A Wall Street Journal Article–

There are ways to use IRA and 401(k) funds to finance your start-up business. But it isn’t simply a choice of writing yourself a check. There are significant legal steps. The key is rolling over the money into a corporate retirement account that permits you to invest in the business.

A nonexpert would likely need the help of a financial planner or third-party retirement-plan administrator. These professionals set up a C corporation and establish a corporate retirement account. A person can then roll outside retirement accounts into the corporate plan and invest the money in the company’s stock. Since the person is buying shares of his or her own business, he or she is effectively feeding it money.

Warning: If you’re under age 59 1/2 and you do it wrong, you’ll have to pay taxes on the money you use as well as risk an early-withdrawal penalty.

Tax experts put such investments into a gray area of the law. The Internal Revenue Service says such moves raise legal and procedural issues. While the IRS has issued determination letters validating many of these plans, it is continuing to study the issue. There’s no IRS ruling authorizing the full process.

Advisers are likely to charge several thousand dollars to help set up a plan and levy hefty annual fees. So this strategy makes financial sense only if a person is investing a big chunk of their retirement money in a business.

Since many start-ups fail, it may be unwise to use your retirement nest egg to start a business. Instead, first look to nonretirement assets such to taxable savings and brokerage accounts, reserving at least six month’s worth of emergency savings. Then consider home-equity credit or refinancing, and loans from friends, family, acquaintances and banks.

If you are still employed, you might want to consider a loan from your 401(k). But keep in mind that the loan usually must be repaid before you terminate employment. If you have a Roth IRA, you can take tax-free and penalty-free withdrawals of all contributions to the account that are at least five years old. But you can’t replace the money after it’s withdrawn.

Original Post:http://guides.wsj.com/small-business/funding/how-to-tap-an-ira-or-401k-to-help-fund-a-start-up/

By Ijeoma S. Nwatu–

A Wall Street Journal Article–

Credit-card issuers and banks have been expanding their offerings for small businesses. It is often much easier and faster for start-ups to open a credit-card account than to secure a line of credit from a bank. And a credit-card account is also a good way to establish credit in a business’s name.

With dozens of choices, keep several issues in mind. First, what are your spending habits? Do you plan to pay charges each month, or pay them off over time? If you are carrying a balance, pay attention to the annual percentage rate. If you carry a balance, and have good credit, some card issuers may offer you a low interest rate or even a teaser rate as low as 0% for the first year. Some have fixed rates, which could be attractive when rates are rising.

If you pay in full each month, cards with longer grace periods or more generous rewards may be more appropriate.

A related note: Charge cards may be useful to a small business that needs the use of credit for a short time period. The charge card forces the holder to have the financial discipline to pay the full balance amount, usually within 30 days, or penalties apply. Credit cards, on the other hand, provide maximum flexibility for small-business owners. However, that flexibility can be costly if you don’t pay off your balance in full and you pay interest on it.

Many credit-card issuers offer rewards programs. A company that does a lot of travel may want airline-mile rewards. But review the list of exclusions since some programs are so restrictive that you may not be able to benefit from them. If travel isn’t a major factor, consider cards that offer cash back. Many give 1% to 5% back–but pay attention to the fine print. Higher payments may apply to only certain types of purchases, such as business supplies or gasoline. Look for other perks as well. Some cards provide benefits just for using the card, such as discounts at certain retailers, restaurants or services, access to airport lounges and hotel upgrades.

Some cards that charge annual fees may make sense if a particular benefit is worth more to you than the amount of the fee. Another reason to not mind an annual fee is a longer grace period. Some cards with annual fees may offer up to 30 days to pay off without any charges, compared to 20 days on other cards. But if you carry a balance, you might want to get a lower rate versus a card that has no annual fee but has a higher rate.

Visit an online credit-card comparison site to sort through the array of offerings.CreditCards.com, CardRatings.com and Bankrate.com allow visitors to search for cards with sorting tools and apply directly online.

Be aware of what happens if you can’t pay the bill in full each month or make a late payment. Some issuers will take away any rewards earned, in addition to assessing penalties and fees. Don’t ignore the ramifications of not paying on time. You could face steep charges, a higher interest rate–often approaching 30%–and even put your own personal credit score in jeopardy.

