Scaling up a small business is never as simple as increasing revenue and profits, especially with the complicated work that happens behind the scenes. Most businesses need an infusion of capital to get off the ground and it does not hurt to have some assistance navigating taxes and other regulatory matters. This is where services from state and federal resources as well as private legal, accounting and banking professionals particularly come into play for small businesses that want to thrive.
Small business owners these days wear more hats than ever, says Daniel Sulpizio, senior vice president and director of retail banking for Parke Bank. To help these business owners achieve their goals, he says his bank tries to educate them on financial services and other functions such as ways to protect themselves from data security breaches. These are just some of the types of assistance that are available to small businesses through banks and other resources.
Sulpizio says that bankers can educate founders on how to go about pursuing financing to support their new business venture. That includes assessing the type of expertise the borrower possesses that speaks to their business ideas. In addition to working with banks, he says there are numerous opportunities for small business owners to tap into the knowledge of others to help them advance their ideas.
“There are small business incubators at places such as Rutgers University and at Rowan University in Gloucester County that will help a small business owner develop a plan,” Sulpizio says, “so they can have a conversation with a financial institution to help them with their borrowing needs.” Taking the time to get prepared is part of pursuing small business loans, lines of credit, and other funding sources. Each form of finance has different submission requirements and criteria that small business owners need to understand if they want to secure more capital.
Agencies such as the federal Small Business Administration (SBA) and the New Jersey Economic Development Authority (EDA) exist to foster small business growth through a variety of efforts that include alternate access to capital. Sulpizio says those agencies can offer ways for small businesses to pursue funding when they do not meet standard banking criteria. “They are great tools your banker can assist you with to bridge that gap,” he says. This may be the case for a business that is operating, but is short on cash flow or its collateral position does not meet conventional lending opportunities.
Beyond government resources, small businesses can also talk to bankers about tools their growing business needs for depositary purposes, Sulpizio says. That can include mobile banking, remote deposit capture, or wire transfers.
From a broad perspective, he says the lending climate has not changed much for small businesses, with certain factors remaining true. “There’s always a loan for a strong borrower, and there’s always options for those who are not strong borrowers,” he says. “It’s just finding out what those options are.” The best time to establish a line of credit or other financing, Sulpizio says, is when a business does not immediately need it. That way the business has resources available in emergencies or downturns.
Christina Brozyna, senior vice president for business banking at M&T Bank, concurs that a good proxy for the startup community is the SBA and the funding programs it offers. She also says such services augment the ability of banks such as hers to facilitate access to capital for small businesses. Keeping in touch with the needs of local business customers is important to M&T’s operations, she says. “We have more than 700 employees who work with customers in New Jersey,” Brozyna says.
In addition to lending services, she has noticed some changes in the needs small businesses have. “There is a definite interest in how to find employees, resources and partners to help them grow their businesses,” she says, “to be more efficient and effective in what they are doing.” Like its peers, M&T offers an online platform for businesses to apply for credit after hours or when it suits the business owner.
One of the growing concerns among small business is how much taxation they will face as their revenue increases. Joseph Doren, partner with the accounting firm PKF O’Connor Davies, comments that some businesses are asking what incorporation status they should operate under because of changes to the tax code. The different tax treatment for limited liability corporations (LLCs), S corporations, and C corporations means small businesses must determine what the right fit is for their goals. “With the corporate tax rate being 21 percent, we’re getting a lot of questions,” he says. “The answer for most businesses is: ‘You are probably better off staying as an LLC or an S corp. unless you are going to reinvest in your business.’”
He bases that rationale on the expectation that most businesses at the end of each year might want to take out some of the profits they generated. Their filing status can greatly affect the rate they would pay on those profits. “If you take that profit out as a dividend as a C corp., now you are back over 40 percent on your tax rate because corporations are subject to the double tax,” he says.
Apart from regulatory matters, Doren says more small businesses are running into a talent issue when key, long-term personnel, such as a bookkeeper, retires. This poses a challenge finding qualified replacements, especially when the business owner does not have the expertise to handle such tasks themselves. “Most of these businesses don’t have sophisticated accounting systems,” Doren says. To cope with veteran bookkeepers retiring, many small businesses have turned to outsourcing their accounting needs to third-party firms, he says. This might be done through platforms such as Bill.com, which allows accounting firms to handle accounts payable and disbursement functions on behalf of the small businesses that use it.
