Since Dominos launched its famous “30-minute or less” delivery guarantee in 1984, the pizzeria has dominated the world of food delivery. A pizza restaurant’s delivery value proposition was unrivaled because:
Pizzas are easy to transport.
Pizzerias hired staff specifically for delivery.
Delivery drivers used an insulated carrier to keep the pizzas hot.
Pizza restaurants limited delivery to specific areas.
However, in recent years, customers have demanded more variety with their food delivery options. As a result, delivery service companies like Postmates, DoorDash, Uber Eats, and GrubHub have started to pop up in cities across the world.
These companies have streamlined delivery logistics, leveraged peer-to-peer networking, developed integrated delivery technology, and found ways to increase the portability of many types of food. The advancements these brands have made in food delivery have helped them become household names.
Food delivery services have lowered the barrier of entry for local restaurants to start delivering food to their surrounding areas. If you’re a restaurant owner, you may be wondering if you should partner with these meal delivery services.
What sort of profits can you expect? How much labor and internal cost will you accrue? We’re answering all of your questions below so you can decide for yourself—and prepare your staff for changes in demand.
Customer Demand for Meal Delivery Keeps Rising
When you take a step back and look at the statistics, it’s shocking how many people take advantage of services like GrubHub and DoorDash. In a survey of nearly 3,000 people by research group Zion & Zion, 40% report using a meal delivery service at least once in the past 90 days. The main demographics of people using these services are young (63% of respondents were between the ages of 18 and 29) and from lower-income brackets.
Outside of multi-restaurant meal delivery services like Uber Eats, some restaurants are starting to introduce their own delivery services. Outback Steakhouse, Chipotle, and Panera are 3 such brands that have launched internal delivery in the past 2 years, with many other restaurants following in their footsteps.
These trends mean the average restaurant owner has 3 choices:
Partner with an existing service (or multiple services) like DoorDash or GrubHub.
Hire delivery drivers and promote your own internal delivery system.
Ignore the delivery trend and continue asking customers to come to you.
Unfortunately, there is no easy answer. GrubHub works with all kinds of food styles and costs, from deliveries off the McDonald’s Dollar Menu to high-end steak dinners. It’s up to your business to decide.
Option 1: Partnering with DoorDash and Other Delivery Services
One of the main benefits of working with a multi-restaurant food delivery service is marketing. Your restaurant can get in front of new customers who might not have heard of you or would otherwise not drive past your storefront.
Customers search these platforms based on food type, location, price, ratings, and other variables that can help you land on their radar. If you meet their search criteria, you stand a good chance of landing their business.
This accessibility means you can use delivery services like DoorDash, Uber Eats, or Postmates to access new customers like never before.
However, you need to prepare for the fees that come with these partnerships. While each app has its own service fees, restaurateurs report that they lose an average of 30% of the meal costs when working with a delivery service. While larger chains can negotiate better fees because of the sheer volume of orders they bring in, small businesses should expect a hit on their profit margins.
“We put up with drivers and fees because delivery brings in a lot of new tickets and customers, and it also helps spread the word about us,” Joel Dooley, general manager at Munchiez, a sandwich shop based in Florida, tells Skift Table.
In this way, you may treat meal delivery services with the same care and expectations of a Groupon promotion. At best, you may break even, but the service provided to your customers and marketing opportunities can help brand loyalty and increase the customer lifetime value.
Option 2: Developing Your Own Delivery System
If the idea of working with an unpredictable third party and cutting out 30% of your profits for each order sounds unappealing, then you may want to consider setting up your own delivery system. This approach also comes with benefits and drawbacks.
While you won’t have to pay the fee, you will need to hire staff members to run orders across town. These positions will require an hourly wage, along with stipends for mileage if your drivers use their own cars. You may even need to invest in fleet insurance to protect your drivers in the event of an accident.
Juggling the supply and demand of your own system can become taxing. You can lose money if you hire more drivers than you need to deliver food. Alternatively, with only 1 or 2 drivers, you could create a bottleneck while waiting for your drivers to return from a delivery. Finally, with your own delivery solution, you’re responsible for all the marketing and promotions associated with your delivery.
While there can certainly be financial incentives with creating your own delivery system, the risks and investments might make it more than you want to handle.
Option 3: Staying Away from Delivery (for Now)
With the rising customer demand for food delivery options and the increasing number of restaurants offering delivery, you might feel pressure to join the food delivery trend. However, as we’ve outlined above, there are substantial risks when choosing either option. Therefore, it’s completely reasonable for restaurant owners to avoid offering food delivery at all—for now.
If you’re not sure whether you want to invest in delivery or partner with Uber Eats or another delivery provider, you may have some leeway to see how local restaurateurs and state regulators work with these companies over the new few years.
In an article for Chicago Business, Joe Cahill explained how 800 Chicago restaurant owners are pressing for new food-handling and cleanliness rules on food delivery services. In California, labor disputes are heating up as worker advocates say food delivery companies need to treat their drivers like employees, not independent contractors.
Similar problems exist across various states and cities regarding this industry and how to treat both restaurant owners and drivers fairly.
The industry of multi-restaurant delivery services could look significantly different within a few years, depending on where you live. You may want to see how regulations pan out in your area before choosing the best brand to partner with or deciding to create your own delivery system.
Make the Right Choice for Your Restaurant
Look at your restaurant’s gross margin and the estimated costs of partnering with a delivery service or hiring an internal delivery driver. How much can you afford to cut into your bottom line? How many deliveries could you afford to make before you started losing money? Are the new sales worth it?
These are just a few questions to guide your discussion with your general manager and accountant as you consider whether to start offering food delivery.
