Bankruptcy Overview

It’s no wonder that the word “bankruptcy” sends shivers down the backs of debtors who have hit hard financial times. Despite the system’s intent that bankruptcy works as a mechanism for giving the debtor a chance for a fresh start, the ramifications of declaring bankruptcy are far reaching and drastic, to say the least.

Debtors facing foreclosure or excessive debts are too often under the misconception that declaring bankruptcy is the perfect solution to these problems.

There are good reasons to look at the alternatives: bankruptcy stays put on your credit record for quite a long time, and it makes advancing in life incredibly difficult. In addition, as noted by Investopedia, the updated bankruptcy law, passed in 2005, includes severe restrictions that make it more complicated to file for bankruptcy.

In a recent article by Carrie Smith of The Simple Dollar, Smith notes that Chapter 7 and Chapter 13 are the two main types of bankruptcy available for most debtors:

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Chapter 7 is often referred to as “liquidation” bankruptcy because it will discharge most of your unsecured debt, including personal loans and credit cards. You’ll be required to pass a “means test,” have a certain amount of income, and may be forced to sell any non-exempt assets. For the most part, however, Chapter 7 filers are able to keep most of their assets. The entire process for this lasts about three or four months.

Chapter 13, however, works differently and is known as the “reorganization” bankruptcy. As Smith notes:

This option will set you up on a repayment plan and force you to pay back your creditors over time. No property is required to be liquidated in the process, but it may take three to five years to finalize everything. To become eligible for this type of bankruptcy, you need to have regular income to make the required monthly payments.

Another option, Chapter 11, has a repayment plan involved that is similar to Chapter 13, except it only applies to specific creditors, not everyone. It doesn’t completely reset your debt, in other words, and allow you to begin fresh as Chapter 7 or as Chapter 13 sometimes does.

Chapter 12, one more option, is only available to farmers and fishermen.

Money Management offers these observations about the different kinds:

While bankruptcy does serve to help you obtain a fresh start with your debts, there are some ramifications to filing for bankruptcy. For example, Chapter 7 bankruptcy remains on your credit report for ten years, although that does not necessarily mean you won’t be approved for any credit before then.

As Smith from The Simple Dollar notes, bankruptcy is not necessarily the cure-all for your financial challenges. In addition, not every debt you have will necessarily be eligible for discharge. For example, bankruptcy will not help you deal with owed back taxes or child support. And before even considering bankruptcy, it is wiser to exhaust every other possible option you have to resolve your debt problems.

Conclusion: Don’t Rush Into the Process, If You Can Help It

There are good reasons to not rush into the decision to declare bankruptcy:

• The odds may work out against you with bad credit in your name
• Filing for bankruptcy has become complex as well as costly owing to the 2005 bankruptcy laws.

For this reason, always consult with a trustworthy bankruptcy attorney before filing becomes necessary. Ultimately, making the right move in the right situation can provide you with a needed respite from anxiety and debt.

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What Type Of Business Do You Want To Open?

So, you’ve decided you want to open a business? Have you given any thought to the type of business you want to open? Deciding what type of business you’re going to open is a key first step in the process of going into business. Everything you do will flow from the type of business you decide on opening.

There are a variety of business types available to the entrepreneur that present somewhat unique opportunities. It only makes sense to decide on opening a “business type” that presents opportunities for growth, profitability, and success. For example, why open a business type in an environment that is overly saturated the market already?

The following business types are recommended for consideration because of the associated unique opportunities they possess.

Green Business

Business Dictionary defines a “Green Business” as the following:

A Green business is a business functioning in a capacity where no negative impact is made on the local or global environment, the community, or the economy. A green business will also engage in forward-thinking policies for environmental concerns and policies affecting human rights.

Implementing sustainable (green) business practices may have an effect on profits and a firm's financial “bottom line.” At first blush, this challenge might make many corporate executives cringe. However, during a time where environmental awareness is popular, green strategies are likely to be embraced by employees, consumers, and other stakeholders. In fact, according to many studies, a positive correlation exists between environmental performance and economic performance.

People With Disabilities

As noted by Shoretel.com, there are more opportunities than ever for individuals with disabilities to start their own businesses. Those who are deaf, blind, paralyzed or dealing with intellectual disabilities can reach out to government programs, support nonprofits and organizations, scholarship and grant foundations and more. These programs boost the likelihood of success, and give people with a disability and a plan the start they need.

