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CL King on Reasons to Build Business Credit

Here are top reasons by our experts at CL King and Associates to start building business credit in your company's name:

 

  • Protect your personal credit ratings - With corporate credit your business debts and financial obligations would report only on your company's credit reports.
  • Protect the corporate veil - By separating personal and business credit, you eliminate the risk of co-mingling funds-and this includes the "co-mingling" of credit.
  • Limit personal liability - By building a creditworthy company, creditors and lenders will be less likely to require a personal guarantee to secure financing.
  • Conserve cash flow - Many suppliers, businesses, and vendors will extend credit to your business with net 30 to 60 day terms. This allows you to conserve cash while obtaining the products and services your business needs.
  • Limit accumulating personal debt - You can obtain financing for your company without supplying a personal guarantee. Funding programs like accounts receivable financing, trade credit, and merchant cards protect you from facing a lot of personal debt.
  • Maximize financing opportunities - Many lenders, creditors, and suppliers will only extend credit to businesses that meet their corporate compliance guidelines. This includes a business credit listing and ratings with the major agencies.
  • Build a business asset - A business with established credit history and available credit is attractive to potential buyers and investors. It improves the appearance of your businesses' funding capacity and stability.
  • Limit inquiries - With business credit you stop relying on your personal credit to obtain financing, which limits the amount of inquiries being pulled on you personally.
  • Receive larger credit limits - You can obtain 10 to 100 times greater credit limits from lenders as an established creditworthy business then you can as an individual.
  • SAVE MONEY! Businesses obtain more favorable rates on lines of credit compared to an individual. For example, you may pay up to 13% interest on a $100,000 line of credit whereas a business could qualify for an interest rate of 7%. That would save you almost $40,000 in interest alone.

 

As a startup you will eventually need an influx of cash to cover an unforeseen expense so start establishing business credit in your company's name today.

Quit jeopardizing your personal credit and run the risk of closing your doors due to a lack of funding.

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The Right Corporate Structure Raises Money

Why is getting the right corporate structure so important for raising capital?

A large number of businesses fail as they are unable to raise the necessary capital to operate and grow their business.

Without sufficient capital to manage the day to day operations of a company a company is more likely to fail. Even if a company is viewed as an attractive investment for debt and equity providers it will not be able to raise the necessary debt and equity without the appropriate platform making it ready for investment.

 

There are a number of corporate structures and different investors and debt providers structure their investment and lending criteria to meet their preferred structure.

For example Sue may be looking for long term capital growth and be willing to take a lower dividend in order to achieve the capital growth. Bob on the other hand is interested in a immediate returns and is willing to accept limited capital growth. In order to attract each of these different investors the right company structure is imperative.

 

In relation to debt financing some financiers lend money with a high interest rate and are willing lend to business perceived to be of a high risk or have only been in business for a short period of time. Other financiers will have less appetite for risk but charge a lower interest rate.

Your capital requirements and the return on capital will depend upon your business objectives and how you use capital. The matching of investors with funders is a crucial part of ensuring the relationship is beneficial for both parties.

 

Without the right corporate structure meeting both parties needs can be very difficult. There are a number of options.

For example a property development group may want to bring a number of investors who are happy to share the development risk and wait two years for a return on their investment. This type of investor may also be looking for the taxation benefits not offered by other types of investments. A manufacturing company wanting to raise capital to expand its operations by acquiring a competitors business will attract a different type of investor. This investor may be looking for a quick return on their investment and by buying shares in company prior to the acquisition they would be expecting the shares to go up after the acquisition is complete.

 

Establishing the right corporate structure to raise capital is a complex. It is important to ensure the match right between investor requirements and business needs is carefully considered to ensuring prosperity and growth.

Helping steer your business to growth and prosperity

Are you a medium sized business looking to expand and grow but need access to capital to achieve your objectives.

 

To determine the most appropriate structure for your business we at CL King and Associates work with you through the following steps.