Food service might be the most volatile industry. Between operational issues, changing consumer trends, and other internal and external forces, your restaurant could fail for a mountain of reasons.
As a restaurant owner, you need to recognize these risks and strive to continuously mitigate their effect on your business.
We’ve compiled seven of the most common reasons that restaurants struggle and how restaurateurs can overcome these challenges. Use this list as a guide to measure the current and ongoing state of your restaurant and make changes, when necessary, to keep your business thriving.
1. Ballooning Menu
Is your menu as thick as a copy of Moby Dick? Do you keep adding new items to appease broader palates? If this sounds like your restaurant, it may be time to cut your menu down.
They say that if you’re good at a lot of things, you can’t be great at anything. This adage is true with restaurants. If you have several options on your menu, especially across different cuisines, it’ll be hard to stand out.
In a survey of the top 500 restaurant chains, most menus had an average of 130 items. This list includes sizes, appetizers, and drinks.
The size of your menu will depend on your restaurant, but often, you’ll find value in condensing your menu.
Look at your tickets and see which items have the lowest order rate. Test different menu sizes and see how your customers respond. You most likely will find that your menu follows the 80-20 rule: the top 20% of items make up 80% of your sales.
Fewer items mean less work for your kitchen staff and more opportunities to perfect these dishes. A smaller menu also means fewer ingredients and provisions that you’ll need to stock, which can cut down your expenses significantly.
2. Attracting New Customers
Every restaurant has its regulars. The staff loves them. They tip well. They are important to the success of your business.
However, you also need to appeal to new customers. Your business needs a steady flow of new customers to keep growing. New patrons fill the space left by lost customers and lead to increased profits.
Kaleb Harrell, cofounder of Hawkers Asian Street Fare, shared how he handed out samples and discount cards at an event. The company spent a total of $2,000. However, if it acquired even 25 new customers out of 1,000 people at the event, the company would profit more than $1,500 per customer over 2 years. One event is worth almost $40,000 to them.
Consider how you market your business and what opportunities exist for you to bring in new people.
3. Keeping Up with Your Books
Most restaurants don’t fall into the red overnight. Instead, restaurateurs continue cutting into their profits and neglecting operational problems until they are too far in debt to keep their doors open.
If you want your restaurant to thrive, keep a close eye on your finances. This practice includes closing the books nightly to see what expenses and profits you accrued and reviewing your finances monthly to account for major expenses or changes.
Be diligent with your bookkeeping, and don’t be afraid to cut excessive spending quickly.
If you don’t have a financial background, then you may want to find an accountant who specializes in restaurant management. He or she can take you on as a client and notify you of financial trends that might be killing your restaurant.
4. Keeping Up With New Restaurant Technology
The technology available to restaurant owners today is nothing short of amazing. You can measure restaurant noise levels and adjust your music automatically to improve customer satisfaction. You can use inventory management software to track and order ingredients in real-time when your stock reaches certain levels.
In short, if your restaurant has inefficiencies, there’s probably software to help, but keeping up with constantly evolving technology and selecting the right ones for your restaurant can be a challenge.
Look at your day-to-day tasks, along with the challenges that your team members face. What slows them down? Where do you experience bottlenecks? Determining the answers to these questions and the effect they have on your bottom line will help you decide whether you should pursue a technological solution.
If you can automate a clunky process or shave a few minutes off the wait times for your customers, then you can make a significant impact on your productivity and profits.
5. Training Your Staff
On-the-job training can be incredibly powerful and effective. Your new restaurant employees can learn from your more experienced staff members while applying the lessons directly as they work. However, this method shouldn’t be the only training that your staff members receive.
As a restaurant owner, you’re staking your reputation every time someone dines at your establishment. However, you can’t oversee every order, so you must trust your team. If you neglect training, your restaurant is more likely to have inconsistencies with quality, service, messaging, and more.
Strive to develop a culture of learning in your restaurant. Empower and reward senior employees for training staff. Consider setting aside time at least once per month for team training. You can do this as a whole staff or have your staff hold training during different shifts.
Review industry best practices, customer service expectations, and other ways team members can improve their work. Even if you don’t have new staff, this training can help refresh your employees and correct any issues they have.
6. Handling Difficult Employees on Staff
The restaurant business is personal. You work alongside team members all day, serving food and helping customers.
It’s not uncommon for employees and management to develop friendships. Many restaurant owners even hire significant others and family members to their staff. These relationships are often more personal than in other industries.
As a result, it can be difficult to let staff go—especially if they are someone close to you personally.
However, a toxic team member can drag the whole restaurant down. Not only will he or she provide poor service to customers, but the lack of accountability can drive your good employees away.
Review your HR manual (or develop one through the help of examples online) and create a process for reprimanding employees. This process can include disciplinary activities like warnings and write-ups to help improve the behavior of these employees.
Documenting toxic behavior will help you create a case for firing your staff members that is transparent and fair to all employees—even those with whom you have a close relationship.
7. Losing Your Vision for Your Business
When you first opened your doors, you likely had a vision for the type of restaurant you wanted to create. You probably had a certain passion that made you excited to come to work every day.
Over time, it can become easy to ignore the forest for the trees. You get so focused on small problems and challenges that you forget your overall dream. You forget why you started the restaurant in the first place.
Take some time for yourself at least once a quarter to look at your business from a high level. Are you providing the value you want to customers? Do your menu and service reflect your brand? Recalibrate and refocus to get your restaurant back on track.
Running a Restaurant Isn’t Easy
Simply put, operating a successful restaurant takes a lot of work—otherwise, everyone would do it. The seven challenges above can impact your restaurant quickly if you’re not paying attention. However, if you’re proactive and diligent with your management approach, you can mitigate these risks and increase your chances of success.
