Why would anyone want to lock their small business down into a business structure? Just the term “structure” might be enough to give some entrepreneurs the heebie-jeebies. After all, modern folks value flexibility. It’s why so many of us own personal vehicles instead of relying on public transportation, why we prefer to book hotel rooms with free cancellations, and why we don’t purchase lifetime subscriptions to streaming services like Netflix or Hulu. We enjoy the freedom afforded by a variety of choices and want to be able to reverse course on decisions whenever the need arises.
This love for flexibility extends to our professional lives. While workers in prior generations often chose a career and stuck with the same company for decades before ultimately claiming their pensions, many Americans now experiment with various options and avoid being tied down to 1 company. This approach often means freelancing for your entire career or taking a meandering journey through the entrepreneurial jungle.
The benefits of a malleable career include fewer constraints on your creativity, pursuits, and accomplishments. If you can dream it, you very well might be able to do it.
“In my case, when I worked as a writer in my full-time job, I was only writing about my beat—articles and features,” explains entrepreneurial guru Mukti Masih. “When I started freelancing, I learned blogging, which was quite different from in-depth articles that I was used to. Thereafter, I co-founded a video production company with my brother so I got the exposure to script and screenplay writing. I have also written scripts for audiobooks, website content, copies for ad films and TVCs, product descriptions for e-commerce websites, white papers, and e-books. I am quite sure, a few jobs down the line wouldn’t give me the freedom to write all these kinds of things.”
At the same time, there’s something to be said for structure in the business world. And there are compelling reasons to set your small business up as an entity. Here are some benefits to consider:
Tax savings
Growth opportunities
Financing qualifications
Personal liability protection
It’s also worth noting that when you set up your business as an entity, you don’t completely surrender your flexibility card—you may actually have the opportunity to change structures if necessary.
Setting the stage for your business structure decision.
Some business decisions bring limited consequences. For example, let’s say you decide to put most of your marketing budget toward a Facebook campaign. After running your ads on Facebook for a few weeks, you might decide that you’d get a better response on Instagram. No big deal: you simply discontinue the Facebook campaign and then start advertising on Instagram. The cost is minimal, and there are no long-term complications.
It’s a different story when it comes to your business structure, however. While there might be the possibility of switching your structure down the road, you certainly won’t be able to hop from one to another like you would in the social media advertising example given above.
“Of all the decisions you make when starting a business, probably the most important one relating to taxes is the type of legal structure you select for your company,” explains a business report from Entrepreneur. “Not only will this decision have an impact on how much you pay in taxes, but it will affect the amount of paperwork your business is required to do, the personal liability you face, and your ability to raise money.”
You might be wondering which structure is ideal for small business owners—and there’s no boilerplate answer. Your best match will depend on a wide range of factors, including your business model, your industry, your growth goals, and your patience for procedural red tape.
These details, and many more, are best distilled through a business plan. This document outlines why you’ve started your business, how you’ll structure it, how you’ll run it, and where you want it to go.
If you’ve already assembled these details, putting a business plan together is merely a process of assembling your research and goals into a centralized place. For those who have yet to begin, you’ll want to start with some crucial questions. Here are some examples:
What do I want to accomplish with my business?
What problems does my business solve for customers?
What is my mission statement?
What are the financial projections?
What are the financial needs?
What makes my business different from the competition?
What did my competitor analysis reveal?
What did my industry analysis reveal?
What did my marketing analysis reveal?
Each question you answer will provide the information needed to build your plan. The process takes time, so don’t expect to cobble together a plan over a single weekend. As you can see from the questions above, conducting the competitor analysis and other research required could easily take several weeks. Put the time in so that you can get the best results out.
“Research and analyze your product, your market, and your objective expertise,” explains the Houston Chronicle. “Consider spending twice as much time researching, evaluating, and thinking as you spend actually writing the business plan. To write the perfect plan, you must know your company, your product, your competition, and the market intimately.”
Completing your business plan is a major accomplishment. It will guide all your subsequent business decisions, such as how to structure your business. Additionally, it’ll serve as a representation of your vision and abilities as you seek financing (more on this later).
Choosing the best structure for you.
Armed with the information from your business plan, you can choose a structure that aligns with your goals and maximizes your financial strategies. The 6 main options chosen by small business owners are general partnership, limited partnership, sole proprietorship, corporation, S corporation, or a limited liability company (LLC). Each has unique strengths and limitations, so let’s take a look at the highlights:
1. Partnership
Also known as a general partnership, this structure is a great option if you’re going to share ownership with other individuals. Each of the partners in these entities has an equal stake, helping to run the operations and sharing the burden of financial liability. If problems arise and the business incurs debts and losses, the partners would all be on the hook from a personal perspective. This means that assets such as homes, vehicles, real estate, and inventory could be in jeopardy.
One of the biggest reasons small business owners choose partnerships: it simplifies your tax situation and can save you money. With this structure, you can take advantage of “pass-through” laws that mean your business doesn’t have to pay taxes on profits and losses. Instead, those profits and losses pass through to the personal taxes of each partner.
Another benefit: partnerships are simple to form, and there aren’t too many costs associated with the process.
