Knowledge Base

Every day, entrepreneurs across the world come up with ideas that might turn out to be multi-million dollar businesses. Regrettably, those lightbulb moments quickly fade if there’s no financing available to see them through. Ideas keep vanishing because there’s no capital to bring them to life. Fortunately, there is a way to navigate this issue. Our discussion of venture capitalist vs. angel investor will allow you to regard the above scenario in a positive light. We’ll compare angel investing and venture capital, learn their differences, and weigh the pros and cons that should help you choose the right one for your business or startup. What Is an Angel Investor? An angel investor is typically an individual or group of individuals with high net worths (surpassing $1 million) who invest in small or growing businesses. Angel investors usually invest during the early stages of a business, either before operations commence or right after. With angel investing, small businesses get a chance to secure seed funding. In return, angel investors can get convertible debt or equity in the business, become part owners and/or shareholders. The Securities Exchange Commission requires that angel investors be accredited. Accreditation is important to ensure that the investor or group of investors are financially sophisticated. They should also be able to fend for themselves, especially in the event of a loss. In our comparison of angel investors and venture capitalists, we will see that this is one of the most salient points, as it protects investors.  To earn such accreditation, investors must meet either of the following two criteria: Earned an annual income of $200,000 for two years before the accreditation and has a high chance of retaining such earnings in the future. Where taxes are filed with a spouse or spousal equivalent, the income is pegged at $300,000 annually (a monthly income of $16,667 and $25,000, respectively).  A net worth of over $1 million. What Is a Venture Capitalist? To engage in a venture capitalist vs. angel investor conversation, first, we need to look at the definition of a venture capitalist. Namely, a venture capitalist is an individual or corporate entity that invests in small and growing businesses with funds pooled from investment companies, banks, pension funds, and other sources. This means the money invested doesn’t necessarily belong to the venture capitalist. Investors in this category will also not invest at the early stages of the business but when they see potential or actual growth.  Investments by venture capitalists are considered high risk, but the potential for growth shown by the small business can easily offset the risk of a bad investment.  Difference Between Venture Capital and Angel Investing Venture capital and angel investing have similarities in that they focus on small and growing businesses. There is also their preference for technology and science sectors because they tend to show considerable growth and provide more investment security. Moreover, both kinds of investment can earn a reasonable stake in the business, and options for conversion of debt to equity can be made available. Regardless of these similarities, there are also notable differences that set them apart. This is why a comparison of angel investors and venture capitalists is indispensable before a business decision can be reached. Below are some aspects where their differences shine through. Amount of Funding Available An angel investor will typically invest hundreds of thousands of dollars because they are investing their own money. Venture capitalists, on the other hand, will invest millions of dollars because they have more access to a range of funds.  Types of Investors As already stated, angel investors are wealthy individuals or groups of individuals with high net worths. Meanwhile, venture capitalists take on high-risk investments with funding from third parties. Time of Investment Angel investing is usually done at a more vulnerable point of the business, which is a higher risk. Businesses that have angel investors are generally in their early stages, before or right after operations commence. Conversely, venture capitalists prefer to invest in more established businesses that have higher chances of providing tangible returns. To be fair, this is not out of place, considering that the funds belong to third parties. Level of Involvement Regardless of the type of investor, there’s a desire to become involved in the activities of the business they invested in. The aim for both venture capitalists and angel investors is to have a firsthand idea of how their investment is being managed and the steps being taken to ensure their returns. Angel investors tend to become part owners and get involved in the day-to-day operations of the business. But, in some cases, they are satisfied with only providing financial support. Venture capitalists, on the flip side, prefer to get involved in the decision-making by being on the board of directors. Due Diligence Due diligence is one of the most important segments of any investment process for angel investors or venture capitalists. Angel investors will usually conduct basic due diligence checks because they own the investment sum and won’t be held accountable by third parties.  Venture capitalists are more prone to lawsuits in the event of reckless investments because of the fiduciary responsibility to their clients and other third-party institutions. For this reason, they are liberal with the resources that go into due diligence, preferring to ascertain in the preliminary stages that the investment doesn’t pose any risk. Industries of Interest As a rule of thumb, an angel investor will invest in an industry they are familiar with. This is either because they have made money in that industry, or understand the workings. Venture capitalists are more interested in industries they consider profitable. Angel Investor Pros and Cons Angel Investor Pros Angel investors are more willing to take risks with their own money by investing in businesses that have just launched operations or are about to do so. In most cases, angels only require a return on their investment at a future date of the anticipated growth of the business. This is more convenient than debt financing with a set payback date. Mentorship opportunities may present themselves because angel investors are familiar with the industry they have invested in. As startups need all the guidance they can get, especially when navigating challenges, angel mentorship is valuable. With angel investing, there is flexibility to convert the investment sum into equity in the business. This saves the business owner from having to repay bank loans when the business is going through a rough patch. Angel Investor Cons Since angels invest their own money, their funds may be insufficient. The consequence is that a business owner will need to bring several angel investors on board and potentially deal with a slower funding process. Some angel investors may become difficult to work with when they insist on having a say in your business without having some level of ownership. Venture Capitalist Pros and Cons Venture Capitalist Pros Venture capitalists can and will most likely leverage their connections and experience in the industry to market and promote your business. This is a win-win situation for both parties involved. Just like angel investors, they may grow your company by sharing their industry knowledge and referring professionals to work for. Venture capitalists can also convert their investment sum to equity in your business and eliminate the need to pay back funds at a set time. They can provide more substantial amounts of money your business needs to grow. Venture Capitalist Cons As is the case with angel investing, venture capitalists tend to have a say in your business due to the significant investment they’ve made. Expectations may get too high and can only be remedied through a balanced decision-making process. The likelihood of a buyout by venture capitalists is high. This may only be beneficial when you need the funds for a new business venture. The Role of Private Equity After the above comparison of angel investor and venture capitalist, a quick definition of private equity is important to address grey areas and possible similarities. Private Equity Definition Private equity refers to funds that are mainly interested in acquiring private companies not yet listed on the stock exchange. Private equity funds usually have high-net-worth or accredited individuals and firms coming together to pool capital towards investment. Entry into these funds is exclusive due to the large sums required. For example, the minimum entry requirement for some funds is $250,000. Once the required capital is raised, the fund is closed. Angel vs. Private Equity The key similarity between angel investors and private equity is that they have the same goal of investing in a business to get returns. They may do so because they believe in the potential the business possesses, wish to gain control of it, or to save it from failing.  On the other hand, the major difference between the two types of investors is that the angel is an individual who invests on a smaller scale, while a private equity investor usually does so on a larger scale. The intention of a private equity investor is also geared toward acquiring the entity to be invested in. Venture Capitalist vs. Private Equity The objective that both venture capitalist and private equity have is the same - to get returns. Private equity investors, however, are more interested in larger enterprises and companies that are well established. As discussed in this article, venture capitalists are open to investing in startups and businesses that show growth potential. Moreover, venture capitalists are known to narrow their investment scope to tech and science-inclined companies, but this is not the case with private equity investors who prefer diverse portfolios. The sizes of their investments also differ, with private equity investments being higher. Final Thoughts  Regardless of your preferred capital raising strategy, if you’re a business or startup owner, you should explore the benefits provided by venture capitalists vs. angel investors. Even though both classes of investors can help you grow your business, you need to weigh the pros and cons to determine which one is optimal for your company. The amount of capital required is also an important factor to be considered because the investment scopes of these classes differ.   No matter the class of investor you need to approach, be sure to conduct due diligence and prepare an impactful business plan that will increase your chances of securing the investment you need.

