Startup Costs: How Much Cash You'll Need

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Starting a new company is an intimidating proposition, and a would-be business-owner's principal concern is cost. Though you may be worried about your cash flow, thorough planning and a careful startup process can help keep your projections on target.

Start small

You may envision growing your company into a large-scale operation one day, but at the very beginning, it's smart to keep things small. The good news? Small is cheap.

Cynthia McCahon, founder and CEO of business-plan software company Enloop says business owners should start with a bit of healthy skepticism.

"A prospective business owner should start planning a small business by simply understanding the potential of the business idea," McCahon told Business News Daily. "What this means is not assuming your idea will be successful."

The best approach is to test your idea in a small, inexpensive way that gives you a good indication of whether customers actually need your product and how much they're willing to pay for it, McCahon said. If the test seems successful, then you can start planning your business based on what you learned.

Estimating your costs

While every type of business has its own unique financing needs, there are some rules of thumb that can help you figure out how much cash you'll require. Entrepreneur Drew Gerber, who started a technology company, a publicity firm and a financial planning company, estimates that an entrepreneur will need six months' worth of fixed costs on-hand at startup.

"Have a plan to cover your expenses in the first month," Gerber said. "Identify your customers before you open the door so you can have a way to start covering those expenses."

When planning your costs, don't low-ball the expenses, and remember that they can rise as the business grows, Gerber said. It's easy to overlook costs when you're thinking about the big picture, but you shouldn't guess at your fixed expenses.

McCahon added that underestimating costs can decimate your company.

"One of the main reasons most small businesses fail is that they simply run out of cash," McCahon said. "Writing a business plan without basing your forecasts on reality often leads to an unfortunate, and often unnecessary, business failure. Without the benefit of experience or actual historical financials, it's easy to overestimate a new company's revenue and underestimate costs."

Projecting cash flow

Another important aspect of startup financial planning is projecting your cash flow, so that you don't go into the negatives early on. Bill Brigham, director at the New York State Small Business Development Center in Albany, New York, advised figuring out cash flows for at least the first three months of your business's life. Brigham said to add up not only fixed costs, but also the estimated costs of goods and best- and worst-case revenues.

If you borrow money, make sure you know not only how much you borrowed but also the interest you owe, Brigham said. Calculating these costs puts a floor on the revenues needed to keep the business viable and provides a good picture of the cash necessary to start.

Gerber recommended starting up without borrowing at all, if possible. Borrowing puts a lot of pressure on any business, and its owners, as it leaves less room for error, he said.

Taking the next step

Once you've determined your costs and cash-flow projections, you'll need to consider how to pursue financing. How you obtain funds will impact the future of your business for years to come. Personal savings, loans from family and friends, bank loans, and government loans and grants are only a few of the many types of potential funding sources. Many companies are financed using a combination of sources.

One place to go for help is SCORE (www.score.org), which advises small business owners. Formerly the Service Corps of Retired Executives, this volunteer organization partners with the Small Business Administration and offers training and workshops for people who want to be entrepreneurs. Most importantly, SCORE offers counseling from people who have been in the business you might want to be in, and who know the specific issues that you're likely to encounter.

More information and calculators

•    Enloop provides free and low-cost business plan services.

•   SCORE offers assistance with business plans and projections.

•   Business startup cost calculator

•   Estimating startup costs from Bplans

•   Entrepreneur.com startup cost calculator

•   Wall Street Journal startup cost calculator

Additional reporting by Jesse Emspak, Business News Daily contributor.

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Want to Advance Your Career? Try Peer Mentoring

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A mentor can be one of the greatest resources for people looking to advance their careers. A mentorship usually involves identifying a more experienced professional in your company or industry and asking that person to impart wisdom that will help you navigate your own career.

A "student-teacher" dynamic is the most common type of mentoring relationship, and it's an incredibly helpful one. Learning from the experiences and mistakes of someone who has been there before can provide you with insights you might never have gained on your own. However, an alternative model — one that could be even more beneficial — is peer mentoring, in which the mentor and mentee roles are less rigidly defined.

"In a peer-mentoring relationship, each person involved can be both teacher and student, and both parties are empowered to shape their learning context," said Virginia Fraser, U.S. marketing manager at Insights Learning & Development. "Professionals receive the support they need from a peer, while getting the perspective from a mentor."