The needs of small business might not have changed much according to Nick Gakos, managing partner with accounting firm Ross, Rosenthal & Company, but he says that small businesses have come to expect access to the business services they want around the clock. This is because of modern resources such as the Internet and other electronic communications methods.
There are mounting challenges for businesses to face because of compliance and regulatory demands. While some of these changes stemmed from a previously weak regulatory environment that allowed abuse by some bad actors, Gakos believes some measures today can feel burdensome. “The market works in extremes,” he says. “Everything was too relaxed. I’d like to see it more balanced.”
The complexities of how rules and legislation affect small businesses can be sorted out with the help of attorneys, says Steve Poulathas, chair of business and corporate development at the law firm Flaster Greenberg. His firm has worked with closely-held and family-owned businesses to a substantial extent. From a local perspective, Poulathas says much like other states, New Jersey offers incentives to encourage businesses to develop here. This includes the Grow NJ program through the EDA. Under the program, businesses may be eligible for tax credits if they create or retain jobs in the state. The tax credits may be from $500 to $5,000 per job created or retained per year. There are also bonus tax credits that can be as much as $3,000 per job per year.
Even with such a program, New Jersey is still known for being a state with a high tax rate, says Poulathas, but those tax rates might not be a deterrent for brand new businesses. “That may not directly affect a startup company in their infancy because they are not going to have a lot of taxable income in the first year,” he says. “It is something that could impact companies eventually.”
He says the tax levels in the state might not be enough to drive small businesses away even as they grow. This is because the business climate is relatively healthy and growing compared with a few years ago in the recession period. The healthiness of the economy can affect the emergence of small businesses and startups. Poulathas says many people tended to establish businesses because other employment opportunities were not available. “With unemployment relatively low and people doing well at jobs, you’re not seeing the same incentive to start companies.”
When founders do launch small businesses, there is a bit of learning curve, says Benjamin T. Branche, partner with law firm Szaferman, Lakind, Blumstein & Blader. He says small businesses still have to learn what the business process is and how to get started. This includes looking at the team they assembled to get the idea off the ground. Branche says that team should count among its ranks insurance experts, attorneys, accounts and perhaps business consultants.
“We can help them put together part of the team,” he says. “It needs to be a team that works together easily.” One of the mistakes Branche believes small businesses make is not getting attorneys involved in the “napkin” stage of the business where the founders are talking about early plans and jotting down ideas. The formal terms regarding the structure of the business tend to come as an afterthought, which Branche says can create issues later when those terms are called into question. Attorneys, along with other consulting professionals, can help sort out those decisions. For instance, business founders might not explore all of the options available to them to determine the best structure for the business.
Small businesses continue to have needs for professional services such as audits required when they seek external financing, says Anthony Castellano, assurance managing partner with financial advisory service BDO. He says small businesses may have fewer in-house technical resources than larger companies to address audits and other requirements. He says in addition to providing traditional tax compliance services, small businesses can use advice on tax structure, especially as tax rules change. “With the tax reform last December, the landscape is more complicated now than it’s ever been,” Castellano says.
In addition to changes in legislation, court decisions can affect the implementation of the rules and laws that businesses must comply with state-by-state. This can be a great hurdle for a small business that wants to try offering services beyond its local borders or internationally. They will need the expertise to help them understand how to conduct business in other countries. “That can be a little intimidating from a small business standpoint,” Castellano says.
Advisory services can also help small businesses prepare for costs such as payroll requirements that may be different based on location, he says. There is also an increased need for such assistance when small businesses engage in mergers and acquisitions or other transactions. “Small businesses looking for an exit to capitalize on their many years of hard work may look to sell a controlling stake to a private equity firm,” Castellano says. “We help them through that process.”
He says the current climate can be challenging for new small businesses or startups today, but those tend to be industry-specific challenges. For example, the retail market has changed dramatically with the advent and spread of e-commerce. Consumer spending is moving increasingly away from brick-and-mortar stores to omnichannel marketing and e-commerce. “Small business looking to grow need to be more focused to understand the retail landscape and consumers and how to best target those consumers,” he says.
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