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Many solo entrepreneurs and freelancers keep their personal and professional finances combined when they first start out. Any paycheck goes right into their personal bank accounts, and any expenses are charged to their personal credit cards. 

In the beginning, this is understandable. You might not know if your business is going to succeed—or you might start your business as a side hustle, so you don’t think you need a lot of infrastructure. 

However, as soon as your business is established, it’s important to separate your business and professional accounts. Here are a few reasons why—and how to do it. 

You Can File Your Taxes More Easily

Your business can deduct a variety of expenses throughout the year, but you need to keep track of these costs and ensure that they’re separate from your personal accounts. An easy way to do this: open a dedicated business account. You can charge expenses to a business credit card or write out checks that pull from your professional funds.

Once tax season comes along, you won’t have to remember what professional expenses you had. You can simply download your transactions from this account and determine which costs are tax-deductible. This simplifies and speeds up the process. 

You Can Create a Cushion to Keep Paying Yourself

Many freelancers or sole proprietors use their business bank accounts to stabilize their income throughout the year. They deposit all of their income into the business bank account and then withdraw a flat salary each month. 

For example, a contractor might make $7,000 in January and $3,000 in February. By pulling a flat salary, he can afford to pay himself $5,000 monthly (or $4,500 monthly with a cushion saved for later). 

Some people enjoy the stability of knowing they’ll get paid the same amount no matter what they earn. If the business account starts to get too big, these freelancers can award themselves end-of-quarter or end-of-year bonuses and enjoy the extra cash. 

You Can Budget Better

Not only can you enjoy a flat salary with separate personal and professional accounts, but you can also budget your expenses. You can easily see which charges are related to your business and plan for fluctuations throughout the year. 

A common example of these kinds of expenses is professional software subscriptions. A business owner might use a software tool as part of their workflow and pay an annual fee to license it. If the cost of this service is charged each February, the business owner can budget for it and ensure they have enough funds in the bank to prevent overdraft fees. 

You Can Develop Business Credit

If your business begins to do well, you’ll likely want to scale—which will probably require additional funding. To secure this working capital, especially from a lender, you’ll want to have established business credit.

When your personal and business finances are intertwined, you make it difficult to identify your business income and expenses, which are used to assess your business credit. By separating the 2, you can paint a clear picture of the financial health of your business—making it easier to determine your likelihood of defaulting on a loan.

3 Steps to Separate Your Business and Personal Finances

There are multiple ways to prove that your personal and professional finances are separate from each other. Many of these steps are free or affordable for small business owners. 

1. Establish a limited liability corporation (LLC), S-corp, or C-corp. This will give you an employer identification number (EIN) from the IRS to separate your personal and professional business dealings. Most states charge application fees to operate LLCs and require annual reports and payments to stay in operation. Learn what your state charges and budget for it. 
2. Open a business checking account. Once you have your corporation established and EIN generated, you can visit your bank or credit union to open a business checking account. If you already have an existing relationship with the bank, they may be able to waive any opening fees or monthly charges to operate the account. Some banks, however, set limits for how much you need to keep in the account to stay active and above the fee limit.  
3. Take out a business credit card. While you’re at the bank, ask about opening a business credit card attached to the account—some banks offer this as a perk for opening an account with them. You’ll only use this card for business purposes in order to keep your professional and personal costs completely separate. As an alternative for getting your bank’s credit card, look into business cards that offer competitive rewards systems, like cash back or airline miles.  

Once you have your business credit card, you can start to build up your business credit score. This shows that your business can stick to a budget and repay its liabilities in a timely manner.

As mentioned above, most lenders look at business credit when issuing loans, so you may qualify for more favorable terms if you take the time to build up your credit when just starting out. If you lack business credit, then lenders might look at your personal credit scores as well to determine how risky it is to loan money to you. 

Like personal credit, it takes time to build up business credit, so the earlier you start, the better.  

Take Steps to Separate Your Personal and Professional Finances

Even if your business is brand-new, there are steps you can take to keep your personal and professional accounts separate. Start with good documentation and budgeting and then establish a specific bank account and credit process for your business. 

Finally, look into bookkeeping software to invoice customers and record income as it comes in. At Lendio, we offer a free self-service tool for small business owners. This is a great place to set up your ledgers and prepare your business for growth.

The IRS distinguishes different business entities (or statuses) for companies of various sizes and types. The smallest of these entities is the sole proprietorship or a company that is only run by a single person. Learn more about sole proprietorship by reading below.

What Constitutes a Sole Proprietorship? 