Original Post: http://guides.wsj.com/small-business/funding/how-to-pick-a-credit-card-for-your-business/

A Wall Street Journal Article–

Business partners often start businesses together with little planning and few ground rules. Sooner or later, they discover the hard way that what’s left unsaid or unplanned often leads to unmet expectations, anger and frustration. Partners can clash over countless things, including conflicting work ethics and financial goals, roles in the business and leadership styles. What follows is a primer on how to avoid that and set up — and sustain — a business partnership.

First, ask yourself: Do I really need a business partner to build a successful company? Taking on business partners should be reserved for when a partnership is critical to success — say, when the prospective partner has financial resources, connections or vital skills you lack. You may be better off hiring the other person as an employee or an independent contractor.

Communication is important at every stage of a partnership, and especially so at the outset. A common mistake business partners make is jumping into business before really getting to know each other. You must be able to connect to feel comfortable expressing your opinions, ideas and expectations.

If you haven’t worked together previously, test the partnership out by tackling a small project together that showcases each other’s skills and requires cooperation. This is also a way to learn about each other’s personality and core values.

Ideally partners’ professional skills should complement one another, but not overlap too much. For example, you may be detail oriented and your partner may be a big-picture thinker. Or you may be an expert in marketing and sales, while your partner prefers to stay in the backdrop poring over financials.

To gauge how well you might work together, have a chat with each other’s colleagues and family members. Key questions to answer include:

• Do you and your partner share personal and professional values, ideas and goals?
• Do you trust your partner’s motivations and character?
• In what areas of everyday life and business do you agree?

Other points to consider:

• What if a spouse or kid later wants to join the business?
• How will it be handled if one partner acts unethically?
• What if one partner wants to move out of the country?

Potential partners may want to consider taking a two- or three-day retreat together to go over their individual expectations for the business and partnership, one by one, and compare notes. It can help the conversation to have the partners guess each other’s expectations before revealing them to each other.

Be especially careful when partnering with close friends or family members. Like many marriages, business partnerships can end in bitter divorce. Consider whether you’re willing to risk hurting your relationship if the partnership falls apart.

Approach a partnership with close friends or family as you might with strangers: Thoughtfully plan and prepare for every aspect of it in advance so there’s no question about how difficult situations will be handled.

A note about partnering with a spouse: Working together puts an added strain on a relationship, and couples can quickly discover there is a little too much togetherness. Those who succeed often have learned to set boundaries keep the business from dominating every aspect of their lives. For example, they may have agreed to leave the office at 5 p.m. and put all conversation about work on hold until after the kids are in bed.

Once the decision is made to start a business together, you should create a partnership agreement with help from a lawyer and an accountant. Take this step no matter who your partner is. People with strong personal connections may feel certain that their supposedly unbreakable bond will help them overcome any obstacles along the way. Big mistake. Get a written agreement.

Every agreement should address three crucial areas: compensation, exit clauses, and roles and responsibilities. Include who owns what percentage of the business, who is investing what, where the money is coming from, and how and when partners will be paid.

Typically partners set up equal ownership and each contributes 50% of the initial investment. But terms can vary greatly. For instance, one partner might contribute more money if the other partner can bring in expertise or business contacts. As the business grows and changes, adjust compensation accordingly. For example, partners may agree to work initially without compensation, and to get paid after a certain revenue target is reached. In addition, if the business partnership brings on more people or if a particular partner is putting in more or less time, building some flexibility into the contract can let you adjust payments.

The agreement should also cover how you plan to exit the business. Include clauses that spell out cases in which one partner is obliged to buy out the other’s interest — for instance, if one wants to quit the business. For instance, it can state that the other partner must buy him or her out for a prenegotiated percentage of the business’s value.

If neither partner wants to continue the business, partners can also liquidate and divide all assets. It’s also a good idea to settle on in advance how to assess the total value of the business upon dissolution. The agreement should specify who appraises the business and the methodology to use.

Outline your expectations for how you’ll operate your business. Clearly delineate the roles and responsibilities of the partners based on their skills and desires. This will eliminate turf wars and clearly show employees to whom they should report.

Establish routines for daily communication. For example, agree to talk twice a day at designated times and to re-evaluate their goals on a regular basis. At least once a quarter, sit down and discuss how you envision the future of the business and what steps to take in getting there.

Addressing these issues up front will help you better focus on your business later. How you work out the details of setting up a partnership could be an indicator of how well or poorly your prospective venture will operate. Inevitably, some potential partners will realize through the process they weren’t meant to be.

Original Post: http://guides.wsj.com/small-business/starting-a-business/how-to-start-a-business-with-a-partner/