July 7, 2020

How to Turn A Great Idea into a Startup Business

As an entrepreneur, when you have a great idea, it can be exciting to get a new business started right away. But to make sure the startup is set up for success, there are necessary steps entrepreneurs need to take. Proper planning up front by creating a business plan, building a great team and developing a financing strategy will help turn a great idea into a profitable business.

Create a Business Plan

The first step is to create your own business plan. The business plan could originally be for yourself to help you build out your strategy on paper. The business plan could also be for external investors or other business partners down the road. Deciding who you are making the business plan for is a key step.

The final business plan that you create should contain your business’s key goals and how you plan on achieving those goals. Key areas of your business plan should include:

  1. Business Description
  2. Company Analysis
  3. Industry Analysis
  4. Marketing Plan
  5. Plan for Operations
  6. Financial Plan

Your business plan should come together as a quality, professional document. This plan will likely be referenced by outside parties and is key in helping you achieve your goals. The plan can and should evolve as you are working your way through developing your business.

Build a Team of Advisors

The next important step is building a team that can help advise you. Having a CPA and an attorney that are the right fit for you and your business can go a long way. Make sure your business culture meshes with their culture and values and that you can trust them. Both your attorney and CPA will be there to answers your questions, so knowing that they have your best interests in mind and that you are able to count on their advice is important.

An attorney can help draft up agreements, copyrights, patents, or other legal documents that might be needed, and a CPA can help you choose the proper business entity type that will best suit your needs as well as helping with accounting and bookkeeping throughout operations. As your business grows and becomes more complex, so does the accounting as well as potential legal issues. Make sure your CPA and attorney are have your goals in mind.

Next Steps and Financing

Once you have your plan and your team in place, there are now decisions and steps to take that both your attorney and CPA can help with.

  1. Select your business entity. Whether you form your business as a Sole proprietor, S-Corp, C-Corp, LLC or Partnership, each entity type has different tax and legal factors, so choosing the one that best suits your business is important.
  2. Register your business with your state.
  3. Request and obtain Federal and State identification numbers.
  4. Open a separate business bank account.
  5. Choose an accounting and recordkeeping software.
  6. Depending on your industry, consider purchasing general liability insurance.

A final step before being able to operate your business is obtaining proper financing for the operations.

Equity Financing

Equity financing means exchanging part of your ownership for cash. The positive of this option of financing is there are no interest payments that need to be made. This can be a very beneficial way to preserve cash when initially trying to get up and running. The downside is the loss of ownership which results in less earnings being distributed to yourself.

Debt Financing

A debt financing structure means borrowing money that will be repaid with interest. The positive of this way of financing is there is no lost equity in your business as well as the interest and principal payments are consistent and can be planned for. The downside is the interest that is to be paid as every bit of cash can be important when starting a business.

Owner Financing

Financing the business on your own is the most lucrative since there is no equity lost and no interest to be paid. However, many entrepreneurs will not be able to sustain the cash flow required to keep the business going, and will eventually require funding from debt or equity financing.

You have your plan, you have your team in place, and you have financed your business. You are now ready to begin operations and turn your dream idea into a reality. Throughout operations, continue to consult with your CPA and attorney as they can provide valuable advice every step of the way. Contact an Anders advisor to discuss your new business, or learn more about the Anders Startup Group.

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June 23, 2020

Paying Too Much in Taxes? Here are Common Expense Deductions Startups Miss

Many profitable companies, including startups, are paying more in taxes than they should solely because they are not accounting for all expenses that they are legally allowed to deduct, including home office, internet, cell phone and car expenses. Understanding how to properly record and categorize expenses, and differentiate between business and personal expenses is key to minimizing tax liability.

Record Expenses When They Occur

Keeping track of what your business spends money on is hard enough, so do not wait until the end of each month or even the end of the year to try and go back and remember what you spent and when. In the end, you will probably end up forgetting about many expenses that were incurred.

If you are unable to record the expenses right away, at a minimum, you should at least save the receipts so they can be used to help you go back and record your transactions. With online banking making it easier to access transactions, many times we can see where we purchased something, but we need the underlying receipt to give us more details on the transactions. Additionally, under audit, the IRS will ask for receipts to support the expenses you are taking. Then at the end of each month, make sure you reconcile your cash account to your bank statement to make sure there are not any discrepancies.

