COVID Funding Tips for Small Businesses

Jul 21, 2020 by

In today’s economy, is it more important than ever before to understand and implement our COVID funding tips to help keep your business up and running.

The goal is to beat the odds and business failure statistics. As you know, up to 95% of businesses fail within 5 years, and now with COVID, most off-line business are not going to make it past the first year. 

The number one reason is lack of money, capital, funding or whatever language you want to use to describe that. It is amazing how many just think all those projected numbers on the business plan or excel spreadsheet are automatically going to happen because you wrote them out on a spreadsheet.

Your sales are not going to go the way you predicted. Most of the time, sales revenue is considerably less than anticipated. Sometimes, sales are better than anticipated and a scalability problem comes into play. Many times, you are looking for new partners, vendors, or opportunities to grow and those may not be working out.

The overall challenge is that you must understand the funding fundamentals just as well as you may understand your online conversion fundamentals or your sales presentation fundamentals. This is just a must.

Once you understand the funding fundamentals, you will be in a position to secure more funding to grow your business (or, in many cases, stay in business and beat the odds).

The first step is to stop using your personal credit cards for your business. If you have formed a separate legal entity, you should not be using a personal credit card. The entity should apply for a business credit card in the name of the entity.

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Questions to Help Determine if an LLC or Corporation is Best.

May 13, 2020 by

Which entity is best for your new business, an LLC or Corporation? When you form a new LLC or corporation, the process is so easy, with so many online websites. Filing the articles with a registered agent is the easiest part of the process. The challenging part is to determine how your corporation or LLC should be taxed at a federal and state level and to make sure you have a complete formation, one that has real liability protection, not just filing the articles, which has ZERO protection.

Ask these Questions to Help You Determine is an LLC or Corporation Best?

Ask these Questions to Help You Determine is an LLC or Corporation Best?

Here are some of the key questions we recommend you evaluate before you form an LLC (which may be taxed in four different ways) or a corporation that may be taxed as a C corporation or an S corporation.

  • What is your business and how does this affect your choice?
    • A personal service corporation, in the past, was a flat 35%; but since the 2018 tax cuts, that has now been reduced to 21%
    • 20% deduction for pass-through income, with some restrictions
    • Are you investing in real estate or do you flip real estate?
    • Are you an e-commerce seller with potential sales and state income tax requirements?
    • Do you own real estate? If so, are you a dealer or investor? How many properties do you own? How much total equity and what percentage of your total net worth is all the properties?
  • Do you have partners?
    • Is it a domestic partner in a community property state (there are 9)? This comes into play with a single or multi-member LLC. 
    • Is it a foreign partner in another country? If so, is there a tax treaty with your partner’s country?
    • Do you plan to have a buy-sell agreement?
    • Is one partner an investor? This has a big impact on how your LLC is managed. 
    • Do your partners have an SSN or ITIN (this is important for banking, U.S. merchant account, and sales tax registration in a few states).
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Sales Tax Permit Registration Mistakes to Avoid

Mar 21, 2020 by

As an e-commerce seller, you want to avoid sales tax permit mistakes. This is the key part of the process when you are collecting and remitting sales tax.  Yes, some states like Washington and Pennsylvania will collect sales tax, but you still need to get registered and file sales tax returns.

Sales Tax Registration Mistakes to Avoid

Avoid these Costly Sales Tax Registration Mistakes

The process to get registered means obtaining a sales tax license or permit to collect and remit sales tax in the states where you have sales tax nexus. Since the June Wayfair vs South Dakota case, you now have to worry about the economic nexus states in many cases when you sell only 200 transactions in a state.

We have applied for thousands of sales tax permits for clients over the last several years and we wanted to share some key costly mistakes to avoid.

1. Are You Applying for a Sales Tax or Use Tax Number?

 Are you an out-of-state seller applying for a sales tax number or an in-state seller applying for a sales tax number? Each state is different. In some states, it is very clear, if you are an out-of-state seller, you are applying for a use tax permit, some states they combine sales/use tax as one option. Every checkbox takes you down a pathway and may come back to haunt you when audited; just make sure you get it right from the start.

