Top 5 complaints bankers have about business owners

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Original Post: http://www.finagraph.com/blog/2016/1/top-5-complaints-bankers-have-about-business-owners

by Finagraph

January 21, 2016

Be honest.  We all kind of complain about each other.  It’s a normal part of being a human being.  As agreeable as most people are, when it comes to dealing with others, there are still ways to improve our relationship.  Even when our motto is “the customer is always right,” with a little nudge they could be perfect!

During the last few years I have spent a lot of time with small business bankers.  The conversation generally turns to examples from our past experiences, both wonderful and horrible.  It is during these conversations that I noticed a common theme among the things that annoy the banker.  It is interesting because for over 20 years, I was on the business owner side of the desk.  Not only that, I was guilty of some of their annoyances.

Let’s take a peek at the top 5 things I learned.

1. No loyalty to the bank

It is true.  Your banker would prefer you to show a high degree of loyalty in your banking relationships.  Most business owners don’t look at it that way.  The typical small business owner has about 15 different bank products that he/she uses in both their personal and professional life.  Rarely are they all from the same bank.  Just look in your wallet or pocketbook and you may find a couple of different sources for your credit cards.  Then take into consideration your checking and savings accounts, any loans, or investment accounts.  Small business owners “diversify” their accounts sometimes on purpose, sometimes out of necessity.  If the truth be told, your banker could handle most of those and strengthen your position and relationship in the bank.  However, for a small business owner to do this, they need to have the confidence that the bank is acting in their best interest.

2. Take too much out of the business

Yep, we do.  We have other needs for the cash that sits in our small business.  Besides, our accountant tells us to do this to reduce our tax exposure.  Unfortunately, this issue is where the banker and the accountant are on opposite sides.  Both of them have your best interest in mind and it is up to the business owner to balance the two sides of the argument.  The accountant wants you to reduce your equity to minimize your taxes.  The banker wants you to keep more equity in the company, so he can give you the debt your need to operate and grow the business.  You won’t always need debt, but if you can forecast out the need in advance, you can adjust your distributions and personal expenses to meet the lending criteria of the bank.  If you don’t need debt; then by all means reduce your tax liability.

3. Wait until it’s too late

This is probably the most frustrating part of being a banker.  Working with a small business owner who was too far gone by the time they reached out for help.  It is a no win situation for everyone.  Most business owners don’t understand enough about the cash their business needs to operate and continues to create a huge mound of losses before looking for a solution.  At the first sign of trouble, reach out to a banker or accountant for help.  You may not like what they have to say, but with your focus they can help.

4. Unprepared to work with the bank

I have heard hundreds of stories about small business owners that walk into the bank with a box of receipts or a general ledger books expecting the banker to put together their financial picture.  Banks already battle an efficiency problem and are seeking every day to find ways to make our banking tasks faster and simpler.  A box of jumbled pieces of paper or a hand-written business ledger is a picture right out of the Great Depression. Not only is this antiquated, it also makes putting together a loan application dozens of hours of work. The speed of business has enabled even the smallest of banks and business owners to move with agility and flexibility.  There are numerous accounting products on the market, some of them free, for the small business owner to organize his financials and present a professional package for the bank to evaluate.  Invest in technology that helps you work better with the bank.  Then take it a step beyond organization.  Ask your banker to tell you about the key criteria they use to evaluate a loan application. Then use that knowledge to position your company for the best possible probability of your application being funded when you ask.

5. D.U.M.B.

This is probably the most common complaint about both bankers and business owners.  Imagine both of them pointing the finger at each other, when having a discussion about a business.  D.U.M.B. doesn’t mean that a person is unintelligent.  It means the small business owner is good at his trade, but not a financial manager.  It’s like you are telling the banker “I Don’t Understand My Business”.  They see it in the way you present your financials, can’t describe how you make money, have no plan for the future, or operate well below the industry averages.  As a small business owner, you have to be the leader of your financial future.  That means understanding the cash drivers within your business and understanding how to best use debt to grow.  This is about education.  Find ways to learn about the dynamics involved in your financial statements.  There is a wealth of experts, articles, videos, seminars, college courses, etc.  Take advantage of the information that exists to be the expert society thinks you are.