The new year changes the landscape in many US states, making some places better to do business—and others much worse. Just like in real estate, your “location, location, location” can influence your business’s chances of success or failure.
This adage is also true at the state level, where state regulations can be a significant factor in the difference between your business’s profits and losses. We took a look at which states make it the hardest to do business and which states are making it even harder in 2020.
We combined these 3 lists and averaged the rankings because their methodologies vary a great deal. Consider California, which is ranked next-to-last at No. 49 in the Small Business & Enterprise Council (SBEC) ranking because of its high corporate income taxes and expensive gasoline. On the other hand, Wallethub ranks California all the way up at No. 8 thanks to the availability of venture capital and very strong average business revenue.
These significant differences are why we’re presenting a “ranking average” that factors in all 50 state’s rankings. And when we average these rankings, here are the states that consistently finished near the bottom of the list.
10. Maine
The entire state of Maine is technically located above the southern border of Canada, making it the northernmost state in the northeast US. That’s why the state has a relatively weak infrastructure, which creates logistical challenges for small businesses. Though Maine rates respectably in terms of affordable office space and low cost of living, the state also has few available employees and a low level of education or certification among its available workers.
Maine is also the home of a curious 2017 legal ruling where the lack of an Oxford comma in statehouse legislation cost one business $5 million. A Maine dairy company was forced to pay its truck drivers $5 million because of a state law that meant to exempt overtime pay rules from truckers whose job involved “packing for shipment or distribution.”
The problem? That phrase did not separate “packing for shipment” and “distribution” with a comma, so truckers argued that it did not apply to drivers who only distributed and did not pack the cargo. The truckers won the multimillion-dollar settlement, and the law was eventually revised.
But consider that the Maine legislature allowed such a snafu, and an individual business took the financial hit for the oversight.
9. Maryland
Maryland does benefit from its proximity to Washington, DC, a goldmine for lobbying businesses or entities chasing government contracts. But that’s not what most American small businesses do.
For the rest of us, Maryland scores consistently poorly with a very high cost of living and a high cost of doing business. Rent and regulation conditions in the most highly populated areas of the state make it hard to do business in large parts of Maryland.
New small business laws in 2020 include the increased minimum wage of $11, plus a 9% raise in Maryland commercial property taxes, marking the 7th consecutive year those taxes have gone up.
8. Delaware
Big businesses love Delaware because it is a longtime LLC tax haven for limited liability companies. LLCs can incorporate in Delaware no matter the location of their actual headquarters and replace their own state corporate income taxes with Delaware’s zero corporate tax rate. An astonishing 2/3 of the Fortune 500 are incorporated in Delaware, even though the state ranks 46th in population.
Unfortunately, this practice is subsidized in part by Delaware small business taxpayers. The state has far more complicated tax regulations for its own small businesses than the bigger out-of-staters. Delaware’s exceptionally high worker’s compensation premiums and difficulty in securing small business loans also contribute to Delaware having the 2nd-lowest small business survival rate in the country.
7. New York
The Empire State is not the best place to start your business empire. It’s no secret that New York is one of the highest-taxed states in the country for both personal and business taxes. The state’s high cost of living has been a running joke for years, and currently, the state has the 5th-highest gas taxes in the nation.
But New York is also a high-risk, high-reward state. The state’s access to venture capital, high-spending clientele, and potential for national visibility is the envy of most any other place in the nation.
A slew of new minimum wage laws kicked in statewide on January 1, 2020, though these varied by region.
6. West Virginia
West Virginia has one of the lowest ratings in the country for cost of doing business. But on the flip side, financing is incredibly difficult to come by in the Mountain State, small business growth there is not traditionally good, and access to new technologies rolls in very slowly.
Small businesses can do well in West Virginia if they capitalize on the state’s powerful energy export trade. But few lucrative West Virginia small business opportunities exist outside the energy sector.
5. Connecticut
Connecticut is a high-tax state in every category across the board, but at least have the lucrative Boston and visiting New Yorker demographics for potential customer monetization. The influx of Yale students and parents doesn’t hurt either.
But there are other tough realities to doing business in the Constitution State. Connecticut has an unusually high cost of living, and a looming unfunded pension crisis in the state will likely spell higher taxes for the state in 2020 and beyond.
As of January 1, Connecticut expanded its 6.35% sales tax to include previously exempt items like laundry and dry cleaning, interior design purchases, parking fees, and safety clothing.
4. Vermont
The state of Vermont is another high-tax state where it’s difficult to get financing—and an expensive place to live and do business on top of that. But the state’s most glaring weakness may be an aging workforce and few available hires. CNBC reports the state is trying to fix this by offering up to $10,000 in relocation credits for remote, work-at-home employees who relocate to the state. It’s a clever strategy to woo larger sectors of the gig economy, but it’s too early to see if the tactic has worked.
But Green Mountain State businesses and those recent relocators face new 2020 costs with a recent property tax increase. The state’s minimum wage also increased by 18 cents on January 1, raising it to $10.96.
3. New Jersey
Tax watchdog groups consistently rank New Jersey as the worst state for business taxes, and their 2020 updates to those rankings are no different. While the Garden State has a tremendously well-educated and productive workforce, that workforce needs to be handsomely compensated for a notoriously high cost of living. That’s one of many reasons Wallethub ranks New Jersey as having the highest business costs in the country.
Garden State small business employers are still absorbing the costs of state-mandated paid sick leave and expanded family leave laws that went into effect last year. And as it will every year until 2024, the state’s minimum wage just went up by a dollar to $11.