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Women-Owned Businesses

The following information is taken from the 2016 State of Women-Owned Businesses Report:

• There are now 11.3 million women-owned businesses in the U.S., employing nearly 9 million people and generating over $1.6 trillion in revenues;
• Women-owned businesses now comprise 38% of the business population, employ 8% of the country’s private sector workforce and contribute 4% of the nation’s business revenues; and
• Since 2007, there have been 1,072 net new women-owned firms launched each and every day.
• Between 2007 and 2016, while the total number of firms increased by 9%, the number of women-owned firms increased by 45% – meaning that over this period the number of women-owned firms grew at a rate fully five times the national average;
• Who are entering the ranks of women business owners at a fast clip? Women of color; their numbers have more than doubled since 2007, to nearly 5 million. They comprise fully 44% of all women-owned firms.

Franchise Businesses

A franchise provides the entrepreneur with the opportunity to be the boss without taking on the risk of starting his or her business from scratch. A franchise is a business model that involves one business owner licensing trademarks and methods to an independent entrepreneur.

For example, under “Product/trade name franchising”, the franchisor owns the right to the name or trademark and sells that right to a franchisee. Under “Business format franchising” the Franchisor and franchisee have an ongoing relationship, and the franchisor often provides a full range of services, including site selection, training, product supply, marketing plans and even assistance in obtaining financing.

Home-Based Businesses

An academic report from the University of Maine notes how, for more and more people, home is not only where the family is, it is where the business is. In recent decades, large numbers of people have chosen to market their skills and talents from home.

In fact, as many as 20 percent of new small business enterprises are operated out of the home. Many home-based businesses are started on a part-time basis and then expand into full-time businesses as the market for the business develops and grows.

In addition, the majority of home-based businesses are started by women and typically employ other family members.

As the report notes:

• Advantages Of Operating A Home Based Businesses

1. Can start as a part-time business.
2. More flexible lifestyle and more integrated with the family.
3. Lower start-up and operating costs.
4. Cost-savings on child/adult care.
5. No commuting.
6. Flexible work hours.
7. Satisfaction of being own boss.
8. Increased tax benefits and write-offs.
9. Employment of family members by the business.

• Disadvantages Of Operating A Home Based Businesses

1. Space may be cramped, limiting growth potential and family use.
2. Personal and family lifestyle patterns may be disturbed.
3. Business and family privacy may be disrupted.
4. Long work hours and time away from family.
5. Lack of fringe benefits.
6. Lack of informal social contacts or opportunities to network.
7. Stress due to inability to balance family and business needs.
8. Family members and friends may demand more of you when you’re home all day.
9. Business activities may cause problems with neighbors.
10. Discipline is required to establish steady, homework patterns.

An entrepreneur has a lot to consider when trying to decide on the type of business he or she wants to open. It’s an imperfect world and there are usually disadvantages for every advantage. Frequently, however, the final decision simply comes down to the personality of the entrepreneur.

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Why Do You Need a Business Plan?

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It’s frequently said that if you don’t plan for the future then you must be planning to fail. Hence, it’s fair to say that a business plan is widely regarded as a very important--essential, even--management tool.

A business plan is a written document that describes where you want your business to be in the future along with the resources you anticipate needing to achieve your goals for the business. These resources can take the form of financial funding (loans etc.), headcount, capital asset acquisitions, etc.

In short, a business plan describes what you want to do and how you plan to do it.

In addition, a business plan conveys:

• your business goals
• the strategies you'll use to meet them
• potential problems that may confront your business
• ways to solve those problems
• the organizational structure of your business (including titles and responsibilities)
• the amount of capital required to finance your venture and keep it going until it breaks even

As explained by Entrepreneur, without a business plan it’s fair to say that you will be taking pot-shots in the dark without having anything to aim at.

A business plan is a living and breathing document in the sense that conditions can arise necessitating an update to the plan. The business plan is not something that is cast in stone. Updates may be required for reasons such as the following:

1. A new financial period is about to begin. You may update your plan annually, quarterly or even monthly if your industry is a fast-changing one.
2. You need financing. Lenders and other financiers need an updated plan to help them make financing decisions.
3. There's been a significant market change. Shifting client tastes, consolidation trends among customers and altered regulatory climates can trigger a need for plan updates.
4. Your firm develops or is about to develop a new product. If your business has changed a lot since you wrote your plan the first time around, it's time for an update.
5. You have had a change in management. New managers should get fresh information about your business and your goals.
6. Your old plan doesn't seem to reflect reality any more. But if your plan seems irrelevant, redo it.

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Is a Business Plan Essential? The Statistics Say Yes

The following two examples provide a more practical, detailed glimpse into why business plans are so essential and why the statistics show how game-changing a good plan can be:

Example 1 (from QuickBooks.com):

A few years ago, a software company surveyed its users to determine how helpful a business plan was to success. The results were reviewed by the University of Oregon for validation, and seem to point to the improved outcomes for those with business plans:

• Of those who created plans, 64 percent grew their businesses, compared to 43 percent of companies that hadn’t yet finished a plan.
• Those who created plans were more likely to secure a loan or investment capital.