A sole proprietorship refers to a person who earns money throughout the year that doesn’t come from investments or income from working at a traditional company. Sole proprietors can also call themselves solopreneurs, self-employed individuals, contractors, and freelancers. 

Do You Have to Fill Out Paperwork to Become a Sole Proprietor?

No. Anyone can start a business as a sole proprietor without registering with the state they live in. However, this does not exempt them from other licensing and education requirements to operate the business. For example, a hairstylist could work as a sole proprietor but would still need a license to cut hair in the state. 

How Do Sole Proprietors Pay Taxes?  

Traditional employers take out a portion of your income to cover federal taxes like Medicare and Social Security. The employee pays half of the required amount, and the employer covers the second half. However, sole proprietors need to pay their taxes on their own. They can directly pay the IRS through quarterly estimated taxes by writing a check or paying online. 

Sole proprietors are responsible for paying both the employer and employee side of federal taxes. However, they can then deduct this income from their taxes when they file each year. 

What Are the Risks of Sole Proprietorship?

There are a few risks with opting for a sole proprietorship over an LLC (limited liability company). The main risk is that your personal and professional accounts can be linked. 

This means if a customer or vendor sues you, they can go after your personal assets like your home and car. An LLC can protect you, but you need to apply for the status and pay annual fees to your state.  

What Are the Benefits of a Sole Proprietorship?

Sole proprietorships are one of the most flexible business entity options out there. You do not have to file paperwork to become an LLC, and you don’t have to answer to shareholders and other owners like a corporation or partnership. Furthermore, all of the profits are yours. 

However, all of the risks and decisions also fall on you. You will need to secure funding, acquire clients, and do the work (except for outside contractors that you work with). If this burden seems too much, consider forming a partnership with another person instead. 

Start Your Business With Organized Books

If you have an exciting business idea, consider becoming a sole proprietor where you can take on a few customers and grow your brand over time. Starting as a sole proprietor can help you decide how to develop your career. 

In the meantime, check out the free tools offered by Lendio to better organize your invoices, expenses, and other ledger items for good bookkeeping within your business.

To have a business, you’ve got to have paying customers. But every small business owner knows that attracting new customers takes effort. Customer engagement doesn’t happen magically—it has to be encouraged. So what are some of the ways you can find new clients and get them to engage to help grow your small business?

1. Plan Your Marketing Strategy

You need a marketing strategy and budget. Everything else you do to gain a new client or create customer engagement ultimately falls under “marketing.”

To create your marketing budget, decide:

• How much should you spend on marketing?
• What should you spend those dollars on?

According to the US Small Business Association (SBA), the answer to “how much” depends on a variety of factors:

• What’s your industry?
• Are you a business-to-consumer or business-to-business company?
• Do you sell products or services?
• What’s the growth stage of your company?

Roughly speaking, the SBA suggests allocating 7–8% of revenue to a marketing budget (for an established business with $5 million or less in revenue with a 10–12% profit margin). That budget would be used for both brand development (e.g., your logo, website, business cards) and brand promotion (e.g., advertising, events).

Now that you know how much you have to spend on marketing, let’s explore ways to get potential clients to bite your shiny sales hook.

2. Advertise

Advertising seems like an obvious solution to get new customers or repeat business. The tough question is where you should advertise—in print or digital media? Digital advertising tends to cost less than other forms of advertising, but that doesn’t mean it’s always the correct choice.

Print or radio advertising works if your target market fits any of these criteria:

• Doesn’t have access to high-speed internet
• Regularly consumes a channel (e.g., reads a specific newspaper or listens to a type of radio station)
• Is concentrated in one geographic location (e.g., wants local information)

Digital advertising fits if any of these describe your target market:

• Has a specific demographic (e.g., 30–35 male homeowner living in Seattle)
• Is widely-scattered or remote
• Responds to interactive or flashy ads

Most likely, you’ll incorporate a mix of print and digital advertising. At a minimum, you’ll use some print advertising to create brand awareness, even if that is buying pens and magnets with your logo on them. But given that some of your target market uses the internet, you’ll spend some of your budget promoting social media posts or buying digital ads. And that mix will shift regularly based on factors like the needs of your current marketing campaign, social distancing rules, and what your customer behavior metrics tell you.

3. Expand Your Target Market

Perhaps you’ve been in business for a while and your market personas haven’t been updated recently. Take a step back and think outside your current target market. Would a market research project help you find new clients?

If you are a business-to-business company, are there other industries (such as the nonprofit industry) that could benefit from your product or service? If you are a business-to-consumer company, could a new distribution channel or targeting a different demographic net you more clients?