  • Where is your business today
  • Where do you want your business to be tomorrow
  • What are your short, medium and long term capital requirements
  • What is the optimum corporate structure for your business

 

We at CL King offer a range of corporate advisory services to assist your business restructure and become investor ready.

Issues With Capitalizing Your New Corporation

CL King: Once you register a corporation in your state, you must go ahead and capitalize it. This raises a host of questions regarding the best way to do it and potential risks of getting it wrong.

First things first. Any discussion of capitalization needs a disclaimer. Every state sets forth its own rules on capitalization and you should look to your state of incorporation regarding them. These rules may cover issues such as minimum cash contributions that must be made, debt to equity ratios and so on.

 

Capitalization is simply the funding of the corporate entity. This is typically done through the sale of shares. If a corporation has 100,000 shares, it might sell 20,000 of these shares to three shareholders. The question, of course, is for how much money? There is no easy answer and there are issues to consider.

 

Capitalizing a corporation is really a tax issue. There are advantages to loaning money to a corporation instead of directly capitalizing it. The primary advantage is the repayment of the loans from shareholders is tax deductible to the corporation and places the shareholders in a stronger position compared to other creditors should the corporation run into problems down the line.

 

Given the above, one might be tempted to capitalize the corporation at the minimum amount allowed by your state, often $1,000 or so, and then just have the shareholders loan the remainder of the start up money to the corporation. This, however, can lead to problems as well.

 

The first problem is inadequate capitalization is one of the biggest factors in setting aside corporate protection under the theory of alter ego. If you form a corporation and start turning multimillion dollar deals, a $1,000 capitalization is not going to make a court very happy. As a result, it is vital that you evaluate your capitalization in relation to the dollar value the corporation will be dealing with in contracts. You do not want to lose the protection against personal liability provided by the corporate entity.

 

The second problem is the IRS. Yes, the IRS is always a problem, but there is a specific reason here. The IRS does not like to see "thin" capitalization of corporate entities. Why? Well, the payments on a loan are deductible to the corporation. If those payments are reclassified as dividend payments, which the IRS will often do, the interest deduction for the corporation is disallowed. Making matters worse, the loan repayments to shareholders will be reclassified as dividend payments and additional taxes will be due from the time of the first payment on the loans. The amendment of tax returns and payments of penalties and interest will be required.

 

When you form a corporation, a careful evaluation of the capitalization requirements of the entity needs to be considered. If it is handled incorrectly, it can come back to haunt you. Unfortunately, there is no bright line regarding the amount, so getting professional help is often wise.

Tax Treatment of Funding in a Corporation

The Corporation is a legal entity most small business owners overlook. Depending on your personal circumstance it might be the most tax beneficial entity for you. In this article our experts at CL King discuss how to treat shareholders contribution in a corporation.

 

Capital contributions

 

A corporation could receive money from shareholders either in exchange of stock or as an additional price paid for existing stock. When money or property is received in exchange of stock neither gain or loss is recognized by the corporation. Moreover, the gross income of the corporation does not include shareholders contributions.

In the same way, additional money received as pro rate transfers do not increase the income of the corporation. When shareholders elect to receive additional funds with no exchange in stock, the contributions represent an additional price paid for the existing shares. The contribution increases the operating capital of the corporation.

 

Basis of capital contributions

 

The basis of property received from shareholder as capital contribution is the same as the basis of the property when it was owned by the shareholder. Adjustments are made if the property donated is a loss property.

 

Debt funding in a corporation

 

Sometimes, shareholders might choose not to contribute their money as equity but rather fund the business with debt. If debt is chosen as an instrument of funding, care has to be taken to document the agreement formerly. Like equity funding, debt funding is not considered income to the corporation.

The advantage of debt over stock is interest on debt is deductible by the corporation, while dividend payments are not.

On the shareholder side, the loan repayments are not taxable to the shareholders unless the payment exceed basis. Furthermore, dividends are taxed at a lower rate when compared to interest payments.

