. When they return to work, have a one-on-one discussion about their absence and express your concern. This is not a disciplinary discussion, but more of a fact-finding mission. Your goal is to understand what’s happening and try to solve the issue. For example, if stress is a factor, then you may need to discuss strategies that can help, such as shifting workloads, reducing responsibilities, etc.
Very often, employees are pleased that they have been given an opportunity to air their problems or grievances. But be warned, you may learn things that you don’t want to hear, particularly if it turns out that your management style is the problem. Try to remain objective during the discussion and use it as a platform to change things.
3. Put a Performance Improvement Plan in Place
If the tactic above doesn’t work, then you need to put a performance review plan in place that sets specific goals for improvement, attendance being one of them. Put the plan in writing and clearly explain the timeframe of the plan and the consequences of not fulfilling its requirements.
4. Develop and Communicate a Clear Leave Policy
A written policy won’t stop absenteeism, but it will help you deal with it more effectively. It will also demonstrate to all employees that you don’t tolerate absenteeism. Use the document to clearly explain paid and unpaid leave policies and the consequences of unexcused absences. If you have a company newsletter or intranet, use these to promote your policy.
Note that the law doesn’t require you to provide common leave benefits, but it does require employers to provide leave under the Family and Medical Leave Act (FMLA). Be sure you know what the law is. Read more about the FMLA leave entitlement qualifying medical events in SBA’s Employee Benefits Guide (scroll down to “Leave Benefits”).
5. Review your Management Style
It’s hard to acknowledge, but one of the more common reasons for employee dissatisfaction is management style. Could your style be encouraging employees to harbor grudges or lose morale? Step back and assess what you can do differently. Is your open door policy really that open? Do employees really feel valued? Plan on setting side more management time for your team, discuss their professional goals, and share your vision for the continued growth of your business and their role in it. For more inspiration read: Top Tips to Lead and Empower Employees.
6. Consider Introducing Incentive Plans
While they’re no guarantee you can control absenteeism, incentive plans and employee programs such as flex-time, wellness programs (by the way, the Affordable Care Act rewards employers who operate wellness programs), and project completion perks, are proven to increase morale and productivity. A survey by the business-to-business division of Staples, found that employees that participate in such programs have made them:
- Feel more valued (85%)
- Happier and more motivated (70%)
- More loyal to their employer (66%)
- More productive and results-driven (~60%)
7. Terminate Repeat Offenders
If you’ve exhausted all these intervention measures and aren’t seeing improvement, then termination may be your only option. Follow your HR policy to the letter on this one and refer to the law as it pertains to terminating employees, final pay checks, and more.
Absenteeism happens, but don’t ignore it. Find out why it’s happening, be empathetic to the needs of your team, and establish clear policies so that everyone understands what’s acceptable. Finally, be prepared to take the necessary action when required. It’s your bottom line that’s at stake after all.
How do you deal with employee absenteeism? Leave a comment below.
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Just Started a Business? Understand your Tax Obligations
If you’re new to business, then wrapping your arms around your tax obligations can seem like an uphill task. The first question you need to ask yourself is which tax laws impact your business from the get-go? It may be safe to assume that your tax obligations kick in once you start making a profit. Not necessarily. Each business is different.
If you hire employees, you’ll have payroll tax obligations. If you operate a retail business, there’s sales tax to deal with. Then there are quarterly estimated tax payments (the self-employed equivalent of withholding).
To help you navigate the business tax landscape, here’s a quick overview of key tax obligations that may impact you.
Understand how your Business Structure Impacts your Tax Obligations
How you legally structure your business will affect your tax situation. For example, if your business is an LLC, the LLC gets taxed separate from the owners. While sole proprietors report their personal and business income taxes on the same form (Form 1040).
At the state level, you will encounter several tax obligations – sales tax, property tax, income tax, unemployment insurance tax, and more. The SBA offers more information on how your business structure determines your tax obligations (plus links to the necessary forms and portals for registering your business with the right tax authority):
Get a Federal Tax ID
An Employer Identification Number (EIN) is the business equivalent of your social security number. It’s is required by businesses who have employees, operate as a corporation or partnership, and other obligations. For the most part sole proprietors don’t need and EIN and can operate using their social security number. Does your business need an EIN and how do you get it? Learn more.
Pay Estimated Taxes
This one is easily overlooked, especially if you are new to business and previously had all your income tax payments taken care of through withholding. Each quarter, self-employed business owners must estimate their federal and state income tax payment and send a check to the IRS and their state treasury. This “pay-as-you-go” model applies to sole proprietors, partners, and S Corporations who expect to pay $1,000 in income tax in one year. The threshold drops to $500 for Corporations.