Categorize Expenses

Being able to categorize expenses into categories can save you time and money in the long run. If you give all the receipts that your company had over the year, and ask your CPA to prepare your taxes, it is going to take them a lot longer than if you had them categorized. Once all the expenses are sorted into different categories your CPA will review and determine if all the expenses are deductible. One thing to note: if there are expenses that you are not sure how to categorize, most accounting systems have an “Ask your accountant” account which could be used as a placeholder until you can discuss those transactions in more detail with your advisor.

Know What Expenses Can be Taken

Having an understanding as to what expenses you can take in your business is also very important. Almost all expenses that occur in a business for it to function can be used as an expense, but your CPA can determine whether these expenses are fully, partially, or completely non-deductible under current tax law. Many people understand the basic ideas of what can and what cannot be taken against their company’s income, such as advertising, employee wages and compensation, rent, repairs, legal services, supplies, taxes and more, but there are many other expenses that are overlooked each year. A few of these expenses are listed below.

Home Office

There are a few different ways to calculate your home office deduction using the simplified or regular method, but under each method there are a few things you do need to make sure you have documented in order to take a deduction:

  1. You must regularly use part of your home exclusively for conducting business and not for personal use.
  2. This area in your home must also be considered your “regular” place of business. What this means, is that you cannot have another office/workspace that you could go to in order to perform your work. If you do have a space at the office, that automatically excludes you from this deduction.

Internet/WIFI

If you have internet or WIFI in your office building, you can write off this expense. In addition, if you use your home internet for your business and for personal use, you can potentially take the percentage of internet used for business as an expense, but you do need to determine how much of that expense relates to personal use.

Cell Phones

The same rules that apply to your internet/WIFI, also apply to cell phones. If it is used exclusively for business, then all expenses can be deducted. If it is only used partially for business and the rest for personal, the percentage that is used for business purposes can be taken as an expense.

Car/Auto Expenses

Any vehicles used/purchased for business can also be deducted against your income. Similar to the home office deduction, there are two methods in order to take a vehicle deduction: the mileage and actual methods. Your CPA can review and evaluate which deduction will be best for you given your individual situation, but in order for them to determine that, you should keep track of the following information:

  1. Fuel cost
  2. Business miles driven
  3. Personal miles driven
  4. License fees
  5. Insurance
  6. Repairs
  7. Anything else that is used to keep the vehicle running for your business

Travel

When traveling for business, it is important to keep track of all expenses that you have. A wide variety of expenses during travel are deductible to a business, anywhere from how you got there, such as bus, flight or train, to what you ate, to what means of transportation you used while you were there could all potentially be deductible on the business level.

As we discussed, the key to deducting expenses is to make sure you are keeping receipts and recording transactions in a timely manner, so you do not miss anything. You want to make sure you over document and ask questions if there are any expenses you are not sure about. If you have any questions about if something qualifies as a deductible business expense, contact an Anders advisor

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June 9, 2020

Accounting 101: Deferred Revenue and Expenses

Under the accrual basis of accounting, recording deferred revenues and expenses can help match income and expenses to when they are earned or incurred. This helps business owners more accurately evaluate the income statement and understand the profitability of an accounting period.

Defining Deferred Revenue and Deferred Expenses

Deferred revenue is money received in advance for products or services that are going to be performed in the future. Rent payments received in advance or annual subscription payments received at the beginning of the year are common examples of deferred revenue.

Deferred expenses, also called prepaid expenses or accrued expenses, refer to expenses that have been paid but not yet incurred by the business. Common prepaid expenses may include monthly rent or insurance payments that have been paid in advance.

Accounting for Deferred Revenue

Since deferred revenues are not considered revenue until they are earned, they are not reported on the income statement.  Instead they are reported on the balance sheet as a liability. As the income is earned, the liability is decreased and recognized as income.

Here is an example for a $1,000 payment for services that have not yet been performed:  In this transaction, the Cash (Asset account) and the Unearned Revenue (Liability account) are increasing.