2. Rhode Island
Rhode Island is the only state here that has the distinction of being dead last in not just 1 but 2 of the analyses we consulted. Both CNBC and Wallethub say Rhode Island is the worst US state for small businesses, thanks to one of the most aging infrastructures in the country, combined with costly office space, labor wages, and insurance.
The smallest of states also raised its minimum wage on the 1st of the year, hiking the pay rate to $11.50. Rhode Island also recently reinstated the individual mandate of the Affordable Care Act, which had been effectively eliminated by the Trump Tax Plan, and added a tax penalty for any employees who do not have a health insurance policy.
1. Hawaii
The Aloha State manages to finish with even worse results than Rhode Island’s “dead last on 2 lists” ranking by landing in the bottom 3 of all the assessments we checked. Costs of supplies are off the charts in the remote island state, skilled workers are terribly difficult to come by, and the business tax burden is about double what it is in most continental US states.
The huge advantage, though, is that you’re in Hawaii, a beautiful area where tourists crank out mountains of disposable income. But certain Hawaii small business sectors face pesky new regulations in 2020. Retailers can no longer use plastic bags, and restaurants are required to provide juice, white milk, or water as children’s beverages. Hawaii and West Virginia are the regional outliers on this ranking. Most of these states are in New England and the upper northeast region of the US, something to take into account if relocating or expanding your business to a new state.
No matter what state your business is located in, it’s always helpful to have more capital. Every state in the US has an internet connection, allowing you to apply for a loan online to put your business in the best state of mind.
You opened a business to make money, not to give things away for free. However, sometimes offering free services can bolster your business. The key to having free services work for and not against you is understanding the right way to go about it. To help you navigate these murky waters, we’re outlining some essential dos and don’ts of offering free services.
When to offer free services.
Free services: You gotta know when to hold ‘em and when to fold ‘em. Ultimately, you’ll need to review the unique costs and benefits for your business, but here are some of the best reasons to offer free services.
If it’s something that doesn’t cost you anything.
There are certain cases where offering a product or service for free comes at no additional cost to the business. This is often the case in audience-based businesses. If you have a seat that would otherwise be left empty, you’re paying the cost of that seat whether or not a customer occupies it. Theater, seminar, or web-based classes are prime examples where offering a free slot may benefit your business if it means building word of mouth. If any part of your business is “set it and forget it,” this option could be great for you.
Deciding if this applies to your business will depend on your industry. While there may be empty tables in a restaurant, allowing patrons to sit down for a free dinner comes with the costs of the food and beverage the customers would consume— not to mention the additional labor associated with accommodating them.
If you can transition them to a paid user down the road.
This strategy is a common approach to offering free services. We see it everywhere from a Disney+ trial subscription to credit cards that waive APR or an annual fee for new customers. The theory behind these introductory offers is that you can show the customer how baller your business/product is. Once the offer is over, they’ll be hooked. Think of the introductory offer as a salesperson closing the deal for you.
If you can offer a pared-down version of your paid product.
You may have been reading this article thinking, “Wait a second, Lendio offers free accounting. Where does that fit in?” Right here, and we’re telling you because transparency is an essential element in successfully offering free services. Lendio's software has multiple tiers. We’re able to offer accounting software for free to users who want a pared-down experience. Then, we offer more comprehensive products that include accounting help from professional bookkeepers for businesses that need more assistance with their bookkeeping.
Free options like this work well for new businesses—especially in the tech space. It can help you build word of mouth and grow your business. To be successful, though, you need to make sure your free product maintains your company’s standards. There’s no point in offering something free if customers are going to be disappointed with the experience.
If the benefits generally outweigh the costs.
In the end, you need to ensure the benefits of offering free services will outweigh the costs. That’s true of the reasons listed above, as well as any others you may be considering. It’s no good to offer free services if they’re going to drain your small business of money and resources. If you determine that offering something for free can benefit you, it might be worth a try!
How to offer free services.
Once you decide to offer a free product or service, the second step is execution. Much to our chagrin, customers will not give you a gold star for offering something for free. You need to execute your complimentary services well.
Set clear expectations
Expectations can make or break the offer of free services. Make sure that the details of the offer are clearly outlined—for the benefit of both you and your customer. Explain expectations at the time of the offer. Don’t feel that you need to hide anything. If they only get limited access to your online classes, let them know. If you can provide a one-time offer for free admission, that’s great as long as they know. If you can provide a free trial or discount, provide clear communication of the terms. Setting clear expectations up front can prevent people from feeling surprised and disappointed, aka saving you a headache down the line.
Keep communication professional.
If a customer is unhappy with your free services (we hate to see it, but occasional unhappiness is inevitable in love and business), you have to take it in stride. Remember: if you treat them with compassion when they’re angry, they may remember that when the cortisol dissipates, giving you the opportunity to win them over in the end.
Keep communication professional, and under no circumstances should you make them feel you’re put out over complaints about a free service. If you’re not ready to receive negative feedback on something you’ve offered for free, you’re not ready to offer something for free.
When to walk away.
In some industries, like creative fields, professionals may find themselves bombarded with asks for free services. If you find yourself on the receiving end of relentless requests for free work from the same person, that may be a sign they don’t value the work you do. Offering free services should be an opportunity to market your business. It should never be an avenue for people to take advantage of you.
It’s okay to constantly reevaluate your approach to free services. If it’s no longer working for you, change it. When customers ask why, you can clearly tell them. Again, expectations go a long way in securing and maintaining customer loyalty.
Vendor credit, loans, and other lines of credit can be essential in helping your business maintain cash flow and keep up with customer demand. Your ability to obtain financing hinges largely on what’s included in your business credit reports.