To help you calculate your estimated tax, check out the IRS Estimated Tax guide. Consult your state’s treasury office (you’ll find website links for each U.S. state here) to get the appropriate tax voucher or pay online.
It’s very important that you set aside sufficient to meet your estimated tax payments or you risk a cash flow problem. And don’t forget to keep good records of your income and expenses. The latter can be used to offset how much estimated tax you pay.
Sales Taxes – Does It Apply to You?
Sales tax applies to certain retail products (rarely services) and if your business has a physical presence in a state, such as a store, office or warehouse, you must apply for a sales tax permit and collect applicable state and local sales tax from your customers. That tax is then passed on to your state revenue office on a monthly or quarterly basis. Determining whether your business qualifies as having physical presence in a particular state (say, if you own a warehouse in Virginia but sell your services in Pennsylvania) and the implications on sales tax collection can be confusing. Certain states are exempt from sales tax including Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon.
Employment Tax – Withholding and Matching
If you start your business and immediately have employees on payroll, you'll need to withhold Social Security (FICA), Medicare and federal and state income taxes from their salaries. You must also match your employees FICA and Medicare taxes and pay this matching along with your employee's tax.
The IRS Employment Taxes guide has all the information you need to understand how you deposit and report employment taxes, key due dates, and more. Take a look at this guide to hiring your first employee too.
Working with Freelancers and Independent Contractors? - Know your Tax Obligations
Bringing on a self-employed contractor brings with it additional tax ramifications, especially if your business accidentally or deliberately misclassifies that individual as an employee. Read more about why it’s important to know the difference and how it can impact your tax situation.
Bookmark Tax Reporting Season in Your Calendar
The new year brings with it several tax obligations for employers. While you’re busy thinking about getting your income tax return filed, don’t forget your wage reporting obligations (W2s must be filed) and 1099 forms must be filed and issued to independent contractors you’ve worked with during the tax year.
Your local government (town, city, or county) collects property tax for business assets such as vehicles, computer equipment, software, and more. Likewise, if you do business in a commercial real estate location, the state will collect property tax on it. Check with your local tax authority to find out what you need to do to register your property and the process for assessing and making payments.
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If Revenue isn’t the True Measure of Start-Up Success, What Is?
You’ve been in business for three months and have reached your first revenue goal – success! Unfortunately, revenue alone isn’t a true indicator of business success.
Why Revenue Isn’t King
Perhaps that early revenue was the result of a great sales team. And that’s fine. But if your product isn’t delivering the value it was promised to or truly solving a customer problem – how sustainable is that revenue? What about your potential market? If the business opportunity isn’t as you hoped, strong revenue now won’t help you down the line.
These are just a couple of examples, but already you can see that having more revenue than less, isn’t always a good success metric to shoot for, especially if you’re in start-up mode.
Profit Isn’t a Good KPI Either
Another problem with relying on revenue as an indicator of success is that revenue is only one half of the other equation – the other is profit. Yet, profit isn’t always an ideal indicator of success either. Consider this example. New start-up, XYZ Corporation has just broken even at the nine-month mark, and is finally making a profit. Yet XYZ is experiencing problems with late paying clients which is leading to a cash flow problem. As a result, XYZ is struggling to pay its bills on time and may even need to delay payroll. So, although the company’s P&L statement may indicate that the business is a success, the reality, as indicated by its cash flow statement, is quite different.
As you can see, revenues and profits aren’t always useful measures of success, so what is?
Measuring success begins with goals. Setting SMART goals (Specific, Measurable, Attainable, Relevant, Time-bound) early in your planning won’t just help steer your business towards success, it will help you understand when you’ve got there!
In the start-up phase one of your overarching goals and success metrics will be risk management. But that’s not specific enough, risk encompasses many things and can mean different things to different people.
One of the best ways to compensate for start-up risk is to take deliberate steps to ensure that your product or service is validated. This means knowing your market intimately, refining your product features, and fine-tuning your positioning.
As with any SMART goal, product validation must also be measurable and time-bound. For example, understanding when your product will break-even and you’re able to cover all your expenses and make a profit, is essential to managing risk.
Where do you start? Hopefully you’ve done a lot of market research already, and perhaps you’ve tweaked your product or service based on feedback, but how do you tie this all together to truly measure success? Immerse yourself in your market and quantify what you’ve learned. Then use this data to gauge whether your start-up has scale and is building a solid economic foundation on which to grow.
The following steps can help:
- Get to Know Your Market Extremely Well: Do your research. Know your target audience and understand their purchasing habits, influencers, etc. Who’s your competition? This is incredibly important in helping you position your product and talk to your customers in the right way. Here are some free sources of market data that may help.
