Beyond the Dollar: Bitcoin and Your Small Business, Part I

By Clay Wyatt

If you have read a newspaper in the past few weeks, chances are you have heard of Bitcoin. But, beyond all the hoopla and scoffing of ivory-tower economists, is this something you should be interested in as a small business owner?

Never fear, we’re here to break Bitcoin down and see what all the fuss is about!

Origin of Bitcoin

Bitcoin

In 2009, an anonymous programmer created Bitcoin in the wake of the global financial crisis. (S)he wanted to create a currency independent of any central bank or financial institution.

Independence and anonymity appear to be the key drivers for Bitcoin. On the independence front, the likely motive was to weaken the grip various central banks have on the global economy, which many view as self-serving at the expense of the people. Take our own Federal Reserve which, as it admits on one of its own sites, is “an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government.” Basically, it is a collection of private bankers with a major conflict of interest (which, some suspect, resulted in the massive bailouts of recent years), and is partially foreign-owned (another conflict of interest in the eyes of many).

On the anonymity side of the equation, the original person (or perhaps group) who created Bitcoin is not known to this day. In limited communications, (s)he revealed Libertarian leanings, which typically goes hand-in-hand with mistrust of authority. And, as many Libertarians suspect a connection between the deaths of several historical leaders and their efforts to alter the existing financial order, chances are slim this person or group will ever self-reveal.

Value of Bitcoin

Bitcoin has shot up in value in recent weeks. How much so?

Originally, one dollar was worth nearly 1,310 Bitcoins. As of this writing, the value has surged exponentially and a single Bitcoin is worth over $218.

To illustrate, suppose you were feeling lucky on the first day Bitcoin became available. You had a great month and pumped a spare $200 into Bitcoins in case the currency every took off. Your investment would have taken off, indeed, and you’d now have over $57 million!

Why the Sudden Surge?

Most recently, the events in Cyprus have sparked increasing interest in Bitcoin. As Fox News reported on April 8, the government in that country is contemplating confiscating a percentage of its citizens’ bank accounts to solve its financial woes. With this in mind, citizens in Cyprus and other worried Europeans have begun taking their money out of banks and entrusting their wealth in the Bitcoin system, sending the value of this digital currency skyward.

Is Bitcoin Legal?

All of the above information is little more than entertainment if you cannot legally use Bitcoin. Fortunately, you can.

According to Fox News, the US Government has issued its first guidelines for private digital currencies. Effectively, this means it recognizes Bitcoin and other similar currencies and has decided not to prohibit their use at this time.

Still, the future is not certain and it is hard to imagine those with an interest in keeping the dollar on top won’t begin to fight Bitcoin. Then again, as a stateless currency, it remains to be seen whether any government-imposed limitations would be effective. So, if you decide to use this digital currency in your small business, pay close attention to developments as time goes on.

Do Any Businesses Use Bitcoin?

Until recently, Bitcoin was typically used mostly by businesses you’ve never heard of and the underground economy. However, several major companies are now on board.

According to PC World, Etsy, Expensify, Mega, Reddit, WordPress and other well-know companies now accept Bitcoin. If a heavy hitter like Shell or Wal-Mart joins the ranks, all bets are off.

Pros and Cons of Bitcoin for Your Small Business

Let’s take a look at the pros and cons of using this digital currency.

Pro: Increased Payment Options

Adding Bitcoin to your list of accepted payment methods will provide increased flexibility to your customers.

Think of this along the lines of the relatively new trend of “tap-and-go” smart phone payments, given that Bitcoin is another payment option for smart phone users. As use of this currency becomes more widespread, lack of acceptance could place your small business at a competitive disadvantage.

Pro/Con: Fluctuating Value

The ever-changing value of Bitcoin in relation to the dollar can be a benefit or drawback.

