It’s understandable that if you have a great idea or new product that you want to be protective of it and are going to want to patent it. That’s why Non-Disclosure Agreements (NDAs) have always been popular in business. Unfortunately, they may not be as effective as you think.
Potential problems with NDAs include:
- protection is too broad – if you are not specific enough in determining what is and isn’t considered “top secret” or “confidential”, the NDA is worthless if it comes to litigating.
- high ”oops” factor - if you inadvertently spill the beans to a friend or a manufacturer about your idea or product, you have, in essence, performed a public disclosure and can void any future protection available.
- ticking time bomb – generally you have one year to file for a patent after your first public disclosure. Your clock doesn’t start ticking if you make the party to whom the information was disclosed sign an NDA, but it does start ticking if the NDA is invalid.
Uncle Sam likes to keep you on your toes. If you are a small business owner and think you’ve just figured out your taxes for 2006, get ready to bone up on a few tax law changes that could potentially impact your biz when filing tax year 2007.
Self-Employment Tax Contribution Base Increased. The maximum amount of self-employment income subject to Social Security taxes increases to $97,500 in 2007, up from $94,200 in 2006. The self-employment tax rate remains 15.3 percent.
Social Security Tax Contribution Base Increased. The maximum amount of wages subject to Social Security tax increases to $97,500 in 2007, up from $94,200 in 2006. The tax rate remains 7.65 percent on employers and employees.
Business Standard Mileage Rate Rises. The standard business mileage rate increases to 48.5 cents per mile for miles driven in 2007 for business, up from 44.5 cents per mile in 2006. Remember that you can deduct the cost of parking and tolls in addition to the mileage allowance.
Tax-free Parking for Employees. Starting in 2007, firms can pay for $215 a month of parking tax free for employees, up $10 per month from 2006. The cap on tax-free transit passes rises to $110 a month, up $5 a month from 2006.
Increased Section 179 Expense Deduction. The maximum amount of equipment placed in service in 2007 that businesses can expense increases to $112,000, a $4,000 increase from 2006. The annual investment limit increases to $450,000 for 2007, up from $430,000 the year before. Thus, you won’t lose the benefit of expensing until you place more than $450,000 of assets in service in 2007.
Many businesses find that a large part of their annual budget is eaten up by shipping charges. Unfortunately, shipping is not one of those things that you can stop doing, particularly if you are selling products from anywhere other than the traditional store-front.
Here are three ideas for cutting shipping costs:
- Reevaluate. Generally, ground carriers charge less than air carriers; however, some people are often concerned about the speed of deliver. Alot of times ground carriers can deliver just as quickly as air carriers because of the extensive operations and logistics network they’ve created so put that concern aside.
- Consolidate. It may seem like common sense, but it doesn’t always happen. You may get rushed and just process orders quickly not looking for orders to more than one place, or you may have a client that calls in an order piece-meal style and you process as you receive the order to stay ahead. If at all possible, hold off processing orders until a specific time and ship orders together. You could potentially save hundres of dollars.
- Negotiate. If you send eight or more packages a week, you have bargaining power. Tell your carrier that you’re shopping around, and negotiate with them to get a better deal.
If you are interested in structuring your business as a corporation, one thing the IRS is going to want you to decide is if you want to be structured as a C or S Corporation for tax purposes. So, what are the primary advantages and disadvantages?
- viewed as a separate entity from the owners which means limited owner liability.
- can raise capital through the sale of stocks and bonds.
- ownership easily transferred.
Primary disadvantage: double taxed - once in the corporation’s checking account and once after the employees get paid.
The primary advantage: provides the asset protection of a standard corporation with the taxation advantage of a flow-through entity (taxed like personal income instead of as a separate entity).
Primary disadantage: very strict regulations dictating the number and type of shareholders in the business, the amount stock that is issued, and the corporation’s sources of revenue.
Consult with a qualified accountant or tax professional to determine which designation is right for you.
As a small business owner, you have choices when it comes to selecting a bookkeeping system. You can choose to do it manually, purchase an off-the-shelf software, or use an online system. Whichever method you choose, there are advantages and disadvantages with each that should be considered:
Advantages: easy, cheap, and fast to set up. If you are not carrying large inventories or generating a lot of invoices, this method would prove effective.
Disadvantages: easily misplace papers and invoices that support your system, difficult to handle complex transactions, and hard to generate reports quickly if needed.
Advantages: automates difficult transactions and can provide you with detailed reports quickly.
Disadvantages: if you are not computer literate or accounting-challenged, you may experience a huge learning curb. Also, you should expect to have annual upgrade costs.
