Blog
Archive for July, 2008
Five Mistakes People Make When Incorporating
July 30th, 2008
By The XBanker
1. Choosing the Wrong Entity
Problem: Many incorporating companies are not run by lawyers but by promoters, people who have no experience and training in corporate law. These companies are geared to sell you something, not to assist you in carefully selecting the right corporate entity. Choosing the wrong corporate entity can cost you hundreds of thousands of dollars in extra taxes and can fail to protect your assets. It is so crucial to make the right choice.
Solution: Corporate Direct is owned and operated by lawyers, Our staff is trained to work with you to select the correct corporate entity, be it a C corporation, S corporation, LLC or LP, for your specific situation.
2. Creating Too Many Entities
Problem: Many incorporating companies are staffed by commissioned sales people. Their goal is to sell you as many entities as possible in order to earn a higher commission. We have seen situations where as many as six entities have been formed where only one was needed. Creating too many entities is costly upfront and costly on an annual basis.
Solution: Our staff is trained to protect you with the right amount of entities, not an overabundance of them. Our staff is not on commission and thus has no incentive to sell you more than you need.
3. Paying Too Much Money
Problem: Many companies will lure clients in with promises of low cost incorporations only to have high pressure sales people upsell them into products and services they do not need or want. We have seen cases where services that should have cost under $1,000 have been inflated to over $10,000 in fees. The clients may never know they have been cheated, or learn only when it is too late.
Solution: Corporate Direct charges a flat fee per entity and provides you with an upfront statement of what your specific strategy will cost. There are never any hidden fees or surprises.
4. Bogus Office Packages
Problem: Many companies will tell you that state law requires you to have an office in your state of incorporation, for example, Nevada. They will then sell you on a $3,000 annual office package to keep you in compliance. In truth, there is no such law requiring a fully staffed office and you have been ripped off for $3,000 a year.
Solution: Corporate Direct does not sell bogus packages. If you need mail forwarding and the like we can assist for as little as $360 per year. But we will not misrepresent state law to take money out of your pocket.
5. Incomplete Formations
Problem: Many companies will file articles with the state and then only provide you with forms to fill in for the bylaws, minutes, and stock certificates. Do you know how to fill in these forms? Will they ever be filled in once you receive them? Of course not. And by not having complete documents you open yourself to having the corporate veil pierced and thus exposing all of your personal assets to creditor claims.
Solution: Corporate Direct provides a complete formation package in your own corporate binder. All of the bylaws, minutes, and certificates are completed and you are protected.
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Monitoring Your Business Credit
July 30th, 2008
By Trent Lee
I am currently in the market for a new SUV for my wife. As I’ve researched and shopped around I’ve learned an important lesson: BEFORE you step foot into a dealership, make sure to have previously pulled your personal credit score and know exactly what it contains. This is sound advice, because you never want to be surprised by wrong information on your report when you are ready to use it. Fortunately, my wife and I both have high personal credit scores that we keep a close eye on with a monitoring service that alerts us of any minor or major change.
As I thought about it, I realized, business owners are in the same boat. BEFORE applying for any financing, you should know exactly what business credit scores you have what what your report contains.
Here are 3 simple reasons to monitor your business credit reports:
- Avoid Unpleasant Surprises: How much will your business qualify for? What interest rate will be granted? Both of these questions are determined, in part, by what is on your business credit report. Monitoring makes sure that you are not surprised by anything on your business credit report.
- Inaccurate Information: I can’t tell you how many times I’ve …
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Building Business Credit webcast available now
July 28th, 2008
By The XBanker
The Wells Fargo Small Business Webcast Sound Credit Practices for Your Business is now available. I was honored to be chosen to participate in this panel discussion with leading financial industry insiders and business owners as we talked about how to build business credit, and effectively manage business credit and cash flow. The program focuses on financial management principles that support long-term stability and growth.
Sound Credit Practices for Your Business offers tips and strategies to small business owners looking for ways to safeguard and strengthen their businesses. This webcast will provide informative, relevant and timely advice on how to implement and manage sound credit practices.
