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Whether you call it freelancing, entrepreneurship, or hustling, there's no denying that the non-traditional work is more prevalent now than ever as more people turn side gigs into flourishing careers.

Independent contractors, who encompass everything from Uber drivers to freelance graphic designers, are taking the job market by storm. Over the first 15 years of the 2000s, 1099-MISC forms⁠—the tax forms issued to independent contractors⁠— increased by about 22%, while the number of W-2 forms⁠—tax forms issued to traditional employees⁠—decreased by 3.5%, according to George Mason University's Mercatus Center. 

Here's why today's economy is the perfect incubator for a nation of self-employed, side gig hustlers, whether we like it or not.

The Difference Between 1099 and W-2 Work

1099 and W-2 are two different forms used to report income to the IRS when filing taxes. A 1099 form is used by independent contractors, while a W-2 is used by full-time employees. However, the distinction between the two types of work is far greater than how taxes get paid.

Being a traditional W-2 employee means your taxes are taken out of your paycheck and you're provided with a list of benefits, ranging from healthcare to retirement contributions. Companies are required to pay W-2 employees a minimum wage, provide everything an employee needs to do their job, and reimburse most business expenses.

As a 1099 employee, you don't receive the same protections and benefits. You're responsible for filing your own taxes, covering business-related expenses, and obtaining the equipment and supplies needed to do your job, although these expenses can be written off on your taxes.

The Perks of the 1099 Lifestyle

If you're working as an independent contractor, your client can't dictate your work schedule or force you to come into the office or attend meetings on a full-time basis. Your job is to complete your work by the agreed-upon deadline, but how you get there is up to you. If you want to take a random Wednesday off or hire someone to help you complete your work, you can. If you need to spend a day working for a different client, you can do that as well. How you spend your time is none of their business.

As a W2 employee, your employer has a lot more leverage over you. They can tell you what hours to work, where to work, and how to complete your work, and they also have some power over what you do outside of work. For example, employers can preclude W-2 employees from doing other work on the side, running their own blogs, podcasts, and social media platforms, or even partaking in activities outside of work that make the company look bad.

Why Millennials and 1099 Work Are the Perfect Match

Millennials aren't the only generation participating in 1099 work. In fact, contract work has been around for decades in the form of farmworkers, construction workers, musicians, and more.

However, culturally speaking, younger generations are a large driving force in new labor trends. While often stereotyped as lazy and entitled, millennials are marked less by a lack of ambition and more by a shift in priorities away from superficial achievements and toward personal and collective fulfillment. According to Deloitte's 2019 Global Millennial Survey, the most common ambition amongst millennials is to see the world, and millennials as a whole are more interested in positively impacting their communities and the world than they are in having children and starting families. 

Pair this with a prevalent sense of skepticism toward business and a tendency to change jobs more frequently than previous generations, and it's easy to see why the freedom and self-direction of 1099 work might be attractive to this generation of folks born between 1981 and 1996.

Financial Crises and Technological Advancement at the Forefront of This New Economy

The technology is certainly here to support growth in the self-employment sector. Thanks to the internet, remote work is quickly becoming the norm. The ability to work for any company from anywhere in the world lends itself nicely to freelancing. Social media has given everyone the ability to create their own platform and profit from it. Sharing economy apps that allow anyone with a smartphone to partake in ridesharing, home-sharing, meal delivery, and more have also facilitated the growth of the gig economy.

There are other profound reasons that self-employment and the "gig economy" have caught on so rapidly in recent years. For one, events like September 11th and the 2008–2009 financial crisis shocked our nation, and along with impending crises like climate change and terrorism, have paved the way for a generation that feels very uncertain about the future. While the major benefit of full-time employment used to be a feeling of stability and security, no job is a sure thing in today's economy.

The Increase in 1099 Work Isn't Completely By Choice

While millennials might seem made for self-employment, not all young folks are happy participants in the gig economy. According to the Mercatus Center report, the most likely culprit for the increase in 1099 work isn't the increased availability of side gigs. Rather, side gigs have become more available because more people are demanding them⁠—often out of necessity.

The report explains that there's been a sharp decline in the job creation rate since the early 2000s, with the biggest drop taking place around the financial crisis. Pair difficulty finding traditional employment with stagnant wages, and it's not hard to understand why more folks are turning toward freelancing and side gigs to fill gaps of unemployment and underemployment. Previous decades proved that the single-earner household is no longer financially tenable for most families⁠. Perhaps what we're seeing now is that holding a single job is no longer financially tenable for most individuals.