Too often we don’t take the time to understand why a relationship is stalled or failed.  When I hear stories from bankers about business owners who fall into one of these categories, I challenge them to take the first step in helping the business owner do better.  It is not good enough to harbor the complaint, or walk around not knowing a complaint exists.  Engage in the relationship and help each other be better.  Our economy will thank you for it.

How to Improve Your Chances of Getting a Loan With a Bulletproof P&L Statement

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By Caron_Beesley,  SBA Contributor
Published: March 9, 2015
Original Article: https://www.sba.gov/blogs/how-improve-your-chances-getting-loan-bulletproof-pl-statement.
One of the three essential financial statements for your small business – a profit and loss (P&L) statement – is useful for analytical purposes, but it can also tell any possible investors whether you have a strong, viable operation.

If you’re applying for an SBA loan program, a P&L statement with forward projections and historical data is a must-have. Small businesses are inherently a high-risk investment for lenders, so the more you can do to prove the integrity of your business and your data, the greater your chances of securing a loan.

In fact, alongside impeccable credit, a solid business plan, a strong personal resume and a strategic marketing plan, a P&L statement (also known as the income statement) is one of the top five small business loan requirements, according to Kabbage.

Here are five things you can do to bulletproof your P&L statement and be on your way to securing the financing you need:

1.  Understand what your P&L statement can do for your business

Your P&L statement is a summary of the profit and losses that your business has incurred during a particular time period. Basically, it’s revenue in, less expenses incurred (cost of goods sold, OPEX, and depreciation).

In addition to showing how profitable your business is, your P&L statement also sheds insight on what money is left in the business to pay your salary, clear debts, fund growth or hire an employee. It won’t, however, show if you have enough cash to pay your bills. (Refer to your cash flow statement for those details.) In a nutshell, it’s your financial health report card.

2.  Take advantage of available tools

Getting started with a P&L statement isn’t the easiest thing in the world. If you need help, download SCORE’s profit and loss statement template (.xls). This includes all the necessary calculations to help you forecast net profit. To streamline the process completely (and ensure reliable data), consider cloud accounting tools. Because they automatically feed in data from other reports, cloud software eliminates the hassle of data entry, synchronization and maintenance.

3.  Set profitability goals

How much profit do you want to realize from one month or quarter to the next? Use your P&L statement to track performance against those goals and use the data to glean insights. For example, if revenues were down one month, is there something you can do from a marketing perspective to generate more sales? If expenses are running high, make sure you understand why and plan accordingly.

4.  Set projections

Your lender (and the SBA) will want to see your projections for future profits and losses, plus a business plan that explains how you intend to make your numbers. Plan on projecting out a minimum of one year into the future. Three years, however, is ideal because it shows the impact that external financing will have on revenues and profits. For year one, have a clear sense of your monthly projections; for the remaining years, it’s usually okay to focus on quarterly targets.

5.  Review it regularly

At a minimum, review your P&L statement on a monthly basis. It is a good idea to get into the habit of checking everything on a weekly basis, so you can stay on track and make necessary adjustments to your business plans. Consider hiring and accountant to keep an eye on your key financial statements; the benefits will almost outweigh any fees. Things to look out for include:

  • Increasing sales, but declining profit. This is a sign that something is wrong. Are your costs too high? What about your margins?
  • Stationary sales. Look for opportunities for growth in new markets, product lines or lead generation campaigns.
  • Increases in overhead (utilities, rent, insurance, etc.). Look for ways to keep costs low by shopping around.
  • Increases in the cost of goods sold (COGS). Find out why.

I need a Small Business Loan…but I have some issues

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April, 2016

Getting a loan for your small business can be difficult for some. Maybe you just started your business or maybe you have been in business for years but had a hard year financially or some credit problems in the past. Here is a guide to help you understand what banks look for and how to overcome some of those issues.

New Business – New Businesses have the hardest time getting Small Business Loans…why? Because 8 out of 10 Businesses fail there first year, most every business owner knows that but there is no shortage of people wanting to start a businesses. Bill Gates did it with Microsoft so why can’t you.  Banks, Credit Unions, Finance Company’s and even Hard Money Lenders cringes when they hear “I just stated my own business, and I need a loan”

But you hear from the Government and other sources that there are funds out there, which is true! So Why does one business get financing when the other one cant. The answer is simple… PLANNING!!