If you haven’t viewed a webcast before, it is like attending a seminar…from the comfort of your home or office. You simply watch online with both audio and video.
The webcast was moderated by Rich Sloan, co-founder of StartupNation.com. I’ve seen and admired Rich’s work for years, but was even more impressed when I met him in person. He’s both very smart and very funny. And I learned a lot working with the other panelists:
• Michael Billeci, Regional President, Greater Bay Area Region, Wells Fargo
• Scott Anderson, Ph.D. Senior Economist, Wells Fargo
• Jerry L. Mills, CPA, Founder and CEO, B2B CFO
• Sharon Evans, President and CEO, The Business Resource Group
Free registration for this webcast is now available at www.wellsfargo.com/biz/webcast.
About the Wells Fargo Small Business Webcast Series
Wells Fargo’s Small Business Webcast Series of interactive, online sessions is designed to help small business owners meet their business growth and management goals. The series, which launched in 2007, is one of Wells Fargo’s many resources to help small business owners succeed financially.
The latest addition to the library of small business resources in the webcast series is Sound Credit Practices for Your Business. The webcast series library also includes: Financing Strategies for Your Business, Protecting Your Business, Technology and Your Business, and Health Care Options for Your Business.
For more information on the series or to view one of these programs, visit www.wellsfargo.com/biz/webcast.
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The Series LLC
July 22nd, 2008
By The XBanker
The Series LLC is supposedly designed so that by setting up (and paying the fees on) one asset-protected LLC you can protect a number of properties in separate series within the one LLC. A graphic example follows:
1. ABC, LLC (a Series LLC)
a. Series One (duplex) b. Series Two (fourplex)
The supposed benefit is that if there is a claim against the duplex in Series One a creditor could not reach the fourplex in Series Two. It is in a separate asset-protected series the promoters will claim, and therefore can’t be reached.
There are several problems with the series LLC. The first is, conceptually it doesn’t make sense. If you form one entity and it is sued, all of the assets within that entity are exposed – whether they are in a separate series (or buckets or whatever else the promoters use to describe them) or not. Significantly, there is not one court case extending asset protection to assets held in a separate series. I personally do not want to put my assets into an entity and hope for the best in a future court ruling. By using separate LLCs we have the certainty that assets in a remote LLC will not be exposed to claims brought against a target LLC. As mentioned, the series LLC has been sold as a state-fee-saving device. By using a series LLC holding, for example, four assets, it is claimed that you only have to pay one filing fee instead of the four fees for the four separate LLCs. That argument worked until the state of California decided that each series would be taxed as a separate LLC. So instead of paying just $800 for one series LLC in California you would pay, in our four-asset example, $3,200 for the series – the same as if you’d used four separate LLCs with greater certainty of protection. While not every state is as aggressive a tax collector as California, you can be certain that some will follow suit and charge a filing fee per series.
There are other issues surrounding the various unknowns posed by the series LLC. Will the supposed “internal liability shield” of the series LLC be respected in states that do not have series provisions? No one knows. In a bankruptcy of one series would a court consolidate all of the various series into the parent? No one knows. But you can be certain that by forming separate LLCs you will not face such sleep-losing unknowns.
It is interesting to note that the American Bar Association committee on uniform state laws looked into the series LLC. After reviewing all of the uncertainties and record keeping complexities of the series LLC, the ABA declined to endorse them. When some of the nation’s smartest lawyers take a pass on the series LLC, maybe you should too.
-excerpt from the newly released, revised and updated 2008 version of “Own Your Own Corporation” by Garrett Sutton
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Credit Investors: Partnering For Personal Credit
July 18th, 2008
By The XBanker
Like it or not, your personal credit will open or shut doors for financing your business. If you have terrible personal credit, we can help you obtain trade credit, credit cards, equipment leasing and potentially some bank financing. However, we can obtain much more financing, if a business owner has great credit (preferably 700+ FICO). This has important consequences for you, if you are trying to finance a business and have poor personal credit. You need to consider bringing on a credit investor or partner that can help you obtain bank financing for your business.
