Author: Complete Controller

There are Three Main Purposes of Financing

• Funding a business start-up
• Financing for the growth and expansion of a business
• Dealing with unforeseen financial encounters

Sources of Business Financing

• Self-Funding
• Giving up Equity
• Debt

An entrepreneur takes on debt to fund massive purchases that they could not afford under normal circumstances. A debt arrangement means that the borrower is given money under the condition that the money will be paid back later with interest. There are different types of funding:

• Business credit card use
• Small Business Administration loans
• Foreign investors
• Crowdfunding/selling shares of the business
  
  

An Entrepreneur Must Be Clear of the Situation and Considerations When Taking Loans

Consider the following when taking a loan

1. How early are the finances needed? If there is no time to wait, then debt financing may be the only option left to invest in the business.
2. How much finance is needed? If there is a small amount to be invested, a loan can be taken.
3. If a company is running successfully and financing is required urgently, debt can be taken.
4. Debt is beneficial if you want to keep the business local and keep the whole ownership with you.
5. When taking debt, the lender has no claim to equity in the business. Ownership remains the same. Business operation and bookkeeping decisions remain with the owners/entrepreneurs/executive management.
6. When net profit is increased, the lender will only be given the borrowed money and the interest in it. If business progress and rewards are more significant, the entrepreneurs will reap the rewards. The lender will not claim or share in the business rewards/profits.
7. Interests on debt can be subtracted from the business’s tax returns. Borrowing money can be a gift to entrepreneurs. The cost of interest decreases the taxable profit that your business earns. Thus, it reduces the tax expense in your company/business. Large corporations/businesses also use this strategy to minimize tax expenses.

Consider options other than taking loans

• Debt has to be paid back with interest, whether the business is a success or not.
• High interest in debt during a recession of business can dissolve the company.
• The bigger the debt-to-equity ratio in the business, the riskier the business is considered by investors.
• The company is usually required to place assets of the company as security/warranty to the lender.
• If you are making day-to-day purchases and are small in numbers, then using a business credit card is the best option.

 

It can be a challenging duty of entrepreneurs to decide when and how business financing is right for the business. If the entrepreneur does not have enough money to be used as a capital investment, they may go to lenders to borrow money or take debts from banks or financial institutes. Starters in the business field are not experienced, and lenders will not give them an accurate picture. Getting loans in the wrong situations and at the wrong times costs financial losses to entrepreneurs.

Entrepreneurs must understand these essential factors before going to lenders

• Credit history: previously, how has the business financing been managed?
• Ability to pay back the loan: is the business going well enough to pay back the amount borrowed with interest?
• Has the entrepreneur invested enough personal finances as capital in the business?
• Does the business have assets to be put down as security in debt if the company fails or a period of double-dip happens?
• Does the entrepreneur have enough experience in business financing and business operations?

Conclusion

If entrepreneurs are not experienced, they can consult with bankers and accounting firms to get a clear picture of their business and when to take a loan. They can benefit from the advice of bankers as well. 

Using the right tools and assistance at the right time for business financing is a way to a successful business. 

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

Borrowing money is sometimes a business necessity, and sometimes, business owners go into debt to boost business growth. This often has the opposite result, and instead of rapid growth, the debt becomes a severe cause of cash flow and other business funding problems. Small business owners should prepare and implement a step-by-step guide to ensure that they can get out of debt before the company fails.

Getting Out of Debt

Step one

• List All of your debts, their balances, and interest rates.
• After tracking down all your debts, you will have a clear idea of how much is payable.

Step two

• Set periodic goals.
• Plan out your total debt. Then, know the dates of their payback schedule. Divide your debt into monthly savings in a separate account in your business. You will keep an amount of money every month on that account reserved for debt payments.

Step three

• Reduce expenses. The crucial step in getting out of debt is to minimize expenses in the business.
• Make a priority list.
• Ensure your employees’ wholehearted participation.
• Strictly check accounting statements, especially financial statements.
• If you are spending a considerable amount on advertising your products, you cannot cut all of the advertising costs, but you can find alternatives. Go for social media advertising, and it will also aid in direct interaction with your potential clients.

Step four

• Do not mix your personal account with your business account. This is one of the biggest accounting mistakes small business owners make. You will not get the true picture of your business’s financial status.