A Babson College study discovered a written business plan wasn’t all that important — unless you were trying to raise money. In cases involving raising capital or getting a loan, businesses with plans were more likely to get the funding they needed.

Example 2 (from BPlans.com):

Palo Alto Software asked thousands of Business Plan Pro users a couple of dozen questions about their businesses, goals, type of business, years in existence, and business planning. Almost 3,000 people responded. Those who finished their business plans were about twice as likely to successfully grow their business, get investment, or land a loan than those who didn’t. 

Key Elements To A Business Plan

An analysis by Mary-Ellen Tribby, CEO and Founder of WorkingMomsOnly.com, as published by The Huffington Post, made these pertinent observations:

1. Executive Summary: Within the overall outline of the business plan, the executive summary will follow the title page. The summary should tell the reader what you want. Clearly state what you’re asking for in the summary. The statement should be kept short and businesslike. Within the space of the Executive Summary, you’ll need to provide a synopsis of your entire business plan. 
2. Market Analysis: This section should illustrate your knowledge about the particular industry your business is in.

A market analysis forces the entrepreneur to become familiar with all aspects of the market so that the target market can be defined and the company can be positioned in order to collect its share of sales. A market analysis also enables the entrepreneur to establish pricing, distribution and marketing strategies that will allow the company to become profitable within a competitive environment.

1. Company Description: Include a high level look at how all of the different elements of your business fit together.
2. Organization and Management: This section includes your company’s organizational structure, details about the ownership of your company, descriptions of your management team and qualifications of your panel of experts or board of directors.
3. Marketing and Sales Strategies: Marketing creates customers and customers generate sales. In this section, define your marketing strategies. Start with strategies, tactics and channels that you have used to create your greatest successes.
4. Service and/or Product Line: In this section describe your service and product. What is it that you are actually selling? Establish your unique selling proposition.
5. Funding Requirements: In this section state the amount of funding you will need to start or expand your business. Include best and worst case scenarios.
6. Financials: Develop the financials AFTER you have analyzed the market and set clear objectives. You should include three to five years of historical data.

In conclusion, it’s fair to say that creating a business plan can be a significant undertaking. But there is plenty of evidence that the effort will reap dividends, so to speak, in terms of growth, profitability, and overall success.

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Why Keep Personal and Business Finances Separate from Each Other?

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If you happen to be in start-up mode you probably haven’t given much attention to the importance of keeping your personal and business finances separate from each other. This blog is certainly not limited just to start-ups, but also includes ill-informed businesses that are beyond the start-up phase of maturity.

Keeping your personal and business finances separate is more than just a “nice thing.” Experience has shown how messy it is to unravel co-mingled finances when forced to do so to satisfy legal requirements such as preparing your tax return or when the IRS comes knocking on the door to do an audit or when lenders request financial reports before approving any cash infusion that you need for your business to survive.

Furthermore, you may have to provide evidence to the IRS that your business is not a sham but is indeed a credible, ongoing concern. Co-mingled finances only go to show a lack of credibility that the numbers you report “might” be inaccurate.

Not a good thing.

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The following items describe some of the things that you, the business owner, can do to help present your business in the most credible and  favorable light.

The first two points, as neatly summed up by American Express, touch on checking accounts and credit card strategy:

• Set up separate checking accounts. If you have separate checking accounts and you are diligent about drawing on the right account at the right time, come tax time, all you have to do is review your bank statements for a clear picture. If you can manage to only use your business debit card and avoid cash, you may even be able to do your taxes and other financial reporting straight off your bank statements.
• Get a credit card for the business. A business credit card will help you build up a credit history for your business separate from your personal credit history. More importantly, your credit card is one of the likeliest places for your finances to get muddled. Separate credit cards means that even if there's something a little out of reach of your business' current budget, you won't be tempted to use your own credit card.
• Keep your accountant informed. Quickbooks  recommends the following: ask your accountant about making quarterly estimated tax payments to the IRS and your state treasury. If you do end up mixing personal and business finances, such as using your personal funds to invest in your company or purchase something for your company, always ask your accountant how to record the investment in your bookkeeping program.
• Use accounting software. As noted by WAHM, one of the most important reasons to use accounting software in your small home business (any business for that matter) is to help keep separate business and personal finances for tax purposes. When you work at home and report your own income to the IRS, statistically, there is a higher chance of audit. Completely separating the income will help you when filing your taxes, so as to prevent any issues if an audit arises.

Conclusion

Besides reducing legal liability, as Fund Box recommends, keeping your business finances separate makes recordkeeping easier, which helps you manage your taxes and business bills more efficiently. And if you need additional help, the IRS website has hundreds of resources explaining what business and personal records you should keep, how long you should keep them, what forms you need to file and more.

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