Last week, I asked an entrepreneur about his loan readiness and he told me his credit was in the toilet. So I turned to his partner, “My credit is even worse,” was his reply. I guess when it came to selecting partners, this criteria slipped their minds – don’t make the same mistake. Unless a partner brings irreplaceable technical expertise, they can always be replaced with someone that brings skills and credit to the table.
If you’re an entrepreneur with poor personal credit, you should consider bringing on a credit investor or partner. Ideally, you’ll need someone with 700+ FICO scores and good ratios (feel free to ask one of our consultants to do an analysis of a potential partner before you tie the knot). You may have better luck finding an investor or partner with good credit, than finding one with cash.
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Protected: Kluster F@#k
July 16th, 2008
By XVulture
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Preventing Unnecessary Dilution
July 15th, 2008
By The XBanker
One of the biggest mistakes entrepreneurs make is that they give away too much of their business too soon. I’ve spoken with entrepreneurs that own less than 2% of their brainchild after diluting for “friends, family & fools” and for venture capital. You need to properly stage the financing of your business and to do so under the best circumstances possible to prevent unnecessary dilution.
Let’s say you are raising $250k from investors to start your business, if the business is only worth $500k, the investors will own 50% of it; if the business is worth $1m, they’ll only get 25%. The higher the valuation, the greater the percentage of your business that you’ll retain. It can be challenging to justify your valuation without revenue – which is where promising entrepreneurs routinely get taken to the cleaners. This is why I typically recommend convertible debt to raising hard equity, and why I recommend obtaining debt financing in the early stages of your business.
First of all, most business won’t raise a dime in outside capital. Investment networks are flooded with hopefuls that burn time and money trying to raise money – not recognizing the complete tooling they will receive in the event that someone actually believes their concept has merit and wants to invest. It is a lot easier to attract capital, and to do so on your terms, if you have successfully proven the concept and have some traction.
Unless you’re building airplanes, you can probably get things moving with less than $100k. This is why the XBanker is an important asset in the Shared Success family – we are here to help entrepreneurs establish a strong foundation, nailing the fundamentals and obtaining “seed credit” so they can get things moving. So if you are still slumming on the investment networks and forking over gobs of money for a business plan that no one will read (and if they read it – they sure won’t believe it!) – stop. Let us help you get your first $200k, so you can bring on investors under the right conditions.
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Want your business to survive and thrive?
July 10th, 2008
By The XBanker
You may have heard the statistics that half of small businesses fail in the first year. The Small Business Administration says it’s not quite that bleak. They report that two-thirds of new employer establishments survive at least two years, and 44 percent survive at least four years. (Still that’s 54% that don’t make it four years.) These results were similar for different industries.
Major factors in a firm’s remaining open include an ample supply of capital, being large enough to have employees, the owner’s education level, and the owner’s reason for starting the firm in the first place, such as freedom for family life or wanting to be one’s own boss.
Other studies have pointed to the following causes of failure as… Read the rest of this entry »
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You Know You've "Arrived" When…
July 10th, 2008
By The XBanker
…you make a cameo appearance in an Angelina Jolie movie.
Garrett Sutton’s book, The ABC’s of Getting Out of Debt, makes a cameo during a scene of the movie: Wanted.
The word on the street is that the movie is pretty lame – I guess the trailer is better than the flick (so you can see it here and save yourself some money). I imagine there will be some fatalities from kids trying to “bend” bullets (watch the trailer to see). On the other hand, Garrett’s book has received very positive reviews and no one has been fatally injured practicing anything in the book!
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You Know You’ve “Arrived” When…
July 10th, 2008
By The XBanker
…you make a cameo appearance in an Angelina Jolie movie.
Garrett Sutton’s book, The ABC’s of Getting Out of Debt, makes a cameo during a scene of the movie: Wanted.
The word on the street is that the movie is pretty lame – I guess the trailer is better than the flick (so you can see it here and save yourself some money). I imagine there will be some fatalities from kids trying to “bend” bullets (watch the trailer to see). On the other hand, Garrett’s book has received very positive reviews and no one has been fatally injured practicing anything in the book!
Read More »
