XBanker

Urge Your Vendors to Report Part II

October 8th, 2008

A few months ago, I reported on Experian’s effort to get companies to report business credit accounts to Experian. Now D&B is trying to make it easier for companies to report as well. They have launched a free service companies can use to report their accounts receivables to D&B from Quickbooks.

I can say from experience that in the past, reporting to D&B has been difficult and expensive. While I haven’t given this service a try, it sounds like it could be a very useful tool for business owners who want to report. Business owners who are trying to build business credit may want to urge their lenders and vendors to check it out.

The downside, of course, is the possibility that mistakes and false information may be reported. Without a law that gives business owners the right to view and dispute their credit information for free, it’s possible that one of your vendors or clients is reporting wrong payment info — and you don’t know it.

If you try out this service, I’d love to hear how it works for you!

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Things You Need to Know About Raising Money for Your Business

October 1st, 2008

Whether you have an established business in need of additional capital or are just starting out, you need to know about the benefits and limitations inherent in your financing options. The costs and risks involved in the first few years of operating a business may be frightening. Careful planning will help to reduce the risks. Facing realities about your business’s financing needs and diligently preparing your business plan will help you to overcome the costs involved. The investment community is not willing to grant loans or invest in your business unless you provide them with something worthwhile to invest in. The following considerations and suggestions will help you to gain the trust of investors and meet your business’s financial needs.

• Retain Accountant’s and Attorney’s services - Although the expense may seem burdensome at first, accountants’ and attorneys’ services will save you and your business money in the long run. The hourly rate of a competent advisor is little compared to the cost of losing your business or being held liable for the business’s mistakes. These advisors will help you to structure your business properly and take steps to help the business grow responsibly. Some accountants and attorneys even provide flexible payment options for young businesses.
• Establish the Necessary Structure - While many business entities are available that provide differing advantages, structural differences may affect your ability to obtain financing without losing control of your business. If you have any aspirations of developing your business into a publically traded entity, you will need to know about the structure of a C corporation. Before you approach your first investor, you need to decide the number of shares of stock to authorize, whether more than one class of stock will be necessary, and how many shares to retain yourself.
• Prepare Your Business Plan - The first step in your business’s search for financing, if not a preliminary step in creating your business, should be ensuring that you have developed your dream into a coherent, well-drafted business plan. Your business plan should provide potential investors with a comprehensive view of the structure of your business, your conclusions about the business, a realistic operating plan that you intend to abide by, potential risks the business may face, the position the business can pretty safely expect to be in over the next six months and over the next year, and possible the comments about your hopes for further developments. In addition to providing investors with valuable information, your business plan will cause you to focus your attention and force you to look at every opportunity and every risk that comes with it with a clear eye and a level head. Periodically updating your business plan will help you to gauge your progress and enhance your ability to make realistic predictions.
• Decide Between Loans and Equity Offers - Before considering financing, and possibly in the course of developing your business plan or through other research, you should gain an understanding of the costs involved in operating the business. Remember that many young businesses operate for at least three years without any profit. Unless you start your business with old money, you will need to explore the possibility of loans or raising money by selling partial ownership of your business in equity offerings. While loans may allow you to retain ownership and control of the business, often, institutional lenders will be hesitant to help finance a new business. Accordingly, the business may have to sell equity to meet its financing needs. Depending upon the business uses, this may be through the sale of shares of stock, membership interests, or partnership interests. In selling equity, you and your business must exercise care so as to prevent giving control of the business to investors and to ensure compliance with federal and state regulations affecting such sales.
• Differentiate Among Investors – Federal and state regulations affecting the sale of equity in businesses, generally referred to as securities regulations, differentiating among types of investors. Accordingly, in selling equity in the business, you and the business will need to differentiate between investors to ensure compliance with securities regulations. For most young companies, the investor of choice is an accredited investor. Generally, accredited investors have the financial resources and knowledge to rationally make business investments. Regardless of the type of investor involved, the business must make certain disclosures regarding the business’s financial resources and its business plan. Before accepting money from anyone, the business must know which type of investor it is dealing with, what the investor needs to make an informed decision, and which laws affect the transaction.
• Satisfy Continuing Obligations – Once the business obtains the initial financing it needs, it must manage its debts and obligations responsibly. As with a personal credit history, the business’s ability to satisfy creditors and manage its obligations may affect future financing options and prevent the business from being subjected to creditors’ lawsuits. Part of ensuring that the business will be able to satisfy its continuing obligations is ensuring that the business obtains sufficient financing from the start. By carefully and realistically planning for the business’s needs, you can help the business to achieve short-term and long-term financial stability.