By Nikolina Cveticanin

Unlevered free cash flow is a term used in corporate finance and investment analysis to discern a company's value. It is the amount of cash a company generates after deducting interest payments, income taxes, and other expenses. This metric is important for business owners and investors alike, as it can be used to make informed decisions about a business or investment opportunity. So, let's explore unlevered free cash flow in more detail and discuss how you can use it to assess a company or individual investment portfolio. We’ll also look at some of the key considerations when assessing this metric and potential pitfalls associated with using it to assess the enterprise value of a business. So, What Is Unlevered Free Cash Flow (UFCF)? This type of free cash flow measures a company's ability to generate cash flow from operations. It is calculated by subtracting a company's interest payments and income tax payments from its operating cash flow. This metric is often represented on the company's financial statements, but analysts also calculate this enterprise value manually. Unlevered free cash flow is important for business owners and investors alike because a cash flow statement indicates a company's ability to generate cash flow after meeting its financial obligations. How Is Unlevered Cash Flow Calculated? The unlevered free cash flow formula is: Unlevered cash flow = operating cash flow - interest payments - income tax payments The formula for calculating unlevered cash flow considers earnings before interest, taxes, depreciation, and amortization, which is known as EBITDA, and investments in buildings, equipment, or machines, also known as CAPEX. The math will also include inventory, accounts receivable, and accounts payable to calculate the net operating profit. Levered vs Unlevered Free Cash Flow When calculating free cash flow to find out how much capital your business could use for growth or whether a business is worth investing in, it's important to differentiate between levered free cash flow and unlevered free cash flow. Levered free cash flow measures a company's ability to generate cash flow after meeting its financial obligations. This includes debt obligations, operating expenses, and capital expenditures. On the other hand, unlevered free cash flow measures a company's ability to generate cash flow from operations. While both unlevered and levered free cash flow are important, the first is often used as a more accurate measure of a company's true cash-generating potential. This is because it excludes the impact of debt on a company's cash flow. What Can Unlevered Free Cash Flow Tell Us About the Company? Unlevered free cash flow can be used to make informed decisions about a business or investment opportunity by evaluating the company's ability to generate cash flow. Whether or not a company presents unlevered vs levered free cash flow on its income statement can make all the difference for investors. A company that is highly leveraged by debt may be more inclined to report unlevered flows on its cash flow statement. This way, the company ignores its debt and provides a less realistic and more positive overview of its working capital to its potential investors. It’s advisable for investors to check the amount of debt weighing the company down before investing. In particular, they should seek information on the overall free cash flow margin and not rely solely on the numbers presented as unlevered free cash flow. The difference between levered and unlevered can also be an important indicator of a company's expenses, financial obligations, and the debt it might be in. Occasionally, the levered free cash flow could be negative - in this instance, the company owes more than it earns, which you wouldn’t be able to tell simply by looking at its unlevered free cash flow. If the difference between unlevered and levered free cash flow is too small, this could also indicate that the company is barely getting by. When you calculate unlevered free cash flow and compare it to levered free cash flow, it’s an indicator that companies with a small difference between the two could easily go under if there’s a sudden drop in their revenue. Potential Pitfalls of Using Free Cash Flow as an Analytical Tool There are a few potential pitfalls associated with using unlevered free cash flow as an analytical tool. First, it is important to remember that the unlevered free cash flow formula does not take into account a company's capital structure, and some companies may take advantage of this fact when presenting their financials. This means that a company with a high level of debt may appear to have a higher net present value than it actually does. Furthermore, companies themselves can manipulate the unlevered free cash flow metric for their financial statement. For instance, a company could choose to defer or prepay certain expenses, such as loan payments, to make itself look better. It could also fire employees or postpone capital-intensive projects to tweak its unlevered free cash flow. Bottom Line Despite its pitfalls, unlevered free cash flow can be an excellent measure of a company's ability to generate free cash flow after interest and taxes. It is important for business owners and investors alike, as it can be used to make informed decisions about a business or investment opportunity. It can be used to assess the financial health of a company and the potential return on investment. However, there are some key considerations to keep in mind when assessing unlevered free cash flow, such as the projection period over which the cash flow is being generated and the company's capital structure. Altogether, when unlevered free cash flow working capital is combined with other metrics like levered free cash flow, it can be a great indicator of whether a company could be a good investment or not. Further Reading: How To Find Angel Investors and Kick-Start Your Business Everything You Need to Know About Investment Banking Digital Asset Management Software Best Bank for Small Business Franchises Under 10k - Affordable Franchises To Invest In

