Entrepreneurs face an array of overall challenges, including getting money to open, expand or sustain a business, navigating increasingly complex regulatory and tax structures, managing new technologies and responding to changing federal laws.
Entrepreneurs need help, and the most successful ones work with accountants, lawyers and bankers to get the assistance they need to thrive.
One major problem most businesses face at one time or another is getting needed financing.
“Banks are still looking at basically having zero risk to the bank,” says Jason Pourakis, a partner in the entrepreneurial services group of Mazars USA LLP in Edison. “Our clients looking to grow don’t really go to the bank. They’re looking for alternative financing.”
Maria Rollins, managing partner at KRS CPAs, LLC in Paramus, agrees.
“A small business, without a track record of some consistent profit and collateral, may experience frustration during the traditional financing process,” she says. “We have had client businesses with significant growth seek traditional bank financing only to be denied due to their lack of collateral. Non-traditional financing is available at a much higher cost to the business.”
Keith J. deVisser, partner in charge of business solutions at Raich Ende Malter and Co. LLP, says that businesses often wind up having to turn to factoring when looking for cash, especially to expand.
“When you have the money, they want to lend to you, and when you don’t, they don’t,” says deVisser.
But Ronald E. Schwarz, senior executive vice president and chief operating officer of Oak Ridge-based Lakeland Bank, has a somewhat different perspective.
“We have seen a lot of small businesses weather through the last recession,” says Schwarz. “They have paid down their debt, streamlined operations and are on the upswing with sales and profits. Also, the increased competition from online lenders and the large banks coming back into the small business lending area has forced smaller banks to step up their game to simplify and improve their processes to become more competitive.”
Still, businesses that don’t get a traditional bank loan should be aware of different types of financing, terms and pricing so they can make an informed decision on what option will be best for them both to meet their immediate needs as well as in the future. Schwarz says small businesses may use “non-bank lenders … due to the ease and availability of funding, but this comes at a cost typically in the form of higher interest rates and short repayment terms, placing strain on cash flow for struggling businesses or limiting their growth potential.”
It’s typically even harder for startups to get money, although Schwarz says the number of banks and other lenders coming into the market to offer Small Business Administration financing for startups has been increasing.
The SBA remains an important source of funding for small businesses, continues Schwarz. “We’ve been able to assist companies experiencing a lull in their financial performance expand their businesses in times of growth and provide startup companies with the capital needed to make their dreams come true,” he says. “The program allows us to maintain relationships that otherwise may not have been solidified without the ability to provide financing for their businesses. The assistance and support is readily available for small businesses and is most successful when business owners and financial institutions can form long-term relationships to weather the up and down cycles of the business.”
Having a good relationship with professionals is advice repeated over and over.
“Many small business owners try to save money by relying on the glut of legal software available online and, as a result, make potentially expensive mistakes along the way,” says Naya Pearlman of Norris McLaughlin and Marcus in Bridgewater. “Lawyers are often consulted only after a problem arises. Online assistance is great for educating yourself in a generic way, but it often only scratches the surface. Small business owners should work with an experienced advisor who can help them properly structure their business and comply with federal and state laws.”
Entrepreneurs need help from professionals right from the start, agrees Scott Borsack, head of the business law group at Lawrenceville’s Szaferman Lakind Blumstein and Blader.
“The big thing any new business needs to face early on is what format the business should take,” Borsack says, noting there may be tax implications based on the business type chosen. “The first step should be to consult with a professional. … The further down the line you need to correct a mistake, the more costly it can be.”
Borsack and others say more entrepreneurs are “engaging in their own self-help” to try to save money, but that can backfire.
“They look at their business as another do-it-yourself project,” explains Borsack. “Sometimes they’re right and sometimes they’re wrong.”
Schwarz says the small businesses that are most successful are the ones with a strong business plan, “as it demonstrates their understanding of the various facets of running a business and it’s more likely a lender of any type would provide them with the funding needed.”
Because businesses have so many needs, and technology has made many tasks faster and easier than in the past, some professionals are able to provide additional services to business owners for little or no additional cost.
For instance, deVisser says that there is little need for data entry today as accountants download bank statements electronically, so they are able to drop their fees or give their clients added value, acting as essentially a chief financial officer. Accountants can do cost analyses of the various types of insurance a business needs or of their rental and storage costs to find cost savings.