These reports tell suppliers, vendors, and lenders how responsible your business is when it comes to borrowing money and repaying it. The more often you pay on time and the less debt you carry, for example, the more favorable the odds are that you’ll qualify for financing.
When your business credit is less than perfect, improving it belongs at the top of your to-do list. There are several things you can do to clean up your small business credit reports and improve business credit scores. This guide breaks down everything you need to know to work your way toward a better business credit rating.
Small Business Credit vs. Personal Credit: What’s the Difference?
It’s important to keep in mind that personal credit and business credit aren’t the same things. Personal credit history is associated with your personal identifying information. Chiefly, that means your Social Security number.
Personal credit reports are generated by the 3 primary credit reporting agencies: Equifax, Experian, and TransUnion. Information from your personal credit reports regarding loans, credit cards, and other debts in your name is used to calculate your personal credit scores. These credit reports and scores are what lenders look at when you apply for new credit. Landlords, utility companies, and employers can also check your personal credit for screening purposes with your permission.
Small business credit is different. Your small business credit reports detail financial information related specifically to your business. Instead of using your Social Security number, business credit information is linked to your business’s Employer Identification Number or EIN. Your business credit report includes information related to financial accounts opened in your business’s name.
It’s important to note that you may use your Social Security number initially to obtain business credit. For example, if you’re applying for a business credit card, the credit card company may ask for your Social Security number, EIN, or both. Once the account is opened, your account activity would be reported to your business credit reports.
Now that you’re clear on the differences between personal and business credit, here are 7 helpful ways to polish up your small business credit.
Start with a Thorough Review of Your Credit History
Before you can address any issues with your business credit, you first need to know what those issues are. That means checking your business credit history.
There are numerous options for pulling business credit reports, both free and paid. Dun and Bradstreet, for instance, is considered the gold standard for business credit reporting. However, you can also get business credit reports through Equifax and Experian, as well as credit monitoring services such as Nav or Capital One’s Business CreditWise tool.
What’s important to note is that different business credit reports may contain different information, depending on what’s being reported by your creditors or vendors. When reviewing your reports, check closely to make sure the following types of information are accurate:
Your business name and address
The Standard Industrial Classification (SIC) code used to identify your business
Payment history
Creditor or vendor information, including account numbers, balances, and available credit
Public records, such as judgments or liens
When checking your credit reports, it’s important to make sure these items are being reported correctly. Unlike consumer credit reports, business credit reports aren’t covered by the Fair Credit Reporting Act. This means there’s no formal dispute process in place if you find an error on your business credit history. However, Dun and Bradstreet, Equifax, and Experian each have policies in place for business owners to dispute errors or inaccuracies.
You should also look for any items on your credit report that might be hurting your score, such as late payments or past due accounts. If you have any of these on your business credit, you can move on to step 2.
Get Past-Due Accounts Up-to-Date
If your credit report review reveals late or missed payments, make getting those accounts current a priority.
Reach out to each creditor or vendor that you’re behind with to discuss terms for bringing the account current. If you have multiple accounts to negotiate, consider whether you can work out a payment plan that allows you to make progress with each of them. Alternately, you might want to pay the most delinquent account in full and work out payment agreements for the rest.
Once your accounts are current, you can re-establish a positive payment history by making on-time payments going forward. While different factors influence your business credit scores, payment history ultimately carries the most weight since creditors and suppliers want to know they can count on you to pay on time.
You might be wondering if bringing late accounts current will give your business credit score an automatic boost. The short answer is no. Even though the account may no longer be past due, the negative payment history will remain on your credit report. You can, of course, reach out to your creditor to ask them for a courtesy removal of negative marks, but they’re not obligated to honor your request.
Add Relevant Information to Your Credit Report
It’s entirely possible that not all of your vendors or creditors report your account history to the business credit bureaus. Or they might report your account to one business credit agency but not the others.
Making sure that you’re getting proper credit for a pattern of responsible credit use is having all of your accounts listed on your credit history. With Dun and Bradstreet, for instance, you can report any open tradelines even if your vendors don’t report them, which could help with improving your credit history.
It’s also possible to help your business credit using bills related to expenses other than debt. A reporting service like eCredable, for instance, allows you to submit account history for things like utilities or cell phone services. This information is then transferred to the credit bureaus.
It’s important to note that services like eCredable may report to smaller credit bureaus, rather than larger companies like Dun and Bradstreet or Equifax. But it can still be a helpful way to improve your small business credit using your payment activity for bills you’d already pay anyway.
Work on Reducing Credit Utilization
Getting your payments in on time is the most effective way to clean up small business credit. Second to that, however, is minimizing the amount of revolving debt you’re carrying on credit cards or revolving credit lines.
Reducing some of what you owe could improve your credit utilization ratio, which in turn can help your credit score. Make a list of each revolving debt owed, including both the current balance and the total credit limit. Then, divide the balance by the credit limit for each one to determine each debt’s credit utilization.
For example, if you have a small business credit card with a $10,000 limit and you owe $5,000 on it, your credit utilization is 50%. Credit experts typically recommend that for the best credit score results, you keep your credit card utilization at 30% or less.
Aside from reducing balances on credit cards or lines of credit, there are 2 other strategies you can try to improve credit utilization. The first is to call your credit card companies or log in to your online account and request a higher credit limit. The second is to open an entirely new credit card account.
Either option could increase your total available credit. Assuming that your balances remain the same, this would help your credit utilization ratio. For example, say that you increased the limit on your card from $10,000 to $15,000 but kept the same $5,000 balance. Your new utilization ratio would be a more favorable 33%.
