Costly Mistakes Made With Your Business Entity

Investing in a powerful tool and not using the tool properly does not make a lot of sense. I know when it comes to running a business it requires multiple hats to wear and very often you are off and running on 10 different projects, calls, appointments, presentations... and perhaps the very foundation of your business may be in jeopardy. Here are the top costly mistakes I have seen made over the past 15 years:

Not completing the transition from a sole proprietorship to a separate legal entity. If you started a business in your own name for a few months before you formed an entity odds are part of what you did you completed as an individual and you need to connect the dots to the new entity. If you filed a DBA (doing business as) with yourself as the applicant that needs to be cancelled and re-linked to the entity. That means your entity needs to be the applicant, not you! If you don't do this you still are exposed to unlimited liability and filing a schedule C with a higher audit potential. Next, point is to open a bank account in the name of the business, not just keep the account in your personal name. Use a business credit card in the name of the entity, not just your personal credit card and keep track of expenses. You will want to minimize the amount of debt that shows up in your personal name. Update all affiliate programs, vendors with your new entity information so any income is going to your business entity, not to your name personally. Update your websites, business cards, letterhead with the new name of your business. Another important tip make sure your website is in compliance, most are not.

Funding concerns. 95% of businesses fail within 5 years and undercapitalization is the #1 reason. The pattern I have seen is that small business owners are mostly hoping for revenue to come in as the primary source of money to grow their business. What happens if your revenues are off or don't come in at all? You may be working on that great new product and all your emails go out and no one converts. That is a real problem. The key is to model success. Almost all successful companies do not use only their own money to grow. I know you know the concept, "OPM", other people's money, yet are you doing that? Are you only self funding your business on your own personal credit? Did you know that once the entity was filed the business credit bureaus will start creating a file. They scan the Secretary of State's records to create a file with any new filings. They look for the name of the business, the start date, and name of the officers/managers the address... If you are not paying attention on how you fill out forms with the business address, business license, state forms you can create disconnects in the database. In one business credit bureau, NCP is spelled four different ways. The NCP part is the same, but one way has "Inc.", one has ",Inc." other has ", Inc" and the last one is "Inc". Did you notice the differences with the comma and period? That created four different files! Don't make that same mistake. Unlike the personal credit bureaus, the business credit bureaus are very difficult to fix any mistakes. They have their own set of rules and are not set up for changes after mistakes happen. This creates a problem when it comes to developing credit for your entity because you basically have one shot at the apple to get it right the first time. Banks and vendors are very interested in your financial strength of your company. Now joint venture partners can check you out for free to determine who stable is your operation. You may be losing business and not knowing it. It is really a must to be financially solid in your business and your developing business credit is a must for your long term success.

Safe and risk asset. Mixing asset classes is a major risk to your wealth that is unnecessary. A risk asset is any asset that would cause liability to your entity. That may be a business, real estate, equipment, again, anything that may cause liability to an entity. A safe asset is one that does not cause liability to an entity, like cash, ownership of another company, investments... If your business falters and you need to reply upon your safe assets to recover short term, why unnecessarily put your safe assets at risk? It happens all the time. There are two reasons this may be happening to you, first, you have thought that your amount of safe assets are not large enough to protect. Imagine having $25K in a brokerage account in your name and losing all of that because of a personal lawsuit. Wouldn't you wish that you took the time and invested a small amount to protect that amount? Most clients will tell us they will get to it later but never do. Don't make that mistake. Set in place a safe asset LLC in your home state and transfer your safe assets into it immediately. This LLC does not have to be based in Nevada, because the protection of the entity veil is not important in this situation because as a safe asset entity there should be no one to sue the operating entity because there are no public clients! This is why your home state is fine for a safe asset LLC.

