You only need one accountant. There's no reason to have more than one attorney. But if you have only one bank, it's time to go shopping.
There are a number of reasons to use more than one bank, beginning with borrowing ability. "Doing business with the same bank for years usually makes it easier to get a loan when you need it," says Linda Fayerweather of Fayerweather Consulting, a Toledo, Ohio, business coaching firm. "But banks' lending policies change from year to year, often quarter to quarter. If you need a loan just when your bank has become more rigid, where do you turn?"
Other factors change, too: range and quality of bank services, fees, interest rates and your needs. "Yet, after opening an account, most entrepreneurs don't monitor banking costs, services or benefits offered by competing banks," observes Fayerweather.
Fayerweather, former director of the Delaware Small Business Development Center, says many entrepreneurs believe it's better to have all your accounts at one bank. "Not true," she says. "Some of my clients have business accounts at one bank and payroll at another--mainly so they won't be tempted to touch the withholding funds--but the major benefit is having another banking relationship, maybe getting free services, better interest rates or strategic business services while establishing credit with a new bank." That's especially important in this era of bank mergers, when "you [may] suddenly find your bank dramatically altered or even closed," she says.
Review all charges annually and compare your bank to the competitors, suggests Fayerweather. "Don't change banks yearly, but do shop for the best rates and services and the lowest fees," she says. "You may need three banks." If you prefer staying with one bank, ask it to waive or reduce your service charges. "Banks are open to negotiating," Fayerweather notes. "They, too, want long-term relationships."
Paul DeCeglie (MrWritePDC@aol.com) is a former staff reporter for Journal of Commerce and American Banker.
That's Rich
If your goals include attaining a respectable income and achieving financial security, just get a good education and work hard. You'll get what you want, but nothing more, says Robert T. Kiyosaki. If your goals are more along the lines of wealth and entrepreneurial success, read Rich Dad, Poor Dad (TechPress, $15.95, 800-308-3585), which Kiyosaki wrote with co-author Sharon L. Lechter, CPA.
The book's basic contention: Most people struggle financially because they spend years getting an education but end up learning absolutely nothing about managing money. They work for money but never learn how to make money work for them.
The fast-reading book, subtitled What the Rich Teach Their Kids About Money--That the Poor and Middle Class Do Not, traces Kiyosaki's childhood lessons, many orchestrated by his best friend's father ("Rich Dad"). His only rule for getting rich: "You must know the difference between an asset and a liability, and buy assets." His definition of those basic accounting terms: "An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket."
Retired at 47, Kiyosaki speaks from experience. After introducing nylon-and-Velcro surfer wallets in 1977, he went on to launch and finance other businesses and now lectures, invests in real estate and develops small-cap companies.
Kiyosaki's real father ("Poor Dad") was an educator who stressed a formal education and stable career, while his Rich Dad was an entrepreneurial mentor. Through anecdotes and discourse, Kiyosaki champions the ownership of businesses and other income-producing assets, makes a case for financial literacy and shares his insights on achieving wealth.
What's The Plan?
Thinking about setting up a 401(k)? It's reportedly the most popular employer-sponsored retirement plan among small businesses for several reasons: It helps attract and retain employees, it provides tax deductions to employers, and it helps employees fund their retirement. But is it the wisest choice for you?
The 401(k), in which participation by employees is optional, allows you and your employees to shelter income from taxes. If you elect to contribute matching funds to your employees' contributions, however, it will impact your bottom line, now and in the future. Consider carefully whether you'll be able to meet that ongoing financial obligation.
You'll also need to decide if employees should direct investments of their accounts, be given limited investment alternatives or have investment decisions handled by the plan administrator. Employees might prefer a broad range of investment options, but that increases the complexity (read: cost) of plan administration.
Here's the fine print: Your plan must be in writing, be explained to all employees and exist for the exclusive benefit of beneficiaries; it may not favor highly compensated employees; it must entitle employees to all their contributions and, once vested, ensure employer-matching contributions; and it must make sure employees are completely vested after five years of service.
Phillip Cook, a certified financial planner in Torrance, California, says he wouldn't consider a 401(k) plan for a company with fewer than 25 employees. "For one thing, it's too expensive," Cook says. "It will cost a minimum of $500 to $1,000 annually just to administer the plan. That's a lot if you just have a handful of employees."
In addition, Cook warns, "Administration and filing of reports [with the IRS, the Department of Labor, the Pension Benefit Guaranty Corporation and all plan participants and beneficiaries] is cumbersome and time consuming."
The certified financial planner says an entrepreneur "can contribute the same amounts and get the same tax deductions with plans that cost as little as $50 a year." He recommends a SEP-IRA, a traditional profit-sharing plan, a money purchase pension plan or a SIMPLE IRA, all of which are less expensive to administer.
Setting up a retirement plan represents a commitment that will affect your business for a long time. Before making decisions, get assistance from financial and legal professionals. To find a financial planner, contact the Institute of Certified Financial Planners (800-282-PLAN, http://www.icfp.org); for a brochure on IRA choices, call ReliaStar (888-757-5757).
Defining Moment
Debt Financing
A loan from a person or a financial institution that obligates you to repay the money to the lender at a predetermined interest rate.
Financial Fuel
Attracting investors
By George M. Dawson
Q. How do I attract investors to expand my classic car restoration business?
A. First, rule out large professional venture capital firms. Instead, look for "affinity" investors or angels.
Affinity investors already have a personal interest in classic cars. They understand and like your business. Affinity investors come from three sources: your customers or others like them, suppliers to your industry, or companies that sell noncompeting products to classic car owners.
Investors are successful businesspeople. Gear up a highly polished investment proposal. Get legal advice so you don't crash into state securities regulations.
Offer the realistic expectation of a decent return to your investors--somewhere between 20 and 30 percent annually, or its equivalent. Create special financial or personal benefits for investors. Your investors must believe they're part of a privileged club. Offer special rallies, discounts, services . . . you get the idea.
Pay 15 percent interest, and offer customer/investors a 10 percent discount on all parts and repairs. Offer to make a supplier/investor your sole source or to pay a price premium on all your purchases. You and a noncompeting restorer/investor can exchange mailing lists, cross-market or cross-promote.
Which of your customers have money? Locate other owners of classic cars through motor vehicle registrations and magazine subscriber lists. Inspect the Thomas Register of American Manufacturers (http://www.thomasregister.com) for new supplier contacts. Who are the importers and distributors in your industry? What other products do owners of classic cars buy?
Never ask an investor for money on the front end. Ask for advice instead. If the investor likes your plan, he or she will rally behind you. Always leave a meeting with a new name to contact for advice. Don't race to sign up just any investor. Make sure their financial goals and personalities mesh with yours.
George M. Dawson (gdawson@txdirect.net) is a small-business consultant and author of Borrowing to Build Your Business: Getting Your Banker to Say "Yes" (Dearborn, $16.95, 800-621-9621). E-mail him your financing questions at bsumag@entrepreneurmag.com
Contact Sources
Phillip Cook, c/o Financial Network Investment Corp., (310) 325-9002, cook116@aol.com
Fayerweather Consulting, (419) 897-0528
This story appears in the August 1999 issue of Startups. Subscribe »