Step five

• Keep a firm control of your business bookkeeping to avoid fraud.
• Cut short on unnecessary expenses.
• Manage business operations more effectively.
• Predict, analyze, and sort out business funding, cash flow, and other problems over time.

Step six

• Revise your budget.
• Keep the money for monthly payments of the debt. Do not use this money for any other purchase. Otherwise, the debt with interest will continue to pile up. Manage your inventory. Do not purchase extra stock.

Step seven

• Sacrifice the fast track for slow growth.
• Many entrepreneurs want to grow their businesses by leaps and bounds in no time. 
• Try not to go into more debt for rapid growth in business until you have paid back all of the previous debt.

Step eight

• Know the exact cost of the services you provide to your customers. Never compromise on price, or the company will either dissolve or go into increasing debt.

Step nine

• Stay sharp in your business situation. Use accounting software to keep an up-to-date accounting system.

Step ten

• Drop credit cards. Credit cards should be used minimally in small-sized businesses as the loans will pile up quickly.

Step eleven

• Think productively about producing more income.
• Debt counselors often suggest finding means to bring more money into your business to eradicate your business’s debt-payment liabilities once and forever. Find ways to increase your income. 
• Liquidating high-value assets can be done as a last resort, but still, it provides an option for paying the debt on time. You can sell a valuable asset of your business that is not being used or is not a part of the capital investment.

Step twelve

• Work harder and work more. Create extra shifts and put in overtime to get out of debt. You can seek out options to work overtime for the time being while your company is in debt.

Step thirteen

• Every time you achieve your goal, reward yourself. Keep achieving your goals until your company is debt-free.

Conclusion

Getting out of debt is of great importance. If not paid down promptly, interest can increase the debt to an unmanageable level. It can further force you to take on even more debt to run business operations. Instead, prepare and implement a guideline for you and your employees to get out of debt fast.

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

Making payroll is perhaps the most essential task for a small business. Unfortunately, issues regarding payroll in small businesses are also common. Here are five common payroll problems and how to avoid them.

Hiring Out-Performs Income

Often, small companies will experience rapid growth, and a business owner can feel mounting pressure to hire more employees. A small business will not have had time to build up revenue to appropriately pay the added staff in some cases. Before reaching that point, the business owner should assess growing business activity and needs against the current payroll staff’s skills and workload. This will allow the owner to develop smart strategies to efficiently use the current human resources without over-extending payroll funds. Staff expansion should only happen after the business has built enough steady income to meet new employees’ required payroll.

Temporary Staff is Needed

You must know when to hire new staff, how to manage their payroll funding when the revenue builds up, and how to overcome expenses until your revenue is generated, which means temporary staff might be a good option. For example, if your business wins a project and you need more staff to complete the task before the deadline, you must increase your company’s payroll. However, a temporary project also increases the expenses of a company. This is a common scenario in construction companies, landscapers, and designers. Fortunately, this process is predictable and calculable, so prepare in advance and plan out finances and any other foreseeable issues. You can take money from your business’s last season or borrow money for payroll funding until the next season yields revenue.

Over-Staffing

At start-up, business owners often hire more employees than business needs require. New business owners can get in the habit of hiring staff for any new task that arises instead of efficiently dividing the work among the existing staff. Before hiring another team member, explore other options, such as outsourcing contractors, finding automated tasks to reduce the burden on the team, and reorganizing existing teams.

Delayed Payments or Discounts Given to Customer

Many customers delay their payments; however, if your small business runs short on income, you can quickly generate invoices and immediately send them to customers. This will help minimize any extenuating delay in receiving payments from your customers.

One incentive to receive payment quickly is to offer your customers discounts if the payment is made within a given time frame before the deadline.

Another option is to use Invoice Factoring for typically slow-paying customers. Invoice Factoring is when a business sells its invoices to a third party, known as a factor or factoring company, at a discount. This service can be provided by independent finance providers or even by banks.

Misconstruing Payroll Taxes

It is imperative that you carefully calculate your payroll taxes. Otherwise, the Internal Revenue Service (IRS) will notify you that you owe your employees money. This will naturally create payroll issues for your business and your employees.   However, it is essential to note that a taxpayer can request the Internal Revenue Service to negotiate payroll taxes for a small business and settle payroll taxes less than the total amount.