By Vladana Donevski

Every business owner hopes that their business is sustainable and can grow. While expansion from an LLC to a corporation isn’t the end goal of most owners, it’s a sign that the company is growing. For one thing, incorporation gives businesses access to more funding from external sources. Incorporating an LLC is no small task, but not to worry; we’ve got all you’ll need to know covered in this guide.  LLC vs. Corporation First, let’s make a distinction between limited liability companies and corporations. Limited Liability Company A limited liability company is one of the most common options for small business owners. That’s because it offers protection from liability, is flexible to manage, and also gives great tax advantages. Such a company exists as a legal business entity, separate from the affairs of its owner, hence the name - limited liability company. This means that LLC owners cannot be held liable for any debts or liabilities related to the business. Personal properties are unaffected in the event of bankruptcy, which is a pretty substantial advantage, especially with how volatile going into business can be. LLCs are straightforward with their structuring, which can make business operations smoother. Another simple-structured option is a DBA, also known as Doing Business As. It’s a side conversation, but be careful not to mix them up. As similar as they may be, DBA vs. LLC comparisons will show you just how different they can be. Let’s talk about taxes for a moment. Operating an LLC means you get pass-through taxation, which means that tax is not levied at the entity level. Income or losses made by the LLC are passed through to the owner. The owners must then report these on their personal tax returns and make any necessary tax payments.  If there is more than one person running the business, a tax return must be completed.  LLC tax benefits are just one reason to open this type of company. Other advantages of an LLC are raising credibility (an LLC is more likely to be considered trustworthy than a partnership or sole proprietorship) and having limited compliance requirements.  Putting LLCs one up in the sole proprietorship vs. LLC debates, limited liability companies do not have to endure the strict compliance requirements that sole proprietorships and other business types (general partnerships and even corporations) face.  On the flip side, however, the disadvantages of an LLC cannot be ignored, either. For one, this type of company generally costs more to establish and run. In some states, you will have to pay an initial formation fee, and many others charge annual report fees, franchise tax fees, or other levies. Additionally, transferring ownership of a limited liability company is tough work. It is usually seamless only when all the members agree to add new members or alter how much each owner has. LLCs also have a hard time getting credit facilities from banks and other financial institutions, and when they do, they are usually secured with personal wealth as a guarantee. Corporation Creating an LLC might be simpler, but corporations also have their advantages. You can choose to form either of the two corporation types; a C corporation or an S corporation.  S corporations are pass-through entities, so establishing them isn’t that much different from forming an LLC. S corporation owners are taxed on the corporation’s profits and losses. On the other hand, C corporations are taxed at the corporate level, meaning the tax accrued is corporate income tax, separate from the business’s owners.  Advantages of Running a Corporation C corporations are the most popular corporation types. This is because they have the distinct advantage of profits remaining within the business, eventually being paid out as dividends to the shareholders. Raising capital under a C corporation is also somewhat easier, as they can issue shares to public buyers. Another advantage of corporations has to do with excess profits. There is more flexibility with the extra profit made by corporations, as opposed to the LLC business model. All the income earned in a limited liability company goes back to the owners but in S corporations, income (and losses) are passed on to shareholders, who will then report it in their individual tax returns. This means that S corporations do not pay corporate tax, meaning they have fewer expenses and can save more money (for context, corporate taxes are usually higher than ordinary taxes). As a bonus, if the corporation can meet some regulations, dividends paid are also tax-free. Disadvantages Corporations are not without their disadvantages. C corps face double taxation, as they are also required by law to remit a portion of their income as federal corporate tax annually. That’s another deduction from shareholders' earnings.  While having a good structure is great, it also comes with many formalities. To run a corporation legally, you must have an appointed board of directors, and schedule and hold board and shareholders’ meetings, among other structural and managerial requirements. In a nutshell, incorporating means spending more on expenses. Steps to Incorporating an LLC Before we dive in, if being taxed as a corporation is what you seek for your limited liability company, then there is a way to go about that without needing to incorporate. Incorporating LLCs can be tricky, and there is no reason to do it if all you seek are tax benefits.  Just file an IRS Form 8832 or IRS Form 2553, and your business will receive tax status as a C corporation or S corporation, respectively. If incorporation is truly your end goal, however, then there are two ways to achieve this conversion: Statutory merger Statutory conversion Incorporating an LLC through a Statutory Merger Statutory mergers are especially useful when an LLC operates in a state like Arizona, which prohibits the other method of incorporation; statutory conversion. To convert by statutory merger, your LLC would need to: 1. Form a New Corporation Becoming an LLC with full incorporation status would require the creation of a new corporation. You would have to file a Certificate of Incorporation to the Secretary of State. 2. Merge the New Corporation and the LLC Together Next, you should begin a merger process between this new corporation and the LLC. As the LLC is absorbed into the company, ownership percentages are converted into shares in the new corporation. Incorporating an LLC through Statutory Conversion Using statutory conversion to make your business an LLC with corporation status is the easiest incorporation method. However, as mentioned earlier, some state laws do not allow it. In the states where it is not prohibited (say, California), the process isn’t always the same but does follow a similar pattern. To incorporate an LLC using statutory conversion, the owners must: 1. Unanimously Agree To Incorporate There has to be a mutually agreed-upon plan for the incorporation. All members should typically be on board with the decision to incorporate the LLC, or it will not be a smooth conversion. 2. File a Certificate of Conversion to the State Next, you must file a certificate of conversion to the state and other documentation such as the articles of organization of the LLC. 3. Issue out Shares to the Public Issuing shares is the next step. As mentioned earlier, all ownership percentages will be converted into shares. This enables the business to issue shares to investors and the general public. Once the conversion is completed, the limited liability company is dissolved and is now a corporation. Incorporating an LLC is challenging, but it can be made easier by getting a company that can help you with your LLC. Besides setting up an LLC and helping save you resources, LLC services can help you avoid mistakes while preparing and submitting your paperwork. What Happens if I Can’t Incorporate My LLC? It is a very rare occurrence, but if you fall under the category of LLCs that can’t be incorporated either by statutory conversion or merger, you may have to use a different tactic. This alternative method is called a non-statutory conversion. Being the last resort, though, it is a very complex process. You should contact the services of an experienced tax lawyer. What Will Happen After an LLC Is Incorporated? Now that your LLC is incorporated, what changes? Here’s what you should expect with the incorporation: A board of directors will be appointed. A certificate of incorporation will be submitted to the state. Business operations will adopt corporate bylaws. Annual board meetings and annual shareholders’ meetings will be held to make resolutions to key decisions. Meeting minutes will also be taken. Stock certificates will be issued to shareholders. The business will start paying corporate tax. Annual reports will be filed with the Secretary of State. Reports vary by state, but you can expect to include the company’s name and address, details of directors and officers, tax identification, business purpose, number of issued shares, and all authorized signatories or registered agents. Again, enlisting the help of a capable LLC service makes all these new processes and changes easier to get through, so unless you know what you’re doing, it’s highly advised to get one.

By Julija A.

You may have heard that locking down a good business credit card is one of the crucial ingredients for running a successful business. But is that really true, or is your personal card sufficient? And if it turns out you need one, how do you pinpoint the benefits and figure out which type of card to pick? If you need answers to these questions, keep reading to learn more about the difference between a business and a personal credit card. Key Differences & Similarities  Business and personal credit cards share a few common characteristics. Just like with personal cards, most business credit card applicants are personally responsible for the debt if their business fails. Also, in both cases, annual fees are tax-deductible as long as the cards are used to cover business expenses.  In fact, business credit cards designed for freelancers, side hustles, and part-time gigs function a lot like personal ones. In some instances, a personal credit card is a better fit, as there is no law preventing you from using personal credit cards for business purchases.  However, by going with a personal credit card, you are missing out on the opportunity to build your business credit scores. Most business credit cards report your activity to both consumer and commercial credit bureaus. However, some report exclusively to the latter and, as such, only affect business credit scores. Building your business' credit is as important as maintaining your personal one as it represents your company’s creditworthiness. Another reason to separate ​​business and personal spending is to make bookkeeping for your business as easy as possible, especially come tax season. If you use the personal credit card for both, you may find it difficult to discern which purchases were made for business and are thus tax-deductible.  The IRS doesn’t allow tax deductions on personal, living, or family expenses on your tax return. In short, by mixing the two, you could be missing out on tax deductions or risk getting audited by the IRS. There is another key distinction between these two types of cards that’s especially relevant for companies with high operating costs. Most business credit cards have higher credit limits, which can serve as a lifeline to small businesses. We’ll delve deeper into some of these perks in the sections below.     Benefits of Using Personal Credit Card for Business Purchases Personal credit cards can be used to cover business expenses, especially if you are a one-man show or in the process of building your business from the ground up. Here is why you might consider using a personal card instead of a business one. Personal Credit Cards Typically Have Lower Fees If you have a good credit score, you’ll likely get better rates with a personal credit card rather than a business one. Personal credit cards typically come with lower annual fees and, on average, lower interest rates. Considering how every penny counts when you’re just starting your business, using personal credit cards for business makes sense in some cases. Personal credit cards also offer better protection thanks to the Credit Card Act of 2009. Under this law, credit card issuers are obligated to give advanced notices about limit penalties and APR increases. But some of these protections don’t extend to businesses, which means you run the risk of not being notified about significant changes in fees. Some Personal Credit Card Rewards Might Be a Better Fit Many personal credit cards come with useful rewards. Some of these might be a better fit for your business than those offered through business credit cards.  For example, one of the benefits of business credit cards may come in the form of excellent cashback for purchasing office supplies. However, if you buy two pens per month, you might benefit more from regular cashback rewards that cover multiple categories. That said, there are a range of benefits to separating your business and personal purchases.  The Benefits of Having a Business Credit Card  Now that we’ve covered why you might decide to go with a personal credit card, let’s check why going with a business credit may be a better option. Higher Spending Limits Businesses typically spend more than your average consumer. That’s why business credit cards tend to offer higher spending limits. With a higher spending limit, you can cover more significant costs than when using a personal credit card for business, especially when trying to manage inventory costs. When speaking of operating costs and transactions, you'll find that many business credit card issuers often add tools for tracking business expenses. These features will come in handy, especially when you are just starting your business and you’re not used to handling business expenses. Free Employee Cards Once your business does start growing, you can utilize other benefits of business credit cards, including free cards for employees.  Keeping Your Credit Utilization Ratio Low The credit utilization ratio is used to describe the percentage of the card’s credit limit that the holder is using. The ratio has a significant effect on your credit score.  Those who use personal cards for business purchases drive up the credit utilization ratio and, by extension, lower their credit scores. On the other hand, those who separate their business and personal finances drive up their scores by using less of their available credit.        To maintain a good credit score, you need to keep your credit utilization ratio below 30%. In other words, to prevent business purchases from making a dent in your personal credit score, you should have separate business cards from personal cards.  Building Your Business Credit Score Using personal credit cards for business doesn’t just harm your personal credit score, but you’re not doing your business any favors, either. By making business purchases with a business credit card, you are building your business’ credit score.  This credit score can make it easier to find the right office space and secure business loans. Furthermore, your customers, potential investors, and partners use this metric to determine whether your business is worth their time and money. Additional Perks of Using a Business Credit Card  In addition to boosting your financial standing, a business credit card will often have excellent rewards designed to help you save some of the profits that would otherwise go toward business expenses. Let's check them out. Save on Interest With Introductory APR Business credit cards with 0% APR are a great way for businesses of all sizes to manage their finances and grow their operations. Since both types of cards can offer this introductory APR, if you don’t have large expenses, it won’t exactly settle the business credit card vs. personal credit card debate.  However, if you do make larger investments, these introductory promotions where the interest is waived for a set period of time, typically between six and 18 months, can make all the difference. This makes it easier for new businesses to handle startup costs and make purchases without worrying about paying interest or accruing debt on their accounts. Save on Expenses Using Rewards Programs Many business credit cards offer rewards programs that can save you money on business expenses. Some of the rewards you can rely on are travel points, cashback, or points you can exchange for other perks. There are also a few saving programs that serve as generous benefits of business credit cards. The first step is figuring out what type of rewards you are looking for. Some programs offer cashback or points that can be redeemed for merchandise or travel. Others may offer discounts on business expenses such as office supplies or fuel. There are also some programs that offer a combination of rewards. Ultimately, you can always rely on a cash-back rewards program if you don't consistently spend enough to make use of other types of rewards. Finally, make sure to compare the different options to identify the program that offers the best value for your business. By taking the time to research your options with a business credit card or a personal one, you can reduce your expenses and pinpoint the most relevant benefits. Things to Look Out for When Choosing a Business Credit Card Aside from the potential benefits, there are a number of important aspects that require your attention when choosing the right credit card. Annual and Interest Fees Most business and personal credit cards come with annual fees. The fact that these fees can range anywhere from $50 to $500 is a critical part of the business vs. personal credit card showdown. Also, the annual fee is often offset by the rewards and perks that come with the card. In addition, business credit cards usually have higher interest rates than personal credit cards. This is because businesses are considered to be a higher risk than individuals when it comes to credit. However, you can avoid paying interest on your business credit card by paying your balance in full each month. This will help you save money and keep your business finances in order. Consumer Protection Consumer protections for personal and business cards may vary greatly but can be a crucial component in managing a company’s finances.  These protections help to ensure that businesses are able to access the funds they need when they need them without being subject to hidden fees or invasive account monitoring. They also help prevent unauthorized use of credit card accounts and provide limits on spending and borrowing. For small businesses, these protections can provide much-needed financial stability. Summing it Up So, should you get a business credit card or use a personal one to cover business-related expenses? While some freelancers and part-timers can get away with using a personal credit card for business expenses, a business credit card offers perks and protections to small businesses that simply aren’t available with a personal credit card. It can also help you build your business credit score and improve your personal one, which is important for accessing funding and other opportunities down the road.

