Tag: small-business

Is Your Business Healthy? Let the Numbers Tell the Story

Over the past few weeks, we’ve discussed how to create and understand your financial statements. Now it’s time to turn our attention to reviewing and assessing those statements.

Regularly analyzing your financial data is essential to:

  • Determine if your business plans are working
  • Identify problems such as theft or fraud
  • Evaluate how your business compares to others in your industry
  • Spot trends that may positively or negatively affect your revenue

Are Your Plans Working?

Your cash flow worksheet was based on projected monthly sales over two years. You made critical business decisions—such as hiring staff, leasing space, and applying for financing—based on those projections.

If your actual revenue is falling short of projections, you may be burning through cash faster than expected. Identifying that early allows you to make adjustments, cut expenses, or secure additional funding.

On the flip side, if your revenue is exceeding expectations, you might be struggling to meet demand or maintain excellent customer service. In that case, you may need to hire more staff or set clearer expectations with customers regarding delivery times.

Identifying Problems

When I owned a restaurant, we were required to complete a weekly profit and loss statement and submit it to headquarters along with our royalty payment. Two numbers I always paid close attention to were payroll and cost of goods sold (COGS).

Our goal was to keep payroll under 22% of revenue and COGS under 35%. If either number was too high, it triggered an investigation. Here are some examples:

Payroll Red Flags

  • Overstaffing during slow periods: I reviewed scheduling during off-peak hours and made necessary adjustments.
  • Employees clocking in early or out late: I compared timecards to the schedule. One student used to come in early to do homework, but I didn’t realize he was on the clock!
  • Overtime pay: This often happened when a nearly full-time employee picked up extra shifts. We learned to ask part-time staff to cover instead.

Inventory Red Flags

  • Improper food preparation: Mistakes led to waste. We retrained employees or reminded them to follow special instructions more carefully.
  • Excess food on the buffet: Supervisors learned to reduce what was put out in the last 30 minutes of service.
  • Ordering errors: Overstocked perishables spoiled; running out meant buying from local stores at higher prices.
  • Theft: This included employees eating food without paying, giving away food, or failing to ring up sales and pocketing the cash.

Even if you’re not in the food service business, these examples illustrate how to track down the causes of higher-than-expected costs.

Comparing to Industry Standards

Analyzing your financial statements also helps you understand how your business stacks up against others in your industry. Industry benchmarks are available through association data, IBISWorld reports, and other sources.

For more on this, check out my blog: Comparing Your Financial Ratios to Industry Standards – Susan’s Reflections

Spotting Financial Trends That Spell Trouble

Declining sales volume is a major red flag. A brief dip might be seasonal or due to temporary competition. But if the trend continues, take a closer look:

  • Customer service issues: Even one rude or careless employee can cost you business. Many customers won’t complain—they’ll just leave.
  • Product quality issues: Poor-quality goods can lead to returns and dissatisfied customers.
  • Missed deadlines: Late deliveries frustrate clients. Evaluate every step in your supply chain to find and fix delays.

Rising accounts receivable can signal that your customers are struggling to pay. This slows your collections, reduces cash flow, and makes it harder to pay your own suppliers. If your receivables are growing:

  • Identify which customers are paying late and ask why.
  • Consider adjusting their credit limits or payment terms.
  • Project your cash flow for the next few months.
  • Talk to your banker about a line of credit, and ask suppliers for more favorable terms if needed.

Declining profit margins are another warning sign. Investigate the root cause. It could be:

  • Rising supply costs: Due to inflation, fuel prices, or shortages. Consider discontinuing low-margin items or sourcing more affordable alternatives.
  • Increased wages: If labor costs have risen, look for ways to improve productivity or automate processes.
  • Higher operating expenses: These might include utilities, insurance, or telecom services. Shop around for better rates, reduce waste (like leaking pipes or lights left on), and review whether you’re paying for services you don’t need.

Final Thoughts

Every business is different, but all must control costs and protect profit margins. Assessing your financial ratios regularly helps you identify problems early—before they impact your bottom line. Use the examples above as a guide to evaluate your own financials, make informed decisions, and position your business for long-term success.

If you’d like help reviewing your financial statements or identifying potential issues, don’t hesitate to reach out. I’m here to support you! You can email me at susan.ball5@aol.com.