While your peer mentor doesn't necessarily have to be at your exact job level, there is a distinct advantage to mentoring and being mentored by a person who has roughly the same amount of experience you have, said Sarah Callaghan, U.K. marketing manager at Insights.

"You face similar challenges in terms of the work at hand, office politics and ... reporting lines," Callaghan told Business News Daily. "Your peer mentor truly understands your strains and obstacles, and can help you face them in a positive and productive way."

Fraser said that peer mentorships develop organically from trust-based professional workplace relationships. This trust creates an open environment where colleagues feel comfortable offering feedback to one another about behavior, attitude or performance. In turn, recipients of this feedback are more likely to be open to their peers' advice because they know the other person genuinely wants to see them succeed. When this occurs, Fraser noted that teams can establish a system of interpersonal checks and balances that isn't dependent on the group leader.

If you want to start benefiting from a peer mentorship, the first step is to find the right teammate. When you're looking for a peer mentor, consider someone who has a shared work experience but can offer a unique perspective on the everyday and long-term challenges you face, Fraser recommended.

"Often, it's helpful to find someone who has a very distinctive background and view ... to offer an increased level of exposure to diversity of thought," Fraser said.

Another quality to look for in a peer mentor is honesty. You and your mentor should both trust each other and feel comfortable being candid, Callaghan said. It's also important that both of you have similar career goals.

"Peer mentorship needs to have a foundation of trust, respect and similar objectives," Callaghan said. "Use those commonalities as a way to introduce the concept of peer mentorship as a mutually beneficial activity."

Once you've established a peer-mentoring relationship with someone, follow these basic guidelines offered by Fraser and Callaghan to help both of you make the most of the mentorship:

• Form a mutual commitment to both giving and receiving feedback.
• Establish a mutual respect of each other's expertise and experience.
• Start a frequency of communication and preferred way to communicate.
• Look for opportunities for dialogue as they arise — any conversation can be an opportunity to mentor each other.
• Create ground rules regarding confidentiality and any off-limits topics.

Managers can work to create an environment that encourages peer mentorships by setting a positive example for their employees.

"Managers who build their team's foundation on authenticity and trust will enable mentorships between peers and teammates to form naturally," Fraser said. "When colleagues trust one another, they feel comfortable to be authentic about their strengths, weaknesses, successes and challenges."

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ZTE Grand X Max Plus: Top 3 Business Features

The ZTE Grand X Max Plus sports a huge 6-inch screen that gives you lots of room to work.

ZTE's Grand X Max Plus is a solid business phablet at an affordable price. The mammoth, 6-inch (15 centimeters) smartphone offers a bright, colorful display, long battery life and good performance for just $199 off-contract, via lesser-known carrier Cricket Wireless. If that sounds like a lot to pay for a budget phone, consider that buying a smartphone outright — instead of opting for a subsidized phone with a pricey two-year contract attached — can save you a lot of money in the long run. That's because Cricket Wireless offers cheaper monthly data plans than carriers like Verizon or AT&T.

So what do you get for your money? Here are three features that help make the ZTE Grand X Max Plus good for work.

Big display

Is a 6-inch smartphone too big? Not if you want a lot of screen space for work. The appropriately named Grand X Max Plus provides plenty of real estate for screen-intensive productivity tasks like viewing documents and editing spreadsheets on the go. Its 720p screen (720 x 1,280 pixels) isn't as sharp as the displays on flagship phablets like the Nexus 6 or Galaxy Note 4, though. And while many other phablets include multi-window software programs that let you run two apps side by side, the Grand X Max Plus lacks that feature. Still, ZTE's phone provides a huge display for a lot less money than most competitors.

Long battery life

The Grand X Max Plus will have no trouble lasting through the end of the workday and beyond. The phone ran for an impressive 9 hours and 14 minutes on our battery test, which involves continuous Web browsing via 4G LTE. That's a lot longer than the smartphone average of 7 hours and 47 minutes. The Grand X Max Plus also outlasted the Nexus 6 (7:05), but the iPhone 6 Plus lasted longer (10 hours).