By Vladana Donevski

It is not uncommon for people to have questions or concerns about the ownership of a particular business. Whether you are a potential customer of a business, an investor, or simply curious, there are several ways you can go about finding out who runs the show.  If you’re wondering how to find the owner of a business, here are some of the best methods to try. Check the Company Website Most companies list their ownership information on their website, either on the “About Us” or “Contact Us” page, so start there. This is the quickest and most efficient way to identify the owner of any business, anywhere in the world.  If the company is a large corporation or publicly traded, you may find an executive team page with contact information for the board of directors. It’s also helpful to research whether the business is a sole proprietorship, partnership, limited liability company, or a corporation.   Check Social Media Accounts When you’re pondering how to find out the owner information of a business, and the business owner’s name isn’t listed on the website, you can try social media. Many registered businesses list their ownership information in the “About” section of their social media accounts. Check the business’s Facebook, Twitter, and LinkedIn accounts to see if this information is available. Many business owners list LinkedIn as their social media of choice as it generates 277% more leads than Facebook and Twitter. So it’s also worth checking if the owner has a personal social media account. This can give you insights into their background, interests, and goals for the business. Contact the Business Directly If all else fails and you can’t find the owner’s name through their social media company page, you can try contacting the business’s Facebook page administrator. But how do you find the owner of a Facebook business page? The task is not complicated, as it only requires you to find the business’s page, click on Settings, and then on Page Roles.  Regardless of whether the actual owner of a business is listed among the page administrators, you’ll be able to find a name there that you can contact for further information. You may even find a listed phone number and ask to speak with the owner, or you can send an email to the provided contact email address. Keep in mind that the business may not be willing to disclose this information, but it is worth a try. Look Up the Business’s Legal Documents Depending on the type of business and its location, the owner’s information may be publicly available through legal documents such as articles of incorporation or business licenses, as all businesses should be registered by state. You can typically find these documents if you browse registered business databases, search registered business databases, or the portal of local government. If you need to find a business owner due to a legal issue or dispute, you can always hire a law firm or online legal services to handle this for you. Use a Business Search Service Here’s a potentially unpopular opinion on how to find the owner of a business at a given address without fail: pay for a business search service. While these private search companies often require a subscription or a fee before allowing access to their business records, they are a useful resource. Look for Press Releases or News Articles If the business has received any media attention, your job should be easier, as you’ll likely be able to find the owner’s name in a press release or news article. Search online for the business name and see what information has been shared.  From there, you can peruse articles in search of a CEO’s name or other clues that may lead you closer to finding the person you’re looking for.  Final Thoughts Searching for information on who owns a business may seem complicated at first, but it is entirely up to how you go about it. By using the strategies we’ve presented in this article, you should be able to do a thorough search and hopefully find the owner of a business with ease.  Once you find the owner or someone who works for this business, be polite and professional when you talk to them. And be prepared to explain why you are looking for this information. Now that you know how to find the name of a business owner, it’s time to give it a try. With a little bit of effort and persistence, you should be able to find the information you need in no time.