DebitCredit
Cash$1,000 
Unearned Revenue $1,000

Once the services are performed, the income can be recognized with the following entry:  This entry is decreasing the liability account and increasing revenue.

DebitCredit
Unearned Revenue$1,000 
Revenue $1,000

Why is deferred revenue considered a liability?  Because it is technically for goods or services still owed to your customers.

Accounting for Deferred Expenses

Like deferred revenues, deferred expenses are not reported on the income statement. Instead, they are recorded as an asset on the balance sheet until the expenses are incurred. As the expenses are incurred the asset is decreased and the expense is recorded on the income statement.

Below is an example of a journal entry for three months of rent, paid in advance. In this transaction, the Prepaid Rent (Asset account) is increasing, and Cash (Asset account) is decreasing.

DebitCredit
Prepaid Rent$750 
Cash $750

Once one month of the expense has been incurred, the expense can be recognized with the following entry:  Here we are decreasing our Prepaid Rent and increasing our Rent Expense on the income statement.

DebitCredit
Rent Expense$250 
Prepaid Rent $250

Under the cash basis of accounting, deferred revenue and expenses are not recorded because income and expenses are recorded as the cash comes in or goes out.  This makes the accounting easier, but isn’t so great for matching income and expenses. Learn more about choosing the accrual vs. cash basis method for income and expenses. If you have any questions about deferred revenue and expenses, please contact an Anders Advisor.

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June 1, 2020

Qualified Small Business Stock Checklist

Use our checklist to determine if your business could qualify for Qualified Small Business Stock.

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May 26, 2020

Why Startups and Entrepreneurs Are Set Up to Succeed in a Post COVID-19 World

As states begin to start easing restrictions on stay at home orders, people are continuing to wonder what the new “normal” is going to look like, especially for businesses. While it is clear that every business, regardless of industry, will need to figure out what adjustments they will make going forward, there is good evidence that entrepreneurs and startup companies might be the best equipped to succeed in the post COVID-19 world.

Knowing How to Pivot

As we emerge from the COVID-19 pandemic, most, if not all, businesses are going to have to make some type of pivot. It should not be a surprise that most entrepreneurs and startups are normally the best at adapting to changing environments and opportunities since many of them face these challenges in the initial years of starting their business. In fact, many businesses have already started doing this and have had great success at it. In just the St. Louis region, we have seen startup manufacturers and developers shifting part of their production lines to help mitigate the spread of the virus. They were able to modify their business model and start these new lines in a matter of weeks. They are proving as changes continue to evolve, there is good opportunity that many of these companies will be able to adapt and pivot to these changes.

Leading the Way in Virtual

As people are still hesitant to leave their houses, businesses need to think about having more options in order to run a virtual business. Not only for the safety of their customers, but also for the safety of their employees.  While this may not be the easiest change for many businesses, if they can make this change, they will see great success in their businesses model. Within the startup and entrepreneur enterprise, these virtual businesses were already starting to be created, but with the pandemic, we have seen them expand significantly. Even the organizations that support entrepreneurs have quickly moved to create new ways in order to connect virtually. We have already seen these changes being made by organizations like Venture Café, which has changed their weekly networking meetings into virtual networking meetings. While this may be a different way to connect people, Venture Café has made this pivot in order to meet their goals of the organization and they have made this change successfully.

Creative Fundraising

During the pandemic, there has been a significant decrease in investments into startup businesses as people are understandably becoming more conservative with their money. Not only that, but for those investors who are still willing to invest in new companies cannot decide on what companies to invest in since the majority of businesses pitched their company to investors in person before they received fundraising. While this is a downside for many entrepreneurs, fortunately, many of the programs are finding new ways to connect with their entrepreneurs. For example, Capital Innovators still had their annual Demo Day, but this year they converted the Demo Day to an all-day virtual day where all the companies have pre-recorded their pitches which can be viewed by investors at their convenience. Invest Midwest is another example of an organization going virtual. Both of these prove that the entrepreneur support group has already been working on ways to improve processes and with more time, these programs will become even more robust.

Entrepreneurs and startup businesses have proved that we are all in this together and together we will all get through these unprecedented times. They are already proving that the companies who learn to adapt and can pivot will be the most successful companies emerging from this pandemic.

