Start Your Business the Right Way with Help from Wells Fargo
Many women dream of being entrepreneurs. Being her own boss, making a real difference. Deciding to open your own business is a big decision, and there’s plenty to learn before you hang your shingle. Shaun Coard, the senior vice president and Business Banking management at Wells Fargo in Houston sat down to explain what you need to know about managing your finances and protecting your family’s money. Get ready to put your million-dollar idea to work.
MommyNoire: What do you need to think about before starting a business?
Shaun Coard: First and foremost, you have to consider the type of business you want to own. There a number of ways to structure the business. Think about how you want to structure your business, whether you want to start a corporation. Are you going to base that business out of your home? There are certain things from an IRS standpoint to qualify for write-offs. So, if you’re making some renovations to your home, you can make those deductions. Or if you need to lease space or purchase space. Decide if you’re going to be an owner and operator alone or whether or not you need employees you’re going to hire.
How can people find that information?
The biggest resource that’s out there for women is the National Association of Women Business Owners. Wells Fargo has found that to be a huge resource and we have an alliance with NAWBO. Their goals align with ours: the growth and advancement of women business owners as well as financial literacy and education.
What are the most important things a new entrepreneur needs to know about finances?
One of the biggest challenges that I find in working with business owners is their not having a firm understanding of their financials and what a healthy balance sheet and a healthy profit and loss statement should look like. When you’re starting out in business , if you know that’s not a strong suit, work with a CPA or community development organization to develop a strong business plan that clearly outlines your goals and objectives. Ask someone to help you understand what your balance sheet should look like. For example, if you’re a service industry, chances are you’re not going to have inventory on your balance sheet so that’s not something you really need to concern yourself with. Make sure you set up a checking account for your business once you set up that business entity and never co-mingle your personal funds with your business funds. Some of the mistakes I see are owners who, when they’re starting out, they’ll have someone write a check to them and deposit it in their personal accounts. The other thing that you need to understand about finances is whether or not you have the funds to actually start a business so you’re not setting yourself up to fail. And if you don’t have the necessary funding, then think about whether or not you want to get an outside investor or have a family member you want to invest in your dream. If you’re looking into expand an equity piece out to someone what percentage of ownership would you be comfortable giving to someone else. If that person owns more than 20 percent they would be asked to guarantee debt.
What are the most popular financing options available for business owners?
Microloans. There are so mnay different entities across the country that provide them. One of the ones we work with most is Accion. They’re pretty much across the US. They’ll provide loans as small as $500 or as much $250,000 in some situations. Other small loans from your conventional banks that are SBA [Small Business Association] guaranteed. That affords the business owner the greatest opportunity to acquire a loan with a traditional bank and have the smallest equity injection.
How can you protect your family’s finances in the event the business doesn’t succeed?
If you’re operating as sole proprietor, that’s the highest level of risk for a business owner. If you don’t necessarily succeed, unfortunately your personal finances are at stake. If you set up your entity as a corporation and there are varying ways to set it up like a limited liability corporation, there are so many diff ways to that will buy a level of protection that a sole prop does not. And again, once you set that entity up, make sure you open all checking accounts and credit lines in that entity’s name. If you’re acquiring debt, chances are you’re going to be asked to personally guarantee that debt. When you’re asked to, then you are still on the hook personally. So it’s hard to protect your personal assets if you’re personally guaranteeing debt.
If you’re a small business just starting it’s extremely difficult to avoid having to guarantee it unless you get a small credit card. And depending on the creditor, you still may need to personally guarantee. The best thing to do is separate business finances from personal is to set up some sort of a corporation, and look for ways to acquire debt and having to guarantee as much of it as possible. That’s a challenge. Most traditional banks, Wells Fargo being one of them, will ask you to personally guarantee an SBA loan and there’s no real way to avoid that. Don’t acquire debt for business purposes in your personal name. That’s a mistake a lot of people make.
How much involvement should family have?
The important thing to remember is to treat that family member as if they’re not a family member. You want to make sure that there’s a clear responsibility or job description and that individual knows what the description is and requirements are. You’re compensating them as though they’re not a family member. And be careful especially when it comes to promotions. You want to have clear communication and express what your strategy is for your company and make sure that everyone is in agreement with that. And if you have minor children, you want to be sure you’re abiding child labor laws.