The key is not expanding your debt when expanding your credit limit. Doing so would only be counterproductive to your business credit score and potentially add strain to your business cash flow when it’s time to repay it. Something else to keep in mind is that applying for a new business credit card could ding your personal credit rating slightly if you apply using your Social Security number. Each new inquiry for credit can trim a few points off your personal credit score.
Consider Consolidating Business Debt
If you have business debts spread across multiple credit cards, loans, or lines of credit, consolidating them could make managing the balance easier while also potentially yielding positive credit results.
When you consolidate business debt, you’re getting a single loan to pay off your existing balances. You then make payments to that new loan going forward.
This move can do 2 things for you. First, it can make your debt more manageable. When you have just a single payment to make each month, you reduce the odds of forgetting to make the payment and incurring negative payment history on your credit report. That alone could help your score if you’re able to establish a lengthy track of paying on time.
The other benefit of consolidating business debts into a single loan is the potential to make your debt less expensive. If the interest rate on a consolidation loan is less than the average combined rate you were paying on your debts, that can translate to savings that you could reinvest elsewhere in your business.
If you’re considering consolidating business debt, pay attention to the terms different lenders offer. Compare the interest rates, fees, minimum and maximum borrowing limits, funding speed, and the minimum requirements for approval. Ideally, you should be looking for a loan that represents the best combination of favorable terms with a payment that’s realistic for your business cash flow.
Separate Personal and Business Spending
When you have a sole proprietorship or a small business with just a few employees, it may be tempting to use business and personal credit interchangeably, but this can be a mistake. Mingling expenses and debts can result in a negative impact on both your business and personal credit histories if you miss payments or max out credit cards.
If you use credit cards to fund your business, stick with business credit cards for those expenses. Avoid charging personal expenses to business cards or business expenses to personal cards. This practice can simplify things when it’s time to separate deductible business expenses for tax reporting purposes, and it can keep your personal credit activity from impacting your business credit history—and vice versa.
Just keep in mind that separating business and personal debts doesn’t necessarily separate your liability. If you open a business credit card or take out a business loan that requires a personal guarantee, you can be held personally responsible for the debt if your business defaults on the payments. A defaulted credit card or loan account could then be reported to your personal credit history.
Monitor Your Business Credit Regularly
The last tip for cleaning up business credit is simple: keep an eye on your credit history.
When you’re continuously monitoring your credit, problems like errors or potentially fraudulent accounts are less likely to hurt your score since you can address them before any real damage is done.
The easiest way to monitor business credit may be using a free service. Remember to read the fine print to understand what type of services you’re receiving and how your business and personal information is being accessed before entering into an agreement for free or paid credit monitoring.
Why Your Small Business Credit Matters
One of the most important reasons to take care of your business credit is financing.
In an ideal world, you may never need a loan or credit card—your business finances are sustained entirely by your cash flow. But that’s not always realistic.
If you’re planning to expand your business or purchase an expensive piece of equipment, for instance, you may not have the cash on hand to cover those costs. Or, if you operate a seasonal business, your cash flow may experience ebbs and peaks throughout the year.
In those scenarios, financing can help you maintain business as usual and continue pursuing growth opportunities. While your credit isn’t the only thing lenders consider when applying for a loan, line of credit, or business credit card, it is something that comes under scrutiny.
If you have poor business credit, that could limit your financing options. For instance, you may have to use short-term financing methods, such as a merchant cash advance or invoice factoring, to meet capital needs. While those options are convenient, they can also be more expensive than other types of financing, such as an SBA loan or a term loan.
Your business credit can also impact other credit scenarios with your suppliers. If you have a good credit score and you’ve always made reliable payments on vendor tradelines, then you may be able to renegotiate better credit terms. On the other hand, a poor credit history could make vendors reluctant to extend credit to you at all. That could make it difficult to get the supplies or materials you need, which in turn makes serving your customers more challenging.
Building Business Credit History from Scratch
Having limited or no business credit history is a situation you might be in if you have a newer business. In that case, some of the tips included here may not be as effective for helping to clean up your credit.
You can, however, take other approaches to create a positive business credit history. Here are some of the simplest ways to get started with building credit for your business:
Apply for an EIN if you haven’t already
Register for a DUNS number with Dun and Bradstreet, which is used to establish your business credit profile
Open a small business credit card
Automate your business’s monthly bill payments
Apply for vendor credit
Consider a small business loan
One last tip to know about business credit—your information is available to the public. Anyone can look up your business credit file.
That’s yet another motivator to work on cleaning up any past credit mistakes, since potential customers, vendors, or business partners may take a peek at your credit history. The more effort you put into improving business credit, the bigger your potential return when it comes to your bottom line.
The word "audit" elicits fear, not unlike that of the Salem witch trials. Although punishments are less brutal (thank goodness), the government isn't afraid to set fire to your business. If the IRS decides to audit your company, your financials need to be in tip-top condition to avoid hefty penalties.
Audits aren't just about investigating your integrity—even honest small business owners can fail. These financial investigations care little about ignorance and lots about meticulous records.
But fear not! There are simple steps you can take now to guarantee your small business passes with flying colors. Although an audit is very unlikely (about a 0.5% chance), it's best to be prepared for the worst.
By taking these 6 steps now, you'll be ready if the IRS knocks on your business's door.
1. Keep Detailed Financial Records
Occasionally, the IRS audits businesses randomly. But more often than not, the IRS decides to audit businesses with suspicious tax returns. To make sure you're honest and can prove it, keep detailed records of all your income, expenses, losses, and deductions.
The law requires you to keep these records for up to 3 years, but most tax professionals advise you to keep it for at least 7.
