Financial Advice for Small Businesses

Even well-equipped entrepreneurs could use some help, so we asked owners like you to identify their biggest finance and operations challenges. Enter our small business mentors with advice on everything from when to take an owner’s draw to how to secure funding to grow your enterprise.

Our goal is to help you improve the bottom line without feeling like you have to start from scratch. Read on for exclusive advice from business experts who can help your company succeed.

Financial Advice on Owner’s Draw

Q. When should you be comfortable taking an Owner’s Draw if your business isn’t consistent each season?

A: The great thing about Owner’s Draw, or Member’s Draw, is that you can decide when to take it and when not to. Assuming you are a sole proprietor, in the seasons when cash flow is less fluid, you may opt to leave the funds in the business, saving your withdrawals for more lucrative seasons.

There are a few things to remember when making an Owner’s Draw.

Contact your accountant to ensure you are processing the draw as required for your business structure. Sole proprietors and LLCs taxed as sole proprietors normally have more flexibility than other business structures per Internal Revenue Service default rules.

Offset any equity with the amount of the draw. For bookkeepers, there will be a credit to cash (decreasing the cash amount) and a debit to the owner’s draw account (increasing the amount withdrawn by the owner for the year).

Owner’s Draws can be paid via a company check or a bank transfer from the corporate account to your personal account, as long as the transfer is recorded as an Owner’s Draw.

Keep in mind that Owner’s Draws are not considered business expenses for sole proprietors and are therefore taxable income. Set aside an appropriate percent of your draw to pay the tax bill.

- Tretta Bush, business accounting expert, president, Tretta Bush & Associates, Norfolk, Virginia.

Hiring a COO

Q. When is the right time to hire a chief operating officer (COO)? What’s the value of a COO in a small, service-based business?

A: If we agree that the COO runs the business’s daily operations, there are two situations where hiring for this position would be appropriate.

First, the owner wishes to step back from running the business on a day-to-day basis and concentrate on a specific aspect. Second, the owner doesn’t have the capacity or skill set needed because either the business has changed in a significant way, or the owner wants to move in a new direction.

In either case, bringing in someone with these capabilities can be imperative, but the business must be able to afford the additional compensation while continuing to pay the owner.

- Doug and Polly White, small business experts, principals, Whitestone Partners Inc., Richmond, Virginia.

The Benefits of Trademarking

Q: What are the steps for trademarking or patenting your brand or product and what protection does trademarking and patenting offer small business owners?

A: The benefits of having a trademark are twofold. First, you are able to legally and publicly protect your identity and prevent other entrepreneurs from using your mark. Second, having a trademark helps customers easily identify the goods and services your business has to offer in the marketplace while promoting your brand at the same time.

Here are the three necessary steps for trademarking:

By conducting a comprehensive search through already registered and pending trademark applications, you can verify that your business’s name and logo are unique and ensure your business is the only one that does business under that name.

Once you know your name and logo are unique, register your trademark and file a trademark application to the United States Patent and Trademark Office (USPTO) to claim your name and protect your business identity.

Even though you filed your trademark application, you might want to also conduct a trademark watch. This “watches” any applications that may be registering a similar name, logo, or design for their business. These services monitor and protect your trademark against infringement and provide you with a detailed report of pending applications that may be similar to your trademark.

- Deborah Sweeney, small business incorporation expert, CEO, MyCorporation.com, Calabasas, California.

Seeking Investors, Angels Too

Q: What’s the best way to find silent investors or funding for my business so I can expand and hire a staff?

A: Real investors are rarely silent. Real investors put their money into high-potential growth businesses, like the obvious high-tech and biotech and clean energy [sectors], that they can imagine selling out in three to five years for 100 times more than their value today. And they almost always take seats on boards of directors, and [insert] clauses in the legal documentation that give them [a] voice in management. Sometimes angel groups will provide seed money for high-growth potential and not exercise a lot of control, but that is the exception, not the rule.

If you’re working on one of those high-growth, high-potential businesses, then join the free angel investment platforms at gust.com and angellist.co, look into local startup events (check with your chamber of commerce or local business school), and investigate seed investment and angel investment, which are often the same thing.

If not, then get in touch with your nearest Small Business Development Center (SBDC) and look into the Small Business Administration and local small business banks for business loans, and, if it applies, special low-interest business loans for minority owners, special development areas, and so forth.

- Tim Berry, small business strategist, author of “Lean Business Planning,” Eugene, Oregon.

Boosting Your Business Credit Score

Q: How do I build a D&B credit score without leveraging my own personal credit?

A: The Dun & Bradstreet score (aka D & B) is a credit score for your business and operates much the same way as a personal score—it monitors if you are paying your creditors and vendors on time. The score ranges from 0 to 100; businesses with 80+ are considered a good risk. The first step is to apply for a free DUNS number, which is used to create your business credit profile that monitors your payment history.

If you have no business credit history, you will need to leverage your personal credit as lenders and vendors have nothing to go by since you have no track record of borrowing and paying on time in your business. Once you’ve secured a credit card, business loan or vendor payment arrangement, you can begin to build a solid business credit score, by paying on time. There’s no specific time frame to get to that 80+ score, just monitor the status from time to time.

- Dorethia Kelly, financial expert , founder of #MoneyChat, Detroit.

Taking your business to the next level is sometimes as simple as making the right decision at the just the right time. Working with mentors and seeking out experts for consultation at these critical moments really can make all the difference for your business. And while you’re considering your business’s next big financial move, take a moment to protect the investment that you’ve worked so hard for by contacting an American Family Insurance agent (Opens in a new tab). Our experts will help to custom build a policy that meets your business needs today, and well into the future.

This article is for informational purposes only and is available through different sources. This information does not, and is not intended to, constitute legal advice. You should contact your attorney for legal advice specific to your situation.