NEVER go to a bank and say I need money when you have no money to put into your business for startup capital. I can’t tell you how many times this happens.  You want a banker to return your call, say “I am staring a New XYZ business and I have 20% down but need some help with the rest” You WILL get a call back. Did you save money to start your business or do you have a side investor set up, which is all a part of the overall planning.

Also make sure to have a Business Plan. Don’t think that business plans have to be elaborate. Higher the loan amount you are seeking the longer the business plan. Need $350,000, you better have a great PROVEN plan with some solid projections for the next 3 years. Need $75,000 a one or 2 page document will be just fine with projections.

Challenging Personal Credit History- 2009 was a horrible year, more people filed Bankruptcy and lost houses that year than any other time in the last several decades.  Maybe you were a contractor and worked primarily with home builders, maybe you lost your job, whatever the case what banks care about is what you have done SINCE the bankruptcy.

Your credit score is one of the 5 C’s of credit that banks look at that. Do you pay your bills on time, do you say what you are going to do, and is your word any good. If you have a credit score under a 640 be prepared to go through the grinder or get an immediate no.

Did you just file Bankruptcy in the last 2 years? The banks is probably going to say no regardless of the situation, it’s just too new for the bank to take a risk…sorry. Bad things like Bankruptcies, Foreclosures, Short Sales, Late Payments, and Collections all stay on your credit report for 10 years. Most larger banks will say no if they see that within the 10 years. Smaller and mid-sized banks may be willing to take a chance on you after a few years when the dust settles. If you are this point let me give you a few tips.

  1. DO NOT HIDE IT! Tell the banker that you had an issue and come to the table with a written explanation why it happened. Banks are in the RISK business, not the money business as you may think. If you come to the table with a reason why you had the issue and what you did since then it can go a long way. (ie. You now have liquid cash of $50,000 saved, you have lived without credit for the last 5 years because you learned your lesson, and you are now seeking a small loan amount etc.)
  2. Foreclosures and Short Sales – If you had to give a house back to the bank or a short sale during hard times, again let the dust settle and share with the banker what you have done since that hardship. Maybe you got a new mortgage 2 years ago and have never been late on that loan and you have had spotless credit since the issue. Additional things that will help is if you have a little more skin to put in the game (more cash, more collateral etc.) for your new loan request.
  3. Judgements & Liens – This one can get a little sticky. Say you were a week late paying your property taxes and they reported it to the credit reports…ok, have a good story on why you were late, most underwriters can get through that. You haven’t paid child support or 5 years or you haven’t paid your payroll taxes in 10…there is no story that will overcome that one. You will need to fix it and let the dust settle.

You had a bad year financially-  I had a client that came to me for a loan and had a bad 2014 where they lost money, but did ok the year before and the year after. Well we can’t blame that on the economy so as the banker I needed to discover why. In their case they had a merger and merged 4 businesses into 1, ok- that was a good answer, the expenses of doing that are high. With a little more digging we were able to overcome that because they were one time expenses. Now if this same business came to me in 2014 or shortly after the chances of us saying yes would be thin, why? LET THE DUST SETTLE. Again, Banks are in the risk business and if you had a bad year you have to show that you have gotten out of it, banks will not lend to you in a downward trend, prove you can get out of it with your credit still attached and you will go much further.

The main thing that I want to make sure you are aware of is “Let the Dust Settle” You have to show a bank that yes, you did experience a hardship and you overcame it and you have proof of that, only time can heal old wounds.

6 Low Cost Ways to Test your Business Idea

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By Caron Beesley,  SBA Contributor

Published: March 27, 2016

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 (link is external) 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 (link is external) 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!

How to Give Your Local Business an Online Marketing Tune-up

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This article was not written by Paul Long, this was copied without modification. Original Article: https://www.sba.gov/blogs/how-give-your-local-business-online-marketing-tune

By smallbiztrends, Guest Blogger

Published: February 19, 2016

If you operate a “local business” (meaning one that gets most of its customers from your local area), don’t overlook the Internet as an important way to attract new customers and stay top of mind with existing customers or past customers.

According to Google research (link is external), having good online information gets more people to shop in brick-and-mortar stores and businesses.

For local businesses, there are some specific steps to take to make sure that your business can be found by searchers in your geographical area.  Because after all, you want local shoppers.  So being found by local searchers is the name of the game for you — not just Web visibility in general.

Here’s a checklist of important steps to take for local SEO:

1. Address the basics of standard SEO

Every website owner should pay attention to some standard types of search engine optimization  (called SEO).