By Danica Djokic

A business plan is a document that outlines your business goals and objectives and how you plan to achieve them. It covers everything from your business history and background to your marketing strategy and financial projections. It’s designed to help you navigate your business journey, attract investors, and secure funding. So, is a business plan worth the time and effort? The short answer is yes if you want to put your business on track to success. Keep reading to find out more. Do You Need a Business Plan? Business plans are a prominent feature of the modern business world. They play a critical role in helping entrepreneurs secure funding and getting businesses off the ground, but they can be time-consuming and difficult to create. Figuring out whether you need a business plan depends on everything from your goals to the business life cycle. If you’re starting a new business, the importance of a business plan is obvious. A business plan can help you outline your ideas and determine what steps you need to take to make your business a reality. However, if you’re further along in your business journey, a business planning process may not be worth your time. Some entrepreneurs think that since they already have a clear vision for their businesses, creating business plans is just a formality. Why Is a Business Plan Important? There are many reasons why you should put your business ideas on paper, even if you’re not looking for funding or investment. A business plan can help you in the following ways: Help you start your business With a written plan, you increase your chances of actually starting a new business rather than simply giving up on a good idea. A completed plan paints a clearer picture of what you need to do to start and run your business successfully. Improve team satisfaction and performance Another purpose of a business plan is to help you communicate your vision to your team and get everyone on the same page. Having a comprehensive business plan can also improve job satisfaction because employees will feel like they are working towards something larger. Furthermore, studies have shown that businesses with a plan are more likely to outperform businesses without one. Make better business decisions Writing a business plan can help you make better business decisions because it forces you to think through all aspects of your business. For example, when you're planning your marketing strategy, you'll need to consider your target market, budget, and objectives. This process can help you save money and make more informed decisions about how to allocate your resources. Secure funding If you're looking for prospective investors, a business plan is essential. As a matter of fact, the most common use of business plans is to show investors the potential of your business and how you're going to use their money to grow your company. Without a business plan, it will be difficult to convince angel investors to give you the funding you need. Look into the viability of your business idea Business plans can help determine if your business idea is viable. This is important because it can save you a lot of time and money if you realize that your business idea isn't going to work before you've invested too much into it. To do this, you'll need to research your industry, competitors, and target market. This process can be time-consuming, but it's worth it when trying to identify potential pitfalls. Track your progress Building a business plan can help you track your progress and measure your success. This is important because it allows you to see how far you've come and what needs to be done in the future. Without a business plan, it can be difficult to set milestones and track your progress. Attract partners If you're looking for business partners, a business plan can be helpful. This is because potential business partners will want to see that you have a clear vision and a plan for achieving your operational goals. Without a business plan, it can be difficult to find business partners who are willing to invest in your company. Secure insurance Another reason why you need a business plan is to secure affordable business insurance. In order to pick the right insurance and get the necessary coverage, you need to assess all the potential risks. This may be difficult without a business plan. Get a business loan Most business loan applications won’t be considered without a business plan. Banks and other financial institutions want to see how much money you really need, how you plan to use it, and how you expect it to benefit your business.  Lease a commercial space The purpose of business planning also extends to the leasing of commercial space. To get the right property under the right terms, you’ll need to lock down the perfect lease agreement. Landlords expect to see financial statements and a business plan to give them a sense of what you're doing and how you plan to cover long-term expenses. Understand your competitors During the planning process, you'll learn about the competition. This is important because it tells you what makes your competitors unique and what you can do to get ahead. It might be tough to research your rivals and grasp their business methods if you don't have a business plan. Better understand your clients When you're mapping out your business plan, you'll also gain an understanding of your target market and customers. The importance of business planning is to help you identify the right market and what potential customers are looking for. Researching your target market can be difficult, but it's an important part of creating a profitable business. Practice your business presentation If you're going to be pitching your business to potential investors, you need to have a strong business plan. This is because your business plan will be your roadmap during the presentation. Without a business plan, it may be difficult to keep your presentation on track and focused. Avoid failure The main purpose of writing a business plan is to help you avoid failure. This is because it forces you to think about all aspects of your business and ensures that everything is in place before you launch. Without a business plan, it's easy to overlook things that could cause your business to fail. Grow faster A business plan can help you grow your company. With a good plan, you'll get a clear roadmap and stay focused on your goals. Moreover, a good marketing plan will increase your chances of thriving faster. Without it, it can be easy to get sidetracked and waste time on activities that don't help you grow a successful business. What Makes a Good Business Plan? While there is no one-size-fits-all approach to writing a business plan, there are certain elements all successful business plans share. These include a clear description of your business, your business goals, a market analysis, an analysis of the competition, and a financial plan. There are different types of business plans for different types of businesses. For example, a startup business plan will be different from a business plan for an established company. The type of business plan you need will also depend on your goals. Bottom Line Overall, a business plan is worth the time and effort because it serves as a roadmap for success. If you're looking to start a business, secure funding, or attract business partners, a business plan is essential. Additionally, a business plan can also help you track your progress, make better business decisions, and understand your competition.

By Danica Jovic

Discounted Cash Flow: Definition, Formula, and Examples It goes without saying that each business investment should be approached carefully and strategically. One way to estimate whether an investment is risky is to employ a discounted cash flow (DCF) analysis. Keep on reading to learn more about this valuation method, including how to calculate it and its advantages and disadvantages. What Is Discounted Cash Flow? The term discounted cash flow (DCF) is used for a valuation of an investment based on its expected future cash flows. In other words, this method estimates how much capital a business will generate in the future while taking into account the time value of money. Therefore, DCF lets you see how much the expected cash flows would be worth at present. The term discounted cash flow is sometimes used interchangeably with net present value (NPV). Although they are quite similar, a distinction can be made between the two. To be precise, NPV adds another step to the DCF calculation. After DCF is calculated, the upfront investment costs are subtracted to get the NPV value. How To Calculate Discounted Cash Flow To calculate the discounted cash flow, you should use a discounted cash flow formula. The most commonly used one is as follows: DCF = CF1/(1+r)^1+ CF2/(1+r)^2+...+CFn/(1+r)^n ​ CF1 stands for the cash flow for the first time period, CF2 marks the second, while CFn is there to denote each following period. The discount rate is r. Let’s explain these three elements in more detail. Cash Flow (CF) There are several cash flow types, such as operating cash flow and unlevered free cash flow. In this case, unlevered free cash flow is used. It refers to net cash payments acquired by the investor for the securities they have, such as bonds and shares.  Number of Periods (n) The number of periods simply refers to the number of years, months, or quarters you are calculating the discounted cash flow for. The periods are typically equal, but if they’re not, they are presented as a percentage of a given year. Discount Rate (r) In most cases, when evaluating a business, the discount rate is simply the company’s ​​Weighted Average Cost of Capital (WACC). WACC measures the cost to a business to borrow money and is calculated by considering the company’s debt and equity financing.  The formula for calculating the WACC is the following: WACC  =  (E/V x Re)  +  ((D/V x Rd)  x  (1 – T)) E represents the market value of the firm’s equity, while D is the market value of the firm’s debt. V stands for the total value of capital, which is the sum of equity and debt. Furthermore,  E/V denotes the percentage of capital that is equity, and D/V is the percentage that is debt. Finally, Re is the cost of equity, Rd stands for the cost of debt, and T is the tax rate. Discounted Cash Flow Example To make things simpler, we’ll show you a DCF example. Let’s say you plan on investing in a company that is projected to have the following cash flow over the next five years:   Year Cash Flow 1 $500,000 2 $550,000 3 $600,000 4 $750,000 5 $900,000 The discount rate we’ll use in this example is 10%. Here is what the calculation looks like when the formula is applied. Year 1: $500,000/(1+10%)^1 = $500,000/1.1 = $454,545 Year 2: $550,000/(1+10%)^2 = $550,000/1.21 = $454,545 Year 3: $600,000/(1+10%)^3 = $600,000/1.331 = $450,788 Year 4: $750,000/(1+10%)^4 = $750,000/1.464 = $512,295 Year 5: $900,000/(1+10%)^5 = $900,000/1.611 = $558,659 When we add up the calculated discounted cash flows for all of the years, we get a total of $2,430,832. That number represents the discounted cash flow for this five-year period.  The Pros and Cons of the Discounted Cash Flow Analysis The main perk of the discounted cash flow method is that it allows businesses and other investors to make predictions about potential investment opportunities. It’s also adjustable, so you may get different results in different scenarios. On the other hand, this valuation method has some major limitations, making it less reliable than other options. Namely, it relies heavily on estimations. One of the elements in the DCF formula is the discount rate, and any mistakes here will lead to highly inaccurate results. Bottom Line Using the discounted cash flow formula can be useful for estimating whether an investment is worthwhile. However, it should be applied with caution, given that the formula’s key elements are approximations, so the result may not be as precise as you need it to be. 