2. Not Taking into Account Time Frames.
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12 Questions to Ask BEFORE Forming a U.S. Entity

Feb 26, 2020 by

These 12 questions below are not only important to ask, but are necessary to get the best answer and support. They apply to all foreign e-commerce sellers looking to establish a U.S. entity. Forming a U.S. company is not as simple as forming a single member LLC with a mail address. There is much more involved. These questions will help keep you on track when working with a U.S. entity provider.

US Company Formation

Ask these 12 questions before forming a U.S. company

  1. Do I Even Need to Form a U.S. Entity as a Foreign Seller?

    This leads to your options to sell in the U.S. as a foreign entity vs the advantages of using a U.S. entity.

  2. How Long will it Take to Form my U.S. Company Correctly?

    You will need to know the factors that will determine the length of time to form your entity, apply for the EIN, establish a bank account, as well as get into compliance with sales tax. Don’t get fooled by “incorporate in 24 hours or less” headlines; these usually lead to costly mistakes.

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How to Cut Expenses without Killing Your Business!

Feb 2, 2020 by

The purpose of any business is to develop a profit. There are many factors that will affect your business’s ability to generate a profit. Those include the costs of goods sold on your products, your price point on your product and services, your fixed and variable expenses.

In this economy where the sales funnel is typically wider for most businesses, meaning it will take more calls to make a sale, the knee-jerk reaction is to cut your prices to increases sales revenue to help generate overall more profits. That strategy typically will backfire (unless your up-sell process is strong and you know your numbers like clockwork).

One of the biggest issues is knowing the ratio between cutting your prices a certain percentage (like 10%) and now knowing your corresponding COGS (Cost of Goods Sold) percentage. The key question becomes, how many additional sales will you have to do at full price to make up for the one sale you gave a 10% discount? My good friend Spike Humer, has developed a very good chart that tells you the answer based on the price discount and COGS. For example, if your product or service has a 40%COGS and you cut the price by 10% the company would have to do an additional 15 sales to make up the profit lost on that one sale. This brings in revenue, but unless a strong back end exists this can lead to a fast track to being out of business.

There are a few fundamentals that we recommend you have in place before you start cutting expenses to make the best decisions.

First, you must know your numbers. There are important questions to ask yourself about your numbers. How many leads to you have each day? What is the cost per lead? What is your cost per appointment? Cost per new client? What is lifetime value of each new client?

For example, if you have 10 leads per day and you have to spend a total of $2,000 per month for marketing, and that is divided by 30 sales days (counting weekends ) or 20 sales days if you do not. That comes out to 10 leads per day x 30 sales days= 300 leads. Now take $2,000/300 leads=$6.66 per lead.

If it takes 10 leads to develop 3 appointments, that is $22.00 per appointment. If those three appointments turn into 1 sale that means it is costing you $66.66 per client (which is a low number). For many of you, it may be costing you $25 per lead that you receive. That changes the numbers dramatically.

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The Asset Protection Mindset

Nov 23, 2019 by

A strategic asset protection mindset is one that will separate those who accumulate long term wealth, but also keep it. Most successful entrepreneurs let their big egos get in the way and they don’t take the steps to set up a complex (not simple) structure to protect their assets.

A strategic asset protection mindset is part of this important business equation; you must master two skills: first, the skill to generate profits in the shortest period possible and keep them. Many times, keeping them may be harder then creating the profits.  Keeping them focuses around the strategy of asset protection. You must protect your assets from everything, like lawsuits, taxes, creditors and bankruptcy. 

This success requires a certain mindset for survival. It requires working backwards to think through what could go wrong and how your assets would be affected.

You Must Ask Tough Questions

It requires asking some tough questions like, “What would happen if I get sued and my business insurance (if your business even has any) did not cover the legal fees and damages? What would happen to my financial fortress? If my assets were to take one direct hit (a lawsuit), what would be the outcome?  Would I lose everything? How do I mentally handle being totally unprotected?”

Develop the Right Asset Protection Mindset and Avoid Regrets

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How to Protect Your U.S. Real Estate Investments

Sep 19, 2019 by

Learn how to protect your U.S. real estate before you invest. The good news is that when investing in U.S. real estate as an international investor, it is very similar to a U.S. individual investment in U.S. real estate.

For this discussion for real estate, we are referring to single-family homes and multi-units that can be rented out, and commercial buildings that can be leased to business owners. 