Know Your Financial Statements—Accounts Payable

Most small businesses have a number of unpaid bills at any given time. Inventory has been delivered, but the invoice isn’t due yet. Utility bills arrive two to three weeks before the due date. Retail sales tax has been collected but not remitted to the tax department. Payroll withholding taxes are being held in escrow until it’s time to file quarterly reports. These unpaid bills are known as accounts payable.

It’s crucial to keep track of your accounts payable so you know how much is owed, to whom, and when the bills are due. Managing your accounts payable effectively offers several benefits. A statement of accounts payable will help you achieve this.

Benefits of a Statement of Accounts Payable

  1. Effective Cash Flow Management
    Accounts payable should be included in your cash flow statement for the month they are due. This ensures that you’ll have enough cash on hand to cover those bills. It also helps highlight months where a shortage might occur, allowing you to arrange a line of credit to meet forecasted shortfalls.
  2. Avoidance of Late Fees and Interest
    Tax authorities impose penalties for late filing of quarterly tax payments and monthly sales tax reports. Banks, utility companies, and suppliers may also charge late fees or interest for bills that aren’t paid on time.
  3. Take Advantage of Discounts
    Many suppliers offer discounts for early payment. A statement of accounts payable lets you easily spot vendors offering discounts, so you can ensure bills are paid on time to take advantage of these savings.
  4. Maintain Good Credit and Vendor Relationships
    Timely payments are key to maintaining a strong credit score and healthy relationships with lenders and suppliers.
  5. Preparation for Loan Requests
    If you need to borrow money or establish a line of credit, lenders will often request a statement of accounts payable. This statement helps them evaluate your level of debt in relation to industry norms and your ability to cover outstanding debts if your revenue declines.

Creating a Statement of Accounts Payable

A statement of accounts payable is essentially a table that includes:

  • Name of creditor
  • Account number or invoice number
  • Invoice date
  • Due date
  • Amount owed
CreditorAcct/Invoice NumberInvoice DateDue DateAmount
Bill 1    
Bill 2    
Bill 3    
Bill 4    

Tips for Managing Accounts Payable

Managing accounts payable effectively is crucial for maintaining healthy cash flow and good vendor relationships. Here are some best practices to consider:

  • Separate Regular and Occasional Bills
    Keep distinct charts for bills that occur regularly and those that are occasional. This makes it easier to track and manage.
  • Record Monthly Bills on Your Cash Flow Statement
    Include occasional bills in the months they are due, not just the regular ones. This will help you get a clear picture of your upcoming cash flow needs.
  • Set Up Automatic Payments for Fixed Monthly Bills
    Set up automatic payments for bills like rent, loan payments, cell phone bills, and subscriptions that are predictable and have a fixed amount.
  • Estimate and Adjust for Variable Bills
    For bills that vary, like utilities or discretionary expenses (marketing, for example), use an estimated amount in your cash flow statement and adjust for seasonal variations.
  • Automate Bill Payments When Possible
    If possible, have bills go directly to your bank. This simplifies the payment process, especially if you’re using a bill-paying app.
  • Track Infrequent Bills
    For less frequent bills, like insurance payments, set up automatic payments to ensure you don’t overlook them.
  • Balance Your Checkbook Regularly
    Schedule weekly or bi-monthly checkups to balance your checkbook and confirm that all bills have been paid or are scheduled for timely payment.
  • Forecast Cash Flow in Advance
    Predict your monthly cash balances several months in advance to determine if sufficient funds will be available during slower months. If you forecast a shortage, take steps to ensure enough cash is available, like establishing a line of credit or injecting more capital into the business.

Conclusion

A statement of accounts payable is a simple but powerful tool for tracking your bills and maintaining healthy cash flow. By following the tips above, you’ll be able to manage your accounts payable effectively, avoid late fees, and maintain good credit and vendor relationships.

If you have any questions about managing your accounts payable or tips for creating your own statement, feel free to drop them in the comments below. I’d love to help you better understand this important aspect of your business finances!

Know Your Financial Statements—Accounts Receivable

If your business extends credit to customers, understanding and managing accounts receivable is essential. Accounts Receivable (AR) refers to the money customers owe for services rendered or goods delivered, and it’s a critical part of your cash flow. Many businesses—like professional services, utility companies, and wholesalers—work with accounts receivable.

What Are Accounts Receivable?

When you extend credit, you’re essentially allowing your customers to pay later, often within a specified number of days. For example, if you deliver goods or services to a customer, you may allow them 30 days to pay the bill. In this case, you would have an account receivable until that payment is made.

