Latest Posts

Entrepreneurial energy is heating up
Posted 03 May 2012 by Mike Semanco  Add comment

Effective Use of Credit Insurance
Posted 19 April 2012 by Toby Dahm  Add comment

Customer Service Tips to Make Clients Love You
Posted 04 April 2012 by Candi Pavliscak  Add comment

Hennessey Capital's, Capital Conversations, is a blog, podcast, and social media portal
designed to provide entrepreneurs with. . .

  •        Tangible strategies and best practices to grow
        their business.
  •        Insights into financial trends and how they impact
        small businesses.
  •        Tips on accessing capital and managing cash flow.

Selecting Trusted Advisors for Your Start-Up

Written by John Seeley
Wednesday, 14 March 2012 17:35

By John Seeley, Senior Business Development Officer, Hennessey Capital

Congratulations! You are starting your own company, and you have exciting times ahead.  You are obviously confident in your product or service that you are selling to your customers, and I applaud your decision to venture out on your own.  As a three-time business owner, I would offer this advice: there are key service personnel that will prove to be extremely valuable, and could contribute greatly to your company’s success, so choose them wisely.  These people are essential for running a business smoothly, no matter what industry you are in.  I encourage you to conduct in-depth due diligence to make sure you have a strong partner in each category.  Family and friends are always a good sounding board for your ideas, and they are often the source of initial capital, but you need unbiased  providers, so do not hire them for these services:

Attorney: Your attorney is a valuable resource for ensuring that you conduct your business in the best possible manner.  Just like you tell your doctor about every ache, pain and rash, no matter how embarrassing, you need to make sure your lawyer knows everything.  From the very first legal documents to create your business, until the final sale or dissolution of your business, your attorney will be your advisor on all legal matters, and you should maintain a friendly, professional relationship.  Ask  his or her advice on a constant basis, such as what type of entity you should form for your business, and make sure they approve all sales contracts, vendor agreements and employee agreements.  Your first discussion with your attorney about an issue should not start with, “I received this notice in the mail…”  Attorneys can offer a wealth of knowledge about business based on what they have seen with their other clients. They can foresee obstacles and provide valuable insight that is hard to find elsewhere.

Bookkeeper and Accountant:  Given the significant difference in fee structure and their expertise, these should not be the same person.  When you first start your company, you will want to interview a few accountants.  It’s a good idea to pick one that will treat you like an important client. Choosing an accountant at a very large firm can sound appealing but may not be ideal for a start-up since you will not bring much revenue to them in the beginning, which means very little attention.  Ideally, pick an accountant that has worked with start-ups and has experience working with business owners in various stages of their company’s life cycle, and it is also a plus, but not necessary, for them to have experience with clients in your industry.  Like your attorney, it is important that you share everything with your accountant so that you do not find out later that money is tight because expenses crept up on you and killed your profit without you realizing it.  Your bookkeeper should be someone that you trust to input and maintain all of your financial information and provide up-to-date tracking of your company’s financial health, while your accountant will prepare your taxes and provide high-level guidance.

Banker: It is highly unlikely that you will qualify for a business loan to start your business, but you should always be planning for the time when you will.  Choose a bank that has a history of lending to small businesses in your industry, and meet the bankers and work with the one that you like.  Bankers frequently move to different positions within their own bank or to a competitor, so make sure you are in contact with more than one, and always ‘replace’ the banker that leaves with another so you have two at that bank.  However, stay in touch with the banker that left, for that person will be able to offer a competitive bid when you are finally ready for a bank loan.  You will likely need someone at the bank to ‘champion’ your deal through the ranks, and it is helpful when they can say, “I have known John for years, ever since he started his business.”

Alternative Lender: Since banks will only lend to a business with a financial track record, it is smart to look early for an alternative lender to provide your company with the necessary working capital to grow your business.  Cash is critical for any business, but especially start-ups, where there are wild and unpredictable peaks and valleys in revenue and expenses.  Your lender will be able to increase the funding to your company through extreme growth and perhaps even through unprofitable times.  The alternative lender is a means to get your company to the lofty plateau of sustained profitability, when a bank will likely take over your funding.

It is quite possible that these service personnel will become your top advisors, contributing their knowledge and experience to your success.  Taking the time to find the right people in these key positions can pay off in many ways. Get to know and trust them, and they could help take your company to a level of success you didn’t even dream of.  As Mel Brooks once said, “It’s good to be the King!”  Just don’t be alone.