Every business is unique. Your financing strategy should be based on your specific circumstances. However, success requires careful consideration of available alternatives. By considering your financing options and engaging in financial planning, you will ensure that you take advantage of available opportunities.

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California's Franchise Tax Board Hit with $388 Million Judgment

September 26th, 2008

After 10 years of legal wrangling, Las Vegas investor Gilbert Hyatt scored a huge judgment last month against California’s notorious Franchise Tax Board (”FTB”).

At issue is licensing income Hyatt received on his patents in the early 1990’s. Hyatt claims he moved to Nevada in the fall of 1991. California asserts he moved in the spring of 1992, and owes over $50 million in state taxes, as well as penalties for fraud.

Hyatt filed suit in 1998 against the FTB claiming he was the victim of their fraud, abuse of process and invasions of privacy. Hyatt claimed the FTB falsified evidence during his audit to reach their desired results.

After a 14 week trial, a Nevada jury agreed with Hyatt. They awarded him $138 million in compensatory damages and $250 million in primitive damages.

Hyatt hopes the verdict “will send a message to the Franchise Tax Board that they cannot continue these kinds of tactics.” He further contends that reform is needed “of a very bad government taxation system that abuses tax payer rights.”

And yet Hyatt is realistic. He expects appeals from the FTB will tie up the case for quite some time. After all, California has lawyers on their payroll to fight this out for another decade.

Stay tuned. . .

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Improve Your Cash Flow: Collect Debts You Are Owed

September 15th, 2008

Recently a friend called me about a debt she is owed. She operates a small business consulting firm and another small business owner stiffed her for about a grand. It’s not a huge amount of money, but collecting it would make a difference to her. (And since she provided the service, she should be able to collect.)

She was asking for my advice in collecting.  An attorney was out of the question (too expensive – and the client is in a different state) and the collection agency she had contacted wasn’t interested in one small debt.

Here’s another option she might consider:

Dun & Bradstreet’s Debt Collection Services
Affordable Debt Collection Services

Their offerings include:

• DunsDemand Letter – send a “wake up call” to slow payers

• DunsDemand Letter Series – convey the seriousness of the delinquency and escalate the collection process by sending three letters

• Contingent Collection – an effective combination of DunsDemand Letters and telephone calls made by a professional collections agent

How it works:

DunsDemand Letters are sent within a 30 day period by Receivable Management Services, a D&B partner, on your behalf. These letters will be sent on RMS letterhead and will have a tear-off remittance included for your customers to mail their payments directly to you

Starting at just $25, these services aren’t expensive and might just do the trick. If your business is owed money, it might be worth a try.

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Does A Car Lease Affect My Credit?

September 12th, 2008

Here’s a question from a reader:

Does signing a car lease and making those payments impact personal credit in any way? The short answer is, “It may.”

If the car lease is a personal lease, and is reported to the credit reporting agencies (most are, but not all), it will affect your credit. Whether it helps or hurts depends on all the other information in your credit report. If you already have a lot of debt and payments, then it could be negative. If not, it may be a positive.

Even if the lease doesn’t impact your score much, it can affect your credit in other ways. I recall one entrepreneur, for example, who was charged a higher rate for her mortgage due to an expensive car lease payment that appeared on her credit report. Except it wasn’t hers. When she got it removed, her interest rate improved.

If the vehicle is leased under a business lease, and does not appear on your credit report, then it will not affect your personal credit.

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