So, if the IRS has questions, you'll have easy-to-access answers.
While you're at it, make sure to separate your personal expenses from your business expenses. Keep a separate bank account and credit card for your business. This practice will help you identify the appropriate transactions without any confusion.
2. Create Digital Copies of Your Receipts
If you're using cloud bookkeeping software as we’ve suggested, uploading and organizing your receipts is simple. If you claimed deductions, you're going to need itemized receipts to prove your purchase. No expense is too small—make it a habit to create a digital copy of every business receipt.
3. Lean on Your Accountant and Bookkeeper
Get in touch with the accountant or tax professional who performed your tax return. They should help compile the appropriate documents. Also, make sure your bookkeeper is present, too. They'll be able to speak to the bookkeeping processes and help accelerate the audit.
Don't have an accountant or bookkeeper? Consider hiring one. Keeping track of your financial records is hard work—even if you're never audited, they'll be well worth the price. And if the IRS does decide to audit you, you'll be forever grateful you have help to lean on.
4. Be Transparent About Your Contractors
More small businesses are saving money by hiring freelance contractors instead of full-time employees. This approach saves the company from paying for benefits, paid-time-off, and other employee perks. But high expenses on multiple independent contractors trigger the IRS.
That doesn't mean you shouldn't use freelancers—it just means you need to make sure they qualify as independent contractors and not employees. The term you give them isn't as important as the 3 factors the IRS considers: Behavioral Control, Financial Control, and Relationship of the Parties. Review the IRS's guidelines to avoid misclassifying and receiving hefty penalties.
If you pay any contractor more than $600, you need to file a 1099 with the IRS. Make sure every contractor sends you a signed W-9 before you pay them.
5. Stay Up-to-Date on Regulations
Laws change, state and local taxes vary, and auditing rigor fluctuates. But the IRS won't let you use that as an excuse. It's your duty to stay current on all regulations and taxes. Stay compliant by verifying your tax settings are always up-to-date on the software you're using.
6. Hit the Deadlines
Not too late, not too early—just right. File your tax return too early, and you'll give the IRS plenty of time to review it meticulously. Even if you're 100% honest, it's best not to give the IRS extra time to dig for errors.
It's more important, though, to avoid late filings. If you fail to file on time (or fail to file at all), the eye of the IRS will find you. Imagine Sauron’s eye finding Frodo whenever he puts on the One Ring—it’s just like that. Make sure to meet all of your important deadlines—not just the yearly tax return.
An IRS Audit Isn't the End of the World
Usually. While an audit can be a major pain in the backside, it's not an indictment. It's an investigation.
By following these 6 steps, you can avoid IRS suspicion and stay on your merry way. If the IRS does audit your business, whether at random or due to suspicious behavior, you'll be ready to survive unscathed. Don't wait for the unwelcome letter from the IRS to land in your mailbox—start audit-proofing your business today.
If you’re a veteran and a business owner, you’ve likely looked into a veteran-owned business certification in the past. You’ve also probably found the whole process confusing. There are several ways to get certified, and considering the substantial time commitment, it may not seem worth it to go through the process.
However, becoming a certified veteran-owned company can help you win more business from both government agencies and corporations. The certification can also be used as a marketing tool to help you reach potential customers who want to support veterans.
Read on for some tips on how to get certified, as well as a breakdown of the different types of certification available to veteran-owned businesses.
Why should I register?
The primary reason to register your business as veteran-owned is to win more business. Specifically, both government agencies and many large corporations set aside a certain amount of business each year for veteran-owned businesses (as well aswomen and minority-owned firms).
The certification process is pretty time consuming but necessary to compete for contracts for government agencies. But if your small business focuses on selling to government agencies, it’s worth the time and effort.
Corporations will also prioritize giving business to veteran-owned companies. For example, nearly 15% of Fortune 1000 companies have set goals to give business to veteran-owned businesses. The process of registering as a veteran-owned supplier for corporations tends to be less time consuming than the process for government agencies.
Additionally, many businesses and consumers like to prioritize purchasing from veteran-owned businesses, so getting your business listed on more consumer-facing sites likebuyveteran.com can help you reach a larger group of potential customers. The process of getting listed is relatively simple compared to some of the other certification options.
How do I qualify for a veteran-owned business certification?
To be eligible for most veteran-owned business certifications, your business must meet the following requirements:
More than the majority (51%) must be owned by a veteran.
The veteran owner must have been honorably discharged from service.
The veteran owner must be involved in management and daily business operations.
If you’re looking to qualify for the Service-Disabled Veteran-Owned Small Business (SDVOSB), you must meet the above criteria. In addition, the veteran business owner will need to prove a service-connected disability (which should be included in your discharge paperwork).
What are the different ways to get certified?
There are a few different levels of certification.
Federal contracts
To compete for national government agency contracts, you will need to get either veteran-owned small business (VOSB) certified, or SDVOSB certified via theVets First Verification Program. The verification process includes submitting business ownership-related paperwork, your honorable discharge papers, and a federal review.
Private contracts
If you’re looking to be included on national registers of veteran-owned businesses to attract work from other private businesses, you simply need to register with theNational Veteran Owned Business Association or the National Veteran Business Development Councilas a Certified Veteran’s Business Enterprise (VBE).
State contracts
You can also apply for state-level certifications, which may be necessary if you’re looking to work with state agencies. Some states offer their own veteran-owned business certifications, while others use third-party certifiers like the National Veteran Business Development Council (NVBDC) or the U.S. Department of Veterans Affairs.
As mentioned above, you should also consider listing your business on websites likebuyveteran.com.