4. Spend Time Networking

Never underestimate good old-fashioned networking as a method for gaining new customers. This includes both opportunistic networking and active networking.

Opportunistic networking means taking advantage of those small, unplanned moments to connect. When you are introduced to a friend’s neighbor, mention your business and see if there are any opportunities. Or while getting your haircut, eavesdrop on the conversation in the next chair to discover new people to pull into your circle.

Active networking means seeking to connect with people or businesses. Small business associations can be a goldmine for finding new contacts. There are associations for all kinds of interests—from industry-specific associations to groups focused on businesses owned by veterans, women, or other niche groups. And nowadays, you don’t even have to leave the comfort of your couch—networking groups have gone virtual.

But whether in-person or virtual, you still have to allocate time for networking, including following-up. Plan for the long-haul as it’s unlikely that every meet-and-greet will garner an instant client.

Treat networking like dating. Don’t make the initial conversation all about you. Instead, find common ground, and then set a real date to get to know each other better. Figure out what you can do for the other person. Can you connect them with potential customers? Suggest a mentor? Recommend a business plumber? Eventually, the relationship may evolve into one that lands you a new customer.

5. Become a Thought Leader

A thought leader is “…someone who, based on their expertise and perspective in an industry, offers unique guidance, inspires innovation and influences others.” It’s not a one-and-done task and isn’t a sales strategy—it falls under the concept of building brand awareness. To become a thought leader, consistently create content—write white papers and blog posts, speak at conferences, share industry research—until you are perceived as an expert in your company’s industry.

Gigi Griffis became a thought leader for location-independent freelancers by routinely sharing her actual monthly budget numbers for living in specific locations abroad. She posts about her experiences in a location without pitching her services. But by consistently publishing content, she has positioned herself as an expert in the field of digital nomads while also generating brand awareness of her writing services.

6. Collaborate With Other Businesses

How about using the power of togetherness to attract new clients?

Think about how you first discovered your favorite food truck. Maybe you saw them at a stoplight and decided to look them up. But more likely, the truck was parked somewhere you already frequented, like at your favorite brewery. That type of collaboration is a win-win. Cross-promotion occurs as both the brewery and the food truck advertise each other on their event calendars and social media posts.

Another collaboration example exists between 2 North Carolina companies—Blue Ridge Biscuit Company and Dynamite Roasting. The biscuit cafe serves coffee brewed from the local roaster’s coffee beans and also sells bags of those beans at checkout. These 2 businesses have cross-pollinated their customer bases and succeeded in encouraging customers to support local businesses.

7. Sponsor Other Organizations

A sponsorship strategy can buy you goodwill and brand awareness. Sponsorship comes in many forms—time, talent, and treasure. Your employees could staff the T-shirt distribution table at a local race. Your business’s logistics experience could help a food bank optimize its pick-up route for food donations. Your company could help purchase a softball team’s jerseys or donate your product as a prize in a silent auction “goodie basket.”

Imagine how that donation could translate into a paying client. Other volunteers, attendees, or staff may need your product or service. Your business, via your sponsorship strategy, is now a familiar and trusted source. Or you could parlay your free service or product into paid business with the organization you sponsored as their needs change.

8. Hold a Contest

Contest marketing is exactly what it sounds like. A business holds a contest to give away something—a product, a service, or an experience. In exchange for a contest entry, hopeful participants share their contact information—and also reshare the company post or tag a friend in the comments of the contest announcement.

Reshares tend to make non-customers think highly of a company if a trusted source (Mom, a best friend, an influencer) shared the contest promotion with them. Additionally, people who win tend to give back by buying more items or encouraging others to buy from your business.

9. Host an Event

Hosting an event, in-person or virtually, is another way to attract new clients. Events can be anything from a full-blown conference to a training class to a social gathering.

For example, a winery may host an onsite party to celebrate a customer’s retirement. An art studio could lead a “paint by numbers” class as the in-party entertainment. Party-goers are now part of the potential client base for both businesses.

Virtual events, on the rise before the pandemic and now the new normal, expand your potential audience beyond your geographic location. While they aren’t necessarily less work to put on than in-person events, well-organized virtual events can be cheaper to host than in-person events and can help you build your event organization skills. Thinking about hosting training courses? Start with a free 30-minute limited-attendee “Tips and Tricks” webinar to try out your course material while building your potential client list.

10. Let Others Do the Work For You

We’ve all heard the phrase, “There is no I in team.” Why not let your satisfied customers be part of your team via a referral or affiliate program?