To effectively track AR, businesses use an aging schedule, which categorizes accounts based on how long the payment is overdue. At the end of this blog, I’ve provided a helpful Accounts Receivable Aging Schedule Template. This template outlines what to include in your report, but if you prefer to create your own, it offers a great starting point to ensure you’re tracking the necessary information. Typical categories are:

  • Current (not yet due)
  • 1-30 days past due
  • 31-60 days past due
  • 61-90 days past due
  • Over 90 days past due

Why Does This Matter?

An Accounts Receivable Aging Report plays a significant role when you apply for a business loan. Lenders will review this report to assess how much of your business’s sales are made on credit, how it compares to industry norms, and whether there’s a risk of non-collection. Specifically, lenders are concerned about the percentage of receivables that are more than 60 days overdue. If the report shows high delinquency, it could signal poor cash flow management, which might lead to a loan denial.

Why Managing Accounts Receivable is Crucial

Effective AR management is key to your business’s cash flow health. Here are a few strategies to keep in mind:

  • Measure the Effectiveness of Discounts
    Many businesses offer early payment discounts, like “2/10 Net 30,” meaning a customer gets a 2% discount if they pay within 10 days, but the full amount is due in 30 days. If a lot of customers are taking advantage of the discount, cash comes in quicker—but your profit margin takes a hit. Understanding how well your discount terms are working can help balance cash flow with profitability.
  • Monitor Customer Behavior
    Let’s say you’ve had a loyal customer who consistently pays early for the discount, but now they’re paying late or just on time. This could be a sign that they’re experiencing cash flow problems. If so, it’s worth reaching out to see how you can help. Perhaps they need smaller orders, or you can work out a payment plan to keep the relationship strong and reduce your risk of uncollected debt.
  • Improve Cash Flow Management
    By closely tracking overdue invoices, you can promptly follow up with reminders. If certain customers consistently pay late, it might be necessary to put a hold on further orders until they clear their outstanding balance. Proactively managing receivables ensures that cash keeps flowing into your business and reduces the risk of uncollected debt.
  • Assess and Adjust Credit Terms
    If few customers are taking advantage of your early payment discount, it could be time to reassess your credit policy. Maybe your discount isn’t big enough to incentivize early payment. Or perhaps customers need more time to pay based on how quickly they can sell your product. Adjusting your credit terms might help accelerate cash flow without compromising customer relationships.

The Risk and Reward of Extending Credit

Offering credit is an excellent way to attract new customers and keep current ones loyal. A discount for early payment can boost cash flow and reduce the risk of bad debt. But, as with all things in business, extending credit comes with its risks—delayed payments can affect cash flow, and offering discounts reduces profit margins. It’s important to stay informed about industry standards, track your AR regularly, and adjust your policies as needed. Most accounting software has monitoring features that can make this process easier.

Here’s a template for an Accounts Receivable Aging Schedule:

Final Thoughts

Tracking accounts receivable is more than just a financial task—it’s a critical element in your business’s cash flow management. By understanding how to monitor, manage, and adjust credit policies, you can strengthen your business’s financial health and make sure cash continues to flow in the right direction.

How Small Businesses Can Thrive in 2025: Focus on Profits, Not Just Growth

As a small business owner, you’ve probably heard that the key to success is always growing your sales. You may focus on acquiring new customers, retaining current ones, and increasing customer spending. While these strategies can drive growth, they often come with higher costs—more marketing, more inventory, and more staff to support a larger customer base.

However, after years of rising costs and increased minimum wages, many small businesses have seen their profits shrink rather than grow. If this sounds familiar, then 2025 might be the year you shift your focus from growth to profitability.

Now is the perfect time to review your finances and make changes that can boost your bottom line without having to push for more sales. Here are some actionable strategies to help you increase profits and run a more efficient, sustainable business.

1. Reevaluate Your Prices

In the wake of inflation, many small businesses have hesitated to raise prices, fearing they might lose customers. But with inflation slowing and consumer confidence growing, it might be time to revisit your pricing strategy. Consider whether your prices are truly covering your costs and generating the profit you need.

Don’t be afraid to adjust prices where necessary to reflect rising operational costs. Just be sure to communicate any changes clearly to customers and justify them with the value you provide.