 

Reclassification of debt as equity

 

If a corporation is thinly capitalized, the IRS can re-categorize debt as equity. U.S. Code § 385 - Treatment of certain interests in corporations as stock or indebtedness lists several factors that may be used to determine if a debtor creditor relationship exists. Some factors by our experts at CL King to consider are:

 

  • Is the debt instrument in proper form? If you have a revolving debt account with no formal documentation, your contributions are more likely to be treated as capital contributions rather than debt.
  • Is there a reasonable rate of interest?
  • Is the debt paid on a timely basis?
  • Are debt payments dependent on earnings?
  • Is the debt treated equally with other debt in the corporation?
  • In summary, debt and equity are two ways to fund a corporation. An equity investor carries greater risks in that there is no guarantee of ever getting your investment back. As an equity investor, you are the last to get paid if the business fails. Even though debt funding carries its own risk, it is less than the risks borne by equity investors.

 

Lastly, due to the tax benefits of loans, there are sometimes more desirable but care should be taken to follow a formal process.

Advantages of Equity Investments

Equity investments do have their advantages due to the fact that there are very few personal risk taken when you sell a portion of your business to a third party. Whenever you work with a funding source, you should look very carefully to showcase your experiences in your industry as this will substantially reduce the equity that you will need to sell to an angel investor. Outside investment can aggressively and rapidly deliver growth in your business due to the fact that the investment can be deployed quickly in order to fuel the growth of your business. For the best success, enlisting the help of a highly qualified business plan writing professional is always recommended so that you can showcase all of the benefits associated with investing in your business. In some instances, your certified public accountant can handle issues as it relates to incorporating your business in the state for a business friendly state as this will be of the utmost importance to an angel investor. It should be noted that a potential funding source or an investor is going to want to see a year to year budget.

 

Raising capital is a very long process that can take anyone from three months to one year. Regular payments to an investment can be a yes or no factor for many angel investors if you are operating a high risk business. Financial modeling is an important part of your business as it relates to getting the best advantage possible in regards to your equity investment. You're always going to need to a substantial amount of due diligence as it pertains to the investors that you work with so that you can determine the advantages of your equity investment into your business. On a side note, an SBIC (or small business investment company) is generally able to provide you with both loans and equity as it relates to your business expanding, which is one of the major advantages of equity investments.

 

Most angel investors will not provide capital for real estate transactions unless they are highly promising equity investments that will generate a high return on the equity that they provide to your business. If you are a business that is already in operation, you may want to seek mezzanine financing as this is one the best methodologies for raising capital for an expanding business. One of the best advantages to this type of investment is that you will gain access to a number of skilled business people that can assist you with expanding your business.

 

In closing, there are a tremendous number of benefits for seeking equity investments into your business outside of the capital itself. You will gain a number of well versed advisers that are familiar with your industry in addition to the fact that if you need capital in the future they will be there to assist you further.

Also read: CL King Steps to Equity Investment in Early Stage and Startup Companies

The Dilemma for Managers' Investments in Venture Capital

Many factors influence the decision power of managers. These factors can be internal or external. There are vast numbers of variables influenced by these factors.
 
A company has many reasons for investing in venture capital. Corporate venture can be defined as "strategic mechanism to attract, qualify, and monetize value from assets which originate externally or are beyond a clear fit with the organization's existing focus". Investments are required for small firms to start-up their business and do new innovations.

 

Corporate venture tool is very helpful for creating economic benefits. It includes the gain of breakthrough technologies and relocating the status of business. This investment is very helpful for growth of a business as it allows the company to expand itself for entering into new market of opportunities. A company should identify that whether required investment is financially possible for it and in return would it be profitable? At time of investment, it is very important for a company to realize whether goals can be achieved by this investment program.

 

Manager's responsibility is to make decisions that are beneficial for their organization and decisions shall be based on available information at time of crisis.

Many firms who have done heavy investments at start don't necessarily end up well. There was a heavy amount of down fall between 2000 and 2001 and around 80% of decrease occurred in Corporate Venture Capital investments. The reason was that company's expectations were high for such investments. This high instability in investments reflects that it is very difficult for many companies to manage their investments in this fast-paced and high risk environment. Past experience has placed great impact at any company and sometimes they are so uncertain whether they should invest or not even if company is doing well. So these investment programs are very helpful for understanding functions used in corporate development. There are strategic reasons to start projects out of which some go successful and rest of them fails.