Conclusion

Payroll problems are a common issue for small businesses. If a company is running short on funds to meet payroll, the priority must be to secure funding from an alternate source. After all, if not carefully planned, payroll funding problems can drastically harm your business’s credibility and financial health. Small business owners should strategically manage their payroll funding by avoiding common mistakes like ill-timed hiring, poorly planned temporary projects and staff, over-staffing, delayed payment receipts, and misconstrued payroll taxes.

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

Leadership Skills in a New Business

Entrepreneurs are considered leaders with vision and exceptional ideas that take the strengths of their company and employees together to achieve the organization’s goals. Leaders of a new business usually handle the responsibility of the success or failure of the business upon themselves, and the most prominent risk faced by the company is serious business debts.

But, numerous examples of failures of new companies in the corporate world show us that there is a difference between entrepreneurs and capable leaders. Many entrepreneurs have great ideas, but they lack the necessary leadership skills and proper bookkeeping to execute these ideas with adequate team management.

The central role of a leader in a start-up is not just generating ideas. A core leadership skill is taking the team and organizational resources currently available to execute the plans. Team building is another essential skill that leaders must possess to make their company a successful endeavor.

Decision Making Under Stress

The most significant strength of any leader of a new business or a start-up is the ability to make crucial decisions in a short and limited time. Scientific research by experts at Harvard indicates that true leadership capabilities are determined when they are under duress. For example, how well does a leader handle their serious business debts?

Procrastination in leaders is not an ideal trait for running a new business smoothly. The leader needs to be vigilant and close to employees in critical times. Keeping the employees close and explaining the principles of proper bookkeeping to them makes for excellent leadership skills. 

Managing Teams in the Initial Stages of New Business

A significant strength of a new business leader is the art of managing people in teams to help the company achieve its goals and objectives. The difference between a failed venture and a successful one is selecting the right side. When the new start-up business is going through turmoil and faces the dangers of serious business debts, sometimes the leader will be aware of how their team members regard their individual personalities. Still, in stressful situations, people’s reactions are different.

Without proper guidance from the leader, the team will collapse and eventually cause the company to fail. Instead, the main strength of the company and its leaders is to use the skills of each team member in different environments.

Irreplaceable Traits of a Leader

The leader of any new start-up must rely on their skills and tend to focus and improve their decision-making skills because these traits are unique. Another critical aspect of the company’s strength is to stick with the founding team of the company when facing severe business debts.

Managing debts and similar critical business scenarios brings about the best and the worst traits of teams and leadership. It is essential to rely on the strengths of each team member and communicate the problems wisely.

Communication Between Team Members

The communication skills of a leader in a new business are necessary because the leader must be able to communicate all of the necessary information needed for proper bookkeeping. The strength of a successful leader is to align the dominant and distinct features and abilities of their teams.

The team must feel comfortable sharing their ideas to make the new company successful. For this purpose, the roles assigned to groups must be flexible and according to their abilities. Developing a new venture in the current volatile corporate environment is necessary for the leader and the team. The focus must be on getting new clients and adding more business while focusing on minimizing serious business debts. Customer retention as a core strength of a new company depends on adequately communicating the client’s needs by business leaders to their team. Some client needs are complex and need more communication between groups and the leader.

The Bottom Line Conclusion

Effective leadership is essential for new business ventures; the undeniable fact that skilled leadership leads to better team management. Proper team management is a major strength for a new business to overcome challenges. The company’s success is just a fraction of good performance by the leader, but it is more dependent on the role of team members and their efforts. About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

Timely Inform Employees

Most entrepreneurs who are struggling are well aware of whether they will be able to make payroll. It is due to this feeling of embarrassment, that they won’t inform their employees that they are not able to pay them. Experts recommend though that, as soon as an employer comes to know that they cannot pay their employees, inform the employees at once. Don’t handle the situation emotionally; be honest and realistic. Once you have decided to inform employees, start with upper management, working your way down to the newest employees. The top-down approach is adopted because the severity of the situation lessens when the news of no payments circulates from upper management to the lowest level.

Search Resources for Finances

An employer is liable to state and federal taxes if they are unable to pay employees. As soon as you come to know that you cannot make payroll, take decisive action. Think of all the sources from where you can get the funds. These resources may include carrying out layoffs, swift solutions of the business modification for rapid liquidity, or closing entirely. If all these plans fail, the owner is liable to penalties and fines. These fines are equal to fifty percent of the annual earnings.