Learn more about how Anders works with startups, or contact an Anders advisor to discuss how COVID-19 is affecting your business. For additional resources, please visit our COVID-19 Resource Center.

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March 23, 2020

Saving Venture Café St. Louis: The Anders CPAs + Advisors Challenge

By bringing entrepreneurs, companies and investors together, Venture Café St. Louis has helped propel the success of our startup community. But as of last week, all in-person, public events, which are a main source of income, have been postponed due to COVID-19 health concerns. Venturé Cafe St. Louis has helped so many local startups in our community, and now it’s time to help them. With that in mind, we’re introducing the Anders CPAs + Advisors Challenge.

“Venture Café has always been a safe, welcoming space where entrepreneurs and startups can connect, share ideas and build relationships,” says Dave Finklang, founder of the Anders startup practice. “It has been the foundation for many creative ideas and conversations that have turned into profitable, growing companies in our region.”

About the Challenge

Recognizing the value Venture Café St. Louis has brought to Anders growing startup practice, we decided to help.  So we are challenging everyone who:

  • Met an investor at Venture Café
  • Invested in a startup introduced at Venture Café
  • Networked at Venture Café
  • Presented at Venture Café
  • Learned something new at Venture Café
  • Has a new contact, colleague or friend from Venture Café
  • Enjoyed the camaraderie or benefited in any way
  • Have used the Innovation Hall free workspace

Join us in helping give this Leader in Innovation the opportunity to keep innovating.  We’ll start with a $2,500 donation and hope businesses and individuals who value their contribution to St. Louis to accept our challenge and give what you can.  There are no minimums or maximums on this challenge.

Learn more about Venture Café St. Louis and donate here.

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March 17, 2020

Start Up Your Company with an Accountant

Many entrepreneurs believe not having access to creative tools, software and space are the biggest obstacles to getting a business off the ground. According to Forbes, lack of capital is the biggest reason why startups fail. Having an accountant on your team from the beginning can make the difference between success and having to start over. Below are several reasons it’s important to have an accountant on your team from the beginning.

Help Attracting Investors

When starting a business, the entrepreneur-turned-owner is typically the company’s only employee. This means running day-to-day operations, marketing, networking, and many other roles. Which leaves little time to manage the finances. An accounting firm can alleviate some of that extra burden by keeping the books and records up to date. Accurate books and records, along with timely financial statements, are key to raising capital and the success and growth of a business. As an added bonus, investors love seeing an accountant on the startup team.

More than Tax Returns

Filing your yearly tax return and making sure your company is compliant is going to be a major part of an accounting firms’ job, but there are many other areas they can help with. Payroll questions, entity planning, state and local taxes, fundraising, and valuations are all important items that deserve attention from any entrepreneur looking to start their business. With an already complex tax code along with recent tax reform it is now more important than ever to have a knowledgeable team of accountants and advisors to not only keep your company compliant, but to make sure you are taking advantage of any items that are available for your startup.

Local Resources to Help You Grow

Another benefit of partnering with an accounting firm that specializes in working with startups and entrepreneurs is tapping into their network of potential investors, business relationships, and entrepreneur resources. The St. Louis startup ecosystem is rich with hubs of activity that are available to all entrepreneurs.

Between shared workspaces, incubators, accelerator programs, competitions, venture capitalist firms and grants, there are endless opportunities for entrepreneurs to fund and grow their startup visions in St. Louis. The shared workspaces give a lower cost option to traditional office spaces, not to mention the close proximity to other like-minded individuals. Accelerators and incubators help startups by providing money or operational resources, which can sometimes even include free rent at a shared workspace! Competitions, venture capitalist events, and grants are more ways for startups to show off their ideas and companies and fund their startups. With an abundance of opportunities, St. Louis entrepreneurs have all the tools to create their dreams.

With the many resources available in St. Louis, the lack, or mismanagement, of capital shouldn’t be the reason your startup doesn’t succeed. Bring an accountant to your team and watch your company grow. Contact an Anders advisor, or learn more about the Anders Startup Group.

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March 5, 2020

Joshua L. Snyder

March 4, 2020

Katie A. Holtgrave

March 3, 2020

Dave M. Finklang

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