Many industries have taken huge hits to business in the past couple of decades. In the search for bigger profit margins, firing W-2 employees and replacing them with 1099 contractors can be a huge help. Companies are no longer on the line for shelling out benefits and covering their half of payroll taxes. Businesses can also avoid paying salaries to a full staff during slow periods by using contractors and doling out work only when need it⁠—and the budget to pay for it.

1099 Work Can Lead to a Better Work-Life Balance

Because you're able to set your own rates as a contractor, 1099 workers who demand their worth often find they're able to make far more money freelancing than they ever could in traditional employment. Higher hourly rates also allow freelancers to make up for increased tax rates and having to cover their own health insurance and plan for retirement as a small business owner. Freelancers can demand higher rates because they're much cheaper for companies than a full-time employee.

Self-employed individuals also have the flexibility to pursue new opportunities as they wish, giving them full control over the direction of their careers. When it comes to personal fulfillment, the ability to set your own hours, and maybe even work remotely, is for many a priceless benefit that greatly outweighs 401(k) matching.

For folks who prefer the stability of working full-time or can't afford to surrender employer-sponsored benefits, the rise of 1099 work can be frustrating and scary. However, those with personalities and goals that align with self-employment can reap great benefits from this new economy. 

The information provided in this post does not, and is not intended to, constitute tax advice; instead, all information, content, and materials available in this post are for general informational purposes only. Readers of this post should contact their tax professional to obtain advice with respect to any particular tax matter.

Does the thought of bookkeeping fill you with uncontainable excitement? Probably not. What about money in the bank to make your business ambitions a reality? Now we're talking. 

It turns out that boring ol' bookkeeping and business capital have more in common than you might think. You need cash to grow your business, but as you well know, money doesn't grow on trees. You're going to need to secure top-notch financing to get ample capital to invest in your business. 

But before lenders start doling out the big bucks, they're going to want to make sure you're a safe, reliable applicant. They'll look at your credit score, cash flow history, financial projections, business plans, and more. And how do you keep these critical financing factors in tip-top condition? With fundamental bookkeeping habits, of course.

You can't qualify for business financing without the proper financial documentation. And even if you do have your finances neatly organized in a silver 3-ring binder, the numbers need to prove to lenders that you and your business are a worthwhile risk. Fortunately, bookkeeping not only helps document and organize your finances, but it arms you with the information necessary to improve your business's health and qualify for financing. 

Win-win.

There's no need to make bookkeeping more complicated than it needs to be. With just a few basic, routine habits, you can stay on top of your books each month with little-to-no hassle. Follow these bookkeeping best practices, and you'll be well on your way to bigger, better financing for your business.

1. Adopt Cloud Bookkeeping Software

First, it's 2019—ditch the spreadsheets and ledgers and get cloud bookkeeping software. Tech can do practically all of the tedious bookkeeping for you. Okay, not everything, but a bookkeeping platform like Sunrise can automate your invoicing, expense tracking, income categorization, and financial reports. That adds up to a lot of saved time.

Software doesn't replace the need for professional accounting guidance, but it does simplify the minutia of running a business. It'll help you get your finances in order and keep them in order. Plus, by using a cloud-based solution, you'll always have real-time financial data on your business's performance—no need to wait until end-of-week or end-of-month reconciliations.

Make sure your bookkeeping tool also has high-quality document management features. The right tool will streamline the process of managing financial documents like invoices, daily expenses, payables, receivables, and receipts. The software should also allow you to easily share your files with your accountant—no copy/paste or screenshots necessary. Less time bookkeeping means more time focusing on growing your business.

2. Track All of Your Expenses

Before you start paying, tracking, and reporting, you need to separate your personal and business expenses. While it might be convenient to just swipe one piece of plastic in your life, this practice will ultimately make tracking your expenses a nightmare.

Open a separate bank account and get a business credit card. By separating your accounts, you won't have to waste hours sifting through your expenses at the end of the month. You'll always know how much your business has spent and what the money has been used to purchase.

Now that you've separated your accounts, it's time to track all of your expenses. Business lunches, printer ink, travel expenses—everything. There are a ton of small business tax deductions you can capitalize on, and every penny counts.