At the present time, it is a major benefit. In less than 24 hours (as of this writing), the price has surged nearly 17 percent. So, for example, if you sold two Bitcoins (~$380) worth of goods yesterday, you’d have effectively earned over $60 in interest on your sales in a day. Not bad!

On the other hand, some speculate we’re nearing a bubble. So, if the dollar value of Bitcoin were to drop, your revenue would effectively fall with it.

Con: Pricing

If you permit customers to pay in Bitcoins, you’ll have to come up with a separate pricing list.

Con: Accounting

Accounting, particularly from a taxation standpoint, is a major gray area for Bitcoin and there is no clear set of best practices on the matter. As such, speak with an accountant to determine your best course of action if you choose to accept this currency.

The Bottom Line

In just a few years, Bitcoin has risen from the depths of the Internet to a widely-used alternative to the dollar. And, with recent events in Europe facilitating a rapid growth in demand along with recognition from the US Government, it appears it may be here to stay.

It would be foolish to go all-in and accept only this currency. Yet, if your accountant is on board, consider implementing it as one of your payment options. After all, most people will still pay in dollars, so your risk will be fairly minimal.

Stay tuned for part II of this piece, which will discuss how to accept and use Bitcoin.

Via: Business Finance Store

Small Business and Real Estate Loans

Get a Commercial Real Estate Loan for Your Small Business -- stock.xchange

Get a Commercial Real Estate Loan for Your Small Business — stock.xchang

Article written by Deborah S. Hildebrand Harris

Las Vegas dentist Chris Cozine wanted to cut costs after the Great Recession. He found an unlikely way: He ditched the office he was renting and bought 6,600 square feet of his own. 

Besides improving his surroundings – he left the gray walls of the old place in favor of an open layout with modern glass tiles and a mix of colors – Cozine is paying $1,800 a month less on the mortgage than he was paying in rent. 

“I save money, but the icing on the cake is that the office decor is of my choice,” Cozine says.

This story appeared in the Huffington Post in July 2012. However, Cozine is just one of many small business owners who have opted to buy instead of rent their office or business space. Just like renters who become homeowners, buying property is often a better, wiser, choice.

Find the Right Real Estate Loan for Your Needs

Recent news reports indicate that small business lending is on an upward climb. This includes commercial real estate loans under $1 million. That means now is a good time to get the loan you need. Here are some of the loans you might consider depending on your individual situation.

Type of Loan

Description

Purpose

Lender

Purchase money loan A private loan between the buyer and seller. Generally used when you can’t qualify for a traditional bank loan. Seller
Refinance loan Paying off an existing loan with the proceeds from a new, updated loan for the same amount. May include a “cash out” portion. To obtain better terms and rates when the market changes. Banks and other financial institutions
Bridge loan A temporary, short-term loan, typically with larger upfront fees and higher interest rates. Used until you secure permanent financing or remove an existing obligation. Private money and sub-prime lenders
Mini-perm loan To buy property or build on it. Used to establish an operating history to obtain a term loan. Banks
Second mortgage A second loan on the same property. Used for debt consolidation or to obtain cash equity. Banks and other financial institutions
Hard money loan The value of the property backs it, not your creditworthiness. Usually offers lower loan-to-value (LTV) ratios, but higher interest rates. Considered by some to be a loan of last resort. Private lender

The type of commercial property you purchase – retail, multi-family apartments, industrial, office, or something else – will have a big impact on your loan terms and conditions.

Lenders are not in the real estate business. If they have to take ownership of the property, they’ll want to liquidate it quickly to reduce their loss. Therefore, office buildings and strip malls are easier to turnaround than churches and auto dealerships.

SBA Loans for Commercial Real Estate

One of the best choices for entrepreneurs and small business owners when it comes to commercial real estate loans is the Small Business Administration (SBA). They offer these commercial-property financing options.

