Tag Archives: financials

Start-up Costs of Going into Business

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Start-Up Costs of Going into Business

When starting a business, you need to plan for your initial costs and understand their taxation.

The following list includes typical amortizable start-up costs involved in starting a business.

  • Pre-Opening Salaries and Wages – including instructors/trainees
  • Prepaid Insurance Premiums – learn more at SCORE Business Brief 09.00
  • Inventory
  • Legal and Accounting Fees
  • Rent Deposits
  • Utility Deposits
  • Supplies
  • Advertising and Promotions – brochures, business cards, flyers, newspaper ads, etc.
  • Licenses – permits – inspections – learn more at SCORE Business Brief 10.03
  • Market Surveys – to identify number and location of potential customers or distributors
  • Site Surveys – to locate a place of business
  • Supplier/Labor Market Analysis – to assess cost and supply of local suppliers/workers
  • Travel & Living Expenses: to secure suppliers, distributors or customers.

Note: Start-up costs do not include product/service research and development, interest on loans, or taxes

To be amortizable, a start-up cost must be a cost that would be deductible if it were paid to operate an existing business (in the same field as the one you entered into), and it must be paid or incurred before the day your active trade or business begins

Start-up costs of up to $5,000 are deductible as “other expense” in the first year of operation, while the balance of those costs are deductible over the next 15 years. If the first year’s costs exceed $50,000, that year’s deduction is reduced.

Organization costs up to $5,000, such as the legal fees and state registration fees required to set- up an LLC, partnership, or corporation, are deductible in the same manner as start-up costs.

Capital expenditures for vehicles, leasehold improvements, equipment, and buildings must be depreciated for tax purposes over their useful life (see IRS Pub. #946). However, under Section 179, certain expenditures (up to $500,000 in 2015) may be written off in the year incurred (Pub. #946, Page 19). There are several exceptions and limitations to this general rule, so you should discuss this option with your accountant.

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Financial Questions & Answers for Every Small Business

Financial Questions & Answers for Every Small Business

 

Finance issues that every business must be aware of. This is our third finance roundup of briefs. We are going to begin with Credit Score.

CREDIT SCORE

As the owner of your business your personal credit score is not something that can be ignored.

Before discussing the credit score , let’s differentiate it from the credit report. The report estimates the credit worthiness of an individual, corporation, or even a country. It is not one number, as is the credit score. It is an evaluation made by credit bureaus of a borrower’s overall credit history. A credit report is also known as an evaluation of a potential borrower’s ability to repay debt, prepared by a credit bureau at the request of the lender. Credit ratings are calculated from financial history and current assets and liabilities.

Continue reading this brief to learn how a credit rating is determined and even what factors can lower your credit score. Brief #04.39

INVENTORY ACCOUNTING and CONTROL

Businesses that buy merchandise for resale or who use material to produce a product must account for that material before it is delivered to the customer. All of this physical material, including supplies that are part of the final product, is classified as:

  • Merchandise – goods acquired by wholesalers or retailers for resale including goods held for sale in display rooms or out on consignment
  • Raw Material – items that will be a component of a produced good
  • Work-In-Process – the accumulated costs of partially completed units
  • Finished Goods – completed units, available for sale to customers

The small business entrepreneur needs a basic understanding of inventory accounting and this brief will give you a basic understanding. Brief #04.51

LEASING versus BUYING EQUIPMENT

Should you lease equipment for your factory, warehouse, store or office, or should you buy it – – assuming Your capital is limited and you must borrow or lease to finance the purchase?

This brief will share the pros and cons of leasing as well as the types of lease. Brief #04.53

Leasing versus Buying Business Location

Should you lease business property for your factory, warehouse, store or office, or should you buy it? The assistance of a financial advisor is strongly recommended, as the decision is important and fairly complex .

Although costs for the space from which you want to operate your business are significant, the buy or lease decision is more than a financial decision. Three factors should be evaluated: Market, Financial, and Other Considerations. This brief will help will the evaluation. Brief #04.54

Advanced Competitive Analysis (SWOT Analysis)

SWOT Analysis is a useful technique for understanding your Strengths and Weaknesses, and for looking at the Opportunities and Threats you face. Strengths and weaknesses are often internal to your organization. Opportunities and threats often relate to external factors. For this reason the SWOT Analysis is sometimes called Internal-External Analysis and the SWOT Matrix is sometimes called an IE Matrix Analysis Tool.

What makes SWOT particularly useful is that, with a little thought, it can help you uncover opportunities that you are well placed to exploit. And by understanding the weaknesses of your business, you can manage and eliminate threats that would otherwise catch you unawares.