2. Limited partnership
This structure shares a lot of common DNA with partnerships, as they’re both fairly easy to set up and the costs are modest. Additionally, limited partnerships also qualify for “pass-through” laws, making tax season more enjoyable—you can simply account for your business’s profits and losses on your personal taxes and potentially save a lot of money in the process.
The chief difference is that limited partnerships allow for a hierarchy among the partners. Rather than everyone sharing in the profits, having a voice in decisions, and sharing liability for losses, some of the partners can serve in an investor role, where they don’t take on personal liability for the business.
The clear advantage here: partners can take on a role that aligns with their priorities, whether that’s a full-fledged seat at the table that brings higher risks and rewards or a safer position that comes from the “limited” role.
3. Sole proprietorship
For those who like independence and flexibility, a sole proprietorship is the next best thing to freelancing. This type of entity is convenient to set up and is one of the most inexpensive options available—no wonder it’s the most popular business entity in America.
As the name implies, sole proprietorships are intended for business with 1 owner. If you have partners involved, you’ll have plenty of other viable options, such as a partnership, limited partnership, corporation, S corporation, or limited liability company (LLC). Given the independent nature of a sole proprietorship, there are no business agreements to wrangle or outside approvals to seek.
The risks and rewards of a sole proprietorship are high-stakes. All profits come directly to you, but if things go south for your business, you alone will be liable for debts and losses. Personal assets could be at stake in these situations, including if you’re sued.
The tax arrangement for sole proprietorships is similar to partnerships, as the profits and losses pass through to your personal taxes. In the eyes of the government, you and your business are a single entity. The good news: sole proprietorships have low tax rates.
4. Corporation
While sole proprietorships create a structure where you and your business are a single entity, corporations essentially put a rock wall between you. This legal separation offers liability protection if your business struggles, preserving personal assets. Your house, ranch, Winnebago, or boat will be safe from anyone seeking compensation.
Of course, it takes a lot more effort and paperwork to create a separate entity. Corporations can be complex, and the setup costs are substantially higher than many of the other options on this list.
Another potential drawback of corporations: you might be required to pay business taxes twice (as if tax season wasn’t already difficult enough). The first payment would be state and federal corporate income tax. If any business earnings were given to shareholders in the form of dividends, you would then need to pay personal taxes for those payments.
5. S corporation
Perhaps you find the sophisticated nature of corporations intimidating. Much like how limited partnerships are a more user-friendly version of partnerships, there’s an option called an S corporation that provides more flexibility than a corporation.
S corporations offer a similar degree of personal liability protection, which is obviously a major benefit. If your business incurs debts or losses, you’ll be considered a separate entity and won’t need to worry about anyone coming after your personal assets.
Where S corporations differ: you can add more shareholders than in a corporation. This makes it easier to attract investors. Also, you won’t need to deal with the same complications when tax season rolls around. Your business’s profits and losses will pass through to your personal tax return, which is always the easiest method.
While S corporations are more streamlined than corporations in many ways, they still bring their fair share of challenges. You will be required to hold meetings for your directors and shareholders and keep detailed minutes from each of these meetings. Your shareholders must also be allowed to vote on key business decisions.
6. Limited liability company (LLC).
While sole proprietorships are the most popular business structure in America, LLCs might be the most beloved. This structure merges some of the best perks from corporations and partnerships into 1 entrepreneur-focused entity.
An LLC advertises its liability protection right in the name. This is a big deal for small business owners who have no interest in a structure that doesn’t shield them on a personal level from business debts and losses.
Another big benefit of LLCs: your business earnings and losses are handled on your personal tax returns. This pass-through arrangement is simple to handle, but it also means that you will owe self-employment tax. Be sure to plan on self-employment tax as the year progresses, so that you won’t be caught by surprise when you receive your tax bill.
You can have an unlimited number of shareholders in an LLC. And unlike a corporation or S corporation, you won’t need to deal with all the red tape associated with shareholder meetings and distributing meeting minutes.
As you can see, there are plenty of nuances to consider with each of these business structures. Your unique situation might immediately rule out some of the options, but you should consult with a tax professional to identify the structure that will best serve your needs and set you up for future success.
This is also a prime time to meet with your mentor and get an insider’s take on the situation. An experienced mentor can alert you to red flags and offer tips for streamlining the setup process.
Business structures and financing.
As mentioned earlier, a substantial benefit of structuring your business is that you can boost your credibility and qualify for financing. Considering the fact that financing is an essential source of capital for most of America’s small businesses, this element of the decision shouldn’t be ignored.
Your business’s financial needs will vary wildly based on your industry. If you have a consulting business, you might be able to operate out of your home and only have moderate costs associated with your operations. On the other end of the spectrum, you might have a restaurant or construction business that would typically require a business location, utilities, equipment, supplies, insurance, licenses, permits, and other various expenses.
Based on the intel in your business plan, you can home in on the amount of money your business needs and the timeline to acquire it. You can then work with your mentor to identify the best financing option for your needs. Popular examples include:
You should also research other sources of capital. Many entrepreneurs prefer microloans because they’re easier to acquire, though the dollar amounts are typically much smaller. Some of the most reliable microloan providers are Kiva, Opportunity Fund, and Accion.