Referral and affiliate programs share a similar goal of getting others to bring you new customers but they operate differently. A referral program usually is a “share with your friends” program where your existing customers get a discount code if their friends make a purchase. An  affiliate programrequires you to have an e-commerce store. People or businesses (hopefully your own happy customers who can vouch for you) recommend your product or service with a unique link that earns them a small commission.

Like any marketing strategy, you’ll have to take some steps to set up your referral or affiliate program. These steps include implementing technology to handle the program, writing the rules for discount codes and commissions, and then marketing the program so folks view it as a viable source of passive income.

11. Create a Customer Loyalty Program

What does a customer loyalty program have to do with finding new customers? Well, it’s easier to keep a customer than it is to gain a new one, and happy customers tend to recommend you to others. And a loyalty program can nudge that one-and-done customer into the repeat business category.

For example, a recently widowed 88-year old senior needed her air-conditioning unit serviced, so she called the company her best friend suggested. The repair person recognized that the woman has no experience with the need for yearly maintenance checks for both the a/c and the heating unit. He explained preventive service to her and then offered her a small discount as a loyal customer if she booked her pre-winter heater checkup with his company. Based on the recommendation from a friend and the loyalty program, the widower has become a repeat customer for that business.

Keep in mind that creating and managing a customer loyalty program means more than creating a punch card to give a free cup of coffee after the purchase of 10 cups. It involves understanding what makes your customers loyal, designing the right customer loyalty program for your business, and then measuring the effectiveness of your program.

12. Leverage Social Media

Social media for small businesses can create customer leads and give your existing customers a chance to engage with you. View it as a place to build an emotional connection with your potential customers—don’t approach it as digital advertising.

Of the gazillion channels out there, which platform is the correct choice for your business? The stock answer—the one you are willing to use. In other words, while you should use the channel where your target market hangs out, you also have to choose a platform you are willing to use consistently. If you hate editing photos, then Instagram probably isn’t the social media platform for your business (unless you delegate photo-editing to a freelancer).

Forget trying to go viral or securing millions of followers. Instead, focus on building a connection with followers relevant to your business. Share stories and include some of “you” in your posts so people want to be connected to your business. Maybe that means a backstory about using your great-aunt’s recipe for a certain dessert or how your product helped a member of the community survive an illness.

Private Facebook groups enable you to build a steadfast group of champions for your business. It also gives you a place to ask questions about what your followers actually need or want from your industry. Members of your group may not be instantaneous customers but evolve over time into some of your most loyal customers. Take, for example, Amanda Kendle’s private Facebook group, “Thoughtful Travellers.” The Facebook group isn’t used to sell anything, but it builds a community of like-minded people who are more apt to listen to sales pitches from Amanda’s website or public Facebook page.

Another option to increase brand awareness and engagement is a watch party like those on Facebook. We’ve all heard that videos capture attention more than still images or words. Take that product release video or 1-hour how-to-guide you already posted and schedule a watch party. Encourage your followers to invite their friends to the watch party. During the watch party, people watch the video together and comment in real-time. Not only have you repurposed content, but you’ve also garnered new customer leads based on who attended the event. With the right call-to-action during the party, you might even get on-the-spot new customers from the event.

Reddit can be used to promote your business as a thought leader or to discover what problems your potential clients need help solving. Neil Patel, a leading digital marketer, offers tips on navigating the Reddit culture to subtly market your product while solving users’ problems or asking for advice on your marketing problems. You could even follow industry-related subreddits to brainstorm content to include on your own website.

13. Embrace Digital Tools

Digital tools, whether you love them or hate them, are key to securing new customers. 

Customers expect a “real” business to have a professional-looking and easy to navigate website. Following best practices on the website, such as placing your call-to-action in the right spot, can increase customer engagement and online sales.  

And how many times have you asked Google for an “Italian restaurant near me”? Make it easy for local customers to find you by optimizing your website SEO and correctly setting up your local online presence, including Google My Business and Yelp Business pages. These help your business appear in “nearby” searches and also give customers a place to review your business.

Digital tools also allow small businesses to pivot and adapt as needed to shifts in consumer spending. For example, The Spice House used its online store to capture more sales in April and May when customers shifted to cooking at home due to COVID-19 restrictions. Some museums, like the MET, have figured out how to monetize their virtual tours. Even traditionally offline industries like healthcare and memorial services have survived the socially-distanced culture we currently face by embracing digital.

Attracting new customers takes time and money, but every successful business must dedicate itself to the task. While it may not be effortless, using the above tips can help you gain new clients to help grow your business.

Documenting your business’s financial status is a fundamental part of running a business, even if it isn’t the most enjoyable. There are a few documents that nearly all businesses, from a beginning freelancer to a Fortune 500 company, should regularly update and study.