Utilization of the Available Resources

Another method to pay employees without making payroll is to utilize all of the available resources. These available resources are the inventory and pending receivables your business has. These are the immediate sources of funds. Liquidate the inventory or ask vendors to pay receivables immediately at a discount. You will be able to earn capital immediately and can pay employees.

Avoid Confounding the Payroll

Some employers tend to a fraction instead of nothing at all. This method of staggering payments may not be applicable and practical in all states due to legal issues. Once you cannot pay employees, their efficiency decreases, and they are likely to flee as soon as they get new employment. 

The other method recommended is reserving some of your most trusted employees the promise that you will pay them as soon as possible. Ask them if you can hold their paychecks for a few days in order to pay other employees timely. If they agree, you will be able to make on-time payments. 

Pay for Labor Immediately

The U.S. Department of Labor states that all daily wage employees should be paid the full wage along with their overtime. Otherwise, the penalties and fines will be imposed according to the Fair Labor Standards Act.

If you are unable to make payroll, manage to pay labor, and daily waged workforce to avoid lawsuits.

Streamline Your Business

Once you are able to come out of the crisis and have paid your employees, restructure your business. Necessary modifications are needed immediately to avoid this happening again. Make changes in the business model. Decrease your overhead expenses and restructure your operations. 

Employees are the asset of your business, and you are cashing in on their hard work and honesty. Paychecks are the only source of livelihood and income for them. So, even in a time of crisis, you should be able to manage to pay off their checks so that they can survive. But, in return, they should be empathetic with you. This message should be conveyed to all of your employees.

Conclusion

Not being able to pay your employees is a dire situation for a business owner. Still, options like selling assets, borrowing money, or delaying some payments may allow you to pay them, even in the worst of situations.

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

Small businesses are the backbone of our country. They produce jobs, come up with new innovations, and help keep money in the local community. Without small businesses, our economy would suffer immensely. There is a misconception between the terms small-business owner and entrepreneur. Both can have small businesses, but they have different styles of leadership and thoughts on running their business. Entrepreneurs take much larger risks than business owners.

Small Scale Business Owner

The owner of a small-scale business organizes corporate processes and incurs the risks of running an operation based on the prospect of making a company profitable, like what the SBA (Small Business Association) states, an entrepreneur does. The SBA offers the same services to small-scale business owners who qualify for financing. In fact, by virtue of the agency’s name, its main focus is to assist small business owners in accomplishing their goals. However, because small business owners could be viewed as owner-operators, meaning they focus on sales rather than business development, they’re more apprehensive about functional steps versus strategic growth.

1. About 50% of small businesses fail in the first four years, and about 25% of them in the first year.
2. About 76% of small business proprietors report facing marketing challenges. The growth of online marketing has increased the availability of platforms small business owners have to navigate when advertising their companies.
3. Private companies continue to be the lifeblood of every economy.
4. For a business with less than 5,000 employees, the average employee base is 13 people.
5. Small business owners are getting older. Around 51% of small business owners are over 50 years old, while only 16% are under 35.
6. For employees, there are often very tangible benefits of moving to a larger industry. On average, employees at businesses with over 100 employees make 31% more than employees at sub-100 businesses.
7. The convolution of financial accounts has changed the way we operate. More than 50% of small businesses now have a CFO or controller managing their accounts.
8. In 2014, the IRS evaluated $2.1 billion in civil penalties against business income tax filers.
9. Of the 1.09 million penalties assessed by the IRS, 47% were for delinquent payments, while less than 0.5% were for impreciseness.
10. Only four out of every ten new entrepreneurs are women. This is a gap that has widened slightly since the mid-’90s despite the incentive of grants for women-owned businesses.

How Small Business Owners Differ from Others

1. Small-business owners have a great idea: they resolve a problem in their community. They know their business and target spectators. They know what will make their clients happy: serving their customers.
2. Small-business owners hold steady. They like to know what is coming next and where it is coming from. They make calculated decisions based on bookkeeping, where the outcome is clear. The result may not be huge, but it will usually keep them moving forward.
3. Small business owners think about the things they need to finish this week. They have daily and weekly to-do lists. They manage workforces, work with customers, network with new customers, and keep everything rocking and rolling.
4. Small-business owners are emotionally attached to their businesses. They are typically reluctant to sell or hand their business off to someone else unless it’s family. They like making the decisions and running the day-to-day decisions and tasks. 