 

There are two main characteristics of investments done in corporate venture capital, named as objectives and degree of investment at start-up. Different companies have range of such investments and this funding proves fruitful in long run. Strategic investment means that a company is investing to promote its sales and profits. A company which involves strategic investment locates and exploits synergies between itself and a new venture.

 

In addition to a strategic objective, an organization may have financial objective. This shows that main purpose of investment is to ensure as high return as possible. There are many competitive advantages of Corporate Venture Capital division over private Venture Capital. Some of them are superior knowledge of markets or technologies, its strong balance sheets and its ability to be a patient investor.

To learn more, visit here: https://clkingassociates.wordpress.com/

 

Corporate Sustainability Strategy by CL King Experts

There is growing evidence that corporate sustainability is creating a significant competitive advantage and higher profits for organizations willing to modify their mindset and corporate culture to the realization that doing the right thing for the environment and society makes good business sense. Climate change, the global economic crisis, geopolitical instability, national security, and socially unfair trade and labor practices are all prominent issues that continue to fuel the global drive toward sustainability. Stakeholders, including customers, investors, financial institutions, and employees, communities, NGOs, regulators and the media all have growing expectations for companies to examine and address the broader impacts their businesses have on the environment and community.

 

Whether your stance is based on ideological beliefs and values or on improving bottom-line numbers it can be difficult to get internal and external buy-in for the benefits of developing and implementing a corporate sustainability strategy. Many still believe that there must be a trade-off between business profitability and environmental and social responsibility - this is false. Below are just five of the many reasons by our experts at CL King and Associates why an effective corporate sustainability strategy should be part of every organization's drive to deliver higher value to all stakeholders:

 

1) Retain Top Talent and Increase Employee Satisfaction

Well-developed and visible corporate sustainability initiatives are extremely appealing criteria for attracting and retaining the best employees. Today's workers increasingly expect more than just a safe workplace, competitive salaries and job security; the overwhelming majority of candidates prefer to be part of a company that has a positive impact on the environment and society. Human capital is critical to business success and it is relatively easy to quantify the value of attracting and retaining top talent, along with achieving high employee motivation, productivity and satisfaction.

 

2) Better Management of Business Risks

In an attempt to remain competitive in an ever-changing global marketplace, many companies are realizing the value of proactively anticipating, managing and responding to business risks. With a corporate sustainability strategy as the guide, a company can be ready for changing expectations, trends, drivers and regulations in their industry. This helps to ensure that potential risks and liabilities are accounted for along the company's entire value chain, decreasing the severity of those risks and even achieving preferred status for financing and insurance in the process. This can mean the difference between maintaining and increasing profitability or going out of business.

 

3) Product/Service Differentiation

Companies that offer environmentally and socially responsible products or services can gain an entire new class of loyal customers, thereby increasing market share and tapping new markets. People want to feel good about what they are buying, so it is no longer enough to simply deliver high-quality products and services at fair and competitive prices. To adapt to this change in customer expectations, companies must innovate to create new products and re-engineer old ones to reposition themselves as leading the way in sustainable practices. Although complete redesign will require an initial investment, the resultant savings and profits can far outweigh the costs of incremental improvements to old products and processes. The environmentally and socially responsible nature of these new products and services can differentiate companies from their competition, command higher selling prices, increase customer loyalty and market share, to produce a high return on investment.

 

4) Reduce Operating and Manufacturing Costs

Reducing energy, water and materials consumption, and decreasing emissions and waste generation contributes to lower operating and manufacturing costs, directly improving a company's bottom line. Energy and water-efficient appliances and equipment, waste reduction and recycling programs and other simple cost-reduction techniques are immediately quantifiable and can motivate the company to pursue further cost-saving practices. Furthermore, forward-thinking companies not only optimize efficiencies in their operating and manufacturing facilities but they redesign products and processes to be eco-efficient, which will lessen future costs and have a positive impact on customer and shareholder value.