Now clear on who does what? A partner can help you grow a business quickly and destroy it even faster if you are not on the same page. Very similar to being married. I have been married for 16 years with three girls and it is a lot of work and requires meetings, discussions to do the best to be on the same page. Business like marriage can be very exciting at first and you really need to be able to communicate well as to what you are looking to accomplish. The fun part of business is discussing how you will bring in revenue and all the possibilities that can happen with profits. The part that is not a lot of fun is the expense side of the ledger. First, you must agree upon what is actually considered an expense, does that include things like cell phones, travel, meals... ? You may assume this is obvious but typically that is not the case. What happens if revenues are way off and there is not enough money to pay each partner and you need more capital from each partner to keep it going? This can be a very uncomfortable problem. It is best to presuppose the challenges ahead of time and see if you can calmly discuss through them and come up with solutions that make sense. If you can't get to first base on the uncomfortable parts even before you get started that is a bad sign and perhaps you should NOT be a partner. If fact, odds are the business is doomed to fail if you can't get through some of these basics uncomfortable discussions from the start. Now, that does not mean your partner is telling their spouse the same story. That can and often does create more issues. Having as much in writing from the start and a business plan in place makes the most sense. Almost ALL, not all, but close, partnerships that refuse to take the time to put things in writing fail. It is like clockwork. If anyone wants to start a business with you and they refuse to put things in writing, run! Most of the time the only one that makes money in that situation is the attorney's after the partners sue each other! Take the time to be clear and put it in writing!

That is your top 4 of the most costly mistakes that can be made with your business entity. There are more, but these are the biggest. The key is to take a few minutes and determine if any areas you are making mistakes and if so set an appointment on your calendar now to solve them!

Using Social Media To Promote Start-Up Businesses

If you are planning to launch a start- up business or have recently started one, you probably have encountered a wealth of information on using social media to promote a business. Though there are millions of social media users across the world, around 900 million of them, it is easy to get carried away by the numbers. Finding the right social sites to promote your business to maximise its potential is essential for business success, and this is where you should concentrate your efforts.

What Social Media Engagement Achieves For Business

Social media in essence is about engagement through sharing, which for business means targeting your product range, your articles, or your services at engaging a potential customer or client base. Collectively, products, services and articles are known as content, and it is through offering quality content that success through your channels can be achieved. Social media has around 900 million users globally, and covers every topic range you can think of. As well as engaging a potential customer and client base or readership, social media is also relevant to search engine optimization. Social media is a unique format as it helps you promote your content directly to your audience, and in turn it generates traffic via people sharing your content with others, and through SEO. Perhaps more importantly than this, however, social media with its online reviews helps a business build trust, and nearly every brand you can think of uses social media for this reason. Consider this: you come across two companies offering the same services; one has 250 Facebook likes, the other 43 - which one would you opt for? So regardless of whether you're an online retailer, an affiliate marketer, offer a service such as tuition, or run a news site, social media can help you build your business online. Google estimates that by 2015, UK consumers will have purchased £40bn of products and services online.

Popular Social Media Sites And Their Uses

Getting to get grips with the nuances of social media's role in promoting your business can cause more than its fair share of headaches. Here is a list of the most popular social media sites and their uses:

Facebook is predominately for sharing. This can be products, articles, or services. In a nutshell, it's for sharing your content with as many people as possible.

Twitter is about sharing news on any subject. Don't let the word news make you feel it does not apply for products. New product launches, new stock ready to be sold - Twitter is good for all of this.

Google+ is in part a combination of the two and has become important for search engine optimization if nothing else.

Blogging is a great way to impart news and expertise to your readership, customer and client base, or followers. It offers a good way to attract visitors on your site via search engines.

YouTube is about showcasing videos to a wide audience. It is being utilised by businesses all the time to sell products and services. As YouTube is owned by Google, videos tend to feature prominently on search engine results. You can also utilise the YouTube ads to make a secondary income stream.

Pinterest and other bookmarking sites are very good at showcasing visual products. If your business is selling something online, albeit a product or service, ensure you are posting on Pinterest and as many bookmarking sites you can find.