Protect Your U.S. Real Estate Investments

Protect Your U.S. Real Estate Investments

 Here are some common important facts:

  1. Never own U.S. real estate in your own name, personally (long-term). If you have a mortgage, you will have to typically close escrow in your own name personally, then quit claim or warranty deed it to an entity (typically an LLC).
  2. Do not put all your “real estate eggs” in one basket. If you have four triplexes worth $500K each, that is $2-million of real estate, and if the properties are free and clear (no mortgage) by putting the real estate into one LLC, you are exposing all the equity to a lawsuit by any one of the properties.
  3. You may need 2-3 U.S. entities to protect your real estate investments. The key is how they are managed, and structured. 
  4. An LLC (limited liability company) makes the most sense as an entity to protect U.S. real estate (not a Corporation, because of double taxation). The LLC would either be a two-member LLC taxed as a partnership or a single-member LLC taxed as a disregarded entity.
  5. If you live in California, for example, and you own property in Florida, if you form a Florida LLC to own that property, California will require that the Florida LLC register to also do business in California. You have nexus (or a business presence) where you are doing the work (checking your bank balances, transactions) and where the physical property is located.
  6. You will need a separate bank account in the name of the LLC.
  7. You will need a separate EIN number for each LLC.

Being international, a lot comes into play with U.S. tax responsibilities. If the U.S. LLC you establish is owned by you personally, you will need to obtain an ITIN number (Individual Taxpayer Identification Number). This is equivalent to a U.S. SSN (social security number) for tax purposes.

U.S. Tax Responsibilities 

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12 LLC Strategies to Protect Your Assets and Financial Future

Sep 9, 2019 by

The proper LLC strategies will help ensure your assets are really protected. Unfortunately, most will file a “simple LLC” online for the least amount of money and are later surprised when they are not protected.

First, let’s look at the history of the LLC. The Limited Liability Company (LLC) is a powerful entity that originally started in Wyoming in 1977 and became more popular in the late 1990s. It is a hybrid between a partnership, and a corporation. Most are unaware that an LLC can be taxed in four different ways: disregarded, partnership and S or C corporation.

The IRS established federal default rules to simplify this determination in 1997. A one-member LLC by default will be taxed as a disregarded entity for tax purposes, and a two-member LLC will be taxed as a partnership for tax purposes.

Which LLC is Best?

Which LLC is Best?

Now let me share with you 12 LLC secrets that will not only keep you up out of tax trouble but help you better avoid pitfalls down the road.

  1. Can an IRA invest in an LLC? Yes, but…This is a popular strategy when looking for different investment options for retirement funds. Many are looking to take advantage of the real estate market to invest in and find they do not have the money personally to invest, but their IRA does. This strategy involves moving your IRA to a self-directed IRA and the IRA becomes the member of an LLC. In other words, the investment is in the membership interest of the LLC.

    There are a couple of major issues with this strategy that could create problems with the IRS. First, if you are the manager of the LLC and you are on the LLC checking account that has IRA funds, that means you have “checkbook control”. There are prohibited transactions in where you cannot use that money, but more importantly, is that the signer on the account may use the LLC money for personal use which is a big problem and could create serious IRS issues. The second issue centers around who can be the manager of the LLC. Can it be you also? Is that self-dealing?

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Distributions from an LLC

Apr 23, 2019 by

Knowing how your distributions from an LLC are taxed is critical to your LLC formation strategy. After your LLC is formed, your business is up and running, and revenue is flowing, will you come to that important point where you distribute money to the partners. That may be just you, your spouse, or other outside partners.

Some people just write checks from the LLC to themselves, as the owner, and really don’t consider the tax ramifications of their actions. This is especially important anytime you have a partner, whether that is a spouse, outside partner, or a separate legal entity.

LLC Distributions

LLC Distributions

Let’s address some basic fundamentals first, then get into more details:

The first step is to be aware of how your LLC is taxed. Are you a single member LLC taxed as an S corporation, or disregarded for tax purposes? If you have earned income and a single member LLC that will flow through to schedule C, you are basically operating as a sole proprietorship, but have the liability protection of an LLC).