By Danica Jovic

Running a small business is hard work. A lot of opportunities simply don’t pan out, and businesses can quickly sink into debt. But all hope is not lost, as filing for a Chapter 13 bankruptcy can give you some breathing room to restructure and reduce your debt. In the following guide, we’ll tell you everything you need to know about a business bankruptcy Chapter 13 filing and help you figure out whether this is the way back to profitability for your business.  What Is Chapter 13 Bankruptcy? Businesses aren’t eligible for Chapter 13 bankruptcy, but business owners are. As such, a  Chapter 13 business bankruptcy enables owners to re-organize their debts in order to salvage their independently-owned businesses. It doesn't involve any liquidation of assets. Instead, you agree on a repayment schedule with your creditors.  These payments are made on a monthly basis to the bankruptcy Chapter 13 trustee the court assigns to your case, who then pays the creditors. The entire process can last anywhere between three to five years. A portion of your debt may also be written off to make your payments easier. The amount you pay back depends on your finances, including your income, expenses, and even the type of debt. However, there are some types of debts that you must pay in full, regardless of your financial status. These are referred to as priority debts, and examples include taxes, alimony payments, and other domestic support payments. An important part of a Chapter 13 filing is your ability to prove that your income is insufficient to meet your debt obligations. Chapter 13 Business Eligibility Requirements Seeing as you cannot file for Chapter 13 bankruptcy under your business name, you’ll need to do it under your name. This is an ideal solution for sole proprietors who aren’t a separate legal entity from their business, as is the case with corporations and LLCs. A sole proprietor is responsible for debts incurred as an individual and a business. This means that all of your personal income and property are available to clear off business debts. Also, creditors are more likely to get their money through this arrangement. Benefits of Chapter 13 Bankruptcy for a Small Business Here are some of the benefits your small business gets from a Chapter 13 filing. Protect your business assets Your business assets are crucial to keep operations running. Losing them to creditors to settle debts can be detrimental to your business. Thankfully, Chapter 13 bankruptcy lets you keep both exempt and nonexempt assets from being seized. Exempt assets are those you need to operate your business. Different businesses have different property and equipment needs, and when filing for Chapter 13, you’ll need to prove that certain assets are critical for maintaining operations.  You can also keep nonexempt business property when filing Chapter 13. But you’ll need to account for their value in your repayment plan. Each state has bankruptcy exemption statutes that let you know what assets can be protected. Write off business debts This only works if you’re a sole proprietor, as there is no separation between individual and business debts. You can list business debts in your bankruptcy filing and most likely have to pay small installments on these debts. Once you complete your payment plan, a qualifying balance will be discharged or written off. Settle with important creditors Chapter 13 enables you to cover priority debts as part of your repayment plan. These include taxes or loans that you are personally liable for.  Conclusion Filing for Chapter 13 is a perfectly reasonable solution for those trying to save a struggling business and keep their assets from being sold off. And while businesses aren’t eligible for Chapter 13, business owners can file for this type of bankruptcy to restructure their debt and save their business in the process. Before you file, it’s strongly recommended that you contact a Chapter 13 lawyer to discuss your options.

By Julija A.

When running a business or reviewing our personal finances, more often than not, we find ourselves lacking funds for something. If it’s something luxurious, most of us simply won’t get it unless it’s absolutely necessary. After all, bad credit loans are something all of us try to avoid. Still, when we need something for our company to grow, we’ll try to get a loan. The more money we need, the bigger the loan’s drawbacks. So what happens if we can’t pay those loans back? Bills and debts start piling up, and you don’t know which way is up anymore. If you’ve drained every option and even bad credit loans are no longer an option, it might be time to declare bankruptcy. Is that the right choice for you, and how will you get back on your feet afterward? Well, the US government came up with a few solutions, one of them being Chapter 11. But what is Chapter 11 bankruptcy? Chapter 11 ​​Bankruptcy Explained By definition, Chapter 11 bankruptcy involves reorganizing a debtor’s assets, debts, and business affairs, which is why it’s also known as "reorganization" bankruptcy. Although it’s available to individuals and businesses alike, it’s mostly used by companies. Commonly, the debtor is allowed to keep their possessions, is viewed as a trustee, may continue to run their business, and (with court approval) borrow money again. When a reorganization plan is developed and proposed, creditors vote on it; if it passes and fulfills specific legal prerequisites, it is approved by the court. The purpose of the Chapter 11 bill was to help businesses regroup and set up a strategy for the future. This plan may contain modifying payment due dates and interests and can even remove a debt entirely. How Does Chapter 11 Work? All bankruptcy chapters, including Chapter 11, halt the collection process. Once filed, the "automatic stay" forbids most creditors from hunting you, giving you enough room to breathe and figure out your next move. This temporarily stops: Payment demands Removal or any kind of foreclosure Collections trials Till taps, property confiscation, bank levies Unlike other chapters, Chapter 11 allows the debtor to act as the trustee, meaning that they can continue everyday business functions as a "debtor in possession" while Chapter 11 restructuring takes place. However, the business can not make all decisions without court permission. Restricted decisions include sales of any assets other than inventory, creating or closing a rental agreement, taking out new loans, and controlling business operations. The court also controls payment decisions and contracts related to attorneys, vendors, and unions. Ultimately, the debtor cannot take out a loan that will begin after the bankruptcy is complete. Is Chapter 11 the Best Bankruptcy Option for You? There are nine chapters in Title 11 of the US Code, each focusing on different bankruptcy strategies. Chapters 1, 3, and 5 explain the legalities of bankruptcy for all parties involved, including the debtor, creditor, and court.  The other chapters explain who can file for bankruptcy and how to do so according to who they are or whom they represent: Chapter 12 is for family farmers or family fishers with regular income.  Chapter 15 is used in international cases. Chapter 13 is for individuals with stable income and has certain debt restrictions. Chapter 7 is the liquidation bankruptcy chapter for people who cannot create a reorganization plan and provides them with information on liquidating their remaining assets. How to File for Chapter 11 Bankruptcy Now that Chapter 11 bankruptcy has been explained, let’s go over the procedural part. It begins by filing a petition at the debtor’s residential area or incorporation location’s federal bankruptcy court. It may be a voluntary petition, filed by the debtor, or an involuntary one, filed by creditors that meet specific requirements. Then, the creditors vote if the plan within the petition is acceptable. Since the next option is usually filing for a Chapter 7 bankruptcy, meaning liquidation, creditors are typically cooperative. However, if a creditor objects to the plan, the court will get the input from creditors and other interested parties, before deciding on the best course of action. The determining factors include: Success probability Good faith The creditors’ best interest If it is fair and equitable So how long does Chapter 11 take? Well, there are technically no limitations. Some cases take only a few months, but it often takes six months to two years for a case to close.