Beyond specific veteran business owner programs, you are also eligible for broader contracting assistance programs with the federal government as a veteran business owner. TheSBA website provides the full list of programs you may also qualify for.
Are there other resources for veteran-owned businesses?
Sometimes it can be helpful to connect with other veteran business owners, whether for advice while going through the certification process or just general mentoring and networking. The SBA runsoutreach centers across the country where you can get in touch with other local business owners who served in the armed forces.
SCORE, a non-profit organization that provides resources to help entrepreneurs grow their businesses, has also pulled together educational articles for veterans.
Lendio sometimes receives compensation for credit card offers. This compensation may impact how products appear on this site (including, for example, the order in which they appear.) Lendio does not include all card companies or all card offers available in the marketplace. This editorial is from the viewpoint of Lendio, and not endorsed by any 3rd party. The information is accurate at the time of publication.
*All information included in this article was current on its publication date (October 25, 2019) and is subject to change.
American Express recently announced the arrival of their newest business credit card, the Blue Business Cash Card. It’s the cash equivalent of the Blue Business Plus Credit Card, also by American Express. The difference is that the Blue Business Plus Credit Card earns membership points instead of cash back.
The Blue Business Cash Card was unveiled to replace the SimplyCash Plus Business Credit Card. There is little overlap in card specifications between the two cards, but there are quite a few differences. The biggest differences are the way earnings are structured and the interest rate. Most of the smaller details are identical between the two. Just like the SimplyCash Plus Card, the Blue Business Cash Card doesn’t have a welcome bonus, but it comes with no annual fee and expanded buying power. Some people may miss what the SimplyCash Business Credit Card was, but understanding what the Blue Business Cash Card is might win you over.
Cash Back Rewards
What it was: The SimplyCash Card received 5% cash back on up to $50,000 of combined purchases for wireless telephone services purchased from US service providers and purchases directly from US office supply stores. The first $50,000 spent on a select category of your choice earned 3% cash back, and all other purchases earned 1% cash back.
What it is: American Express opted to eliminate categorical earning on The Blue Business Cash Card and offer 2% cash back on up to $50,000 of spending on all purchases. After you reach the $50,000 cap, all earning is 1%. Like the SimplyCash Credit Card, cash back earned is automatically credited to your statement.
The change in how cash back is earned is the most noticeable difference between the two cards. The switch will be disappointing for businesses that spend a high amount on wireless telephone services and their selected category. It appears that the shift to offer 2% on all purchases is a feature geared toward the masses, being intended for businesses that spend in a variety of categories.
Interest Rate
What it was: SimplyCash Plus offered an introductory APR of 0% for the first 15 months. After the introductory period, the variable APR was between 14.49% and 21.49% based on creditworthiness.
What it is: The Blue Business Cash Card offers an introductory APR of 0% for the first 12 months, with a variable APR of 13.24%-19.24%, based on creditworthiness.
The introduction period of 0% APR is shorter for the new card. Additionally, the minimum APR rate is slightly higher. However, a very small percentage of people are deemed worthy of the minimum rate on a credit card. So even though the minimum is slightly higher for the newer card, it won’t impact a vast majority of cardholders.
Beneficial for Most Small Businesses
The structure of earnings and the interest rate are the biggest differences between the cards. Most of the smaller details are identical between the two. Just like the SimplyCash Plus Card, the Blue Business Cash Card doesn’t have a welcome bonus, but it comes with no annual fee and expanded buying power. The retiring of the SimplyCash Card will be disappointing for business owners that spent a lot on wireless telephone services and office supplies, but the Blue Business Cash Card gives more consistent earning by offering 2% on every purchase, every time.
The American Express Blue Business Cash Card isn’t an ideal card for large businesses that easily surpass the $50,000 spending cap. This card’s benefits are optimal if your business spends close to $50,000 annually. When you spend $50,000, you will receive $1000 cash back to reinvest into your business. This card is best suited for small businesses with diverse spending that want consistent cash back with no annual fee.
Lendio sometimes receives compensation for credit card offers. This compensation may impact how products appear on this site (including, for example, the order in which they appear.) Lendio does not include all card companies or all card offers available in the marketplace. This editorial is from the viewpoint of Lendio, and not endorsed by any 3rd party. The information is accurate at the time of publication.
Social media can be a game-changer for small businesses—if you know how to use it. This guide covers everything from choosing the right platforms to creating engaging content and growing your audience. With actionable tips and proven strategies, you’ll learn how to turn likes and follows into real business results.
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Digital marketing doesn’t have to be overwhelming. This guide simplifies the essentials, from building an online presence to leveraging social media, email, and SEO. Packed with practical tips and step-by-step strategies, it’s designed to help small businesses succeed in the digital world without a big budget or a full marketing team.
Let’s face it. There’s a lot of bad marketing advice out there. Or great advice that’s far too in-depth for a small business owner who isn’t looking to start a full-time career in marketing. We created this guide to cut through the clutter and provide you with principles, direction and the applicable step-by-step how-tos to get the job done.
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Master the art of cash flow management with our comprehensive guide. Learn strategies to optimize your cash flow, forecast revenue and expenses, and keep your business financially stable. Take control of your finances and achieve long-term success.
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Navigate the complex world of taxes with our Tax Preparation Guide. From understanding tax obligations to maximizing deductions and filing quarterly taxes, we’ll help you stay compliant and minimize your tax burden. Unlock the secrets of tax success for your business.
Stay on top of your business finances with our Bookkeeping Guide. Learn the art of tracking income and expenses, maintaining financial records, and keeping your books in order. Unlock financial success with our expert tips.
Need help securing funding for your business? Our business loans guide simplifies the financing process, explains key terms, and walks you through your loan options.