Banks, investors, and other lenders will usually require 3 financial documents in making funding decisions: the profit and loss statement, the balance sheet, and the cash flow statement. These 3 data sets are not only the standard reports for rating a company’s financial health externally—they’re also essential for small business owners to truly understand how your company is faring internally.  

1. The Profit and Loss Statement

The business press and investors always eagerly await P&L statements from publicly traded companies because the information is clear, easy to digest, and hard to spin. Similarly, the quick hit of data provided by a P&L statement is incredibly useful for understanding the financials of your company at the moment.

“Small business owners should look at this report at least monthly,” suggests Eric Rosenberg of Due. “It is also a good idea to look at trends, comparing current results to the same period in the prior year and comparing the most recent month with the last few months. This should tell you what’s working well, what isn’t, and help you to focus on the most profitable parts of the business.”

P&L statements are most useful when you can put them into context—this way, you can see how your business is performing over time.

2. The Balance Sheet

There are 3 main components to a balance sheet: assets, liabilities, and shareholders’ equity, also called owners’ equity.

“It shows what your small business owns, owes, and what shareholders have invested in your small business,” Elizabeth Macauley notes in The Hartford’s Small Biz Ahead blog. “This math serves as the foundation of your balance sheet.”

Your assets should equal your liabilities plus owners’ equity. Assets include cash in your bank account, inventory, and real estate, while liabilities most commonly include debts. The owners’ equity equals assets minus liabilities.

“Every balance sheet should balance,” Macauley continues. “You’ll know your sheet is balanced when your equation shows your total assets as being equal to your total liabilities plus shareholders’ equity. If these are not equal, you will want to go through all your numbers again.”

Your balance equation should always be equal if you are doing the math correctly. If your company’s liabilities overwhelm your assets, your owners’ equity can be negative.

3. The Cash Flow Statement

“Cash flow statements are used to evaluate the financial health of a business as well as to provide a full picture of how it spends and invests the money it already has,” Mona Bushnell explained at Business.com.

This statement helps you to understand your cash flow, which is often the lifeblood of any small business—especially new ones. Cash flow is critical, as it dictates how much money you have on hand to cover expenses. If you’re frequently running out of cash due to customers paying late or financial mismanagement, you could soon face a brutal cash crunch.  

4. Accounts Receivable and Accounts Payable Aging Reports

“An aging report is used to show the outstanding customer invoices and the number of days they’ve been outstanding,” the Corporate Finance Institute notes.

On the opposite end, an accounts payable aging report shows what invoices you need to pay and how much time you have left to pay them. Alongside your cash flow statement, you can see how your expenses should be paid over time. 

UPDATE: The PPP loan application period ended May 31, 2021. Apply for the Employee Retention Credit today through Lendio.

If you’re a 1099 worker (or a small business that employs 1099 workers) seeking a Paycheck Protection Program (PPP) loan, you likely have questions about whether or not you qualify for a PPP loan, what you need to apply, and how potential loan forgiveness will work. We’ve put together some of the most common questions we’ve received surrounding PPP and 1099 workers to give you the information you need. 

How Can 1099 Workers File for a PPP Loan?

Independent contractors can submit a PPP loan application through their bank or a lending marketplace. Given that many banks aren’t prioritizing the smallest loans, we’ve stepped up to help independent contractors secure funding. We’ve partnered with multiple PPP lenders to maximize your chances of funding, and we’ve streamlined the application to make it fast and simple. 

PPP applications opened for 1099 employees on April 10, 2020. 1099 employees are now eligible to apply for their own PPP loans through their banks or a loan marketplace.

Can 1099 Workers Receive a Second Draw?

Yes, qualifying independent contractors can receive an additional disbursement of funds by applying for a Second Draw. Just like the First Draw, a borrower can receive up to 2.5 times their monthly payroll costs through a Second Draw. To qualify you must meet the following criteria:

• Have received a First Draw through the PPP program
• Have used all First Draw funds (or plan to use them)
• Have used First Draw funds only for allowed uses
• Experienced a 25%+ reduction in revenue in 2020 compared to 2019

Will You Need to Provide Documentation to Prove a 25%+ Revenue Reduction for Second Draws?

Documentation proving revenue reduction is only required for loans over $150,000. It’s unlikely that most 1099 workers would have a loan more than that amount, given that independent contractors may only claim payroll for themselves (in addition to other payroll-related expenses) as a part of their payroll calculations and the SBA has capped salaries for individual employees at $8,333/month ($100k/year). It is likely that you will be required to certify this revenue reduction instead. 