Value

ZTE's Grand X Max Plus has some shortcomings, like a mediocre camera — something to consider if you want to use the phone for video chatting with colleagues or clients. Plus, it's not as fast as flagship phablets, and its screen isn't as sharp. But its low price point ($199) makes this phone worth a look anyway. In comparison, the Galaxy Note 4 costs up to $700 off-contract, and the Nexus 6 costs $650. Those prices make the Grand X Max Plus an enticing option for business users on a budget.

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Small Business Taxes 2015: Everything You Need to Know

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Following the most wonderful time of the year is a season that strikes fear in the hearts of many small business owners: tax time. 

Shelling out a substantial percentage of the year's income is stressful enough, but tax season also brings with it a great deal of complexity and confusion. Tax laws are constantly changing and being revised, and it can be difficult for small business owners to keep up. And what adds even more stress to tax filing is that even innocent mistakes or oversights can lead to big penalties. 

In preparation for the April 15 tax deadline, Business News Daily consulted small business tax experts to find out what business owners should be paying attention to now. Some of these issues involve recent tax changes, while others are issues small businesses should be watching for the future. 

Tax extenders

Two important tax breaks for small business have been extended. They are Section 179 and bonus depreciation. Section 179 allows businesses to deduct the full price of any qualifying equipment or software purchased or leased during the year. The tax-extension bill continues the $500,000 maximum deduction for new and used equipment that was purchased in 2014. Bonus depreciation allows business owners to depreciate 50 percent of the cost of new equipment purchased in 2014. The two tax incentives can be used together. 

Although the act's passage was a relief for business owners who purchased equipment in 2014, many others had to scramble to make equipment purchases in the final two weeks of the year or missed out on purchases while waiting for Congress, said Miguel Farra, chairman of the tax and accounting department at public accounting firm Morrison, Brown, Argiz & Farra LLC.

"These are great tax incentives," Farra said. "If everyone knew about them during the course of the year, they could have acted."

Also, because the incentives were extended only through the end of 2014, small business owners have no way to know whether these purchases will apply to business purchases made in 2015 until much later this year, said Dennis Brager, of Los Angeles-based Brager Tax Law Group, which specializes in helping companies that are in tax trouble. 

Brager advised business clients to buy the equipment they need this year without waiting to find out if the tax breaks will be extended again. 

"I always tell my clients to make sure the tax tail isn't wagging the dog," he said. "It's great to save on taxes, but you shouldn't be making decisions based solely on taxes. If you need new equipment, then spend the money. And if the tax savings come along, that's a bonus." 

Other notable tax breaks that were extended include the research credit, energy production tax credits, and a deduction for local and state sales tax.

The Affordable Care Act 

The Affordable Care Act (ACA) added an estimated 2,400 pages to the U.S. tax code, further complicating the tax landscape for businesses of all sizes. The most notable issue for many businesses is that they could face tax penalties for failing to provide health insurance to employees or for failing to report to the IRS what type of coverage they have provided for employees. 

As of Jan. 1, 2015, businesses with 100 or more employees must provide health insurance to 70 percent or more of their full-time equivalent employees, or they'll face a tax penalty of up to $2,000 per employee, said Janemarie Mulvey, former chief economist for the U.S. Small Business Administration's Office of Advocacy. Mulvey, who has published a reference guide for small businesses called "Health Reform: What Small Businesses Need to Know Now!" said that beginning Jan. 1, 2016, businesses with 59 to 99 employees will be required to offer health insurance.

Businesses should also understand the reporting requirements that come along with ACA, Mulvey said. ACA requires employers to report the cost of the health coverage they provided on each employee's W-2 form. A breakdown of what the employer and the employee each paid is required in Box 12 of the form. Failing to report this information could lead to fines of $200 per employee, Mulvey said. Even though the deadline for reporting those figures is not until Feb. 28, 2016, she said, employers should start keeping track of health coverage costs now. 

"Because the IRS is now the gatekeeper for insurance coverage, they are going to start collecting info from employers about what kind of insurance they provided," she said. "It's going to be a big regulatory nightmare."

Farra agreed that the ACA insurance and reporting requirements could be burdensome to small businesses. He recommended consulting an accountant or insurance expert now to make sure the coverage you provide meets the minimal essential coverage. In many cases, he said, a skilled insurance agent can also help businesses determine whether it is a better financial decision to provide insurance to employees or just pay the tax penalty.