By Nikolina Cveticanin

When faced with debts that you cannot pay, it may seem like there is no way out. However, a bankruptcy discharge could release you from personal liability. Before taking any steps, it’s important to know what bankruptcy discharge means and how you can file for an order of discharge in your personal situation. Given that the average American has over $21,000 in debt from personal loans and credit cards alone, discharged bankruptcy is a relevant topic for many people across the country. Here’s all you need to know about discharged bankruptcies. The Bankruptcy Discharge Definition When it comes to the bankruptcy discharge meaning, LawInsider.com defines it as “a court order that ends bankruptcy proceedings as old debt and hence releases the debtor from the responsibility of repaying certain types of debt.” In essence, a discharged bankruptcy will free you from any obligation to repay the debts covered by the order of discharge. This also means that creditors can no longer take action against you in relation to those debts. Those actions include debt collection, attempts at legal action, and communication with you via letters or telephone calls. A discharged bankruptcy may occur when you file a Chapter 7, 11, 12, or 13 bankruptcy. Before filing for a discharge order, though, it’s important to recognize the downsides of bankruptcy while also researching which debts can or cannot be discharged.  How Can You Get a Discharge of Bankruptcy Order? Under most circumstances, debtors are automatically given a discharge during their bankruptcy case unless creditors object. So, by informing your attorney to file for bankruptcy, an order discharging debtor liability will be included as a part of the legal proceedings.  Assuming no litigation involving objections is posted, the Federal Rules of Bankruptcy Procedure will ensure that copies of the order of discharge are provided to the debtor (you), the debtor’s attorney, the US trustee, the case trustee, the trustee’s attorney, and all creditors. The notice of bankruptcy discharge proof also informs creditors that your financial liability has been dropped and advises them not to pursue any further action. The length of time that it takes to acquire a discharged bankruptcy order depends on the bankruptcy chapter filed. Generally speaking, the timeframes are as follows: Chapter 7 (for liquidation): Courts grant discharges following the expiration of a creditor’s complaint objection period, which is usually between 60 and 90 days after your 341 meeting. This generally happens four months after you, the debtor, files a petition at the bankruptcy court. Chapter 11(for an individual chapter 11 bankruptcy): The courts grant an order of discharge once you have completed all payments under the bankruptcy agreement. Chapter 12 (for an adjustment of debts of a family farmer or fisherman): The courts will also grant the discharge after payments have been completed. Due to the nature of this bankruptcy hearing, it usually takes between three to five years to secure the discharge after the filing date. Chapter 13 (for an adjustment of debts for an individual with regular income): The order may be granted by the courts as soon as the agreed payments are finalized. Again, it often takes three to five years after the date of filing.  It should also be noted that you may be required by the Bankruptcy Code to complete an instructional financial management course. However, there are exceptions to this ruling, including a lack of adequate local educational programs or if the debtor is living with a disability. Understanding the Inclusions of Discharged Bankruptcy Orders When trying to work out how a bankruptcy discharge is relevant to your personal financial situation, you’ll naturally want to know what types of debt can be discharged. After all, bankruptcy discharge orders don’t cover everything. Section 523(a) of the Bankruptcy Code details a number of exceptions under each chapter of bankruptcy.  When filing a Chapter 7, 11, or 12, there are 19 categories of nondischargeable debts, while the list is a little smaller for Chapter 13. Below are a few examples: Certain tax claims  Child support payments  Spousal or alimony payments  Government penalties Guaranteed educational loans Cooperative housing fees While secured debts cannot be included, a valid lien or sale of the secured asset can be used to repay the debts, with the shortfall (remaining balance) subsequently being included in the order of discharge. It should also be noted that obligations affected by fraud or maliciousness won’t automatically be exempted from a discharge. It will be up to creditors to post an objection to these. If they do not, they will be included in the order discharging debtor responsibilities. Before filing for bankruptcy, it’s important to do your homework or speak to an attorney/financial advisor about the debts that can be discharged and the ones you would be liable to pay. Bankruptcy Closed vs. Discharged A bankruptcy discharge order doesn’t necessarily translate into a case closed. In a simple Chapter 7 bankruptcy without assets being lost, the closure should occur a few days after your discharge. When assets are being lost, any relevant litigation must be finalized before closure can occur. In cases where a repayment plan is needed, the closure won’t happen until after the trustee has confirmed the final report for payment distributions. Generally speaking, it is only the Chapter 7 bankruptcy cases involving difficult assets that are kept open for long periods. Although rare, it is also possible for debtors, creditors, or trustees to reopen the bankruptcy case if a debt hasn’t been listed or if false information has been provided. What Else You Need to Know About Bankruptcy Discharging Before thinking about bankruptcy, you must consider the impact it will have on your financial future. For starters, you will still be required to pay secured debts, while the impact on your credit score will last for up to eight years.  Many people who file a bankruptcy worry about what it means for their career, but the good news is that employers are prohibited from discriminatory treatment of debtors based on their bankruptcy status. This covers both public and private businesses. Furthermore, bankruptcy courts may permit those who file for bankruptcy to run businesses even before the discharge. That’s why it’s important to stay up to date on the best business banking options. A second discharge in a Chapter 7 case will be rejected if you have already received a discharge within the last eight years for a Chapter 7 or 11. This duration is reduced to six years for Chapter 12 and 13 cases. This is unless all unsecured debts from the previous discharge have been cleared. Finally, you will be advised to keep hold of your bankruptcy discharge proof letter in case creditors attempt to take action against you after the confirmation. Should this happen, you will be in a position to file a motion with the court. Should you lose your copy of the discharge order, it is possible to request another from the clerk at the bankruptcy court for a fee. Electronic documents may also be available via the clerk’s PACER system. Conclusion By now, you should have a solid understanding of the bankruptcy discharge meaning in law and how it can impact your future following any proposed bankruptcy. Under the right circumstances, it can be an attractive option that removes some of your financial burdens while also putting an end to annoying calls and debt collection actions.

By Julija A.

Just as we often resort to financial institutions such as banks to ask for a loan when we can't afford expensive purchases, businesses can also do it when they lack the capital to fund their operations. However, instead of going to a bank to ask for a loan, most business owners opt for signing a bond with investors, not only because it allows them to borrow larger sums of money but also because bonds have longer maturities.  At this point, you may be saying, “Hold on, what are bonds and how do they work?” Well, this article is all about bonds, so keep reading to find out. What Are Bonds? Simply put, a bond is a source of funding that companies obtain through the public through investment banking. Even though bonds are similar to loans since they both involve money borrowing and interest rates, one significant difference sets them apart.  Unlike loans, which come from financial institutions and have short repayment periods, investment bonds come from individual investors or even other, larger corporations and have longer maturities. But in essence, yes, bonds are a type of loan. When you issue bonds, you're committing to repaying the entire amount and paying periodic interest payments to the bond issuer. The payment of interest depends on the arrangement between the two parties, but they are often made twice a year, and the rate is lower than compared to an actual loan from a financial institution. Understanding Bonds - How Do They Actually Work? When companies or other entities like governments need to raise money to fund their operations or maintain ongoing ones, finance new projects, or simply pay existing debts that are about to mature, they may issue bonds directly to investors. After the decision to issue a bond has been made, business owners present their case to investors, who decide if investing is a good idea after analyzing the company’s financial situation. If investors believe you're in a good position to pay the money back in the stipulated time lapse, they will purchase the bond and become bondholders. Keep in mind that, after being issued, investment bonds can be sold by the initial bondholder to other investors. That means a bond investor is under no obligation to hold a bond all the way through its maturity date and can sell it on the secondary market whenever they want if they decide to do so.  Bondholders may decide to 'resell' bonds if they believe they could increase in value and get gains on the sale. However, just as bonds could increase, they could also decrease in value from the original purchase, resulting in a loss of money for the investor. If you have a good credit score, chances are that you will find an investor interested in buying your bond quite easily. Unlike other recognized investment opportunities like buying stocks, bonds provide investors with a predictable income stream that allows them to preserve capital while investing, which is why they are so popular among risk-averse investors.  Characteristics of Bonds You need to be familiar with certain concepts when dealing with bonds. Here are some of the key elements that you will find in every type of bond: Face Value. Also known as the par value, it refers to the amount of money the bondholder will receive at the bond's maturity date; however, the par value isn’t actually the price of the bond, which is what most people struggle to understand at first.  Depending on a w number of variables, the price of investment bonds can change over time before reaching maturity. When that happens, the bond’s price stops being the same as the face value. When a bond trades at a price higher than its face value (for whatever reason), it is said to be selling at a premium, and when it sells for lower than the face value, we say that it’s trading at a discount. Maturity date. This is the term used to refer to the deadline for the bond issuer to pay the face value of the bond to its holder. Coupon rate. Always expressed as a percentage, it refers to the nominal interest rate a bond issuer agrees to pay to the bondholder each year until the bond matures. That means that if an investor agrees to a bond with a coupon rate of 6% and a face value of $1,000, they'll receive an annual interest of $60 during that period. Coupon dates. The established dates on which the bond issuer will make interest payments to the bondholder. Although there's no rule for setting coupon dates, most bond terms usually include two for every year before the bond matures. Now that you know the most important bond characteristics, we can talk about bond categories, so you’ll better understand the pros and cons of each type of bond. Types of Bonds There are four main categories of bonds: treasury bonds, government bonds, municipal bonds, and corporate bonds. Let's learn more about them. Treasury Bonds These are bonds issued by the US Department of the Treasury on behalf of the federal government. With this type of bond, you must pay federal income tax on interest, but the interest is generally free from state tax. Most investors see these as the safest bond investment possible, mainly because they are backed by the US government, so the chances of not getting your money back are practically nonexistent. Government Bonds The Federal Government issues this type of bond to raise money to support its expenditures. Just like treasury bonds, one of the characteristics of bonds issued by the government is that they are considered zero-risk investments; however, most are taxable at the federal and state levels. Municipal Bonds Also known as munis, these are bonds issued by states, cities, and municipalities. Although they are not as safe as the two types of bonds mentioned earlier, municipal bonds bring tax benefits to bondholders, such as not having to pay federal taxes on the interest. Corporate Bonds These bonds are issued by both private and public companies. This type of bond can be either high-yield (higher interest rate & risk) or investment-grade (lower interest rates because the risk is lower). The interest you earn on corporate bonds is always taxable. Final Thoughts In conclusion, bonds are a type of security sold by corporations and government agencies to gather money from investors to fund their activities. They are similar to loans in that one entity effectively lends the funds to another, but the differences are in where that money comes from and how long it takes issuers to pay it back. There are several different types of bonds that represent different opportunities for investors. Some are safer investments with lower interest rates, while others are riskier but with a much better interest rate and a higher possibility of getting significant gains out of them. Lastly, you can always hire an investment firm or a business loan broker to ensure you get the best value out of your business investment.