Final Note

To the business novice, being an entrepreneur or a small business owner is identical.  However, these terms vary greatly.  Sure, they are both self-employed and need to make money (regardless of how they spend it). Almost every country needs small-business owners to maintain a vibrant economy, and entrepreneurs are the ones who propel it forward.

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

Employee theft of inventory and supplies and the unauthorized use of equipment, although not as recurrent as cash theft, can do major damage to small businesses. In some cases, a non-employee conspirator may be involved, including a dishonest vendor. Although cash is the ideal target for employee theft, supplies, inventory, and equipment are alluring as well. These frauds range from a box of paper clips to the unauthorized use of expensive furniture or equipment. The following are common types of employee misconduct relating to non-cash properties:

Unauthorized Use of Equipment

Employee unauthorized use of equipment can be a major loss for small businesses.

The Fraud: How about that great snowblower the company bought to clear sidewalks and the parking lot for customers? Employee Joe David decided it was better to “borrow” the company’s new tool to do his driveway than to buy or rent one of his own. While doing his driveway, his neighbors wanted to hire him to do theirs as well. Why not? Joe, the potential entrepreneur, ran the snowblower all weekend, using up all the fuel and eventually breaking the machine. There was no way the boss could clear the sidewalk and parking lot for his business Monday morning as he couldn’t get that new snowblower started.

The Flaw: Trusting employees. Leaving keys or easy access to valuable equipment. No formal policy stated or enforced.

The Fix: Set strict policies and limits for employees and enforce them. Physically secure valuable equipment. Employees may not only misuse your business equipment but may make your assets prudently “disappear.”

Inventory Shrinkage Can Be Reduced

Dealing with employee theft of inventory, supplies, and equipment can be an on-going struggle, depending on the type of workforce and turnover present in your organization.

The Fraud: Inventory can shrink due to plain old robbery, phony receiving reports, and unauthorized write-offs of old accounts receivable.

The Flaw: Depending on the industry you’re in, there is guaranteed to be some natural shrinkage in inventories over time due to minor errors of one sort or another. But large discrepancies are almost always due to fraud. Even during a physical count, a fraudster employee can use empty boxes, etc., to fool an auditor into thinking there are more units on the shelf than there are.

The Fix: As with other types of employee fraud, a formal policy of segregation of duties, strict supervision, voucher accounting, and all relevant internal controls must exist and be enforced at all times.

Physical counts should be recurrent and detailed, sometimes on a surprise basis. Nothing should be taken for granted. Reconciling bookkeeping records with sales invoices periodically is a good way to test the records. Frequent assessment of the perpetual inventory records is a must. Examination of financial statements to mine for margins, turnover rates, increases in costs of goods sold, and criminal receivables should be done monthly. Another type of employee fraud is committed to fake sales or purchases and often requires the support of an outside accomplice.

Protect Against Fake Sales and/or Purchases

Fake sales made by impostor employees may go to a phony customer or a real one who is an accomplice.

The Fraud: The property could be “sold” to a fake company with a phony purchase order and invoice and shipped right out of the warehouse to a storage facility that the fraudster employee rented to receive them. The goods can later be sold for cash, the invoice voided, and the inventory record doctored. Or, perhaps an employee is in a unique position to manipulate purchasing and receiving systems.

The Flaw: As is commonly the case when it comes to fraud, the reason these frauds happen is attributable to the lack of separation of duties, lack of supervision, and lack of overall internal controls.

The Fix: It bears reiterating that a formal policy of separation of duties, strict supervision, voucher accounting, and all relevant internal controls must exist and be enforced at all times.

Conclusion

Unfortunately, fraud is inevitable in many organizations. Regardless of the size of the fraud allegation or the individual involved, the organization should consider having a documented policy of how fraud allegations will be investigated and resolved. 

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

Debt is the amount of money received from a lender to invest in a business to finance its operations. If paying the debt back is not prioritized in small businesses, it will keep on piling up and become a serious threat to your company. The debt will become unmanageable and can result in the bankruptcy of your small business. Here are six amazing tips for digging your small business out of serious debt.