3. Create Cash Flow Forecasts

This process is where bookkeeping turns from entries to insights. Yes, bookkeeping is a necessary evil for legal purposes, taxes, and audits, but it also informs and drives your business strategy.

With detailed financial records, you'll be better able to forecast your cash flow. With accurate cash flow forecasts, you'll always be prepared to make the best financial decisions for your business. These insights will help you avoid dangerous amounts of debt and leverage your existing capital to its utmost potential. Coming full circle—these informed business decisions will improve your financial health and help you qualify for financing.

4. Pay Your Taxes

Remember when we talked about separating your personal and business expenses? Yeah, tax time is when you really reap the rewards of that upfront decision.

Income tax, payroll tax, unemployment tax, excise tax, sales tax, property tax...that's a lot of taxes. Don't let the fees creep up on you come tax season.

If you've been consistent and organized with your bookkeeping, tax time will be a breeze. If you're using a solution like Sunrise, you can simply invite your accountant to access your transactions and financial reports —they’ll take care of the rest. Easy peasy.

5. Regularly Review Your Financial Records

Financial reports won't do you much good if you never use them. Make it a habit to frequently analyze your statements. Keyword: analyze. Don't just glance at them or give them a quick read—dive into the details. These are the same reports lenders will be looking at to decide if you qualify for financing. You should be looking for the same red and green flags they're trying to discover.

To some degree, you should check your financial records every day. At the end of each day, make sure the money in the bank matches the receipts. By monitoring your transactions daily, you'll be able to catch errors, fraud, and unexpected fees before it's too late.

While it's important to track day-to-day transactions, you also need to review the big picture with month-to-month statements. The profit and loss statement, balance sheet, and cash flow statement are your most important financial reports. These telling financial documents will give you quick and deep insights into your business's health. They're also the first thing lenders and investors will look at when examining your business's potential.

Make sure to block off time in advance to take care of your bookkeeping tasks. You're likely extremely busy, and many things might seem immediately more important than tracking your day-to-day finances. Don't slip into the procrastination trap—set aside time at the end of each day and month to reconcile your books.

6. Remember the Rule of GIGO

Remember: "garbage in, garbage out." GIGO. The reward of your consistent bookkeeping is equal to the quality time and thought you put in every day and month. It's not enough to just go through the motions and check bookkeeping off your to-do list each day. You need to ensure the quality and legitimacy of your entries if you ever want your reports to benefit you.

Come tax time or a surprise audit, your financials won't do you much good if you got sloppy for a month or two here or there. Saving minutes now will cost you hours later (and likely a more substantial fee from your CPA, too).

7. Consider Hiring a Professional

Numbers and entries might not be your thing, and that's okay. As an entrepreneur, you have to wear a lot of hats—fortunately, you can hand off your bookkeeping hat with little hassle.

If you know you don't have the bandwidth or the slightest desire to deal with day-to-day bookkeeping, consider hiring a professional bookkeeper. Bookkeepers can help track your transactions, reconcile your books, explain your financial reports, and answer all your number-related questions.

You can hand the entire bookkeeping process over to a professional and get back to doing what you do best—growing your business.

Excellence Is Not an Act—It's a Habit

At first, you might approach each of these bookkeeping habits as tasks. You may need to add reminders on your phone and calendar to nudge you to get the job done. Some days you may have other pressing obligations, and other days you might simply forget. That's fine and dandy—it's all part of the process.

Over time, however, diligence to these tasks will evolve from act to habit. You'll find the value in bookkeeping and make it a priority—not a burden. That's when you'll achieve true bookkeeping excellence. And that's when your bookkeeping labors will really start to pay off.

Better Books Lead to Better Financing

With your books in order, you're ready to pursue your financing ambitions with confidence. Armed with financial insights, you'll know exactly how much cash you need and how much you can afford.

At a moment's notice, you'll be ready to apply for whatever financing you need. Your awareness of your business finances will help you determine if you even need financing—and if you do, which loan makes the most sense. 

For example, you may discover your cash flow is taking a hit because your clients are dilly-dallying on their payments. If that's the case, you may want to consider accounts receivable financing instead of a short term loan. Or maybe you find that you consistently receive more sales during November, leading you to acquire a business line of credit to hire seasonal help.