Another possible option is a business grant. This is one of the most challenging of all funding sources to qualify for, but the fact that the money is free certainly helps to justify the effort required to pursue them. Look for federal grant opportunities at Grants.gov, then check out some private sector options from the Halstead Grant, Amber Grant, Idea Café Grant, and National Association for the Self-Employed (NASE).
Whether you’re applying for a business term loan or scoring a grant from the federal government, your business structure will be an important part of your resume. The fact that you’ve set up your business as an entity shows how serious you are about its performance. It doesn’t matter whether it’s an LLC or S corporation or sole proprietorship—the point is that you’ve followed the necessary steps to legitimize your business in the eyes of the government and/or private lenders. And that seal of approval can really boost your odds of getting approved for financing and ultimately reaching the goals you outlined in your business plan.
Financial statements are meant to provide insight into your business and help you to make informed, strategic decisions. With the data you collect and report, you can identify a host of problems, ranging from wasted spending to underperforming investments.
However, a financial statement is only as good as the insight you can glean from it. If you aren’t sure how to read the reports, don’t update them regularly, or don’t take action on them, they won’t be valuable.
If you’re new to financial reporting or have a hard time knowing what to look for, consider these 5 red flags in your financial statements.
1. A High Debt-to-Income Ratio
Business and personal accounting have 1 thing in common: you always want to make more than you spend. If your debt-to-equity ratio is on the rise, then you’re spending more than you’re bringing in—and unless you’re scaling and reinvesting in your business, that’s a major red flag.
Set a goal for a standard debt-to-income monthly ratio, with ranges for healthy high and low levels. This process will help you to sound an alarm if your ratio begins to rise—that way, you can intervene before your spending gets out of hand.
To rebalance your debt-to-income ratio, look for unexplained or unnecessary expenses. You can also acknowledge that some expenses are 1-time issues (like an unexpected plumbing repair cost at your business) that will return your ratio to normal in the following month.
2. Lower Profit Margins
High sales totals don’t always indicate a successful business. A more reliable metric to look at is your profit margin. The profit margin is a metric that describes the amount of money (or percentage of profit) that a business makes from its sales.
For example, let’s say you offer 2 products that both cost $20. If Product A costs $5 to make and Product B costs $15 to make, then Product A is significantly more profitable to your business. So even though these products are priced the same, their costs are different—which means they have different profitability (profit margin).
You can’t always control what your customers buy. However, you can create a diverse product offering and prioritize marketing your higher-margin items while continuing to focus on optimizing your company-wide profit margin.
3. Excess Inventory
Inventory that you haven’t been able to sell is called dead stock. This term refers to items that get stuck on store shelves or in warehouses before they can get moved to the store or shipped to customers.
Excess inventory means lower profits. First, you have to pay for warehouse space for the inventory that isn’t selling. Next, your shelves become full of unwanted items, which limits your ability to bring in new, highly desirable products.
Even if you do sell your dead stock, you’re more likely to take a loss. Think about a collection of unfashionable sweaters that’s discounted 75% by May or the Christmas decorations that immediately go on clearance after December 25. At some point, you just want to get rid of the inventory and move on.
If you consistently have problems moving your inventory, you may need to reconsider how much of a given item you buy or change your buying patterns to acquire more desirable items.
4. A Large Account Receivables
When you send an invoice to a customer, it goes into your accounts receivables until those outstanding funds are collected. This is money you’ll have in the future but can’t use now.
Watch to see if your accounts receivables build up—if they do, it could create cash flow problems in the future. Not only do you need to worry about customers not paying their bills (or taking too long to reconcile them), you also need to make sure you have enough operating cash to sustain your own liabilities and expenses.
Like your debt-to-income ratio, set ranges for a healthy accounts receivable amount so you can intervene before the unpaid invoices become a problem.
5. A Large Number of ‘Other’ Expenses
Within your financial records, you should keep most of your expenses categorized. You’ll likely have categories for materials, utilities, labor, marketing, and other costs. Unfortunately, not all of your business costs fall into these exact categories.
Keep an eye out for a rise in “other” expenses that might fly under the radar but build up if you’re not careful. This is particularly relevant if your “other” expenses are large and contribute significantly to your debt-to-income ratio.
You should look for ways to categorize these items and set budget items to avoid overspending.
Many of the financial metrics above can change depending on the statement, time frame, or other variables you might use. If you notice any of the above red flags in your financial statement, it doesn’t mean the sky is falling—these are signals that should give you pause and lead you to investigate further, but they’re not completely damning.
For example, during the pandemic, you may have extended your net payment terms with clients. This flexibility with your customers could lead to an increase in accounts receivable—but within the context of the global pandemic, you can understand that it’s not indicative of a poorly run business.
The key to reading financial statements is to identify patterns and problems. If you can’t answer why these changes are happening, you need to take a closer look at your business.
For better organization and financial planning, look into getting a software system that can help with bookkeeping. The Lendio app can help you organize expenses, sort invoices, and make accounting a breeze.
The sprawling and tech-fueled California economy performed a grand experiment with its freelance and gig workforce in 2020—but now they’re overhauling that experiment in a big do-over.
The state enacted the landmark independent contractor law AB 5 on January 1 this year, requiring that many companies hire freelancers and independent contractors as employees with benefits. But freelancers trying to work under AB 5 found that the well-intended law created unexpected nightmares for millions of self-employed Californians it was intended to protect, with many freelancers being laid off.