 

5) Enhance Image, Reputation and Brand Recognition

A successfully implemented corporate sustainability strategy positively impacts a company's reputation and brand image by demonstrating that the company is taking responsibility for its actions and embracing change for the greater good. In fact, an essential part of a company's success is the engagement and development of strong relationships with internal and external stakeholders based on trust, respect, and cooperation. Nike's experience is a perfect example of this. Do you remember how badly tarnished the reputation of Nike became in the 1990's with accusations of the poor working conditions of their suppliers? Since then, Nike has made efforts to ensure that their own and their suppliers' operations have a positive impact on the community and environment, and have demonstrated greater accountability to their stakeholders. Their hard work has helped them regain the trust and respect of millions of customers around the world, while achieving even greater profits than before through the development, implementation and enforcement of their corporate sustainability strategy.

 

Step one of the journey toward corporate sustainability is comprehending and communicating the immense benefits of implementing an effective corporate sustainability strategy built on a foundation of enhancing business growth and profitability. Demonstrating a business case tailored to your organization's needs, issues and challenges that clearly shows the financial benefits of addressing environmental and societal impacts is essential. It is critical to understand the elements of an effective, integrated corporate sustainability strategy and the structured processes involved in order to derive the greatest value for all stakeholders.

Also read: Risking Investment Capital Offshore

Why People Need A Bond Broker To Invest Wisely?

Some investors believe that they know it all. People in this category do not see why to use a bond broker when they can simply go ahead and buy these securities themselves. The fact is that in the world of business and investing it is right to get professional financial advice. The investment adviser does not take money for free. On the contrary, what the client gets from the investment adviser is solid financial recommendations based on years of training, experience and on the job observations.

 

For people who want to earn tax free income, investing in bonds is the right step to take. However, it has to be pointed out as well that buying these at random may not do the investor much good. This is because, like every other investment option, this security has its intricacies. People need to distinguish clearly between corporate bonds and savings bonds. Investors also need to know whether to buy municipal or high grade corporate ones. Again, people need to know whether to invest in long term, intermediate or short term ones. One more factor is the issue date of bonds. Bond brokers stay up to date on new bond offerings and can help locate new bonds offered at deep discounts. Since most average investors may not know all these things, it makes a lot of sense to seek the advice of an expert.

 

Bonds are generally conservative investments. Therefore, the investor will get a small but safe tax free income. Corporate bonds may offer the investor a higher interest rate than the municipal. However, this is a risk and it may well be a trap as well. This is because the risk of default and loss of capital is much higher when people invest in corporate bonds. On the other hand, "munis" offer investors low interest rates but the advantage is that the "muni" is tax free. Therefore, people who buy "munis" get to enjoy tax savings and financial security as well.

 

Some investors may want to dabble into debt instruments on their own. However, the truth is that it is more sensible to get reliable financial advice from a broker. This expert will recommend the right bonds and also educate the bondholder on things like time value of money, the effects of inflation on long term bonds and how to save money on taxes. This is why people need to use a broker or an expert when investing in bonds.

 

If you are looking for financial services to help you manage your wealth, assets, make investments for you, contact CL King financial services.

Read also: The Right Corporate Structure Raises Money

A Bit Cautious As an Investor - Take a Look at Bonds

If you are a cautious investor, you might opt to buy some bonds as they have good profit potential and are a remarkably safe investment. It is advisable to find out about all the different options for buying bonds that you have if you want to start in the bond market.

 

Firstly you can invest in four basic kinds of bonds:-

  • Ones that the national government sells
  • Corporations offer some
  • Local and state governments
  • Overseas governments

 

Unlike with ordinary stock exchange trading you can never lose the amount of money that you put in up front although you could lose out to inflation. This is why they are so safe for any of you who like to trade at low risk or anyone just starting out in online stock market trading.

