Certified Entrepreneurial Advisor

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22

Jul'18

What happens to Expenses Incurred before Incorporation?

What happens when you incur expenses before you have incorporated your company? There are three basic types: organizational, startup, and operational. 1. The organization costs and start up costs. These are the costs of setting up and forming the corporation. They have to be capitalized, a certain portion of each can be deducted, the balance having to be amortized. See https://www.irs.gov/publications/p535#en_US_2017_publink1000208919 In basic terms, up to $ 5,000 of organization and $ 5,000 of start up costs can be deducted in the year incurred, the balance amortized over 15 years. If the amount of either type of costs exceeds $ 50,000, then the 1st year write-off is phased out, $1 for $1. At $ 55,000 of costs, the particular costs ( start up or organizational) are fully phased out and can only be amortized. 2. The operational costs of running a business which existed before incorporation. In other words, you and some friends or you by yourself start a company. It’s an unincorporated entity that has expenses of operation before you decide to incorporate. I think your question is, what do I do with these expenses that aren’t start up and aren’t organization expenses. Expenses which aren’t start-up expenses, which …

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30

Jun'18

Why would anyone take the risk to be an Entrepreneur?

The typical response is that we entrepreneurs don’t think like “normal” people. We have a passion to start something new, make something that is ours, and built it into a successful business. Most of us have a lot of self-confidence and we tend to think outside the conventional box. We ask a lot of “what if” questions. That’s not quite accurate, and only covers a small segment of the entrepreneural population. Some of us just don’t play well with others. We can’t hack it in the corporate rat race. We can’t play the politics and people games necessary to make it in a corporate environment. Some of us want to do what we want to do. We can’t stand being ordered around. We chafe at the corporate lifestyle. We’re people of action, not meetings and we rebel at the typical corporate “defer, deflect, deny and finally defend” mentality. Some of us are in love with our ideas. We see visions and opportunity where “normal” people see risk and heartache. Some of us are un-hirable. We will fail the corporate screening process because we can’t “fit in” to the typical corporate environment. So we are left few other options: take a …

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02

Jun'18

What do I Need to Know about Finance and Accounting for my Startup?

Knowing a number of basic finance and accounting concepts is essential to the success of your startup. At the bare minimum, you need to understand basic bookkeeping and preparation of financial statements, even if you are going to hire an accountant (recommended). You also need to understand the basics of finance and financial markets, as they impact the economy. Without this knowledge of finance and accounting you are running your startup blind. So, as a bare minimum, you need to master a beginning accounting and business finance class at the college level. I would suggest a local community college. You should also take a course in basic taxation, because you need to understand that. To be effective in running a business, you need these skills: (1)basic bookkeeping (2) setting up and monitoring internal controls (3) banking and credit including the way credit works, how to balance your checking account, managing cash (4) payroll, and payroll tax compliance (5) Sales, GST and VAT tax compliance (6) the basics of income tax (7) cost accounting, to the degree necessary to figure out what your product/service costs are, your overhead, and your margin under varying circumstances (8) how to read a financial statement, …

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27

May'18

Should I Go All-In and Invest All my Savings into my Startup?

All in? Invest everything you have into your Start-Up? No reserves except credit cards? Throw caution to the wind, jump onto that boat and make it float? If it springs a leak, use credit (borrowings) to float it for a while, until it finally floats? Eventually, sail off into the sunset with the gentle wind at your back, the beautiful girl at your side. I like the idea. Reality might be something entirely different. Do you have a business plan? Have you thought out what can ( and probably will) go wrong? Have you figured out how your competition succeeds? Have you really done the research to know what your costs and risks are? Remember, you are about to put real money into this… A true story may clarify. I have a good friend who started a business. At first they did very well. He upped the ante and put all his cash into it. Then the recession hit, and he weathered the storm, but incurred over $ 90,000 of credit card debt to keep it afloat. Limped along for several very stressful years. End of the story is he got lucky and found someone to buy the business for …

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25

May'18

How do I find the Right CPA?

Finding the right CPA or the right accountant is really important. Important because the results depend upon who you get, and it’s an area where you, the client may not be aware of whether you got the best advice or not. There are a lot of stuffy accountants (CPAs) out there who have very high opinions of themselves. They talk about “the firm” and act like they are something special. They tend to be rigid, unimaginative, high priced and advocate for themselves. There are also a lot of very friendly nice guys who are not very competent. They talk a good spiel, but they have neither the resources nor the experience to handle your problem. So how do you find the right CPA? What are you looking for? Lets see: 1. A hard-bitten no nonsense negotiator who can deal with the IRS at their level, knows all the audit tricks, has been there many times, a street fighter. 2. A clever innovative thinker who knows all the ins and outs of the law, understands the difference between light gray and dark gray, wants to take you to the limit of tax savings, but without crossing the line. 3. A plugger, …

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19

May'18

How do I start a business with no experience?