A new “clean up” bill (AB 2257) removes many of those limitations and exempts several industries from freelance employment requirements, as the San Francisco Chronicle explains. Certain industries are no longer required to give full-time benefits to independent contractors, and there are now carve-outs for specialized lines of work, including translators, florists, event planners, and other independent contractors whose bread-and-butter is one-time or occasional jobs.
Notably, writers and photographers were only allowed to submit 35 or fewer pieces to one publication per year under AB 5. That limit caused many of them to lose significant income, but they’re now exempt under this new bill.
The original AB 5 law was intended to force companies like Uber and Lyft to offer their gig workers employment benefits. That requirement of them is technically still in place, but California is suing those companies to get them to comply. Meanwhile, the tech companies are pushing a November ballot measure to get themselves exempted from this employment law too. (DoorDash, Lyft, and Uber have poured nearly $200 million into that campaign, making it the most expensive ballot measure in California history.)
The full text of AB 2257 describes which industries are exempt from the employment benefits requirement, but it’s not the easiest bill to understand. It’s based on a 2018 California Supreme Court case that determined one can only be classified as an independent contractor if they meet 3 specific criteria.
How California Defines ‘Independent Contractor’
That 2018 decision is the backbone of both AB 5 and the new AB 2257, and it says that one cannot be an independent contractor unless each of these 3 benchmarks applies to the work they do for a certain company:
The worker is free from the hiring company’s control and can work when or where they choose
The work they perform is not the hiring company’s main area of business
The worker conducts their own independent business and is free to do the same work for other companies
But AB 5 still mandated paid sick leave, workers’ comp, and unemployment insurance that many companies found impractical to provide to occasional freelancers. Thanks to AB 2257, freelancers in the following fields no longer have the burden of those requirements—but a few of these industries have exceptions where contractors still must be classified as employees.
Which Professions Are Exempt From AB 5
Certain specialists like dentists and lawyers were always exempt from AB 5. But the new version broadens that exemption to independent contractors in these fields:
But some of these exempt fields have specific exceptions, where certain types of workplaces are still required to hire these specialists as employees.
The AB 2257 Videographer Exception
Videographers are exempt from the employment requirement under AB 2257 but only in certain circumstances. Specifically, videographers for TV stations and motion picture studios are still expected to be hired with benefits. But writers and photographers now worry that the videographer exception could ensnare them too, as more video requirements become part of their job duties in the digital media era.
The AB 2257 Musician Exception
Musicians and songwriters are also now exempt under AB 2257. But the new law stipulates that musicians must still be hired as employees if they play for symphonic orchestras or organizations that regularly put on shows in front of big audiences, like Broadway-style theaters.
And musicians take their role in the gig economy seriously. After all, they came up with the word “gig.”
Gig Economy Regulation Sentiment Is Growing
Regardless of what happens with Lyft and Uber’s big-money November state ballot measure, a national movement toward gig economy regulation may be growing. Democratic presidential nominee Joe Biden has spoken in favor of AB 5, as has his vice-presidential candidate Kamala Harris. If they win the 2020 presidential election, expect a Biden administration to promote some form of freelance employment regulation.
The passage of this fix-it bill indicates that California considers contract employment law to be a work in progress, and the state is likely to alter it again if legal challenges are successful. The state is trying to figure out how to regulate potential exploitation of app-based drivers while still allowing freelance specialists to flourish under non-traditional employment. The weak COVID-19 job market is likely to draw more Californians to the freelance market, but lawmakers think it's time for the gig economy to face the music.
Just a few short years ago, the words “craft beer” didn’t mean much to anyone beyond true connoisseurs. Ordering a beer on tap meant choosing an option from only a handful of companies, regardless of where you went. That’s because brands as varied as Bud Light, Blue Moon, Rolling Rock, Miller Light, and Michelob Ultra are all owned by 2 companies: Anheuser-Busch or MillerCoors.
Today, the worldwide beer market represents $522.3 million in 2020, and it’s expected to grow annually by 9.4% through 2023. The biggest beer consumers? Unsurprisingly, it’s Americans— projected to purchase $101.8 million’s worth of beer in 2020.
These same names—particularly Anheuser-Busch InBev, which owns Budweiser, Stella Artois, Corona, and Modelo, among others—represent 60% of the beer market today. While revenue for AB InBev declined due to COVID-19 this year (-17.7% in Q2), they’re still posting healthy profit margins.
These big brands controlled almost 90% of the global market back in 2012. Yet in the face of stiff competition from Goliath-sized companies with even larger marketing and advertising budgets, small breweries are thriving in 2020.
How have these small businesses taken back market share?
The craft brewing explosion.
Today, ordering a beer at a bar (remember bars?) presents you with any number of options, influenced by your geography and the philosophy of the bartenders and staff. You’re just as likely to find names like Dogfish Head, Allagash, Harpoon, Odell, Bell’s, and Russian River on a beer and wine list as you are Budweiser.
The rise in craft beer drove this change, defined by the Brewers Association as small operations (6 million barrels of beer or fewer annually) and independently owned (less than 25% of the brewery is owned by a member of the beverage industry that’s not a brewer.)