What Documents Do 1099 Employees Need to Apply for a PPP Loan?

• 1099-MISC
• 2019 Schedule C, which is now required. If you haven’t yet filed a Schedule C, you must complete one and submit it with your 1099-MISC
• Your birth date
• A color copy of your Driver’s License (front and back)
• A voided check for your business bank account
• If you have 941 Quarterly Tax Filings (2019, 2020 Q1) or 944 Annual Tax Filings (2019), they should be submitted

You can visit our complete step-by-step guide to completing an application for full instructions. 

Why is a Voided Check Required in the Lendio Application?

A voided check is required to demonstrate business revenue deposits.

Will a PPP Loan for a 1099 Worker Be Forgivable?

If PPP funds are used for allowed uses during the covered period of the loan (the 24 weeks immediately following disbursement of funds), then a borrower will likely qualify for loan forgiveness. 

The SBA has streamlined the forgiveness with a one-page application for loans under $150,000. Additionally, for loans under $150,000, you will not be required to submit documentation on your forgivable expenses. Instead, you will be asked to certify that funds were used for forgivable expenses. 

Can You Receive Unemployment at the Same Time as Your PPP Loan?

No. PPP loans cannot be used for the same purpose as other government funds at the same time. So you cannot receive unemployment at the same time as you’re using PPP funds to cover lost payroll. 

If you are currently receiving unemployment, you will have to cancel it starting on the date your PPP loan is funded. If you are still suffering from lost wages after PPP funds have been exhausted, you can apply for unemployment through your state agency. 

Can You Choose the Start Date For the Loan?

You cannot choose the start date for the loan. The loan term begins the day you receive funds. 

Can a Small Business Include 1099 Employees in Their Payroll Calculations?

No, 1099 employees should not be included in a small business’s payroll calculations for their PPP loans. 1099 employees are considered their own businesses under the PPP. As of April 10, 2020, 1099 employees are eligible to apply for their own PPP loan. 

Why Does the Application Ask If You Have 1099 Employees If You Can’t Include Them?

Guidance for PPP loans asks if a small business was open as of February 15 and “had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on Form(s) 1099-MISC.” 

Treasury guidance regarding 1099 employees pertains to eligibility. You need to either have employees who receive a salary or 1099 employees who you pay in order to qualify for the loan. It does not pertain to loan size calculations. 

Lendio strives to provide you with the most current information as it relates to the Paycheck Protection Program, related SBA programs, and relevant regulations. The rules and regulations governing these programs are being regularly clarified by the SBA, and other agencies. In some cases, the provided guidance may directly conflict with other competing guidance, laws, rules, or regulations. Due to these changes, Lendio cannot guarantee that the information contained in this page reflects new changes or updates.

Lendio advises you to review the SBA guidelines and regulations on your own and determine your Company’s best approach to receiving SBA loans. Lendio urges you to consult your own attorneys, lawyers, and consultants to make the best decision possible. The information contained herein should not be construed as legal or tax advice, and should not be relied upon as such.

Starting a business can be exciting–and downright exhilarating–but it can also be exasperating. And while entrepreneurship can be challenging for anyone, it is particularly challenging for business owners of color, and the pandemic has only exacerbated these issues.

For example, a report from the University of California at Santa Cruz reveals that 41% of Black-owned businesses closed their doors by the middle of April 2020, compared to 32% of Latinx-owned businesses, 26% of Asian-owned businesses, and 17% of white-owned businesses.

So what accounts for these disparities? We talked to several POC business owners to discover some of the challenges they face.

Funding

“POC are more likely to be denied a business loan or a business line of credit due to racial discrimination or because their credit score is not as high as it should be, but how can you build credit if no one will give it to you?”  

Her view is shared by Nerissa Zhang, CEO of The Bright App, which helps studio owners and fitness instructors to manage their businesses on a smartphone. “A major challenge that POC business owners face is getting funding,” Zhang says. “Between 2009 and 2017, nearly half a trillion dollars of venture capital was raised, but just 0.0006% of that was raised by Black women, despite the fact that we’re the most educated demographic group in the United States.” (She’s referring to data from the National Center for Education Statistics, which reveals that Black women earned 67% of associate degrees and 64% of bachelor degrees, which is a higher percentage than any other group.) 

One person who has firsthand experience with limited funding for minority entrepreneurs is Angelique Hamilton, founder and CEO of the HR Chique Group, which provides HR consulting, and operational planning and review services. “Bootstrapping is the main finance option for POC businesses because the level of banking and financial support to POC businesses is dismal.” 