Better bookkeeping practices lead to better financing—it's that simple. Once you receive that lofty sum of cash with oh-so reasonable terms, you'll realize all the tracking, reconciliations, and reports were all worth it. Get after it, entrepreneur. Your next loan is just a handful of bookkeeping habits away.

Because the international reach of the internet has impacted every business in some way, it is likely that the scope of your small business goes beyond the boundaries of your state.

You may be conducting interstate business in a myriad of ways. Perhaps you are a freelancer working for a client across the country. Maybe you own an e-commerce shop and you ship items around the United States every day. In a more traditional sense, you could be considering a second location of your brick-and-mortar store in another state. 

Even if you are a sole proprietor, you may technically run an interstate business. However, there are several factors to consider depending on the scale and goals of your company.

Defining ‘doing business.’

If you operate an online store or perform freelance services, you probably don’t have to do anything special if you ship to other states or have clients located elsewhere. Making money from people or companies in other states does not legally require you to incorporate there—that would place an extraordinarily high burden on freelancers.

However, as the connection between your business and a specific state strengthens, you will want to look into that state’s regulations to see if you need to register with the state’s agencies. For example, hiring a remote worker in another state is a much weaker connection than opening another office there, but there could be cases where you would still need to incorporate.

Regulations differ from state to state. Famously, state governments compete to attract businesses to their borders. For peace of mind, it’s always smart to check the rules for the states where you do any business. Typically, you will find relevant small business registration regulations with a state’s Department of Revenue, Secretary of State, and Department of Labor.

Situations to consider.

If you are thinking about opening a physical office, store, or restaurant in another state, you will need to register with that state. This process is called “foreign qualification.”

You may have already incorporated your business in a state that is not your home state, perhaps for tax reasons. But if you conduct most of your business from your home state, you will need to register for a foreign qualification there. Generally, it is recommended that you incorporate in your home state if you have fewer than 5 shareholders.

Even if you have an online business, you may need a foreign qualification. If you are incorporated in Nebraska but own and operate a warehouse or other shipping facility in Oregon, you probably need a foreign qualification in Oregon.

You probably need a foreign qualification f you have waged (W2) employees or pay payroll taxes in a state. Other factors may include the location of your bank accounts and where you have a physical presence. If you find yourself taking frequent face-to-face meetings in a state, you might need to file a foreign qualification as well.

Research different agencies.

States usually have several agencies involved in the operation of small businesses. Check with the Small Business Administration or local Chamber of Commerce groups for detailed, state-by-state information about what you need to do to set up your business in a specific state.

To register and incorporate your small business, you will have to get in touch with the Secretary of State. Payroll withholding and sales tax remittance can usually be set up with a state’s Department of Revenue. If you have waged employees, many states will require you to register with their Department of Labor.

You may also need to be aware of business licenses or business-specific taxes you. Many cities have agencies you have to register with, too.

A state typically wants to know 3 details: your intention to do business in the state, the nature of your business, and your contact information.   

Strength of nexus.

The concept of “strength of nexus” will be your guiding light when determining where your business should be registered. Strength of nexus describes how strong the connections of your business are to its surroundings. For example, if you open an office in a state, there is a very robust strength of nexus between your business and the state.

Again, different states have different definitions of nexus. If you have a remote employee working from his or her home, one state may simply require employment taxes. However, another state may require annual reports or even sales tax from products sold in that state.

Foreign qualification

The Secretary of State is usually in charge of overseeing foreign qualification filings. Corporations and limited liability companies (LLCs) are only considered domestic in the state where they were formed, which is why they are considered “foreign” for other states, even though they are American-operated.  

Occasionally, the office might require a certificate of good standing from the state where the business was formed. Therefore, you want to ensure that you closely follow the regulations in your business’ home state—things like paying taxes and holding the proper business licenses—before you plan to go interstate.

Without a foreign qualification, you can be fined and found liable for back taxes. Importantly, you cannot file a lawsuit or defend against lawsuits in a state without a foreign qualification.

Beyond initial fees, there are usually annual costs to keep a foreign qualification in good standing. Because of this, you want to have as few foreign qualifications as possible.

Registered agents

Some states require annual reports, and only so-called “registered agents” or “resident agents” can file these reports. A registered agent is an individual or business legally residing in the state. This entity will have to accept mail and file documents.

If you cannot be the registered agent, you want the person or company you designate to be reliable and responsible, as they will serve as the company’s contact in the state. There are companies dedicated to being registered agents, and some legal or accounting firms offer registered agent services.