“At the end of the day, the craft beer movement was driven by consumer demand,” Bart Watson of the Brewers Association told The Atlantic in 2017. “We’ve seen 3 main markers in the rise of craft beer—fuller flavor, greater variety, and more intense support for local businesses.”
And the industry’s still growing. 1,000 new breweries opened in 2019, bringing the total active number in the US to nearly 7,500. Here are 3 ways the best craft breweries have become successful:
1. Embracing the entrepreneurial spirit.
Running a small business takes belief in yourself and your product, and craft breweries are no exception. Like any entrepreneurial endeavor, opening a brewery takes guts—and a willingness to make the leap into the unknown. “The biggest lesson I’ve learned is to trust my instincts,” Alix Peabody, founder of female-centric Bev, told Forbes. “It’s so important to surround yourself with experience, but at the end of the day, the vision is yours, and the choices are yours.”
COVID-19 has thrown a wrench in new operations, just one of many challenges facing small businesses today. “The COVID-19 pandemic has been a huge challenge for us as we worked toward our launch,” Caitlin Braam, the founder of Yonder Cider and The Source, told Forbes. “As a person who loves a good timeline and keeping to it, it’s been a challenge to hit our goals and marks due to something that is completely out of our control. It’s been a serious lesson in patience and being flexible.”
2. A customer-centric approach to taste.
Craft beer isn’t just something to order on a menu—it’s part of an experience, with tasting rooms, restaurants, and hop-on-hop-off tours becoming destinations for locals and travelers alike. At many breweries, customers can taste new small batches, offer feedback, and participate in the process.
“Businesses that incorporate their consumers into the R&D process will find that’s a wonderful way to build loyalty because they take pride in being part of the decision,” said Sam Calagione, founder of popular craft brewery Dogfish Head. They trial every new batch within their Delaware brewpub before rolling it out nationally.
Just as important, brewery owners seek out flavors and styles that they can’t find in the market. “I wanted to create this product for moms like me,” Amy Wahlberg, founder of PRESS Premium Hard Seltzer, told Forbes. “Taking inspiration from my favorite pre-kids cocktail of choice, a vodka press, I turned my kitchen into a mixology lab. The hard seltzer category didn’t exist when I first began pitching PRESS to distributors and retailers.”
3. Small breweries supporting each other.
Small breweries are partially successful because of their tight-knit community. “The craft brewing renaissance is part of the hippie dream of the ’70s, so I think there is some built-in idealism,” Caglione told CNBC. Whether it’s creating new custom flavors, cosponsoring community events, or partnering for more behind-the-scenes business collaboration—like banding together to switch operations to hand sanitizer at the beginning of the COVID-19 crisis—breweries take care of each other.
Breweries like Boston Beer Co., owner of the popular Samuel Adams range of beers in Boston, offer loans to other small businesses. “We’ve provided startup loans to over 30 craft brewers,” Jim Koch, Boston Beer Co.’s founder, told CNBC. “This is counterintuitive to most people. Why would you help your competition? Craft brewers help craft brewers because we believe…there is still so much room for craft beer to grow.”
“By and large,” says Calagione, “we all help each other and share ideas, do events, or make actual beers that are collaborative. It’s about the love of beer, not money.”
Passion for your product is only 1 ingredient for building a successful business like the top craft beer breweries in the country. Taking risks, listening to customers, and collaborating with other, similar companies is their recipe for success.
Corporate Social Responsibility (CSR) has been on the rise in recent years. This is, in part, due to consumers’ shift in shopping habits. Today, more than ever, consumers are voting with their wallets by purchasing from businesses with beliefs and values that align with their own.
However, social responsibility isn't just for the big dogs. Small businesses have been demonstrating social responsibility for a very long time—and for good reason. Local sponsorship is a powerful, affordable way for businesses big and small to gain community exposure while also supporting a good cause.
A recent study from the Harvard Business Review found that 72% of people believe locally-owned businesses are more likely to invest in their communities than large companies. This figure makes sense—small business leaders live in the communities they serve, meaning they have intimate connections that large companies struggle to foster.
But local sponsorship isn't without its risks. Sponsor the wrong initiative, and you could paint your brand in an unalterable light. Politics, religion, and other sensitive topics can create some die-hard loyal customers while also dangerously alienating other segments of your market.
This guide will help you walk the sponsorship tightrope to identify and sponsor worthwhile brand-building causes while mitigating risk to your business. First, let's look at why you should (and shouldn't) consider sponsoring a local event or organization.
Pros and Cons of Local Sponsorship
When done right, local sponsorship can do a world of good for your brand. However, it's not a smooth-sailing avenue to more awareness and sales—there are potential downsides to sponsoring the wrong cause or organization.
Pros of Local Sponsorship
1. Tax Write-offs
There are a couple of ways your business can enjoy tax deductions from local sponsorships. First, if you make a cash payment to an organization (charitable or not), you can deduct those payments as business expenses. If the payments are classified as "charitable contributions or gifts," you can't deduct them as a business expense—but you can potentially deduct them as a charitable contribution on your income tax returns.
You can also deduct most sponsorships as advertising expenses. For example, if you sponsor a local event or sports team, that sponsorship would be considered a form of advertisement—thus, it’s deductible.