Social Media And Search Engine Optimization (SEO)

Good positioning on search engines is about unique quality content that is well shared and well linked to from other websites. By sharing your content on social sites, the more chance there is of people liking it on Facebook, retweeting on Twitter, or sharing the pin on Pinterest. Links are important for good SEO and posting your content on social sites provides a link from the social site to yours, and in every case this can be targeted to a specific web page. By web page I mean a specific product, service, or article. This also ensures Google indexes the web page. That is to say, it adds it to its database, ensuring it can be found on search engines.

Finding The Best Social Media Sites For Your Business

To find the best social sites suited to your business, think about what your business is trying to do. If your business sells products or services, then use social sites that showcase pictures and videos to sell the product. YouTube, Pinterest, Delicious and Instagram are all really good for showcasing products. If you're in the selling game, make videos of your products, take good professional photos and get them on these sites, and ensure you link the pictures and videos directly to the content on your site. If you sell on eBay or an affiliate seller, try to link directly to the product page where a potential customer can buy it. Also, put the products on your Facebook page, Google+ page, and Twitter. For service providers, a slightly different spin on social media promotion is needed as, more often than not, a service provider will sit in the middle of visual social media, and text-based social sites. This also applies to affiliate marketers. If you can, represent your services with a picture or icon, and publish the picture or icon on the visual sites. Use videos to showcase your services - if you can get testimonials from clients, well, that's gold dust. Publish regularly on your blog and tweet the articles, together with insights into the industry. This engagement will help build trust with your existing clients, showcase your skills, and help you to be found by people wishing to become new clients.

Social Media Advertising

If you have the budget for it, Facebook offers advertising on a click-through basis like Google AdSense, or it can be used to earn likes. It is often a case of experimentation. For affiliate marketing revenue streams, click-throughs will expose the user to your revenue stream, while a like will ensure every time an article or new product is published they'll be informed. It's trial and error and seems to work well for some businesses, but others have lost faith in it.

Saving Time

By now, you have probably guessed that updating social sites, especially if you publish a lot of daily content, is hard work. Larger businesses employ people to keep on top of it, something many start-up business don't have the budget or the time for. It is possible to automate your social accounts updating using automatic syndication sites.

A Social Media Strategy

Step 1: Create a Facebook Page, Twitter account and Google+ Page For Business

These have their uses regardless of the type of business, and all help considerably with SEO. Ensure you create business pages on Facebook and Google+. This keeps your personal details and indeed social media life hidden from your customers or clients, and it offers better options to promote a business.

Step 2: Identify Social Media Sites That Are The Most Important To Your Business

If your site sells products, make a list of all the online bookmarking and video sites you can find and create accounts. Ensure you use Pinterest and YouTube. If your business is for services, information, or is for an affiliate marketing revenue stream, you want to spread the word in as many ways as possible. Use blogging sites such as Tumblr, Blogger and WordPress.org to syndicate your blog posts and services, and try to create news content if you provide services to show your expertise in your field.

Step 3: Use Social Media Tools Such As 'If This Then That'

'If this then that' or ifttt.com automatically updates your social accounts. This is easy to establish and works by syndicating the information across a host of social sites automatically as soon as one site is updated. This, as you can imagine, saves a lot of time. Be cautions, however, and ensure social sites suited to the business, such as bookmarking sites for online retailers, appear just as you want them to be found. Automatic syndication has limitations and often links and pictures do not appear as you would like them to. Nonetheless, and especially for syndicating blog posts via an RSS feed, it is a very good time-saver for promoting your business via social media. Not all social media can be syndicated in this way, but the sites that ifttt.com syndicates to are well worth creating accounts on to promote your business. The more social media sites you post on, the better.

Step 4: Use #hashtags

Whenever you post your content, ensure you use accurate #hashtags. This will help users find your content when they search for it. So if I'm selling tyres on ebay, #tyres, #cartyres, #car, #tyres is good, and for sports news, #sportsnews, #football #cricket, and so on is good.

Step 5: Once It Starts

Once your content starts hitting the social media world, monitor your accounts for feedback. Concentrate on the sites you've identified as important to your business and respond to questions and comments. When responding, try to be helpful and non-abusive, even if the commentator is not pleasant. Professionalism goes along way.