2. Cut Unnecessary Expenses

It’s easy for costs to accumulate over time, especially with subscriptions, memberships, and services that no longer serve you. Take a hard look at your expenses and identify areas to cut back.

  • Subscriptions & Memberships: Do you still use all the tools and services you’re paying for? If not, cancel or downgrade them.
  • Automation & Outsourcing: Could you automate repetitive tasks or outsource certain functions? This could reduce labor costs while increasing efficiency.
  • Supplier Negotiations: Talk to your suppliers about negotiating better rates, especially if you’ve been a loyal customer. Every little saving adds up.

3. Deliver Exceptional Customer Service

It’s cheaper to retain a customer than to acquire a new one, so it’s essential to focus on the customers you already have. Excellent customer service builds loyalty, encourages repeat business, and leads to referrals.

Be proactive in ensuring that your current customers have an outstanding experience every time they interact with your business. From personalized service to prompt responses, make sure they know you value their support.

4. Focus on Your Best Customers (80/20 Rule)

The 80/20 rule is a powerful principle for many aspects of business—and that includes your customers. It’s likely that 80% of your profits come from just 20% of your customers. By identifying and nurturing these top customers, you can maximize your profits without spending extra time or money.

Use CRM tools or loyalty programs to track customer spending and reward your best clients with exclusive offers, early access to new products, or VIP treatment.

5. Optimize Payment Methods to Save on Fees

Review the payment options you accept. For instance, payment processors often charge hefty fees for credit card transactions. Could you save money by offering lower-cost alternatives like direct debits, Venmo, Zelle, or other digital wallets? If you’re using a traditional POS system, it might be worth investigating newer platforms with lower processing fees.

6. Rethink Your Marketing Strategy

Marketing is a necessary expense, but that doesn’t mean it has to drain your budget. Take a closer look at where your marketing dollars are going:

  • Social Media: Could you achieve similar results using free or low-cost social media platforms rather than expensive ads?
  • Negotiation: If you’re using traditional advertising (like print or TV), see if you can negotiate lower rates or more favorable terms.
  • Marketing Tools: Are you paying for marketing tools that aren’t delivering a good return on investment? It might be time to test new, more cost-effective options.

7. Optimize Inventory Management

Managing inventory efficiently is crucial for profitability, especially for small businesses. Overstocking means tying up cash in products that might not sell, while understocking leads to missed sales opportunities.

Consider:

  • Just-in-Time Inventory: Order only what you need, and aim for timely deliveries to avoid waste, spoilage, or excessive storage costs.
  • AI & Apps: Use AI-driven tools or inventory management software to track and predict demand so you don’t overbuy or underbuy.
  • Clearance or Donations: If inventory isn’t moving, consider offering discounts or donating items to free up space and improve cash flow.

8. Manage Payroll Efficiently

Staffing is one of the largest expenses for many small businesses. Review your past sales data to anticipate the staffing levels you need for peak and off-peak times.

Cross-training employees can help them stay productive during slow hours, and ensuring you’re not overstaffed can help save on payroll costs. Empower your employees to take on multiple roles to improve efficiency and reduce the need for extra hires.

Start Focusing on Profitability Today!

By taking these steps, you can position your business for a more profitable year ahead, even if your sales growth slows. Profitability is not just about increasing revenue—it’s about managing expenses, optimizing processes, and building stronger relationships with your existing customers.

Ready to start boosting your profits in 2025? Take a look at your current strategies, make the necessary changes, and watch your business become more profitable than ever.

Small Business Saturday: How Supporting Local Shops Makes a Big Difference

As we celebrate Thanksgiving, let’s take a moment to appreciate the heart of our communities—small businesses. On Small Business Saturday, and throughout the holiday season, it’s important to recognize the significant role small businesses play in shaping our local economies and supporting community growth.

Small Businesses: The Backbone of the Economy

With over 34.8 million small businesses in the U.S. employing nearly 59 million people, small businesses make up 99.9% of all businesses and account for almost 46% of all jobs. While many small businesses are owned and operated by just one or two people, their economic impact cannot be overstated. Some of today’s small businesses will grow into large employers in the future, further strengthening the economy.