1. Cut unnecessary costs and free up cash

Keep a strict check and balance on the expenses going on in your business. Do not sign any repayment application before double-checking the purpose, date, and invoice number.

Eliminate unnecessary expenses in your business. For example, if your advertising is costing you too much, then consider using social media and directly interacting with your potential customers as a way to lessen the cost.

2. Consolidate your loans

Serious debts in small businesses often result in cash flow problems, which will create more debts. Small business owners often take more debt on interest to pay back their previous debt. These owners can refinance their business by consolidating the debt they have taken. They will have to pay back the debt monthly in small, manageable payments.  Making these payments means you will have to reserve a smaller amount of cash for debt payback every month. This will not generate a cash flow problem in your company, and this can allow you to take more loans for debt payments and other business operations.

3. Think productively about increasing income

Debt counselors often suggest finding a means to bring in more money in your business to eradicate the debt-payment liabilities from your business forever. Find ways to increase income. You can seek out options to work overtime for the time being while the company is in debt. 

Liquidating high-value assets can be done as a last resort, but it still provides an option for paying the debt in time. You can sell a valuable asset of your business that is not in use or is not a part of the capital investment.

You can ask investors to bring in more money to grow your business and pay back the loan faster for digging your company out of serious debt.

4. Prioritize debt payments

Paying the debt must be your priority. You can hold onto certain expenses. You can hold some personal facilities for you in your business. Inventory should be managed. You can delay payments of your purchases until the date it is due as long as you pay in time. All of this has to be done in the process of digging your company out of serious debt with those high interest rates that can kill any company.

5. Revisit the budget

If the debt continues to build, then it possibly means that the company’s existing budget is not working out. Cut down on the expenses that are not vital in your company. Always keep the money for your monthly payment of the debt. Do not use this money for any other purchase. Otherwise, the debt with interest will keep piling up. Manage your inventory. Do not purchase extra stock.

6. Drop credit cards

Credit card use in your company also means that your business is delaying payments of the expenses. Try using cash when available.  And, if the money is not available, avoid overspending. Do not use credit cards while you are in the process of digging your company out of serious debt. Credit cards are also a means of unnecessary purchases at certain times.

Conclusion

Serious debt on your small business is the debt you had taken earlier in the company’s history that continues to pile up. The reasons can be that your company’s debt produced cash flow problems, and you had to take more debt. The interest on debt kept increasing along with the loans taken. This piling up of serious debt can result in the insolvency of your small business. Use the above tips for digging your company out of serious debt. About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

An entrepreneur often creates debt when funding large purchases that could not be afforded under normal conditions. A debt arrangement means that the borrower loaned money to return the money through interest payments.

Equity is the worth of an asset minus the total of all liabilities on that asset. Equity financing is the course of increasing capital by the sale of shares in a business. The sale of ownership parts to improve the finances of a business is equity financing.

Equity financing has a broad spectrum to increase ownership shares. Friends and family members can be asked to invest funds and gain ownership shares accordingly. Financing from other private companies can also be considered in equity financing. 

While this information may indicate that it makes the most sense to use equity financing instead of debt-inducing loans to finance aspects of your business, there are some advantages and disadvantages to both options. A comparison should be made between debt loans and equity financing to help you decide how to finance the needs of your business.

Debt vs. Equity Financing

Debt vs. Equity Financing is a strategic decision made by small and medium-sized business owners or financial officers. One should consider the pros and cons of increasing business capital through debt financing or equity financing. Here are the advantages and disadvantages of debt vs. equity financing.

Advantages of debt financing through equity financing

• When taking debt, the lender has no claim to equity in the business. Ownership remains the same. Business operation and bookkeeping decisions remain with the owners/entrepreneurs/executive management.
• When net profit is increased, the lender will only be given the debt money and interest. If business progress and rewards are more significant, the entrepreneurs will reap the rewards. The lender will have no claim or share in the business rewards/profits.
• Interests on debt can be subtracted from the business’s tax returns.
• There will be no need to seek the vote of shareholders in the business to make certain decisions.

Disadvantages of debt financing over equity financing

• Debt has to be paid back with interest, regardless of whether the business is running successfully or not.
• High interest on debt during the recession of business can dissolve the business.
• The bigger the debt-to-equity ratio in a business, the riskier business is considered by the investors.
• The company is usually required to place the company’s assets as a security/warranty to the lender.