Knowledge is power. Ignorance is weakness.

As an entrepreneur, it's critical to arm yourself with the knowledge necessary to make sound business decisions. Without that knowledge, you'll always be at a substantial disadvantage—as if owning and operating a small business wasn't hard enough already.

There's no better way to learn about your business than through financial reports. These reports tell a story about your business—from the past to the present and to the future. Sometimes it's a sad story of conflict and loss. Other times, it's a Cinderella story of triumph born from struggle. For your business to experience its happily-ever-after, it's critical you learn where your business currently stands and where it's headed.

We know you're busy with owning, operating, and growing your business. It's a lot—we get it. However, effectively running a business is impossible without financial reports. They're an unnegotiable part of managing a successful company.

To help preserve your precious time, we've narrowed down the reports you need to analyze. No matter if your business is big or small, whether you go solo with bookkeeping software or you have an entire accounting team, you need to know these 3 financial reports like the back of your hand. These are the reports you should be creating, reviewing, and taking action on month-to-month to keep your business moving in the right direction.

1. Profit and Loss Statement (P&L)

Ideally, the goal is for your revenue to exceed your expenses (a.k.a. a profit). However, that's not always the case, but you won't know you're incurring losses if you don't frequently generate and check this financial report. If you're profitable month-to-month, then great job. Now look for ways to optimize and grow. If you're incurring losses each month, take a step back and start looking for areas to make changes. You’ll likely be able to find areas for improvement in your cash flow statement (more on that later).

2. Balance Sheet

By comparing balance sheets from month-to-month and year-to-year, you can identify trends and make more informed financial decisions. You'll also be able to monitor the key financial ratios that lenders use to determine your company's health: liquidity and leverage.

3. Cash Flow Statement

One of the best ways to use your cash flow statement is to predict future cash flow. Data-backed estimates will help you budget and make important financial decisions. If your cash flow isn't looking so hot, it may be a sign you need to acquire temporary financing to fill the gaps. Or perhaps you need to cut some of your expenses.

Using These 3 Financial Reports

In the best-case scenario, your reports will verify that your business is operating smoothly and on a healthy growth trajectory. At worst, you'll discover significant weaknesses to act on and improve. Uncovering these vulnerabilities early on will give you time to make strategic business decisions to recoup and recover.

That's why we encourage you to generate and look over these reports every month. If you wait 3–4 months to analyze your financials, you may not be able to dig yourself out of a deep, deep hole.

If you're a small business owner with enough on your plate already, take a load off your shoulders with bookkeeping software. Software like Lendio's can automatically create and deliver these financial reports—meaning fewer spreadsheets and calculators for you. That also means less time crunching numbers and more time doing what you do best—running the business.

You're busy, so don't spend hours drowning in numbers. Stick to these fundamental reports. Armed with the financial knowledge these reports provide, you'll have the know-how and insights necessary to propel your business forward.

A

accounts payable: Money a company owes to vendors, suppliers, or lenders. 

accounts receivable: Money owed to a company. Think outstanding invoices. 

accounts receivable financing: Enables companies to borrow up to 80% of the value of their outstanding accounts receivable, giving business owners cash flow to cover expenses like payroll. 

accruals: Business expenses that have been incurred but are not on the books yet or work that has been done, but not invoiced. 

ACH payments: Payments made through the Automated Clearing House (or ACH) Network. ACH payments are made when one party gives another authorization to deposit or withdraw funds directly from a bank account—commonly used in direct deposit for payroll or automated payments for bills and loans. 

amortization: The process of spreading out a loan into a number of fixed payments over time. Your total payment stays the same each month. The percentage of principal vs. interest that makes up the payment fluctuates. 

angel investor: An individual who invests in a business at the startup stage, often in exchange for equity or convertible debt. 

annual fees: Fees that can be charged by the lender each year to cover the administrative costs of a loan. Most often seen with lines of credit or business credit cards. 

APR: Annual percentage rate. This is the annual cost of your loan. It includes the interest rate and any other costs assessed, such as origination fees.

articles of incorporation: The set of formal documents filed with a government body—usually your state— that documents the creation of a company. Think of it as the marriage or birth certificate for your business. 

asset: Something of value that you own. Appreciating assets like stocks tend to increase in value or in their ability to produce income. Depreciating assets like cars lose value over time.

asset-based lending: A loan or revolving line of credit that uses a company’s assets as collateral. This can encompass receivables along with assets like equipment, real estate, inventory, and raw materials. 