This brief provides the explanation and questions you should ask yourself for an effective SWAT analysis. Brief #04.59

Retail and Restaurant Site Selection

The real estate saying “Location. Location, Location” is very true when selecting a location for your business.

If you want to find a “home run” location for your retail or restaurant business the very first thing you need to do is be prepared to do lots of research and fieldwork. In other words, expect to do homework.

While site selection is part art and part science, it is important to understand that art plays only a minor role in the decision-making process. As a result, be forewarned that you can’t afford to let gut, emotion and urgency become major influences when making your site selection decision. Continue reading Brief 04.61

Seven Keys to Generate Revenue

This Brief is a must read for all business owners regardless of what stage you are in.

INTRODUCTION: Building B2B (much of this also applies to the B2C world as well) revenue is not a dark secret. There really is no magic in finding new prospects. We seem to stumble across those who appear to be prospects every day.

However, wouldn’t it be nice to systematize our marketing and sales process in the same way we follow a methodology when providing our products and services? The ideal is to establish a process that builds revenue and continually identifies prospects and their readiness to buy.

Many firms have a sales and marketing plan that was developed long ago or just came about as their business grew. Times change, the economy shifts, potential and current clients have new needs, different opportunities arise, and plans need to be updated. Continue reading Brief 04.62 to discover the seven essentials to generating revenue.

If you need assistance with any financial issues in your business request your Free Score Mentor.

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Surviving the Financial Side of Business

financials for businessThe area of your startup that you can not leave to chance is the financial piece. Ignoring this area can certainly mean the failure of your business. So give yourself the foundation you will need to grow a financially successful business. To assist you in the process here is a summary of the multitude of business briefs we have available for you to download.

From the start-up of your business, you need to set-up your financial records to capture all the data needed to run the business and to comply with all tax laws. Segregate your business transactions with a separate business checking account, separate from your personal checking:

Brief 4.03 Financial Information & Records 

Accountants have the education and experience to evaluate the tax factors of your legal structure, set up your financial statements, prepare and file your tax returns. Learn what services to expect from an accountant and how to find one and what to expect at an initial meeting:

Brief 4.01 Your Business Accountant 

Taxes are due on a variety of business activities (sales, employment, property, earnings).You must be aware of them so you meet all your filing and payment obligations in a timely manner:

Brief 10.07 Federal, State and Local Taxes & Reports

Projected Financial Statements are a best estimate of a firm’s monthly financial position. Testing the assumptions behind these statements is a critical part of developing your business plan, evaluating your product/service costs and profitability and estimating your cash requirements.

Brief Excel 1200 is a spreadsheet that will let you develop those statements. Excel formulas calculate the statements based upon data entry of:

* forecasted unit sales by product line

* unit selling price, direct labor and material, gross profit margin by product line

* monthly budget for overhead labor (including owners) and operating expenses

* sources of operating capital: equity from owners and debt from outside financing

* initial funds required for startup costs, including building space and equipment

* time required to collect accounts receivable, schedule of credit line repayments

A background discussion of the business purpose and individual accounts of each statement is found in these individual Briefs:

Brief 1.05 Startup Costs (see XL 1200, tab 3]

Typical costs involved in starting a business (salaries, rent, advertising) need to be captured separately for tax purposes. They cannot be deducted immediately and must be written off over five years.

Brief 4.05 Income Statement [see XL1200, tab 6]

The Income Statement records sales, cost of goods sold, and overhead expenses and deriving the profit or loss resulting from business operations. The Income Statement differs from the Cash Flow Statement by including non-cash tax expenses such as amortization, depreciation and provisions for inventory losses and bad debts. The Income Statement does not include non-deductible expenditures such as start-up costs, purchase of capital equipment, and payment of principal on loans.

Brief 4.07 Balance Sheet [see XL1200, tab 7]

A balance sheet details, at the close of each accounting period:

o Assets – the nature and amounts of enterprise resources

o Liabilities – the claims of creditors against those assets

o Owners’ Equity – ownership’s resources from stock purchases + retained earnings

The balance sheet provides a basis for:

* evaluating the capital structure of the business

* computing rates of return on that capital structure

* analyzing liquidity – the time required to convert assets into cash to pay bills

* analyzing solvency – the ability of the business to pay debts as they become due

* measuring the value of the business to interest partners to invest in the business

Brief 4.09 Cash Flow Statement [see XL 1200, tab8]

The cash flow statement is a plan of cash inflows and outflows from sales receipts/operating costs and investing/financing activities. You need to know where the cash to pay bills is coming from.

A Score Counselor with a financial background can be the best resource available for your business. Request a free Score Counselor today!

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