 

15 Smart Tax Strategies for Small Business

Written by Jeff Wright
Monday, 05 March 2012 18:29

By Jeff Wright, Senior Vice President, Hennessey Capital

This is the time of year when many small business owners begin working with their CPA to complete their year-end financial statements and prepare tax returns. An effective tax strategy, however, requires planning throughout the year and not just in the month leading up to filing. Detailed record keeping is necessary to track all business related expenses that are considered “ordinary and necessary” by the IRS in order to maximize all tax deductions possible and reduce your taxable income. The goal should be to minimize your tax liability so that you retain cash that can be reinvested back into your company to grow your business. Strategies to consider include:

  1. Delaying recognizing revenue until the subsequent year. Pay operating expenses prior to year end to take advantage of additional taxable deductions. There are obstacles to consider which should be discussed with your CPA. 
  2. Reviewing your open accounts receivable to determine which accounts which may be considered uncollectible. That portion can be written off as a bad debt expense. Should it be collected, that income will need to be recognized in the future period.
  3. When you take your year end physical inventory count, identify what items are considered to be slow moving or obsolete inventory. You are allowed to write it down to its market value, which could be zero. You can also sell it at a discount and recognize the loss while generating some cash to meet your immediate working capital needs. You can also donate to it to charity and take the deduction. Keeping inventory levels low at year end reduces your taxable income.
  4. Take advantage of bonus and accelerated depreciation methods. $100% is allowed on new equipment purchases in 2011 and 50% in 2012 with a cap of $500,000 in 2011 and $139,000 in 2012. You can deduct the excess portion using traditional methods of depreciation equipment. That includes accelerated depreciation which depreciates the asset at a higher rate in the early years after purchase.
  5. Selling assets at a loss or liquidating a plant. Besides creating some cash for working capital or paying down debt, it reduces your personal property tax liability. Use the installment method to defer any gains.
  6. Understand the benefits of owning equipment versus leasing. Owning gets deductions for depreciation and interest expense if you finance the purchase. Leasing benefits from deduction for the monthly lease payments. Conduct a cost/benefit analysis to determine which is best for you.
  7. Contributing to retirement accounts and profit sharing. Besides providing a benefit to your employees for their hard work in making your business a success, it reduces your tax liability.
  8. Small businesses that pay at least 50% of the employee health care premiums and have fewer than 25 full time employees that make less than an average $50,000 per employee, are eligible for a credit up to a maximum of 35% allowed.
  9. Contributing to flexible health care spending account is done with pretax dollars. Consider this as a way to offset health care costs.
  10. While giving back to the community and creating some goodwill, donating to charity also creates a tax benefit.
  11. Investing in research and development and sales/marketing to grow the company in the future. There are credits for developing new products and processes to be considered.
  12. Using space in your home dedicated to your business allows you to deduct a percentage of your home expenses against business income. Many are afraid it creates a red flag for an audit by the IRS. Keep good records of all home expenses to support this credit.
  13. Credit for hiring veterans if hired after 11/11/11. Up to $5,600 for long term veteran, $2,400 for short term veteran, and up to $9,600 for veteran with service related disability.
  14. Domestic production credit of 9% of the lesser of taxable income or income resulting from qualified production activities for the year if the product or service is in whole or significant part was manufactured, produced, grown, constructed or engineered within the U.S. There are tests to meet these qualifications that you need to review.
  15. The decision to defer or accelerate expenses should be affected if the
    company is showing is showing a profit and has loss carry forwards. Loss carry forwards can be used to offset taxes due. You can go back two years and forward 20 years.

Some of these deductions have phase outs, limits and test that must be met to qualify for the deduction. Listed above are a few to be considered. Employ a CPA that understands your business and the tax code so that you can manage your tax liability throughout the year.

 

Why Entrepreneurship Isn’t For Everyone

Written by Joe Romeo
Friday, 24 February 2012 20:04

Motivations to start a business are as varied as the individuals that undertake entrepreneurship  – financial security, legacy, flexibility, the desire to solve a problem and a myriad of other reasons. However, owning your own business isn’t easy and requires a solid vision and the desire to make that vision a reality.

Here are a few reasons an individual should NOT pursue entrepreneurship:

  • It’s a quick way to get rich
  • Seeking a more laid back lifestyle
  • Desire to be their own boss

A few personal characteristics business owners should NOT possess: 

  • Suffering from a “entitlement complex” 
  • Not open to coaching, criticism or suggestions from outsiders
  • Operating as an island – no desire for help
  • Narrow mindset
  • Uncomfortable with change, surprises or uncertainty
  • Opposition to selling – don’t want to pitch products/services themselves

What it DOES take to run a successful business:

  • Dedication, desire, determination
  • Optimistic attitude
  • Access to capital – friends/family money or other sources
  • Ample time to start and develop business
  • Resources needed to be successful

Entrepreneurs DO need to be willing to sacrifice the following:

  • A paycheck for (potentially) a long period of time
  • Considerable free time, especially during the start-up phase

This is not meant to discourage or otherwise dissuade anyone from building and running their own business.  Rather, it’s a frank assessment of what it takes to be successful.  While the sacrifices can be significant, the benefits may outweigh the challenges. Remember that as a business owner, the risk may be great, but so is the reward. Follow your dream and press forward.

 

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