How do you start a business with no experience? Maybe you haven’t worked in a job, other than maybe a temporary job in school. Becoming an entrepreneur, doing a start-up, and being successful is not as easy as it might be portrayed in Entrepreneur or Fast Company, or Inc magazines. They highlight the .1%, not the 95% who didn’t make it. My suggestion is that you shouldn’t start a business just yet, because you really need to have a lot more experience working for someone before you start your own business. Starting a business is hard. You have to know a lot about business, taxes, employees, marketing, organization, etc. Yes, you can learn a lot about these things at school, taking the appropriate courses, but as the saying goes, “in theory there is no difference between theory and practice, in practice, there’s a big difference.” Truer words have never been spoken. Now a lot of people are going to jump all over me saying “you don’t need any experience, just do it! There are many examples of people who did exactly that and succeeded.” Right. And for every one of them, there are 100 you don’t hear about who tried …

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19

May'18

How is the Best Way to Deal with a Trial Balance in Accounting?

I love this question! Lots of great stuff, if you look at it carefully…. “to deal with” meaning, “how do I handle it!” You want to handle it with care. It’s the summary balances of all the accounts and it can tell you a lot. You are probably going to have to make some adjusting entries, and the trial balance will lead you to many of them. “best way” meaning, “what should I do?” Here we want to be methodical. First off, check to see if the thing balances, i.e. debits equal credits. Don’t be fooled by programs like QuickBooks, which force the difference into an imaginary account like “opening balance equity.” (BTW, that should always be zero). Even the best accounting programs can fall out of balance. Got to check that first. If it is out of balance, wow, there is so much potential work to do… can’t live with an out of balance trial balance! Second, methodically go down the balance sheet. Start with cash. The amount in the trial balance is probably wrong. Did you do a bank reconciliation? Do you have the adjustments for things like outstanding checks, bank fees, interest, etc? If all you did …

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24

Apr'18

What Should You Know to Analyze a Financial Statement?

What do you need to know to analyze a financial statement? The answer is a little complicated. Here are the things you should know: A basic understanding of accounting. You need to be able to appreciate what the various components of a financial are, and where they come from. You need to understand the pitfalls of financial reporting, and the limitations of GAAP. A good understanding of the tools of financial analysis, how they are used and what they reveal. Things like ratios, trend lines, scatter charts, and the like are important tools, if you know how to use them. A good understanding of the industry. You need to know what is expected and what is unusual. Without some comparative information and background, your financial analysis of the company is in a vacuum, and probably meaningless. A good understanding of the business. If you don’t know anything about the business except what you see in the financial statements, you don’t know very much. When I read an annual report, I spend far more time reading the explanatory material than actually looking at the financials. I do a web search on the company, try to understand what their products are, their …

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21

Apr'18

What’s the Difference Between a LLC and a S Corp?

There are many differences between a LLC and a S Corp, even though at first glance they appear to be essentially the same. First, let’s tackle the issue of forming a LLC versus a corporation, in general. The LLC is generally a lot easier to form. Usually it only requires registration from the state. To make things formal, you should have what’s known as an operating agreement amongst the owners. That’s it. With a corporation, you also have to register with the state, but you have a lot of busy work to do. You have to adopt a charter, adopt bylaws, appoint a board of directors, pass resolutions, etc. Both a LLC and a Corporation will most probably have to do annual filings with the secretary of the state in which they are formed. Some states, like Missouri do not require that for a LLC. Now, what is the difference between a LLC and a S Corp? Easy. The S corp has one set of rules for its taxation. Very rigid rules. Very mechanical in application. Some of the other respondents have pointed out that S corps must pay their owner/officers reasonable compensation. The balance of the income can be …

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04

Apr'18

Should I leave my low paying, meaningless job to start a business?

Oh my, some serious issues in this question! Jumping off the current boat to swim with the sharks and try to stay afloat and build a new boat from scratch is incredibly difficult, far more difficult than it looks. Look very, very carefully before you jump. The water is cold, full of sharks and unpredictable big crashing waves. Once you abandon the ship you are on, be prepared for some rough times. You may drown. You cannot start a business until you have sufficient savings, have done intensive research, have networked and made good connections, and have a backup plan. Low pay job: Ok, so make something of it. Do the best job you can, be a superstar. Be a sponge: learn everything you can and more. Prove to your employer that you are worthy of a raise. Then look around for another, better paying job. Work your way up. “Meaningless job” – there is no such thing. The meaning you have in a job is what you put into it. If you are a janitor cleaning toilets, put everything you have into cleaning them the best way anyone could. If you sweep the floors, do it with style and …

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