Step 6: Participation

Twitter and Google+ show trending topics and these are popular subjects people are discussing. It is worth performing the odd Twitter search to see what people are talking about in relation to your business, and making a contribution to the discussion. This is a good way to make connections and hopefully achieve more success.

Step 7: Monitoring Success

Monitoring success has proven to be quite difficult for social media. Unlike SEO results, which can be measured on click-throughs and content engagement, it is not so simple on social sites for a variety of reasons. You may feel if you provide news that 10 comments on one story is a good sign of success, while 100 likes of a product video on YouTube with no obvious link to sales may not be immediately obvious as positive. It is worth remembering, however, that though people may not directly access your main site via social sites, it may prompt them to return later. Always keep in mind that social media is for sharing content, so any like, comment or retweet is positive.

Which Is The Right Structure For Your Business

Choosing the structure of your business and identifying the accompanying legal requirements is absolutely essential; as this will affect how you run your business, how you do business in the future and, perhaps most importantly, the tax you pay.

It doesn't matter what home-based business you are planning, it could be a nail salon, pet grooming service, language tutor, physiotherapist, landscape gardener, affiliate marketer or eBay seller. Before you take another step, you need to decide what kind of legal structure will be most suitable for your venture.

The 3 Most Common Types Of Business Structure

While there are a number of different types of business structure, there only three main types that you need to explore when operating a home-based business: Sole Trader, Partnership or Private Limited Company.* Below is a breakdown of each type of business structure, together with their advantages and disadvantages, what you have to do to set them up and finally what the costs are likely to be.

*There are others such as Public Limited Companies, Private Unlimited Companies and Right-to-Manage Companies, but there's no need to worry about them. If your business takes off and your empire expands, just get your lawyers to sort it out.

1. Sole Trader

Setting up as a sole trade is by far the simplest and most straightforward way of starting a business. You can start up at any time simply by registering your business and there is no fee! The good news is that, after tax, any profits go straight into your pocket. The bad news is that if your business fails you are personally liable for any debts, which means that your house and any other assets can be seized.

The Advantages:

Fast start-up with no registration fee

Minimal records and accounting

Greater flexibility as you can control when and where you work

Greater privacy as you don't have to answer to anyone else

Any profit after taxes is yours and yours alone

The Disadvantages:

You are personally liable for any debts

You are solely responsible for all the legal requirements and paperwork that come with submitting your yearly tax bill and paying your own National Insurance Contributions (NICs)

Premiums for insurances such as life, home and car are generally higher

How To Become A Sole Trader

All you need to do is register with HM Revenue & Customs (HMRC), which you can do online by going to HMRC.You will be asked some basic information about yourself and your business, HMRC will gladly set up tax records for you and you are ready to go! Once registered, you'll receive a self-assessment tax return that you have to complete every tax year (6th April to 5th April) and the kind people at HMRC will calculate how much you owe. NB: Even if you already fill in an annual tax return, you need to inform HMRC as soon as possible or you may be fined!

The Records You Have To Keep

General bookkeeping of expenditure and income of all business-related costs

If you are employing people you need to either contract them as a supplier and keep a note of costs or, if you employ them full-time, calculate their monthly Income Tax and NICs with Pay As You Earn (PAYE)

What It Will Cost You

Income tax on any profit

Class 2 National Insurance at the fixed rate

Class 4 National Insurance on any profits

PAYE if you are employing people

2. Partnership

If you don't want to go it alone, a business partnership is the next natural progression. In essence, a partnership is two or more self-employed people working together and sharing the workload and any resultant profits. While it's not a legal requirement to have a formal agreement in place, I strongly advise it! Like any relationship it all starts out with good intentions and a shared vision, but things go wrong, circumstances change and it can all too easily end up in tears. I once set up a partnership with two of my best friends and it all went swimmingly for nearly three years until the cracks started to appear. The result was a long drawn-out court battle to 'divorce' our partnership, resulting in two fewer names on my Christmas card list.