Advantages: you can access your records with any computer, any where that has an internet connection. You do not have to deal with the hassle of setting up software or upgrading your system.
Disadvantages: system may not be as user-friendly, slower to access, and not as feature-rich as off-the-shelf software.
Many small business owners struggle with the issue of either buying, renting or leasing office space. Unfortunately, depending on who you ask, you’ll get a different opinion from everyone. With each business bringing its own unique set of circumstances to the table, the decision rests ultimately on what best will suit your needs as a small business owner.
There are a few questions you can ask yourself that may help you decide on the right course of action:
1. How is your cash flow? Can you afford to put down a large down payment if you decide to purchase, or is a monthly lease payment a more affordable option?
2. How long do you plan to stay in the building? If its short term, maybe renting is a better option. However, if you live in a community where real estate values continue to rise, buying may work for you.
3. Are you ready for the additional responsibilities associated with owning a building? Is handling the maintenance, security, remodeling, and/or other management issues of a property owner going to be too much?
4. How much will your business grow? Ask yourself if you believe your business will add more employees or require more space in the next few years. Do you have the space you need to continue growing?
5. Do you like the neighborhood? It may sound like a silly question when looking for a business location, but it isn’t. Having a long and rough commute to work, fighting insufficient parking or seeing a continuous decline in real estate property values are all issues that can negatively impact your business.
Three professors at Wharton University conducted a study on trust which yielded some interesting results that can be applied to business. Some of the findings might seem like common sense, but they merit a closer look.
The study explored the important role trust plays, not just in our social lives, but in our business lives as well. “Trust is the social glue that holds things together. It allows us to engage in social and commercial ventures,” says co-author Maurice E. Schweitzer. “You can’t contract everything. We develop relationships that are based on trusting that things will work out.”
The study looked at a scenario where trust was harmed by untrustworthy behavior as compared to deceptive behavior, and how subsequent trustworthy behavior, apologies and promises influenced trust recovery. Probably not surprising to most of us would be the finding that trust was more difficult to reestablish when deception was involved. In fact, a violation of trust involving deception “causes significant and enduring harm”.
Trust was difficult to reestablish in both scenarios, a simple apology and promise not to do it again didn’t speed along the recovery process when deception was involved. For long-term business and social relationships, this can translate into a very slow “recovery” period. However, a combination of observable trustworthy actions and sincere apologies by people trying to repair broken trust can go a long way.
The study and supporting paper, “Promises and Lies: Restoring Violated Trust” was published in Organizational Behavior and Human Decision Processes. You can download the paper by clicking here.
Many small businesses start out at home. The biggest advantage being that its a low-cost, convenient option. However, as your business begins to flourish you may find that you outgrow your home office. While that’s probably a good thing, deciding whether its time to move and where to move can be an overwhelming decision.
If you are trying to decide if its time to move on and up, but don’t know where to start, begin with giving some serious thought to your long term strategic goals. After all, a move such as the one you are contemplating will definitely impact the dynamics of your business operation.
First and foremost, decide once and for all if you really are committed to growing your business into something bigger. What do you really want to do? Are you prepared to deal with the challenges of increased responsibility? After all, what’s the point of expanding your business if you know deep down that your prefer running something smaller.
After you’ve honestly answered these questions, then move on to researching the site selection, financing, staffing, logistics, etc.
You passionately believe in your business endeavor. You are committed to seeing it succeed, but need cash to get it off the ground. So, you drive down to your local bank to see about a business loan. Bill the Banker evaluates your loan application, approves it, but wants you to sign a personal guarantee as well. You figure, why not? I wholeheartedly believe in my business so there isn’t anything to worry about, right?Before you do sign that paper, consider the potential ramifications. A personal guarantee is your pledge that you will make good on the loan, usually without exception. This guarantee extends beyond the shelter of your corporation, or the burden of your partners to belly up to the bar and pay. It means you and you alone are going to pay the loan regardless if the business goes under with a mound of debt and is dissolved.
If you are a sole proprietor, a lender may have the right to sue you personally and confiscate your personal assets to satisfy the loan. If you’re married, they may require your spouse to sign the agreement as well. When they do, jointly owned assets such as your house are on the line for the debt, as well as your spouse’s assets and income.
The reality may well be that you have no choice but to issue a personal guarantee if you have no other options for cash. Even the Small Business Administration (SBA) requires that all loans they guarantee be personally guaranteed by any person with a 20 percent or larger ownership interest in the business. Still, it should provide you with an opportunity to step back and make sure all your ducks are in a row, and that you are ready to make that type of personal commitment to your business.