Debt vs. Equity Financing: Which Way Should Your Business Go?

1. How early are the finances needed? If there is no time to wait, then debt financing is left to invest in the business.
2. How much finance is needed? If there is a small amount to be invested, then debt can be taken.
3. If a company is running successfully and financing is required urgently, debt can be taken.
4. If the business is growing and thriving, equity will provide a chance to attract investors with experience and knowledge. A good business relationship is established among the entrepreneurs/investors. It can have a remarkable positive impact on business in the long run.
5. Debt is good only if you want to keep the business local and keep the whole ownership with you. But, if the company is progressive, reaching other markets other than your local community, you might need to go for equity financing.
   
   

Conclusion

Debt and Equity Financing are the two options available for small to medium-sized business owners when they need to invest more money but they lack the amount at the time of financing. Entrepreneurs must consider all options for choosing debt or equity financing. If the company faces a period of decline or recession, then the debt may not be a good choice.

Making financial decisions for your business can be a challenge. However, if you carefully weigh the advantages and disadvantages of debt vs. equity financing, you can do what is best for your company financially.

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

Internal fraud can happen to anyone; no business is immune to it. Companies in the US lose over $500 million annually due to internal fraud. Here are some signs of internal fraud and responses.

Unjustified Transactions

Any unexplained and unjustified changes in bookkeeping records are a definite warning sign of internal fraud. If there is a decrease in revenue despite continuous payments from the business bank account or if there are various pending payments for long periods without any justified reason, then there is most likely something suspicious happening. Also, if there is an unexplained increase in expenses and a sudden decrease in profits, it means that money is draining out of the company to a place where it is not supposed to go.

The Over-Efficient Workaholics

An accountant who is a fraudster will go to any extent to hide his or her crime. They often want to work off-hours when everyone has gone home. Another sign is that they refuse to go on leave or use any vacation time. They often try to take work home. All of these activities are red flags and need to be addressed. Keep an eye on such workaholics. Unfortunately, there may be an underlying reason for working such odd and extreme hours.

Unexplained Satisfaction

Fraudsters try to hide their working documents and processes from managers and others. If any manager or other employee tries to get involved in their work, they become offended. They give unsatisfactory explanations and answers on any fault.

They are overprotective. They work alone and don’t like any involvement or interference. Records maintained by them become inaccessible and untouchable to others. When asked questions, they become strangely defensive. They know that the records will expose their crime, and their answers will be suspicious and unrealistic.

Financial Stress

If an accountant is facing any financial stress in their life, there have been cases when they plan internal fraud to fulfill their needs. Any unexpected financial loss such as divorce, mortgage, or debt acts as the trigger for internal fraud. Know your employee by taking time for small discussions with them about their current situation. By doing this, you can detect any sudden change in their behavior and activities.

How to Respond to Internal Fraud?

A business owner should know how to respond to internal fraud. Whether the one committing the fraud should go through an internal investigation or be handed over to law enforcement should be a decision that you are prepared to make.

A forensic accountant should be consulted for an expert opinion.  They will investigate and interpret your financial information. They will analyze the amount of loss due to fraud, collect all shreds of evidence, preserve them, and prepare a summary of the lawsuit. They will suggest a policy to prevent fraud in the future.

Termination is the minimum consequence of internal fraud cases. Along with termination, other penalties enforced by a lawsuit are necessary to make it an example that fraud will not be tolerated in your company.

How to Investigate

An internal investigation should be exhibited in such a way that your employees, partners, public, and donors trust you and your investigation. No question on the credibility of your investigation should be raised. Hire experienced fraud investigators to ensure that your investigations are handled according to law and be sure that there is no violation of legalities.

A prompt decision needs to be made by the business owner, internal audit, board of directors, and forensic accountant alone or in combination. The decision-making authorities should address the size of the fraud, the target of the investigation, how to recover the loss, and other risk factors.

Interview all of the parties, i.e., vendors, customers, and employees. Review all relevant records. Preserve the evidence as early as possible because documentary evidence is key for investigations. Forensic accountants and IT personnel should be hired to do investigations in the best way to ensure that you handle them thoroughly.

Conclusion

Internal fraud should be investigated in detail to produce evidence for legal prosecution.

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.