2. Good Publicity
Sponsoring events or causes important to the community will generate goodwill in your customers’ minds. Consciously or subconsciously, they'll form positive perceptions of your business in relation to whatever you're sponsoring.
3. Brand Awareness
Sponsorship is a great way to expose your brand to new customers and audiences. For example, if you sponsor a local baseball team's uniforms, every player, parent, coach, and fan will quickly become aware of your business.
Local sponsorship isn't all sunshine and daisies, though. There are potential downsides to aligning yourself with specific organizations.
Cons of Local Sponsorship
1. Alienated Customers
According to a Harvard Business Review study, 40% of respondents said they are more likely to buy from a business when they agree with the CEO on an issue. However, a comparable segment (45%) said they're less likely to buy if they disagree on a topic. A sponsorship may win you some fans, but it may earn you some enemies—while a neutral (non-sponsorship) stance may earn you both parties' business.
2. Damaged Reputation
Align yourself with the wrong brand, and your business's fate can get tied to theirs. Take Livestrong, for example. It started as Lance Armstrong's personal brand, but it evolved into a larger, more comprehensive foundation. However, when Lance fell from grace after his drug scandal, Livestrong tanked overnight. The same can happen to your business if you become too associated with a risky brand.
3. Expense
Whether it's cash, services, prizes, or time, sponsorship is an expense. No, it's usually not as expensive as most advertising alternatives, but it still has a price. Plus, it's tough to define the ROI of any sponsorship, making it hard to determine a sponsorship's monetary worth.
It's up to you to weigh the pros and cons and determine if sponsorship is right for your business. If you're still leaning toward local sponsorship, then read the next section to learn how to vet your options and find the best opportunities.
Vet Your Options to Identify the Best Sponsorship Opportunities
There are limitless opportunities when it comes to sponsorship, but you can't sponsor everything. You'll need to narrow your options and identify the causes most important (and relevant) to you and your business. Here are a few common sponsorships to consider:
Events: conferences, festivals, art fairs, walk-a-thons, concerts
Business organizations: rotary clubs, chambers of commerce, youth development programs
And that's just scratching the surface—hopefully this short list will get your creative juices flowing.
Get Creative With Your Sponsorships
Sponsorships come in all shapes and sizes—you don't need to have tons of money or resources to get involved. Depending on your business and industry, it may make sense to offer your support in ways besides cash payments. Here are a few types of sponsorships to consider:
Cash Donations
Cash donations are the most common (and simple) form of sponsorship. When an organization accepts multiple sponsors, they usually boost the level of publicity (with bigger and better logo placements, callouts, etc.) in relation to the amount of money each sponsor donates. If you have any extra marketing budget sitting around, experiment with bigger donations to bigger organizations. If your budget is tight, consider donating smaller sums to smaller organizations.
Pro Bono Services
Trade your services for publicity by doing your job free of charge. If you own a restaurant, for example, you may provide pre-game meals for a sports team. Or if you're a smoothie shop, you could give away free smoothies at a local event.
Volunteer Service
If the cause you're supporting isn't relevant to your business, consider providing volunteer hours in exchange for sponsorship. If you're sponsoring an event, your employees may staff the ticket booth, concessions, and clean-up duties.
Prize Donations
If you sell products, donations are the perfect sponsorship type to build brand and product awareness at the same time. Consider donating a prize to a sporting tournament or a battle of the bands contest.
How to Choose the Right Sponsorship
Now that you know your sponsorship options, you'll need to choose the right opportunity.
Identify causes you care about: If possible, find causes that you're passionate about. If you're a hiker, it will feel more meaningful to help support local trails rather than donating to the local curling club.
Measure the potential ROI: Different sponsorships will lead to varying levels of publicity. Sponsoring a local event along with 10 other brands may yield little impact, while becoming the sole sponsor of your little league baseball team may pack a bigger punch.
Consider impacts to brand reputation: What are the pros and cons of aligning yourself with this organization? Will this sponsorship alienate you from any customers? How will it build brand awareness and brand reputation?
If the sponsorship you're targeting has no red flags, then move forward with confidence. Most events, teams, and organizations require ongoing or recurring sponsorship, so make sure you measure your activities' ROI to determine if it's worth renewing the deal.
Like with any marketing strategy, if the results don't yield the ROI you're looking for, be ready to pivot. This may involve adjusting the sponsorship, backing out, or finding a new organization to sponsor.
However, depending on your sponsorships' cost and reach, you may discover that it’s a more effective use of your marketing budget than other forms of traditional advertising. If so, look for ways to expand your sponsorship program to find more opportunities that align with your goals.
Make the World (and Your Business) a Better Place
For once, nice guys and girls don't have to finish last. If you nail your local sponsorship strategy, you can do a lot of good in the community while also marketing your business. You can't beat win-win scenarios like this.
Do your research, find a cause you care about, and give back in a meaningful way. While local sponsorship isn't without risk, it's well worth the investment of your time and energy when you get it right.
Before, during, and after your sponsorship, look at your financial reports to measure your sponsorships' ROI. If it's trending in the right direction, congratulations—you're making the world and your business a better place. If not, then don't beat yourself up—rest assured knowing that, while your business might not have benefitted from the sponsorship (yet), you still did good in the world.