Description

7(a) Loan

504 Loan

Purpose Owner-occupied commercial real estate purchase, refinance, or construction Owner-occupied commercial real estate purchase or construction
Loan amount Up to $5 million Up to $11.5 million; higher for qualified manufacturing firms
Interest rate Typically, prime + a margin not to exceed 2.75% Generally 3% to 6%
Term Up to 25 years Up to 25 years for real estate; 10 years for equipment
Prepayment penalty Yes Yes
LTV (lesser of appraised value or the selling price divided by mortgage amount) Up to 90% Up to 90%


Keep in mind that the SBA is not a lender. Their purpose is to guarantee the loan. Lenders — banks, credit unions, private lenders — are responsible for setting the interest rates. 

Factors Influencing Your Real Estate Loan

As you look for a commercial real estate loan, consider these factors:

Buyer. Determine if the buyer is you or your business entity.

Cash flow. Cash generated by your business is the number one criteria used to determine the amount of your commercial real estate loan.

Collateral. In addition to a down payment (see below), you may need collateral such as business machines and equipment, accounts receivable, or even personal assets. 

Documentation. Be prepared to provide income statements, balance sheets, statements of cash flow, and tax returns for the last three to five years. Additionally, you may be required to supply this information on a regular basis over the course of the loan.

Down payment. As with any real estate loan, the larger the down payment the better the terms, conditions, and amount of the loan.

Lender size. Some experts suggest matching the size of the loan with the size of the lender. Small loan means small lender, and vice versa.

Loan amount. Clearly identify your property needs and then thoroughly research real estate in your area.

Repayment plan. Know how you will repay the loan before you get it. Otherwise, lenders will likely hesitate.

Terms. Be sure you understand all the loan terms, conditions, and covenants before you accept the loan.

Steps to Ensure You Get the Best Commercial Real Estate Loan

When it’s time for you to secure a commercial real estate loan for your small business, you may want to follow the advice from this All Business post:

  • Thoroughly research your loan options by starting with your own banker and the SBA
  • Hire a commercial real estate lawyer to help you understand and negotiate the best deal
  • Have a business plan and the proper documentation
  • Be prepared to invest your own money
  • Analyze your cash flow

Taking the time to get the help of a commercial real estate expert before you decide can get you the best property and loan for you. As Cozine says in the Huffington Post article, “I look at my office as a retirement nest egg.”

Source: The Business Finance Store

The Advantages and Disadvantages of Equity Financing

By Clay Wyatt

Equity financing involves exchanging ownership of your business for funding. In other words, you must sacrifice a percentage of your business (including profits) to a third party to raise funds in this manner. Typically, you can get this type of funding from angel investors, employees, family and friends, industry colleagues and venture capitalists.

This form of financing comes with numerous advantages and disadvantages. These are as follows.

Advantages

No Debt

For business owners who wish to avoid debt, equity financing does just that. By taking on investors instead of loans, you won’t have any debt obligations.

Outside Assistance

Anyone who invests in your business will want it to succeed. Thus, an angel investor, industry colleague or venture capitalist with related experience may offer valuable tips to help your business grow.

Improved Employee Performance

If employees invest in your business, they’ll have an extra incentive to perform well. This is why many businesses offer employee stock plans.

Disadvantages

Regulatory Burden

There are complex legal and regulatory issues involved in the process of equity financing. Complicated reporting is needed for investors at the end of each fiscal year, meaning that you’ll have to hire an accountant to deal with it!

Decreased Control

By enlisting investors, you’ll decrease the amount of control you have over your business. An investor will generally want some control over the outcome of his or her investment.

Note that a professional investor and even Uncle Joe may become very demanding. For example, if you want to close down for 2 weeks for a vacation, will an investor with 20 percent equity be comfortable with the foregone revenues?

Additionally, there are times when investors force out the original owner, which means you could have to send out resumes again if things start to go downhill!

Conclusion

Equity financing has numerous advantages. With it, you’ll avoid debt. Also, you’ll potentially gain expert advice from investors, which could increase the success of your business. Additionally, if employees invest in your company (now or in the future), they’ll have an extra incentive to perform well.