Test question: Is there any payroll for a single member LLC? The answer: depends. If the LLC is disregarded for tax purposes, there is NO payroll to the owner. Is it possible for a single member LLC to have employees? Yes. If the single member LLC is taxed as an S corporation, the active member (owner) would have payroll and distributions. If you have a single member LLC taxed as an S corporation, of course, the only member is active. If you have a two-member LLC taxed as an S corporation, it is possible that the second member could be passive (this could be a spouse or silent partner). Would the passive member be the manager of an LLC? No. By definition, if passive, they would not be running day-to-day operations. Keep that in mind.

A single member LLC taxed as a C Corporation; there would be, at some point, some type of payroll to the owner of the C Corporation. Is it possible that there was only enough revenue in the LLC taxed as a Corporation to only pay business expenses and not enough profits left over for any type of payroll? That is possible. You may take dividends out of the LLC taxed as a C Corporation, but keep in mind dividends are NOT deductible to the LLC taxed as a C Corporation’s profits.

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Your LLC and Corporate Responsibilities as a Manager or Officer

Apr 10, 2019 by

Managers of an LLC and officers of a corporation have important responsibilities they must execute properly to give them personal liability protection.

Forming a separate legal entity is a huge step in separating your personal and business liability. You obtain liability protection with a separate legal entity the day you file the LLC or Corporation.

What most people do not realize is that after day 1 and beyond you are not protected unless you operate the entity as a separate legal entity.

LLC and Corporate Compliance is Vital

LLC and Corporate Compliance is Vital

That involves avoiding commingling of funds, proper capitalization, and proper minutes and resolutions in your role as the director, officer, shareholder or manager, member or member of an entity.

Typically, as a director of a corporation or a manager of an LLC, your liability is limited personally. As long as you operate within your role as the manager of an LLC or director of a corporation, Nevada will protect you as long as you do not commit fraud. Other states have a minimum fiduciary duty or duty of care.

Your LLC and Corporate Responsibilities are Vital for Compliance and Protection.

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82 Costly Sales Tax Registration Mistakes to Avoid

Mar 29, 2019 by

Your Steps to Simplify Your Sales Tax Compliance.

We created this new report recently for new e-commerce sellers looking to get into compliance with sales tax and are at the stage to get registered for sales tax in many states. This content is covered in various parts inside your Sales Tax System membership.

We wanted to share this report for you also as it is a great reference guide as you get into compliance with more states where you have physical or economic nexus.

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Patterns that Create Business Failure and Success—An NLP Perspective

Mar 29, 2019 by

Business and life do have patterns of success and failure. NLP (neuro-linguistic programming) is the study of the connection between the neurological processes (“neuro”), language (“linguistic”) and behavior patterns that have been learned through experience (“programming”) and can be organized to achieve specific goals in life and business. I like to use this simple definition: it is a study of patterns or recipes. If you have a great recipe for your favorite meatloaf, there are certain ingredients that, if are added in the correct amounts and sequence, will create a specific result. This is similar to an NLP pattern.

Patterns for Business Success -Scott Letourneau

Patterns for Business Success

For example, good spellers do one thing differently (or have one more ingredient) than bad spellers. Good spellers will first see a word visually in their mind, sound it out, and then spell it. Bad spellers will skip the step of visually seeing the word and jump right to sounding out a word, then attempting to spell it out. Good spellers have a different “recipe” than bad spellers. They have one ingredient different.

In business, there are patterns of success and failure.

One core pattern for business success is the Disney pattern, modeled after the famous Walt Disney. Walt and his team of Imagineers were able to accomplish amazing results with their meetings. Walt did not run a meeting like most business meetings. He would separate meetings into different types. In the first meeting, called “the dreaming room,” you are allowed to come up with ideas and that is it. There is no evaluation or organization of ideas. That is a separate meeting! Why? If you start allowing your staff or yourself to evaluate ideas in the meeting, it will often stifle new ideas. People will start to think, “Maybe my idea is not such a good idea.” That is NOT how Walt Disney conducted meetings.

I recommend you adopt this pattern for your business meetings. Here are the four meetings Walt would run: First is the “in the dreaming room” – all brainstorming. Second is organizing the ideas. Third is to evaluate the ideas. Fourth would be to implement the ideas.  That was his brilliant pattern for business success.

This is especially important if you are a solo business owner. You may be sabotaging your own success by coming up with great ideas and immediately thinking how it’s not going to work. That will stifle even your own ideas.

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