Think of a well optimized website as the foundation for good local search visibility.

At a minimum, this includes making sure you use relevant keywords (link is external) (i.e., terms that people might search for) in your content.  Your site should have enough relevant content so that you draw in visitors with informational articles, product descriptions and other types of content that prospective customers might be searching for.  Also, you need to keep that content fresh by updating it and adding to it from time to time.  Good content not only helps attract visitors but it helps your site rank higher in search results for related searches.

Also pay attention to the technical fundamentals of your site. Search engine spiders need to be able to find and index all your relevant content. Speed of your site pages is also important to search engines these days.

2. Include information about your business on your website

Check your website.  Is it easy to find your address for each of your locations?  Is all information accurate?  Are there phone numbers and email addresses?

Are your products and services listed? Do you have hours of operation on your site?

Information that is easy to find not only helps website visitors find you, but this information gets picked up by search engines.  Address information in particular helps make sure geographically local searchers can find your business.

3. Make your website mobile friendly

Many local users are looking for places on the go using a smartphone. That’s why it’s important to make your site mobile friendly.

If someone wants to know your address and hours, they should be able to access that information effortlessly.  If your site is not easily readable on a phone, or if the links or buttons are too small to navigate with fingers, you could miss out on a sale.

4.  Claim and complete your Google listing

For local businesses, Google has a powerful free feature called “Google My Business (link is external).”  This is a place where you can list your business.  This listing helps your business show up for geographically relevant Google searches, on Google Maps and in mobile search results.  Claim your listing, or if you already have done so, verify accuracy and complete any additional information.

5. Leverage Facebook’s “local” features

Facebook is a hugely popular site with 1 billion monthly users.  And Facebook has been adding to its features to enable consumers to connect with local businesses.

Make sure to set up a Facebook Page (link is external).  Complete your address information to enable your Page to be found for nearby locations (link is external).

Keep your Page updated from time to time.  Facebook business Pages typically have places for consumers to review a business, so be sure to monitor reviews.

6. Check and claim all online listings

Use the free checker tool at Moz Local (link is external) to see how your business appears in other places online where business listings appear. Claim and update any incomplete or inaccurate listings.  Most

7. Set up profiles on social sites

Social media is the online equivalent to word of mouth in person.  If you set up profiles on social media sites, there’s more likelihood that prospective customers will find your business.  Stay active there, too. Social mentions help you stay on people’s radars and provides great free advertising for your business.

Follow these approaches to make sure your local business gets as much online visibility as possible.

Understanding Gross Margin

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By mbramble, Contributor SBA
Published: February 25, 2016

Ignoring your financial statement is like ignoring the health of your business. Startups and new business owners often overlook understanding gross margin. This can have a direct impact on your ability to effectively manage a growing business, price your products, and most importantly, make a profit.

Gross Margin Overview

The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services sold. The higher the percentage, the more your business retains on each dollar of sales to service its other costs and obligations.

But gross margin is so much more than that; it is a measure of your production efficiencies and it determines your break-even point. It is a key calculation as you assess your startup business risk and profitability.

The Importance of Knowing Your Gross Margin

Understanding and monitoring gross margins can also help business owners avoid pricing problems, losing money on sales, and ultimately stay in business. If you don’t know what your gross margin is, then making sense of anomalies in your income statements becomes tricky.

Many businesses that appear to be thriving often fail because their prices are too low or their costs are too high and they can’t make a profit.  Establishing a low price strategy is tempting, especially when dealing with cutthroat competition – however, it’s rarely sustainable and it can be tough to increase prices later, even with a loyal customer base. Using gross margin calculations and other factors as you plan your business can help you avoid pricing mistakes before it’s too late.

Cost control is another area that can trip up small business owners. It’s surprisingly easy for staff to ignore cost control procedures, which can quickly erode your margins. For example, if higher cost materials have made their way into your production process (and this could be something as simple as a chef using a higher quality food product or making bigger sandwiches in the kitchen than had been budgeted for) – then you have a problem.

Knowing what your gross margin is on every product throughout the life cycle of your business and acting on any variations you detect can help you identify these problems before it’s too late.

How to Calculate Your Gross Margin

Calculating gross margin is easy if you’ve been in business long enough to get some record keeping under your belt, but for startups the process is a little more complex.