How Small Businesses Strengthen Local Communities

Small businesses are not just job creators; they are vital to the social and economic fabric of their communities. Here’s how:

  • Money stays in the local economy: When you spend money at a small business, it stays within your community. The business owner and employees spend that money locally, creating a ripple effect of local job creation and economic activity.
  • Ability to meet the unique needs of their community: Small business owners have the flexibility to pivot quickly and meet the specific needs of their customers. Without the need for top-down approval, they can respond swiftly to new opportunities, ensuring their businesses are relevant and adaptable.
  • Creates a community identity: Many small businesses have been a cornerstone of their communities for decades. For example, one of the best-known small businesses in our area is about to celebrate its 100th anniversary! These businesses become synonymous with local identity, embodying the history and culture of the area.
  • Involvement in local civic life: Small business owners often participate in community organizations like the Chamber of Commerce, Rotary clubs, and local initiatives. This active involvement helps address local challenges while creating a sense of shared purpose in the community.
  • Innovation and supporting other small businesses: A local restaurant might source ingredients from nearby farms, or a boutique could sell locally made products. Small businesses frequently collaborate with each other, creating unique shopping experiences and boosting one another’s success.

Show Your Appreciation on Small Business Saturday

As we reflect on the many blessings we have this Thanksgiving, I encourage you to show your gratitude by supporting small businesses this holiday season, especially on Small Business Saturday. Visit local shops, dine at locally owned restaurants, and think about allocating some of your Christmas shopping budget to support your favorite small businesses. When you shop local, you’re investing directly in the future of your community.

If you’ve heard about any small business owners giving back to the community or supporting charitable causes, take a moment to recognize their contributions. A simple “thank you” can go a long way.

A Special Note to Small Business Owners

If you’re a small business owner, remember to be grateful for your customers—they don’t have to shop with you, they choose to. Showing appreciation can take many forms, from offering special perks like gift wrapping or loyalty programs, to simply offering a friendly smile or a kind word. It’s a great time to strengthen the relationship with your customers and show them you value their support.

The Power of Kind Words

In this busy season, both customers and business owners can benefit from a kind word of thanks. After all, as the old saying goes: “Kind words are like honey—sweet to the soul and healthy for the body.” (Proverbs 16:24)

Happy Thanksgiving and Happy Small Business Saturday!

May you experience joy and blessings this season, and may your small business continue to thrive in the coming year!

Checklist for Starting Your Business

Starting a small business can be both exciting and overwhelming. To help guide you through the process, I’ve created a comprehensive checklist covering key steps you need to take before launching your venture.

Before you start your business:

  1. Define Your Business Concept.
    a. What products or services will you offer?
    b. What business name will you use?
  2. Evaluate Your Business Potential.
    a. Estimate monthly revenues
    b. Estimate monthly expenses
    c. Determine if your business can operate profitably based on revenues and expenses.
  3. Develop Your Business Plan. This may involve writing a formal business plan, or it may involve creating informal lists. Your plan should include:
    a. Mission, Vision, and Values
    b. Target Customers
    c. Marketing Ideas
    d. Operational Plan
    e. Job Descriptions
    f. Pricing Structure
    g. Customer Policies
    h. Competition Analysis
  4. Choose Your Business Location
    a. Will your business be home-based or in a commercial space?
    i. If commercial, how much space do you need?
    ii. Will you lease space or purchase a space?
    iii. Identify the desired space and sign an intent-to-lease agreement. Please make sure you secure ALL necessary financing before signing the lease agreement.
  5. Estimate your start-up costs.
    a. Consider the following expenses:
    i. Equipment, furnishings, and fixtures
    ii. Lease space build-out
    iii. Lease and utility deposits
    iv. Inventory
    v. Insurance deposit
    vi. Website and marketing
    vii. Legal and professional fees
  6. Determine your financing needs,
    a. Total start-up costs minus your personal investment in the business. Then, you should plan to inject 20% or more of that amount into the business.
    b. Arrange for your financing needs from investors or lenders.
    i. Investors will typically receive some ownership in the business.
    ii. Start-up loans require monthly debt repayment, typically for 3 – 7 years, at a rate of interest a few points higher than the prime interest rate.
    Licensing and Registration Requirements:
  7. Register your business with your state’s corporation commission.
    a. Registering your business gives you exclusive rights to use your business name in the state.
    b. Business registration is required for the state in which you will operate.
    c. Some business owners register their business in state’s with no state income tax. However, this is generally not a wise idea, as you will still have to register in the state where you operate the business.
    d. Remember that you must pay income tax in the state where the income is earned.
  8. Obtain a tax iID number for your business through the IRS portal.
  9. File an initial beneficial ownership information report with the U.S. Treasury’s Financial Crimes Enforcement Network at fincen.gov/boi
  10. Write an operating agreement for your business. This establishes ownership.
  11. Open a business bank account. It is essential to keep business income separate from personal income.
  12. Complete local requirements for your community, including obtaining a business license and zoning permit.
  13. If you will sell retail products, you must register with your state’s Department of Taxation to collect and remit retail sales taxes.
    a. Creating a sales tax account obligates the owner to file regular sales tax reports.
    b. A sales tax account will allow the owner to purchase items for resale tax-free and, likely, at wholesale prices.
    c. If you sell exclusively online through a Marketplace Facilitator, such as Etsy or Amazon, they will collect and remit the sales tax for you. You may still need to create an account in order to make wholesale purchases.