All good things must come to an end. This classic saying applies to everything from steak dinners to perfect sunsets, and it certainly has relevance to business partnerships.

There are positive scenarios for business breakups, such as a partner retiring or moving on to other opportunities in their life. On the flip side, there are also more volatile situations where personality differences, deception, or other factors that lead to the dissolution of partnerships. Unfortunately, in times like these, it can get ugly.

It’s important to remember that it's a process that has been happening since the first smelting businesses formed thousands of years ago during the Bronze Age. So if you’re in the midst of a partnership breakup and it feels overwhelmingly difficult, know that there’s a path forward and you’ll be fine.

“Selling to a partner is often one of the easier transfers to handle legally—not that partners don't have their battles and disagreements—but most buying partners want to make the transition smooth and get the selling partner out quickly and painlessly,” says attorney Mark J. Kohler. “Many times, I feel that partners are amenable and anxious to define the transaction and process so that they themselves can utilize the same method with a good conscience in the future.”

While it’s true that buyouts can be smoother than business-related transfers, it’s always advisable to do your due diligence and proceed with caution. This process starts with consulting an attorney that handles acquisitions. The attorney can help you understand the nuances of your state’s business partnership laws and form a proper strategy.

The goal at this stage is to outline the process and identify potential risks. Because make no mistake—a buyout always contains risks. And having a third-party expert involved is a proven way to mitigate them.

Here are 5 more steps to buying out a business partner:

1. Get an independent valuation

Before you can buy or sell anything, you need to know its value. You and your partners will likely each have some personal thoughts on the matter of valuation, so using a trusted firm to handle the valuation is always recommended.

To ascertain the value of your business, these third-party experts will estimate your future profits and correlate that with the projected rate of return.

2. Get on the same page

Once the firm has finished their evaluation process, you’ll have a solid foundation as you work to negotiate a buyout price that’s fair for all parties. These can be delicate conversations, so it’s helpful to have independent data available.

At the same time, remember that business valuations aren’t an exact science. There are myriad factors that are difficult to account for, yet play a role in the situation. For example, if your partner has decades of experience and plays a critical role in the business, they might ask for a higher buyout amount due to their prominent position. But you would also need to consider the decrease in valuation that could occur with the loss of their expertise, guidance, and connections.

Strive for fairness at this stage in the game because business valuation discussions can easily escalate into angry stalemates. To keep things progressing, as well as enhancing their company’s equity value, many buyers will acquiesce somewhat to the selling partner and accept a higher amount than they’d prefer.

3. Keep your options open

Both business valuations and former business partners can be unpredictable. It’s important to stay flexible throughout the process so you don’t find yourself holding the wrong basket, fully loaded with eggs.

Your attorney can help you navigate the process as it unfolds. Perhaps you’ll dissolve the partnership, rewrite the partnership agreement, or continue with the buyout. The important thing is that you react to each development strategically.

4. Organize your financing

Most buyers simply aren’t in a position to pay their partners in cash. For this reason, it’s important to check out the various debt financing options and see what works for your needs. Loans from the Small Business Administration are often thought of as some of the best for this kind of transaction.

You’ll also need to determine the structure of your financing. With a buyout over time, you’ll pay set amounts of money to your former partner over time until the purchase is complete. With an earnout, the selling partner would also be paid over time, with the added condition that they stay with the company for a transition period to help improve sustainability. And lump-sum payments are just what they sound like, with a single transaction occurring and the selling partner immediately stepping away from the business.

5. Handle the details

After you’ve settled on the best way to progress, be sure to do so carefully. Lean on your attorney whenever you have questions or encounter challenges. Your attorney will take care of drafting the agreement to release your partner’s liability. Additionally, the attorney will prepare the other necessary paperwork so you can file all the correct documentation at the local, state, and federal levels.

You’ll also need to transfer various accounts that are in your partner’s name. Each time you do this, take the time to reset the passwords on the online portal. This step isn’t done to show disrespect for your former partner but to start again with a clean slate.

As you follow these steps, you’ll help ensure your buyout is as respectful as it is uneventful. Even the most friendly of partners can get their feelings hurt in this process, so the more you can do to keep it professional and streamlined will pay dividends in the end.