- Understand your Costs: This is an essential metric that will help you understand the unit cost of doing business and how much money you’ll make per customer:
- Test your Product and Keep Refining It: Don’t lose sight of your product – keep refining it, testing new offerings, and making sure you always put product first, not the money it brings in.
The outcomes of this SMART goal isn’t revenue – but clear, empirical data that tells you that your business is making progress and on the right path. This data can come in many forms – website traffic data, social media engagement, acquisition and retention data, referrals, and other key indicators, including revenue, but just not revenue alone!
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6 Low Cost Ways to Test your Business Idea
So you’ve got a great idea for a new product or solution and you think it’ll be a sure-fire hit.
Not so fast. To find out if your idea has traction, you need to test it.
It’s an often-overlooked step that can help you refine your offering and ensure a successful go-to-market strategy. So before you put pen to paper and write your business plan, get out there and assess the validity of your product.
Here are six low cost tips on how to best test your business idea.
1. Find your Idea’s Fatal Flaw
SCORE offers some great tips on how to validate your idea. In this article, guest contributor, Daniel Kehrer, stresses the importance of banishing the idea that your product or solution is perfect. It isn’t. It may have one, two, or multiple flaws. Ask yourself:
“What am I missing? What possible pitfalls am I not seeing? How might my competitors respond? What…makes me think that my business or product idea will work when…others don’t?” Once its flaws have been identified, find a way to fix them.
2. Test Outside your Network
There’s a lot of advice out there about testing your idea on friends and family. Not always. Also writing for SCORE, Jeanne Rossomme, recommends that entrepreneurs refrain from soliciting input from their immediate network, including their team. Instead focus on those whose opinion matters – your target market.
One way to do this is to crowdsource your market research. Form a focus group. This can be done virtually or in-person. Simply advertise for volunteers (Craigslist is a good place to start). Then provide these people with free samples of your product to test. Alternatively, assemble your focus group in one place and have them try out your product, alongside the competition’s, and see what results you get.
If your idea is less tangible or you don’t have a prototype in place, walk the streets and find out what people want. What’s missing in their market? What is the competition not providing? If your solution was available to them, would they take advantage of it?
3. Tweak It, But Not Too Much
As you test your idea you’ll encounter lots of feedback. In many cases, it can be overwhelming. This is especially true if your trying to get investment or are pitching a concept or prototype to a new client (particularly one who promises to buy it in bulk). It can be tempting to edit your idea to the point where it becomes so customized to the needs of a single customer, that you rule yourself out of the rest of the market, or waste precious resources trying to check all boxes.
Instead focus on the must-haves that translate well across several markets or customer profiles. There’s plenty of time for customized flavors of your idea down the line once you make a profit and can start diversifying.
4. Perfect your Elevator Pitch
You see this all the time on TV show’s like Shark Tank. You need to pitch your idea in 30 seconds or less. What challenge does your product address, how? How is it different to the competition (what’s your differentiator?). And what is the outcome for the buying customer. People buy outcomes, not products. Your elevator pitch is something you will take with you for the lifetime of the idea – whether you’re pitching to investors, customers, manning a tradeshow booth, or briefing a marketing agency.
5. Create a Mini Version of your Idea
Creating a full-blown version of your idea can be expensive. Smart Passive Income’s Pat Flynn, has some great ideas for creating a mini-version of your idea to test the market. He uses the example of the food truck industry, which is often used as a platform to test an idea, concept, and menu before the owner commits to building a bricks and mortar restaurant. But the theory can be applied to other industries too. If you run a hair salon and want to start a massage therapy business at a new location, you could test demand by starting small by dedicating a small area of your current location to provide the new service on a part-time basis.
Likewise, if your product can be experienced without launching a full-fledged version, such as a piece of software, music, literature, and so on, test it as such.
6. Run Dummy Marketing Campaigns
This is an increasingly popular and effective way to gauge market demand. Promote your idea for a product or service as if it’s already available on the market.
One way to do this, suggests entrepreneur advisor Evelio Pereira of Epicster.com, is to create a landing page to promote your idea. This could be hosted on your website or on a new domain. Include sales information, product/solution features, etc. Be sure to include a “Buy Now” or “Learn More” button.
Obviously you have nothing to sell yet, so when the site visitor clicks through take them to a page featuring the message that the product isn’t available yet, but if they fill in the form they’ll be notified when it’s launched.
You can use various outlets to promote the page – run an email marketing campaign to your existing customers. Or, if you have the budget, invest in Facebook ads (targeted to your geo-location and demographic) or Google Adwords or Bing Ads. Your click through data will also provide valuable insight into whether your idea is in demand!
What low-cost tactics have you used to test your idea? Leave a message below.
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