Conclusion

Starting a small business is a significant but rewarding journey, and having a clear, organized plan is essential for success. Use this checklist as a practical tool to guide you through each crucial step of the process, from defining your business concept to meeting licensing requirements. By following this checklist, you can ensure that you cover all your bases and set yourself up for a successful launch.

Please print out this checklist and keep it handy as you embark on your business journey. It will be a valuable reference to help you stay on track and manage your tasks effectively.

Get in Touch!

Do you have questions or need further clarification on any of the steps? I’d love to hear from you! Feel free to leave your questions or comments below. Whether you’re looking for more detailed advice or just need some encouragement, I’m here to support you in your small business venture. Don’t hesitate to reach out—your path to success is just a conversation away!

Small Business Success: Build Your BAIL Team

In the world of small business ownership, assembling the right team is crucial for success. Whether you’re launching a startup or expanding an existing venture, a core support team is indispensable. Enter your BAIL team – Banker, Accountant, Insurance Agent, and Lawyer.

These professionals form the cornerstone of your business’s foundation, offering essential guidance, resources, and connections to steer you toward success. Forming a relationship with a professional from each category before you start your business can also help you avoid costly mistakes.

Banker: Establishing a business checking account is pivotal from the outset, safeguarding your personal assets from business liabilities. Cultivating a rapport with a banker early on is key, positioning you favorably for future financial needs and potential loans. Their insights can prove invaluable in assessing financial health and preempting any looming threats.

Accountant: While some small business owners possess financial literacy, most benefit from the expertise of a dedicated accountant. From navigating tax complexities to optimizing financial structures, their role is pivotal in ensuring fiscal compliance and maximizing savings. Moreover, they can offer strategic advice on transitioning business entities for enhanced benefits. Remember, skimping on professional financial advice can lead to costly errors down the line.

Insurance Agent: Shielding your small business from unforeseen risks is imperative, and an adept insurance agent is your ally in this endeavor. Whether it’s safeguarding physical assets against disasters or mitigating liabilities arising from accidents, their counsel is indispensable in crafting comprehensive coverage plans tailored to your needs.

Lawyer: Legal intricacies are an inevitable part of small business ownership, underscoring the need for proficient legal guidance. Before embarking on your entrepreneurial journey, engaging an attorney to vet contractual agreements is prudent. Their expertise becomes instrumental in navigating complex contracts and resolving disputes as your business evolves. Remember, legal missteps can prove far costlier than retaining a skilled attorney from the outset.

In addition to your BAIL team, assembling a group of business professionals tailored to your specific needs is essential. From web designers to marketing experts, their collective expertise bolsters your small business’s online presence and outreach efforts. Moreover, outsourcing tasks like payroll management and administrative services can streamline operations and enhance efficiency.

Most business owners can benefit from creating a networking team.  This team will consist of non-competitive businesses serving a similar clientele to yours.  Those on your team will be business owners whose work you trust so that you are comfortable referring them to your customers; hopefully, they will return the favor and recommend you to their customers. Here are some examples of teams that might be useful for different types of businesses.

  1. If you are a wedding and events planner, you will want to form relationships with event venues, limo drivers, caterers, florists, bands, DJs, and photographers.
  2. General Contractors need the services of skilled laborers (HVAC, plumbers, electricians, painters, roofers, etc), real estate agents, home stagers, lawyers, and interior decorators.
  3. If you own a handyman service, you will want to form a referral network with carpet cleaners, power washers, landscapers, painters, and residential cleaning companies.
  4. Retail store owners want to form relationships with other store owners in their proximity. These partnerships can attract customers to your shopping area.  A florist might partner with a chocolate store and a tea shop to offer gift baskets for Mother’s Day; a restaurant might partner with a massage therapist and a carriage tour to create “date night” packages.