Calculating gross margin for an existing business – Start by looking at historical data over a business quarter or year and identifying your company’s total revenue for this period and the costs of goods sold (raw materials and labor).

Gross Margin (%) = Revenue – Cost of Goods Sold/Revenue

Calculating gross margin for a startup – If you don’t have any income reports to go by, calculating your potential gross margins involves some research. Consider the following:

  • What is the competition doing? If you can, try to find out the gross margins of your competitors or industry averages to benchmark where yours should be. Even if their financial data is not in the public domain, their pricing and your understanding of costs will give you a rough estimate as to where your margins should be.
  • Assess your costs and explore ways you can decrease these over time. This should give you an early indication of the profitability of your business. Remember that gross margins change over time through reduced costs and increased efficiencies.

Using Gross Margin to Calculate Product Pricing

While understanding gross margin can help you avoid pricing and cost control nightmares, should you be using it to calculate pricing? Many businesses go this route because it clearly expresses how many of your sales dollars are profit. However, many other factors help determine your pricing strategy, including potential market share, distribution costs, seasonal considerations, perceived value, and more.

Creditworthiness: 10 Do’s and Don’ts for Small Business Owners

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By Marco Carbajo, Guest Blogger- SBA
Published: February 9, 2016Updated: February 9, 2016

Whether we like it or not, access to credit is an essential part of running a small business, but being considered creditworthy can be a challenge. According to Credit Karma, more than 75% of Americans have a credit score below 700.

If you’re one of the many who have a credit scores below 700, there’s no time like today to take the steps needed that could have a major impact on your personal and business creditworthiness.

Here are ten important do’s and don’ts to get you on the path to creditworthiness.

Do pay all your bills and invoices on time

Paying on time is one of the key building blocks of establishing creditworthiness. It builds good relationships between you and your suppliers resulting in better terms and stronger purchasing power. Payment history accounts for 35% of your FICO® scores and is a contributing factor in the makeup of your business credit ratings.

Don’t forget to read the terms and conditions

Read and understand all aspects of business contracts and credit agreements prior to signing the dotted line. You could end up incurring extra fees or charges by not reading and understanding the terms and conditions.

Do build your business credit reports and scores

Banks, lenders, suppliers, insurance companies and investors use company credit reports from business credit reporting agencies such as Dun & Bradstreet. “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.

Don’t co-mingle your personal and business finances

For starters, create a separate bank account and obtain a business credit card.  Be sure to keep excellent records and document all business expenses. Documenting allows you to become a better bookkeeper for your business, making it easier during tax time.

Do obtain a business credit card

A business credit card is an invaluable tool for building business credit, managing expenses, and separating your personal and business expenses. With a business credit card used solely for company purchases and expenses you eliminate the risk of co-mingling funds.

Don’t just pay the minimum amount due

It’s essential to pay more than the minimum amount due whenever possible. Paying more helps reduce your overall balance owing, which improves your credit utilization and raises your score. This also helps prevent your debt from piling up since your chipping away at the overall balance.

Don’t max out your credit cards

Credit utilization plays a major factor in the makeup of your personal FICO® scores accounting for nearly 30%. The percentage of how much you owe compared to the amount of your credit limit is known as credit utilization. Keep your ratios on both personal and business credit cards below 40% in order to maximize your credit potential.

Do pay better than terms

Paying invoices in a timely manner will earn a business an 80 Paydex® score with Dun & Bradstreet.  To earn a perfect score of 100 requires that you pay better than terms with vendors and suppliers. Paying invoices 10-20 days before the due date is essential for building strong company credit ratings.

Don’t forget your business has assets

Tangible assets such as real estate and equipment are often the collateral used to secure various types of financing. But don’t rule out intangible assets such as your company’s reputation, social capital, brand, and intellectual property. These assets are important and valuable to a company.

4 Steps to Changing Your Business Structure

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By mbramble, SBA Contributor

Published: January 28, 2016

There are many reasons to consider a business structure change. With a different business structure, would your business be more successful? Could your sole proprietorship or partnership use more liability protection? Do you want to avoid excessive fees and bookkeeping requirements for your LLC or corporation? If your answer to any of these questions is yes you may want to reconsider your business structure. If you are considering a change to your business structure, be sure to understand all of your options and weigh the pros and cons of a switch.