If things do become hostile, try not to take it personally. Your former partner is likely going through a major upheaval in their life. This is truly a time where patience is a virtue. Rely on your attorney and other third-party experts to help insulate you whenever possible, and thoughtfully make your way through this process so you can emerge triumphant on the other side without any collateral damage.

Do you want to take your small business to the next level? If so, you need to make every financial investment into your business count. 

Successful business owners combine due diligence, a deep understanding of business processes, and keen foresight to turn a small business into a profitable one. One key financial principle that business owners must understand is ROI. 

What is ROI? 

ROI stands for return on investment. With any investment, whether it is time or money, there is going to be a financial gain, loss, or break-even point. ROI is the analysis of this financial performance in the business world.

Here’s an example: you purchase $500 in stocks today. If you were to sell those stocks tomorrow for $1,500, you would have a gain—a positive return on your investment. If you were to sell those stocks tomorrow for $100, you would have a loss.

Why Does ROI Matter? 

Having the foresight to determine if an investment will result in a positive return allows you to make financial decisions that will ultimately help you successfully grow your business. 

ROI is especially important when it comes to business financing. If you’re borrowing money, you want to make sure the growth opportunity will generate enough revenue to justify the cost of the loan. Otherwise, you could find yourself drowning in debt. 

Calculating ROI can also come in handy if you’re trying to determine which investment makes the most sense for your bottom line. Here are some examples of how you might put an injection of capital to use: 

• Replacing outdated equipment or machinery
• Redesigning your website to take your brick-and-mortar shop online 
• Hiring a marketing manager to kickstart new marketing and advertising initiatives
• Opening a second location on the opposite side of town
• Diversifying your product line and services to sell more to existing customers and attract new customers 
• Franchising your small business to expand it nationally—or even globally
• Consolidating several forms of high-interest business debt under a new loan 

The investment path you choose depends on many factors. It depends on where your business stands now and what it has to offer. It depends on the market and future trends. It depends on how far you want your business to grow. And it depends on you, your team, and your combined strengths and weaknesses.

With all of these factors in mind, you will need to decide which of the above paths is most likely to create a positive ROI. 

How to Calculate ROI 

Calculating ROI can be a bit tricky if you start overthinking it. InvestingAnswers offers a simple ROI formula that small businesses can use to determine the return on investment for most ventures.

ROI = (Net Profit ÷ Cost of Initial Investment) x 100

Here are a couple of examples of this formula in action based on a few of the small business expansion ideas mentioned earlier. Please note that these are just examples of the ROI formula in use and not typical results of the specified investments.  

Scenario #1

Your business invests in a complete redesign of your website. The total cost of investment is $15,000, which includes a custom e-commerce website design and quality photos of your entire product line. 

After the first month, your new e-commerce store generates a net profit of $3,000. This net profit is calculated after deducting monthly website hosting fees, product shipping and handling costs, and additional costs associated with your new e-commerce store.

The ROI of your website redesign, for the first month alone, is ($3,000 ÷  $15,000) x 100 = 20%. 

Scenario #2 

Your business invests in a new marketing manager. The total cost of investment is $52,000 for the first year based on the new hire's salary, benefits, and initial training. 

After the first year, new marketing initiatives generate a net profit of $120,000. This net profit is calculated after deducting advertising fees, monthly marketing software fees, and additional marketing spend.

The ROI of your marketing manager for the first year is ($120,000 ÷  $52,000) x 100 = 231%. 

Scenario #3

Your business invests in opening a second location. The total cost of investment is $225,000, which includes permits, POS equipment, inventory, payroll, and the retail space itself. 

After the first year, the net profit for your new boutique is $85,000. This net profit is calculated after deducting standard operating costs and taxes. 

The ROI of your second location for the first year is ($85,000 ÷ $225,000) x 100 = 38%. 

What is a Good ROI?

For most scenarios, any positive return is considered a good return on investment. If you want your business to have exponential growth, you will want to aim for the highest ROI possible. 

You’ll want to increase your sales without increasing your spend. You can employ several tactics alongside major investments and business expansions to increase your overall revenue. 

Focus on providing excellent customer service and remind all of your customers to review your business online. Your business rankings in search engines will steadily improve as it receives a larger quantity of positive rankings, leading to exposure among your ideal customers. Also, be sure to respond to your reviews, as that can help improve your local rankings, according to Google.  