On the downside, Uncle Sam will put up some red tape via the mentioned regulatory burden. Also, most importantly, you’ll lose some control of your company. This is the largest risk you’ll face, as it could result in you being kicked out of the company you built!

Carefully consider the advantages and disadvantages of equity financing before deciding whether or not to use it. In a nutshell, if you can live with others having a say in your business and can deal with some extra regulations, then you can avoid debt and possibly get some expert advice.

Via: Business Finance Store  

When Should Business Owners Outsource CFO Services?

August is here and it is time for another blog. Many business owners are very good at what they do and are very busy doing it. Accounting and financial analysis is the last thing they have time to do. When is it time to bring in a CFO that can provide the expertise to give them that financial competitive advantage? I found this great article that answers that question. Give it  read.

When Should Entrepreneurs Outsource CFO Services? by Ravi Patel
 

   

Entrepreneurs start businesses with a new product or service idea and often have skills related to engineering, manufacturing/delivering, or marketing that product or service. Rarely do entrepreneurs commence businesses because of their financial expertise, unless they provide a financial service or product.

As the business idea is crystallized and the company starts growing, entrepreneurs definitely require financial and accounting services that are either developed in-house or outsourced. These functions in the young company are sometimes paid very little attention and are treated as a “bookkeeping” necessity. As the company grows, the operations portion (billing, collections, payables, payroll, etc.) of the accounting function becomes more defined and structured. A Controller is hired to supervise the accounting staff and prepare the monthly financial statements and handle compliance issues. The “CFO” functions are often performed by the CEO (used synonymously with entrepreneur in this article) as a full-time CFO is not deemed necessary or financially justified.      

In fact, CFO services are needed, though not necessarily full time, during the initial stages when a company is started. The need continues to increase with the growth of a company and ultimately a full time CFO is required. Outsourcing CFO Services until a full time CFO is hired is often the prudent course of action.     

As the entrepreneur explores the idea of starting a company, he/she has the product or service expertise but needs guidance on the financial strategy and modeling the business aspects of the potential opportunity. A CFO type advisor can guide the entrepreneur on setting up the proper business and financial structure initially so significant, expensive changes do not have to be made later on. The consultant can also assist the entrepreneur in formulating the appropriate financial organization and internal controls from the beginning. This should provide a template for building the finance function as the company grows.   

Once the entrepreneur starts generating revenues and decent cash flows, he/she starts thinking about raising funds to grow the business. A solid business plan is essential for such efforts, whether for equity or loan sourcing. Utilizing outsourced CFO services is ideal for assistance in preparing business plans and making professional presentations to funding sources. A CFO advisor can also provide useful funding contacts to the entrepreneur and help the CEO in building the finance and accounting organization, including hiring a Controller, to satisfy equity infusers or lenders.       With a stable company and years of acceptable growth, an outsourced CFO can supplement the Controller in an organization by providing the entrepreneur with independent reviews and assessments; special projects in areas of new product/service investments; business/financial analyses; or even help in troubleshooting areas of financial concern, such as business downturns. The entrepreneur benefits from the services of a CFO without having to invest in one and often expediting the performance of necessary tasks, without the need for the CEO or Controller detracting from their day to day responsibilities.     

Until such time that an entrepreneur hires a full-time CFO, an outsource CFO provides an independent, objective advisory relationship and sounding board to the CEO. Such a relationship is valuable to the entrepreneur as it allows him/her to utilize the experience and skills of the consultant for positive change and avoid making significant mistakes made by other growing companies. Even with a full-time CFO position in the organization, the outsourced CFO fulfills a need during transitions or vacancies. 

     The consultant who provides CFO outsource services becomes a useful ally and a stakeholder in improving the profitability, enhancing the value, and financial growth of the entrepreneur’s business■  

(CFO On Call UA-38359200-1)