The most recent example is the Paycheck Protection Program designed to help businesses struggling to stay afloat during the pandemic. A survey by Color of Change and UnidosUS reveals that 51% of Black and Latinx small business owners that requested assistance sought amounts less than $20,000. Still, only 12% received assistance. 

Another challenge POC business owners face is a lack of knowledge regarding the funding process. “I, like many POC, had to overcome a significant learning curve around funding, financial savvy, and business development,” says Magdy Kotb, founder of The Clothing Coach, a custom clothing line. “The public education system, primarily in lower-income neighborhoods like the ones I grew up in, has failed us.” 

Kotb says he went to traditional banks and was turned down—even by one he banked with for over a decade. “My initial funding came from a nonprofit that supports immigrants and POC. This educated me on CDFIs (Community Development Financial Institutions) and other community resources.”  

The Ripple Effects of a Lack of Funding

The challenges of accessing capital mean that POC businesses will struggle to compete with their non-POC counterparts. “And this can ultimately affect their ability to scale their businesses and attract larger contracts and deals,” says Tiffany Williams, CEO and principal consultant of Organized Energy Coaching and Consulting.

The inability to access capital can also manifest in other ways. “It can affect the ability to tap into strategic software, tools, programming, and services that would aid in operating more efficiently, effectively, and strategically,” Williams explains. “Without these things in place, the client experience may suffer slightly as well.” 

POC business owners are also more likely to work alone—usually due to a lack of funding—and this can lead to a variety of problems. “It has been reported that 95% of Black small business owners are solopreneurs,” says Williams. (Recall that the PPP was designed to help small business owners continue to pay their employees during the pandemic; however, most POC businesses don’t have enough funds to hire employees.)

Williams conducted her own survey to find out how POC entrepreneurs were faring. “Many who responded to my recent survey shared that they often feel overwhelmed in their businesses due to the lack of staff/team,” she says. “Because they wear several different hats within the business, they suffer anxiety, frustration, and burnout.” 

A Lack of Respect

Williams says she also sees people making assumptions based on skin color. “Many times, before they are given opportunities in a fair and equitable manner, their character, competency, and level of performance/quality are questioned and doubted,” she says. “POC business owners are sometimes slighted opportunities for work simply because some misinformed people equate Black business with poor quality, poor service, being unqualified, and so forth—and of course, these assumptions are simply not true.”

Business owners of all colors can provide excellent, good, fair, or poor service. But our sources found that poor service seems to be an expectation for them, and Black businesses aren’t given the same benefit of the doubt as non-POC businesses. “I’m sure there have been cases in which a POC business was a scam or the customer service was terrible, but it should not be a black eye for POC business owners across the board,” Patton says. In essence, she’s asking for POC businesses to be judged by the same standard as non-POC businesses. 

And a lack of respect can come from all sides. “Another challenge I’ve faced as a POC business owner is everyone from investors to clients to employees not respecting me as a leader,” says Zhang. In fact, she says that she’s fired employees who weren’t comfortable having a boss who was a woman of color.  

A Lack of Support

However, another challenge is a lack of support from those closest to these entrepreneurs. “You have people who want the ‘friends and family discount,’ which makes it harder to make money on a regular basis,” says Patton. This is something that LaVan routinely sees. “Black business owners are frequently asked for discounts from their close friends who wouldn't dare ask the same thing of another business owner from a different culture offering the same service.” 

He says this lack of support also takes the shape of people willing to debate costs. “When we price our service or products to where we think it should be, people sometimes don't believe it's worth the number we value it at.” 

A Failure to Protect Intellectual Property

A Lack of Confidence

Studying POC pioneers like Madam CJ Walker can provide insight and inspiration for this generation of entrepreneurs.

You’ve probably heard jokes about the reliability of Ford vehicles. There are lots of reverse acronyms floating around out there, such as “Fix Or Repair Daily,” “Fast Only Rolling Downhill,” “Fails On Race Day,” or “Found On Road Dead.”

But do people really think Ford cars are inferior? Some of the most popular cars on earth have rolled out of Ford factories, so there don’t seem to be any wide-scale issues. Perhaps the derisive jokes originate from jealous folks working over at Chevy or Hyundai.

The Ford Motor Company never would’ve existed if it hadn’t been for Henry Ford’s penchant for tinkering with machines. His first gas-powered vehicle was called the Quadricycle, which he created in an old shed jam-packed with gears, tubes, and other gizmos.