Irrespective of your small business niche, leveraging the expertise and networks of fellow small business owners is instrumental in fostering growth and long-term success. By cultivating strong relationships with your BAIL team and strategic collaborators, you’re prepared to navigate the world of small business ownership with confidence and resilience. Don’t forget to save this blog and create your own checklist using these four cornerstone professionals – they’re non-negotiable for your small business’s success.

Sole Proprietorship or Partnership? Navigating Schedule C vs. Form 1065 for Your Startup

The choice of legal structure is a pivotal decision when establishing a new business.  Many business owners opt for a limited liability company or a corporation.  This decision is primarily driven by two factors: (1) the legal structure that offers the most favorable income tax rates and (2) the potential involvement of investors who may seek an equity stake in the business.  These considerations are best discussed with an accountant or lawyer.

Most of our clients establish their businesses as limited liability companies (LLCs) due to the ease of filing the required paperwork.  If there is more than one owner, the LLC will be a partnership in the eyes of the IRS.  If there is only one owner, the IRS views the business as a sole proprietorship, and the owner can file a Schedule C for the business.

Often, clients want to include their spouse or significant other as an owner of their business. This makes sense if the other person is materially involved in the business. In many cases, however, it is a matter of loyalty to their spouse. They share all aspects of their lives and file a joint tax return, so it makes sense that they want their spouse to have ownership of the business.

As a business advisor, my role is to assist business owners in making well-informed decisions about their business, including ownership.  We often delve into the advantages and disadvantages of joint ownership with a spouse who may not be actively involved in the business operations.  This decision is typically influenced by the tax implications of the required tax return.

Schedule C is the appropriate tax return if the LLC has only one owner. It is a simple, two-page form that can be completed in a short period of time.  The business income is determined and is transferred to the 1040.   On the other hand, a partnership LLC must file IRS Form 1065 to document the revenues, expenses, and profits generated by the business.  In most states, ownership of an LLC by both members of a married couple is viewed as a partnership and requires filing the partnership tax return. Form 1065 spans 6 pages and requires details about potential foreign ownership, partners’ distributive share of income, a balance sheet, and more.  After completing Form 1065 and determining the business’s profits, the profits need to be divided between the partners, who are spouses in this case. Each partner must fill out a Schedule K-1 to record their portion of the profits. If the couple is filing a joint return, the profits are combined and entered on their Form 1040.

A quick check of prices charged by accountants to complete these tax forms yielded these average charges:

Schedule C  $192, at an average fee of $150 per hour

Form 1065   $733, at an average fee of $177 per hour Once I demonstrate the additional work and expense involved in making the uninvolved spouse an owner of the business, it becomes easy to decide to have a single owner.

For answers to other questions about starting a small business, please check back regularly for new blog posts and see by recent past blog posts. Also, please consider getting free business assistance from your local Small Business Development Center.

How an SBDC Consultant Can Help You

When my husband and I decided to purchase a pizza franchise, we had little knowledge about the Small Business Development Center (SBDC) program and its free assistance. When I later became an SBDC consultant, I realized how much we could have benefited from meeting with an SBDC advisor during the planning stage of our small business venture.

If you are contemplating launching a small business, consider seeking free and confidential consulting services from your local Small Business Development Center (SBDC). They can provide invaluable assistance and support tailored to your specific needs.

Business Ownership Considerations

An SBDC consultant can assist you in understanding the demands, risks, and rewards of owning your own business. It is crucial to consider how running your business will impact your family and lifestyle. For example, restaurant owners should be prepared to be present during the busiest periods, which typically occur in the evenings and on weekends. Similarly, accountants should expect to work long hours from January to mid-April. In addition to being directly involved in their businesses, business owners must also oversee employees, manage finances, handle inventory, create work schedules, promote their business, and handle numerous other responsibilities. The hours can be long and may infringe on personal and family time.

Realistic Business Loan Preparation

Just like many of our clients, Steve and I were unaware of the differences between a business loan and a personal loan. We prepared for it similarly to a personal loan but added a business plan. We should have realized that lenders needed more assurances beyond a good credit score and the ability to repay the loan. We had to convince the lender that (1) there was a demand for our products and services, (2) we knew our target clients and how to reach them, and (3) we could generate enough sales to comfortably make the loan payments. The SBDC consultant would have coached us on those 3 points and assisted us in creating 24 months of cash flow projections and validating our revenue projections.