You’ve reported your annual revenue, time in business, and credit score. You’ve provided bank statements, and you made it official by clicking “Submit” at the end of the Lendio application. If you’re anything like us, you may be refreshing your screen and wondering, “What comes next?”
We value transparency and giving business owners the power that comes from financial literacy, so we’re going to outline the steps to the best of our ability. “To the best of your ability,” you ask. “What does that mean?” Well, part of what makes our marketplace so special is that it relies on some pretty complicated tech to match you with the best options from our network of premium lenders. Because the experience is customized for each borrower, we can’t give a one-size-fits-all answer, but we can give you a general sense of what usually happens. So, where were we?
Step 1: Our Smart Application Matches You With Loans
After submitting an application, most borrowers will be matched with loan offers from our network of curated business lenders. Our tech analyzes your application and compares it against the 10+ loan products offered by the 75+ lenders in our network. In other words, our little internet robots do some pretty heavy administrative lifting to find you the loan offers you need as quickly as possible.
Step 2: Funding Managers Provide Personal Attention and Expert Advice
“Every journey is a little different,” explains Kris Glaittli, Lendio’s Senior Director of Marketplace & RMT. For that reason, borrowers are then paired with funding managers, who are dedicated loan experts. After you’ve received your loan matches, you’ll probably receive a call from your funding manager. They’ll help you complete anything that’s missing from your application, and they’ll ask you some questions about your business.
This information will help your funding manager better understand your financing needs so they can point you in the direction of the best financing option for you. “We really do try and match the borrower’s needs so it creates a unique experience,” Kris says. This call also allows your funding manager to address any potential red flags in your application. If you switched bank accounts a few months back or have any lawsuits, the funding manager will try to address it and make the case to the lender on your behalf.
Step 3: Varies Based on the Lender
Once your funding manager has assessed your needs and helped you complete your application, the next steps vary from lender to lender. The order may change depending on the lender, but you can expect the following to (generally) happen:
You may have a phone call with the lender, called the merchant interview (if this happens, it’s usually right before funding)
Step 4: Receive a Decision
Finally, you’ll receive a decision from your lender. If you’re approved, you may receive funds in as little as 24 hours, depending on the loan type. If you’re denied, no sweat. You can still apply to other lenders without creating a new application. That’s the beauty of a marketplace.
Every entrepreneur knows the importance of pitching to clients. If you want to grow what you do, you’ve got to show what you do. But knowing the significance of something and putting it into practice are 2 separate things—so every company, from fledgling upstarts to global brands, needs to practice the art of the pitch. When you get complacent and sloppy, the results can be disastrous.
The perfect example of a company “sleeping on the pitch” came in 2013, when Nike prepared to make NBA star Stephen Curry an offer to serve as a brand ambassador. You’ve likely heard of Nike, considering they accounted for over 90% of the basketball sneaker market at that time.
Yes, Nike is one of the most dominant brands the world has ever seen. But that didn’t prevent them from making one of the most boneheaded pitches in history. To set the stage, Curry really liked working with Nike. He was a long-standing partner and had many positive things to say about the company.
"I was with them for years," recalled Curry in an ESPN report. "It's kind of a weird process being pitched by the company you're already with. There were some familiar faces in there."
Numerous Nike officials greeted Curry and his father, former NBA player Dell Curry, as they entered the meeting room to discuss the upcoming deal. Once seated, however, Curry was treated to what ESPN described as “something hastily thrown together by a hungover college student.”
The trouble started when one of the Nike officials mispronounced Curry’s first name. Note to those who make pitches: Do NOT refer to people by the wrong name. This rule is particularly relevant when the person you’re pitching is a current business partner.
The proverbial straw that broke the camel’s back came when the Nike officials reached a slide in the PowerPoint deck that didn’t use Curry’s name at all. Instead, it featured the name of NBA star Kevin Durant, indicating that this pitch had been copied and pasted from an earlier pitch to Durant.
Shocked and disgusted by Nike’s clumsiness and disrespect, Curry signed with rival brand Under Armour. Nike was then left to consider how they’d bungled what should’ve been a slam dunk of a pitch.
Crafting the Perfect Pitch
If you’re a people person, you might be shaking your head right now, marveling at how clueless Nike was. But preparing an impactful pitch involves much more than simply getting the names right: you must also tailor your presentation to the needs and goals of your audience.
“When you're growing and developing a business, you'll likely spend a lot of time presenting pitches to potential corporate partners,” saysForbes. “However, every business is different, and every pitch should be too. Depending on the company you’re pitching, you’ll want to adapt and tweak your presentation to ensure you're sending a message that resonates with that particular business leader. It may take effort and research, but it will pay off in the long run when you land partnership after partnership.”
Let’s look at some other ways you can take a regular PowerPoint pitch deck and turn it into a business-catching machine.
Ask plenty of questions in advance: You need to be a sponge during the time leading up to a pitch, soaking up every possible piece of information that could make your presentation better. This is best done through direct questions to the client. Learn everything about their business model, core values, and leadership style. Most importantly, identify the problems they’re currently facing.
Offer solutions: When you understand the strengths and weaknesses of a client, you’re uniquely able to offer solutions to their problems. This is how you showcase your value and get them to take the action you desire.