The Advantages:

Fast start-up with no registration fee

No formal agreement required (although recommended)

Minimal records and accounting

Someone to bounce ideas off and share the workload

Shared cost and risk

Any profit after taxes is shared between the partners

The Disadvantages:

With a simple partnership you are not only liable for the overall partnership's debts but also any debts incurred by other partners regardless of whether you agreed to the expenditure or not.

Profits are generally shared in equal proportions regardless of the actual working contribution made

You are jointly responsible for all the legal requirements and paperwork that come with submitting your yearly tax bill and paying your own National Insurance

Premiums for insurances such as life, home and car are generally higher.

How To Form A Partnership

Each partner must register individually with HM Revenue & Customs (HMRC) (even if any of the partners already fills in an annual tax return, you all must inform them as soon as possible or you may be fined!) Optional: a deed of partnership outlining how the business will be run and duties and responsibilities of each partner. You don't have to go to a lawyer to draw up a partnership, simply draw up and sign a mutually agreeable division of profits and, most importantly, what happens in the event of the partnership breaking down.

The Records You Have To Keep

One partner should be appointed the nominated officer, responsible for submitting the annual partnership tax return

General bookkeeping of expenditure and income of all business-related costs accrued by each partner

A partnership statement showing how profits (or losses) have been divided amongst the partners

In the majority of cases, each partner is responsible for paying their individual Income Tax or National Insurance Contributions based on the above

If you are employing people you need to either contract them as a supplier and keep a note of costs or if, you employ them full-time, calculate PAYE

What It Will Cost Each Partner

Income tax on any apportioned profit

Class 2 National Insurance at the fixed rate

Class 4 National Insurance on any apportioned profits

PAYE if the partnership is employing people

2b. Limited Liability Partnership

The main difference between an LLP and a standard partnership is that the business is liable for the business' debts and not the individual partners. This protects partners from personal bankruptcy and debts incurred by other partners, but offers exactly the same tax advantages as a normal partnership. All the other details for forming and running an LLP partnership are as above, except that accounts will most likely have to be audited and filed at Companies House.

3. Private Limited Liability Company

If you really want to protect yourself from any potential business failure, then it may be wise to choose a Private Limited Liability Company. The company is owned by its shareholders, yet it is an entirely separate legal entity and the structure of the company limits the shareholders' liability to the value of the shares issued. Which basically means that if the business goes bust, your personal assets can't be touched (unless you have been acting illegally... ). There is no minimum share capital requirement, but shares cannot be offered to the public and any profit is paid to shareholders in the form of a dividend.

The Advantages:

Keeps business and personal finances completely separate

If the business goes bankrupt, you don't

Generally regarded as a safer business trading partner than a sole trader or partnership

The Disadvantages:

Lots of paperwork and lots more rules

Before you can start trading you need a certificate of incorporation issued by the Registrar of Companies. While Companies House will automatically pass on your details HMRC, you also need to contact your local HMRC office to advise them of your company's existence.

The Records You Have To Keep

Your company's name, place of registration, registered number and registered office address must be displayed clearly on everything from your letterheads to invoices, websites to emails

Detailed bookkeeping of all business-related expenditure

All payments to salaried directors, employees and contracted services

Self-assessment of the level of corporation tax to be paid

What It Will Cost

Corporation tax on all profits

PAYE to collect monthly Income Tax and National Insurance Contributions from all employees and directors

Value Added Tax (VAT)

Finally, regardless of the business structure you choose, by law you must register for VAT if your business is going to turn over more than the current figure of £77,000 per year. If you genuinely don't believe that your business will exceed this figure then you can wait, but keep a careful eye on your monthly figures! HM Customs and Excise has more power than the police and can enter your home at any time, without a warrant, and seize anything they believe is related to their enquiry. I remember getting two hours' notice about a visit from an inappropriately named Mr Pratt from the VAT office, who proceeded to audit my returns with uncanny insight. As a result, by the time he had left my office, he or rather HMRC was several thousand pounds richer.