The New Republican Congress

Republicans now control both the Senate and the House, and that could have an impact on tax reform in 2015, said Zach Olson, founder and CEO of Tax Alli, which provides tax accounting software and services for small businesses. Sen. Orrin Hatch, the new chairman of the Senate Finance Committee, recently released a lengthy report related to tax reform and has said he believes there is "real momentum" for the U.S. tax code to be overhauled this year. If Congress does take up tax reform in 2015, Olson said, almost everything will be on the table. Small business owners should follow news on this closely to find out how that reform might impact their tax burden, he said. 

Taxation of online sales 

The Marketplace Fairness Act stalled in the 2014 session of Congress, but it is expected to be addressed again in 2015, Olson said. The legislation attempts to level the playing field between online merchants and brick-and-mortar stores by allowing states to require online sellers that gross more than $1 million per year to collect and pay the state sales tax. Not surprisingly, the move is supported by brick-and-mortar stores but faces major opposition from online retailers. 

Tax Tips for Small Businesses

Just because tax law can be complicated doesn't mean you have to let yourself get overwhelmed. Here are some tips on how to manage your taxes year-round.

• Think about taxes all year long. Small business owners should not treat taxes as a once-a-year event, Olson said. Rather, tax planning should be a year-round activity. Waiting until the last minute makes tax preparation more complicated, and it limits your money-saving options. 

• Hire a pro. A knowledgeable tax attorney or accountant is well worth the expense, experts say. Tax laws are complex, and they're difficult for many busy small business owners to weed through. A professional can identify tax breaks and deductions you might otherwise miss. 

• Be aware. Even with the help of a skilled professional, it is the job of a small business owner to keep up with news related to laws. Read the business papers and keep up with Congress' work on tax laws, said Brager, who is also a former IRS trial attorney. 

• Don't make assumptions. Tax planning, to some extent, is a gamble, Farra said. Although historically, Congress has always passed the tax-extender bill at the last minute, there are no guarantees. Never make business decisions assuming that tax breaks will pass. 

Links and Resources

For additional help with your small business taxes, here are some resources:

• The U.S. Small Business Administration is hosting a free webinar to help small businesses understand the Affordable Care Act this Thursday, Jan. 29. Click here for information on how to participate. 
• The IRS website has more information about how the ACA affects small business owners' taxes here.
• This Tax Foundation blog offers a complete list of all tax breaks extended by Congress in December 2014. 

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Facebook Expands Conversion Lift Measurement Capabilities

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Measuring the success of your social media ads can be tricky, but Facebook is working on ways to help advertisers better understand the impact of their campaigns.

Facebook recently announced that the company is expanding its conversion lift measurement capabilities as a way to help advertisers determine exactly how ads on the social network impact their bottom line. This expansion will build on Facebook's existing measurement offerings.

Not familiar with conversion lift? It's a measurement that "accurately captures the impact that Facebook ads have in driving business for marketers," the company wrote on its business blog. It works in four steps:

1. When an advertiser creates a new Facebook campaign, a randomized control and test group are established. The control group are users who don't see ads from the campaign, and the test group are those that do.
2. Conversion data from this campaign is then shared with Facebook.
3. From there, Facebook compares conversions in the test and control groups to determine the additional lift generated by the campaign.
4. Results are then made available to advertisers in the Ads Manager tool.

But why is conversion lift so important? According to Facebook for Business, it "addresses several of the measurement challenges currently facing marketers." These challenges include having an over-reliance on clicks, ineffective testing methods, and the rapid shift to mobile.

These challenges can have a huge impact on the way advertisers measure the success of their campaigns. For example, simply counting clicks doesn't take into account the value of a user seeing an ad, but not clicking through. Additionally, current measurement systems aren't as compatible with mobile devices.

"The technology that supports current measurement systems is not sufficient in a world where people use multiple devices throughout the day and the majority of purchases still happen in a physical store," Facebook explained.

Advertisers who want to see the full impact of their campaigns can now work directly with Facebook teams and their account representative to set up conversion lift studies to see the results.

Facebook noted that while it already offers lift measurement solutions through its own tools and third-party partnerships, this expansion is a way to make lift measurement more available to a wider portion of the company's clients around the world.

"In time, we will look to expand our conversion lift offerings to cover more use-cases and more complex studies," Facebook wrote. 

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