By Vladana Donevski

It’s never a good idea to mix your personal money with your limited liability company funds and thus be personally liable for your LLC’s legal obligations and potential debts.  That’s why we’ve compiled detailed instructions and a comprehensive list of requirements for opening a bank account for an LLC. Stay with us and learn more about the procedure and the required documents.  Why Should Your LLC Have a Designated Bank Account? There are a variety of legal and practical reasons for you to open a designated business checking account for your LLC. Here are some of them: Having an LLC means that you have formed a separate business entity. If your LLC doesn’t have a separate bank account, your personal and business finances will be commingled, and you’ll be at risk of jeopardizing the LLC. Should your LLC end up in debt or get sued, your personal funds won’t be sought after, leaving only your business funds open for scrutiny. If you set up an LLC bank account, calculating the taxes, keeping track of your business’s expenses and income, and preparing and auditing financial statements will be much easier. With two separate accounts, you won’t need to pay your accountant for doing the extra work of sorting through your personal and business expenses.  When paying your business partners, stating your company’s name on the check instead of your personal information seems more professional. Your clients will take you more seriously when you have a separate account for your business. Another practical reason for a dedicated checking account for your LLC is that it can be a requirement for applying for an LLC business loan or a good business credit card.  How To Open a Business Bank Account for LLC Now that you know why a separate bank account is a good idea for your LLC, here are the steps you need to take to get one: 1. Choose a Bank The first step when opening a bank account is choosing the right bank for your small business needs. When shopping around for the bank that you’ll place your trust in, pay attention to the following: Online or Brick-and-Mortar Bank Depending on whether you prefer to go to the physical bank branch or enjoy banking from your home or office, you can open an LLC bank account online or choose a bank with physical branches. If you decide on the latter, a favorable system is to pick the same bank you have your personal account with. Visiting the same branch for both business and personal transactions can save you a lot of time. Check the Fees There are other basic LLC bank account rules, such as checking which banks offer the best terms, conditions, and fee structures. That’s why you should always ask about the monthly maintenance fee, minimum monthly balance, minimum initial deposit, and overdraft fees before you make a decision.  You should also see whether you can write checks and if there are any promotions, enticing rewards programs for business customers with high balances, or discounts on loans.  Debit and Credit Cards Most banks will issue you a debit card for your business account right on the spot, while others might mail them, so you could end up waiting for a couple of days. An LLC debit card is useful for tracking your business expenses.  Make sure to check whether the bank offers a business credit card that you can use for cash-back rewards, miles, points, and other perks. 2. Gather the Documents When you decide to open an LLC bank account, the requirements might differ from institution to institution. However, here’s a list of some of the most common documents that banks will ask you to submit: A copy of LLC’s articles of organization is a legal document that establishes your LLC at the state level. Depending on where your company is registered, this document can also be referred to as a certificate of formation or certificate of organization.  Your Employer Identification Number is necessary as it lets the IRS identify your business entity for tax purposes. If the LLC is formed as a single-member LLC, you can provide the Social Security number of the sole proprietor. Also, an EIN verification letter would be accepted, too.  An LLC operating agreement is necessary when opening a bank account for an LLC as it lets the bank know who is authorized to sign, deposit, and withdraw funds on behalf of the company. Government-issued photo ID, such as a valid driver’s license or a passport is a must. Additional documents will be required if the LLC is doing business under a different name. Banks usually accept a business license, trade name certificate, fictitious name certificate, certificate of assumed business name, or occupational license. 3. Fill In the Application If there’s an option to open a bank account for your LLC online, you’ll be required to fill out the application form. It usually asks for information such as the name and address of the business, the date the company was established, the country and state of legal formation, and the country and state of the primary business operation. Keep in mind that the business must be formed and operational in the US. Be prepared to enter your company’s EIN number and personal information, such as SSN, for all business owners listed in the application, should they have at least 25% of the ownership. Remember that you’ll also be asked to state the person who will be authorized to sign financial and legal documents. Unless you’re a single-member LLC, that is. Some banks will require applicants to come personally to the branch and meet with a designated banker to discuss setting up a bank account for their LLC. In that case, make sure to call the bank beforehand and inquire about all the necessary documents so that you can come prepared. 4. Fund Your Account Congratulations! The time has come to fund your account using any of the deposit methods supported by your bank. Make sure to check whether the bank asks for a minimum deposit amount. What About Nonresidents? Nonresidents, too, can open a business bank account in the US. However, in that case, the business needs to be officially registered in the US and have its unique EIN number. So, how do you open an LLC business bank account if you are a nonresident? If you registered your LLC in the US and got your EIN number so that the IRS could identify you, the first step would be to find a bank with foreigner-friendly options.  Then, the documents: You won’t need a residency requirement, an SSN, or an Individual Taxpayer Identification Number, but most banks will require the following: LLC’s registered agent address as LLC’s office address or proof of having an office in the US. A lease agreement or utility bill works, too. The EIN number A certificate of formation, articles of organization, or an equivalent document LLC’s operating agreement or an equivalent document  A US phone number Foreign driving license and foreign passport Information on the company’s owners In most cases, setting up a bank account for your LLC when you’re a foreign entity has to be done in person. However, some banks might allow you to start the procedure online and then show up to hand over the documents. There are also agencies that help you set up a US business remotely using a registered agent.  Business Credit Score Concerns A business’s credit score is a potential problem that’s often overlooked.  Similar to your personal FICO score, from the moment you open your business account, you’ll start to build up your business credit history. Opening a bank account for an LLC also means that the way you run your business can affect your credit score in both good and bad ways. These numbers are available to the public and will be used by banks to decide if you can get a business loan or insurance, as well as by potential business partners and rental agencies.  Whereas a personal credit score usually falls between 300 and 850, your business score will range anywhere from one to 100. The calculating models depend on which of the three major bureaus the bank reports to: Dun & Bradstreet, Experian, or Equifax.  Finally, even though it would be beneficial for your business to maintain a good credit score, remember that even if you end up with a less-than-stellar score, you can still get a business loan. Final Thoughts  If you’re still wondering whether you should open a bank account for your LLC, we can assure you that it’s worth the effort. With a business account, your personal assets will be safer, you’ll appear more trustworthy to your business partners, and it will be much easier for you to keep track of your business transactions.

By Vladana Donevski