Five years after establishing the Ford Motor Company, Mr. Ford was ready to release his Model T on the market. Reaching that point required ingenuity and zeal. Using 1908’s top technology, Ford managed to invent the first moving assembly line. The company’s innovations meant that it only took about 45 minutes to complete each Model T, with a new car rolling off the line every minute or so. Ultimately, they produced over 15 million of these “Tin Lizzies.”

“The Model T was actually affordable, and it became so popular at one point that a majority of Americans owned one, directly helping rural Americans become more connected with the rest of the country and leading to the numbered highway system,” says History.com. “The manufacturing needs of the Model T went hand-in-hand with Ford’s revolutionary modernization of the manufacturing process.”

While Ford doesn’t dominate the market like it once did, it still sells millions of cars each year. And the brilliance of Henry Ford continues to play a role in the company’s methods and products.

Even if you prefer Honda, Toyota, Subaru, Tesla, or some other manufacturer to Ford, it’s hard to deny the brilliance of its founder. Let’s look at some of Henry Ford’s business advice to see what it can offer modern entrepreneurs.

"Education is preeminently a matter of quality, not amount."

This quote teaches us that it doesn’t matter what’s in your past. What matters is that you have a great idea and the expertise to bring it to life.

"The short successes that can be gained in a brief time and without difficulty are not worth much."

No entrepreneur sets out to create a flash-in-the-pan company—we all want to build businesses that become legacies. So don’t shy away from challenges and failure, as they’re both part of the long game.

"Nothing can be made except by makers, nothing can be managed except by managers. Money cannot make anything and money cannot manage anything."

Henry Ford was a creator of the first order. He understood that all the money and resources in the world can’t produce exceptional results—only the right person can. Your goal should be to be that type of person.

"Most people think that faith means believing something; more often it means trying something, giving it a chance to prove itself."

The best small businesses are founded on risks. If the outcome of each of your decisions was always a guaranteed success, all your competitors would be making the exact same decisions, and it’d be impossible to stand out. Don’t be afraid to come up with new ideas that deserve the chance to prove themselves.

"Be ready to revise any system, scrap any method, abandon any theory, if the success of the job requires it."

There will inevitably be times when you pursue a bold idea and it fails to deliver. Such is the nature of innovation. Just make sure to move on when it’s time, rather than clinging to your precious idea and compounding the negative impacts.

"Many people are busy trying to find better ways of doing things that should not have to be done at all. There is no progress in merely finding a better way to do a useless thing."

The life of a business owner often feels like a crash course in multitasking, not unlike the amazing plate-spinning acrobats seen in this video. By focusing your efforts where they’ll have the most impact, you can usually save time and secure a better ROI.

"Businesses that grow by development and improvement do not die."

As the old saying goes, you’re either green and growing or you’re ripe and rotting. In order to keep your business healthy, you’ll need a mindset of improvement.

By applying the wise words of Henry Ford, you can put yourself on the path of innovation and progress. It’s no coincidence that the forward-thinking Ford installed assembly lines in his factories that literally never stopped moving. Your business probably won’t ever feature an assembly line, but it can certainly benefit from the idea of constantly marching toward greatness.

(Featured Image: Unknown author, CC0, via Wikimedia Commons)

Accumulated depreciation refers to the total amount of depreciation expenses related to your business. Your business likely has multiple assets that appreciate or depreciate over time. By tracking changes in the value of your assets, you can get a clear view of what your business is worth. Here are a few common questions about accumulated depreciation. 

What Are Some Examples of Depreciating Assets? 

For example, if a restaurant buys a couch for customers to sit on, it will start to depreciate in value as soon as someone sits on it. Stains from spilled food, wear from people sitting on it, and general interior design trend shifts will decrease its resale value. This is no different from the couch in your living room at home. 

Conversely, some assets may increase in value, or appreciate. The most common example of this is real estate. A business might buy a property and pay it off over a decade then significantly profit from selling the space because the land value appreciated. 

What Type of Account Is Accumulated Depreciation?

For example, if you spend $30,000 on a delivery van, you would record that amount under “fleet” in your balance sheet. After a year, the depreciation might be $2,000, meaning the true value of your fleet asset is only $28,000. 

Why Should You Track Depreciation?

Can You Control the Depreciation in Your Assets? 

How Can You Track Deprecation?

Some companies set up formulas for asset tracking. For example, they might reduce an asset’s value by 10% during the first month (because the item is no longer new) and then subtract a percent of the value each quarter. This makes researching accumulated depreciation easier, but it means it’s not always accurate. 

As a business owner, you want your accounting statements to be as accurate as possible to help you make sound financial decisions. Use a tool like Lendio's software to track your expenses and invoices to get a clear view of your company’s finances.