“These are things the client doesn’t have time to do,” notes deVisser. “As accountants, we really are the quarterback of the client.”
Such reviews can wind up saving money in the long run by uncovering potential problems.
“One of the common things I see is a lack of liability insurance or being underinsured,” says Borsack, noting businesses that get any visitors have a potential liability exposure but may not realize it.
Rollins says KRS has grown its outsourced back office services to assist small businesses with their day-to-day bookkeeping and accounting needs.
“Many small businesses do not attract the internal accounting staff they need either due to the fact they do not need full-time support or their needs are too complex for the level of accounting professional their business can afford,” according to Rollins. “By providing outsourced bookkeeping through CFO services, we help support the small business through its growth by offering only those services they need.“
deVisser adds that accountants can also assist with year-end planning that can save businesses money in taxes and help them avoid problems that might arise if there is not enough money in the bank to cover costs.
Online and mobile banking apps give businesses and their professionals access to their finances 24/7 to deposit checks, pay vendors, transfer funds and check their balances. Schwarz says that the widespread adoption of remote banking has dictated the development of programs.
“Their need for advanced technology to manage their businesses faster and more efficiently has demanded that banks provide simplified digital options for banking and financing, in order to meet the expectation of immediate answers for the small business owner,” Schwarz adds.
Rollins says technology is vital to New Jersey’s growing number of startups.
“Many of these startups are owned by former corporate managers who have identified a niche market within their area of expertise,” she says. “Most of these startups are extremely technology dependent and utilize both technology and social media in their sales and customer acquisition.”
But technology has brought some negatives to businesses as well.
“Some of the tax and business issues we see are now technology-related,” Pearlman says. “Issues like cybersecurity are becoming concerns for small businesses and we work with our clients to minimize liability exposure.”
To meet businesses’ changing needs, the professionals who cater to them are revising the services or offering new ones.
Lakeland’s Small Business Line of Credit, or SBLOC, has a two-year draw period and does not require the traditional 30-day annual cleanup period during which the borrower would have to pay off all balances and keep them at zero.
“This allows small businesses to focus on their business and not have to worry about their financing needs for the next year,” Schwarz says. “The SBLOC can be accessed remotely for advances to their checking account via online and mobile banking 24/7. We are working on other products to improve small businesses cash flow with a line of credit that provides a longer draw period with lower payments.”
Norris McLaughlin offers a Corporate Maintenance Program that helps small business owners stay on top of their corporate governance.
“For a modest annual fee, the business is scheduled for an annual review and we check that the corporation’s yearly obligations are complied with,” Pearlman says. “Under this program, we also meet with the business owner once a year to address any ongoing issues or concerns.”
Szaferman Lakind offers “concierge” services to startups, connecting them with various community service providers, Borsack says. “We start with a flat fee and grow with them.”
Personalizing services to meet each business’ special needs is another way professionals are helping entrepreneurs. Pourakis says the goal is: “How can we be partners with clients on a case by case basis?”
Mazars has launched a new program called Optimize, which includes a technology platform that helps business owners and managers identify strategies that will drive performance and enhance long-term capital value.
“We’ve gotten good results in only a couple of months,” Pourakis explains. “This helps clients to open up their eyes.”
Professional firms have also been trying to help businesses cope with changes coming from the new administration in Washington, DC Potential revisions to the Affordable Care Act had been a key topic of concern earlier this year, although the proposed repeal and replace effort has stalled in Congress.
Given the promises made during last year’s presidential campaign, businesses are looking for the repeal of regulations and cuts in business taxes.
There have been some changes in federal rules, and more are expected, although the federal Office of Management and Budget estimates that regulatory changes in the first five months of the administration had resulted in just $22 million in annualized savings.
Businesses are hoping for a big boost from the Trump proposal to simplify the tax code and reduce the tax rate to 15 percent, but Congress has yet to take up the plan.
“A lot has to do with what our president says,” says Pourakis. “There are a lot of opportunities on the tax side. The structure of the plan is out, with some beneficial rates. That may help some of our clients fare better. Overall, it can also drive the economy and business climate. But as to what will happen, everybody’s crystal balls are pretty cloudy right now.”
But Borsack adds, “If you are on the cusp of going out and starting some business, I’m not sure possible tax changes are the things that make you decide not to go forward.”