Train all of your employees to upsell. If you can increase the average dollar amount of each sale, you will increase your business's overall revenue without having to increase marketing or advertising spend to attract new customers to your store. 

For small businesses with online stores, look for ways to improve online conversions. Place opt-in forms on every page of your website for visitors to share their email address to receive future sales promotions. Utilize A/B testing tools, like the one provided by Google Analytics, to test your product sales pages and determine which changes result in the highest conversion rates. 

Once you understand ROI, you’ll be able to make informed financial decisions for your small business that will lead to its success. After thorough research and some careful calculations, you may find that the path that seems riskiest may have the potential to generate the highest return on investment. And that will be the best scenario for taking your business to the next level. 

Understanding the concerns and challenges lenders face can help you avoid what lenders see as “red flags” and make yourself an ideal candidate for the next time you need a business loan. The age of online lending has brought a couple of new challenges. One of the biggest is loan stacking. 

What Is Loan Stacking? 

Loan stacking is the practice of taking out multiple loans from different bankers at the same time and letting the amounts “stack up.” Traditionally, if you took out a loan for $20,000, and then you received another loan for $40,000, you would use the second loan to pay off the balance of the first loan. 

Loan stacking occurs when you don’t follow that practice. As Brock Blake, Lendio’s CEO, explains, “Stacking means that you don’t pay off the other loan, just add $40,000 on top of that. So now, the customer has the $20,000 loan and a $40,000 loan. And so they’ve got $60,000 worth of loans outstanding, a larger payment, and in some cases that’s appealing to that business owner because they think more money is better. But then they get caught up in high payments.” 

The Dangers of Loan Stacking for Lenders

When a lender approves your loan, they set the amount based on what they think your business can reasonably repay. Even if the amount is less than you originally hoped for, it’s often for the best. Stacking multiple loans can come back to bite you if those payments pile up. You may find yourself behind on not just one, but multiple loans. 

From a lender’s perspective, loan stacking increases the risk that the borrower will become delinquent on their loan. According to a 2015 study conducted by credit reporting agency TransUnion, loan stacking accounted for $39 million of charge-offs, the point at which the lender deems it unreasonable to expect repayment. That number accounted for 7.8% of total charge-offs. 

In addition to borrowers inundated by payments, lenders have to look out for borrowers with malicious intent. Some borrowers will intentionally stack loans without any intention of paying them back. 

The Risks of Loan Stacking for Borrowers

We’ve covered this one already, but it’s worth repeating: stacking loans can give you a case of mo’ money, mo’ problems. You’re more likely to let payments build up, fall behind in repayment, or go delinquent on a loan—which is counterproductive to that business credit you’re trying to build.

Loan stacking may also jeopardize your ability to get financing in the future. As we’ve discussed, lenders really don’t like it when you stack loans (and with good reason). Some lenders include a clause in the lending contract that stipulates the borrower can’t stack loans. If you’ve signed a contract with a clause like this and your lender discovers you’ve stacked a loan, they may not lend to you in the future. 

While loan stacking may seem like it’s giving you more capital, it works against everything you’re trying to build in your business financing. It will affect your business credit negatively, and it may make it harder to qualify for another business loan. Barring yourself from access to future financing ultimately costs more than the benefit of a bit more cash in the short term. 

How You Can Protect Yourself

There are 2 main ways that loan stacking can occur—borrower-initiated loan stacking and lender-initiated loan stacking. You want to steer clear of both of them. 

Borrower-initiated loan stacking is the process where the borrower seeks out additional loans. This one is easy for you to avoid because all ya gotta do is... refrain from taking out new loans if you already have one (unless you pay off the first loan with the second, which is a whole different can of worms). 

But what if a new lender comes to you and offers you a new loan? Borrower beware. Some unscrupulous lenders comb public records looking for businesses that have recently taken out financing. They then try to sell those borrowers loans with poor terms, with little interest for how it’s going to affect your business credit score. 

The best way to protect yourself is to do your due diligence on any in-bound loan offer. You want to vet lenders the same way they vet you. If you have questions, talk to an expert. The same way you go to your doctor for questions about your health, you can go to your Lendio Funding Manager for questions about your financial health. They’ll help you understand the fine print, make sure you’re getting the best terms, and help you avoid anything that could hurt you down the road.