1. Assess Your Options

Your business structure determines the amount of regulatory paperwork you have to file, your personal liability for business decisions and how you are taxed on your business income. Sole proprietorships, partnerships, limited liability companies, and corporations are examples of popular business structures. It is important have an understanding of each before you make the decision to change your current structure.

Learn more about business structures.  

2. Things to Consider

Businesses typically change their legal structure because of a change in business need. That might mean a need for more or different business liability, growth in your business, etc. Sole proprietorships and partnerships enjoy simple management and operations. LLCs and corporations enjoy limited liability to their personal assets.

If you are considering a switch, first reassess the pros and cons of your current business structure and weigh the importance of the following five characteristics to your business:

  • Liability
  • Taxation
  • Fees and Forms
  • Investment Needs
  • Operational Continuity

Read more about filling and paying taxes. 

Business Liability Insurance: It’s Not One Size Fits All – Tips for Choosing the Right Coverage

3. What to Expect: Changes in Business Operations

From Sole Proprietorship or Partnership to LLC or Corporation

If you (and your partner) make the decision to change your business structure, your business will change from unlimited personal liability to limited. Expect to file more paperwork, including your articles of incorporation and bylaws. Fees and expenses will also increase.

From a LLC or Corporation to Sole Proprietorship or Partnership

Changing from an LLC or corporation to a sole proprietorship or partnership is more difficult. If you own a corporation, you must first convince shareholders to get on board with the plan and liquidate your business assets. As an LLC, you only will see changes in your tax obligations if you file as a corporation. You will need to adhere to specific state policies like licensing requirements and inform the IRS to the change, as your filing requirements will change.

4. Next Steps

  • File a DBA with your government agency.
  • Register with the IRS. You will most likely need to apply for a new Employer Identification Number (EIN)
  • Register with Local and State Agencies.
  • Reapply for Licenses. Some states require you to reapply for licenses when your business structure changes.
  • Notify your bank and insurance company of the change. Your bank may require you to transfer assets. Also, make sure you inform everyone you do business with, including suppliers, customers and employees, if the change affects them in any way.

Commercial Real Estate in Pierce County- as of 2016

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By Paul Long

January 2016

The Commercial Real Estate Market is moving well in the Puget Sound area. Vacancy rates are down and lease rates are up. According to INFORUM, Commercial Property Revenue is foretasted to grow at an annual rate of 4% between 2015 and 2019 which is proof that it is a great time to invest in commercial real estate. Personally I look at new commercial real estate listings here in Tacoma/Pierce County weekly and are averaging about 5 new listings a week as of January 2016, so there are plenty of new properties being added to the market.

In this article I wanted to address some of the individual properties and how to capitalize on them.

Bank owned Properties– People ask me often about bank owned properties. There are plenty of them still out there, some are still at amazing prices with a decent cap rate! Just recently I had a client that purchased a 6 unit Multi-Tenant strip mall here in Pierce County for $380,000 located on a busy highway. It was a bank owned foreclosure and the client only needed to put in about $30K in differed maintenance. After the deferred maintenance as well as renting out two of the vacant units it had a stabilization price of $620,000! He was getting on average $1000/month each of the 6 units and his mortgage was only $2,200/month. If you are looking for long term growth, these types of properties are the way to go.

Yes, you do need to be very careful in purchasing bank owned properties but if you have the money and know how you can turn a nice profit and make some good monthly cash flow.

Check out your local banks websites for their Repo list. Most small banks have this information easily accessible on their website because trust me, they want to get rid of these properties.

Single Family Real Estate (Including under 4 Unit complexes)- Single family real estate is still a good deal if you can find the right property. In Pierce County there is more job creation happening and we are seeing bigger box stores opening in Pierce County. One of the big reason Pierce county market is growing so quickly is because home prices are still affordable. The median home price in pierce county is around $225,000 compared to $400,000 in King county. With this news many investors are looking to pick up properties that need a little work and get them rented.

On the lending side many people don’t realize that you can use a commercial loan to finance a home if you are looking at purchasing it as a rental. When mortgage company’s look at a loan for a rental property, you must still have low debt to income in order to qualify (normally 43-48%) many borrowers have multiple properties and debt to income can be higher and not be able to qualify. Commercial loans use Debt Service coverage for underwriting which looks more and your cash flow coverage than debt to income. The bottom line is if you get turned down for a traditional mortgage for a rental property, talk with a Business Banker, there may be other options available to you.