Be personable: Friendliness goes a long way in your pitches. You don’t have to be cheesy, but look for ways to show the human side of your business. This might mean you include photos of your team in the pitch. Better yet, include childhood photos. As long as this “personable” content is relevant, it will help to break the ice with its warmth.
Outline a killer strategy: It’s easy to write a great line for a pitch. What’s harder: developing a convincing strategy that encapsulates your entire presentation. Show them how solid your strategy is by including specifics such as tactics, timeframes, and results tracking.
Be prepared for remote presentations: Times have changed—you won’t be making many in-person pitches in the near future. So take this time to master your chosen video conferencing software, whether it’s Teams, Zoom, or something else entirely. Rehearsals are crucial for identifying potential technical difficulties and finding remedies to apply in real time.
Make your final impact statement truly shine: A great intro really sets the tone for a successful pitch—but don’t neglect the factor of recency bias. Once you’ve concluded your pitch, the last 3 things you said are going to be among the 3 most memorable elements to the client. Thus, you need to make sure your value and strengths come through crystal-clear in your pitch’s closing moments.
Going back to Nike’s pitch to Stephen Curry, the meat of the presentation was likely as impressive as you’d expect from a massive, worldwide-beloved brand. It was the details that were lacking. The officials who prepared that pitch thought they could ride their reputation right up to Curry signing on the dotted line—and they suffered the consequences.
Is it possible to be pitch-perfect? No. There will always be aspects of a presentation that could’ve gone better. But when you put effort into crafting a pitch that clearly articulates how well you understand the client and wish to make life better for them, you’ll see undeniable results.
As if there already weren’t enough sales-related challenges facing America’s small businesses during the COVID-19 pandemic, another potential crisis is looming on the back end of their operations. Supply chains are failing for a multitude of reasons, but the result is often the same: the strain pushes already fragile small businesses to the brink of failure.
How vulnerable is your business to supply chain disruption? That depends on factors such as your industry, size, and business model. But if you’ve followed the recent trend of streamlining your inventory, you may face an extremely bumpy road ahead. Maintaining a lean inventory is an efficient way to run your business, but it also reduces the margin for error when deliveries stop arriving.
“Small businesses that have been weakened by years of extended payment terms now have to deal with the challenges of the coronavirus pandemic,” explains a supply chain analysis from the Harvard Business Review. “In addition to the precipitous falloff in demand and mandated shutdowns caused by the pandemic, outstanding invoices are not being paid. Their situation is precarious.”
While none of us know exactly how this pandemic is going to play out, it’s obvious that more difficulties are on the horizon. Even if a vaccine were miraculously released to the global population tomorrow, there would still be a transitional period as businesses struggle to get back on solid ground and reconfigure their processes.
So what can you do when your supply deliveries are late due to delivery issues or operational problems with your supplier? Here are a few ideas:
1. Keep Your Supplier Relationships Strong
It’s unlikely that any of your suppliers will burn you due to apathy. When promised deliveries don’t arrive on time, it’s usually due to deeper challenges faced by the delivery company or the supplier.
It’s important to stay in contact with your suppliers and let them know you value the relationship. When you’re a loyal partner rather than a faceless contact, you have a better chance of becoming a priority when things become difficult for the supplier.
2. Watch for Issues Proactively
If you’re in close contact with suppliers, you’ll also be able to talk to them about potential threats to the supply chain. These conversations can reveal upcoming issues, allowing you to get ahead of the problem instead of being caught flat-footed.
It’s always easier to anticipate solutions to a challenge than to come up with answers in the heat of the moment. Make supply chain forecasting a priority so that you can prepare better for what lies ahead.
3. Communicate With Your Business Partners and Customers
Just as you’ll benefit from candid conversations with your suppliers, those who rely on you also deserve to be kept in the know. Anytime you experience or anticipate delays, reach out to your business partners and customers to explain the situation. Better yet, seek their input when possible and come up with mutually beneficial solutions.
Many business owners put their heads down and suffer in silence when their supply chains fail them. By bringing your partners and customers into the conversation, you stand a better chance of maintaining relationships and avoiding damage to your reputation. Remember, perception is reality. Let them know the realities you’re facing—this way, they won’t form inaccurate perceptions regarding your business.
4. Utilize Inventory Management Software
These types of systems allow you to track what you have on hand at any given time, allowing you to forecast your needs and make more accurate decisions. Additionally, your software can link up with your supplier’s inventory. This makes it possible to keep a better watch on orders and see where issues exist.
5.Learn How to Track Shipments and Report Delays
There are plenty of times when delivery delays aren’t caused by your suppliers. Instead, they’re the inevitable result of delivery services that must deal with their own challenges.
If you’ve stayed in contact with your suppliers, you’ll be able to ascertain quickly when a delay is out of their hands. In these cases, it’s important for you to file a report with the carrier immediately so you can get the issue on their radar. Basically, the squeaky wheels are the only ones that get oiled when strain exists throughout the delivery service’s operations—so squeak as loudly as possible.
Even in the best of times, supply chain complications will arise—and the events of 2020 have only exasperated this fact. But if you anticipate and navigate supply chain disruptions, you’ll be better able to manage inventory and fulfill your orders. It’s a delicate balance, and there will be continual need for rebalancing—but this approach will help you to keep your operation moving in a positive direction.
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