Bank Selection

We chose a bank to apply for a loan because it was the bank used by our franchise corporation, one of the country’s largest national banks. However, we didn’t understand that each region operated independently. The bankers we spoke with knew nothing about our franchise and didn’t seem interested in a loan for a “small” business like ours. The whole process was frustrating, and in the end, the denial letter wasn’t even for our business. We should have applied to a local or regional bank. Even then, it would have been difficult to find a bank willing to lend to a start-up restaurant on our own. Today, after being a consultant for 17 years, I know how to direct clients to the banks most likely to assist them.

Research

Business planning includes defining your target customer and researching whether your local demographics include your target customer group. It also involves research into the industry you will enter. Is the industry growing? What are the trends? What are the primary products and services in your industry? You also need to know who your competitors are. Your local SBDC can provide industry reports and request local research from the national research center.

Business Plan Development and Cash Flow Forecast

Your SBDC consultant can assist you in developing your business plan, reviewing your draft, and providing feedback. Your plan will encompass an introduction to your company and ownership, a description of your products and services, an analysis of your competitors’ strengths and weaknesses, and details on how you will market your company to attract your target customers. Additionally, an SBDC consultant can help you prepare your 24-month cash flow forecast. The research they provide can aid you in writing your business plan and in estimating projected revenues.

When you decide to embark on the journey of starting your own business, it’s important to remember that you don’t have to navigate this path by yourself. Make sure to tap into the valuable resources your local small business development center provides to get the support and guidance you need.

‘What I Wish I Had Known Before Opening My Small Business”: Lessons from 17 Years as a Small Business Consultant & Former Business Owner.


Owning a small business is a challenging task, yet it is the dream of millions of people. As someone who works with over a hundred potential small business owners each year, I can attest to their passion for entrepreneurship.

They all have different motivations for pursuing business ownership. Some of them possess the necessary qualities to be successful business owners, while others lack realistic expectations of what owning a business entails and how to prepare themselves to start and operate one.

Twenty-five years ago, my husband and I were in the same position as many of my clients when we decided to invest in a pizza franchise. Fortunately, we had close friends who were already part of the same franchise, and they mentored and guided us. They were honest and open with us, but there were still many lessons we had to learn on our own. These are some lessons we wish we had known before starting our business.

  1. Help is available. I was previously aware of SBA and SBA-guaranteed loans, but I did not know the support provided by Small Business Development Centers (SBDC). If we had approached an SBDC for help, we would have been better equipped, avoided some complications, and saved money.
  2. Obtaining a business loan is vastly different from obtaining a personal loan. Despite our excellent credit scores and references, my husband and I were surprised to be rejected for a business loan. We had sufficient funds to invest in our business, and obtaining personal loans for various purposes, like buying a house or car or making home improvements, had been easy. I never imagined we would be turned down for a business loan, but we were. 
  3. When applying for a business loan, it is essential to choose the right bank. As a small business owner, there might be better options than a large national bank for you. Instead, local or regional banks are better suited for small businesses. A local banker is more likely to invest in your community and work with you if things do not go as planned.
  4. Getting established in a business takes longer than most people plan. You need adequate financial resources to support yourself during the startup and growth phases. You should have enough savings to cover your personal expenses for several months. This will allow you to reinvest your business revenue back into the business and promote its growth.
  5. Managing employees can be challenging, especially if you struggle with assertiveness or find it difficult to correct them when they make mistakes. However, your employees play a vital role in your business’s success. Excellent employees can help you grow your business, while poor employees can harm your business’s reputation. Therefore, it is crucial to assess employee performance accurately and take corrective action when necessary.

For the past 17 years, I have been working as a business consultant, helping clients achieve their business goals. Over the years, I have gathered a wealth of knowledge and expertise, not just from my own experiences as a business owner but also from the valuable insights I have gained from individuals who want to start their own businesses. 

In the upcoming months, I plan to share some of these insights in my blog, which will give you a unique perspective on the challenges and opportunities involved in starting and running a small business. So, if you want to turn your dream of starting a business into a reality, I highly recommend checking out my blog for valuable tips and tricks to help you succeed.