 

Here are the 4 main types:-

 

1) The U.S. Treasury department offer treasury bonds for our government. They can have any term put on them from short term 3 months to long term 30 years. Examples of these include T-Bills (Treasury Bills) and T-Notes (Treasury Notes). The backing these bonds get from the United States Government through the central banks makes them the safest investment of them all but they do usually have low interest rates. Moreover you will only have to pay tax on the amount of interest that they give you.

 

2) The public securities market sells corporate bonds. In essence a corporate bond is no more than a corporation getting rid of its debt. For this reason, they are for the medium risk investor but do normally offer higher yields for you. Of course, if the business fails, you will not get any returns.

 

3) Bonds from state and local government. These are very similar in their performance to the corporate bonds. They are more risky than government bonds as there are more challenges at the local level rather than the nation level. The big advantage with them though is that you do not have to pay any taxes on them whatsoever. Not even for the interest portion. There may be small state tax to pay sometimes though. The Municipal Bonds are a good example of this style of investing.

 

4) Foreign bonds are more difficult to get hold of. You often have to get them as a part of a mutual fund. Only consider these if you are a high risk investor. We have less control over the finances of other countries.

 

When your bond gets to its maturity date you have the option to start a new bond with the proceeds.

So, to summarize, the safest ones are the US Government long term treasury bonds and that is the place to start when you first buy a few bonds.

If you are looking for financial services to help you manage your wealth, assets, make investments for you, contact C.L. King financial services.
To learn more, please visit here: https://clkingassociates.wordpress.com/

Selling or Buying a Business? CL King Brokerage Services Can Help

When looking for brokerage services, you should always keep in mind your primary needs. Are you looking for short-term services, or are you looking to establish a long-term relationship with a brokerage firm? Will you be handling multiple transactions and deals, or is your concern for a single business? Have you already handled financial analysis, or is that still needed? It's always best to know what you need and wanting before you begin any negotiations or begin looking into any agreements. Selling or buying a business is a one-shot deal. Once it's gone, it's gone. Getting it done right the first time is really the only available option. If you have a plan, the process of selling or buying a business will go much more smoothly and be far less cumbersome. This is where expert advice and experience from CL King comes in handy.

 

Initial planning for selling your business will include several steps. You'll need market analysis and to analyze financial statements. You have to determine your business needs and goals. Knowing where you're headed is essential to making a strong plan. As part of this, you'll be conducting a business valuation. If you're not familiar with performing a valuation, a brokerage firm is perfectly capable of assisting you. Indeed, a quality brokerage firm will make every step of the process of selling or buying a business easier.

 

Once you have your initial planning in place, you'll need to search for prospective buyers. The first step is putting together a prospect list. You'll have to screen any inquiries. Part of this will be identifying qualified buyers. Validating buyer interest and creating confidentiality agreements will also be a part of this step. It'll be up to you to determine the best buyers, although your broker can certainly assist with much of the analysis and assessment.

 

Deal making may be the most exciting part, but it can also be the most frustrating, especially if everyone isn't on the same page. Arranging and conducting buyer meetings is a necessary and often very illuminating part of the selling process. You'll be expected to respond to buyer questions, which is where the initial research and preparations become tremendously helpful. You'll have to handle negotiations, which can be aided by a broker or lawyer. Of course, this is your business, and this is your deal. You'll be responsible, and what you say goes. Once the negotiations have been conducted and everything is in order, it's time to draft an agreement in principle.

 

Now the closing process begins. This is the final step, whether you happen to be selling or buying. You'll be coordinating due diligence and financing while resolving any issues that may arise. Once again, having a solid brokerage firm to support you in these steps can be a big benefit and take a lot of the pressure off your shoulders. The next part of the process is creating the purchase agreement. Then will come reviewing all of the documents, which can be very time consuming, but it's essential for your peace of mind, whether you're the buyer or the seller. After that will come the coordination of all closing activities. You can breathe a well-deserved sigh of relief once that's accomplished.

 

You might think that buying a business is a whole new ball game, but many of the steps are the same. Assessment and analysis are still needed, as well as pricing, terms, and negotiations. Lender introductions and capitalization are also necessary. While it isn't identical, you can use the above steps as a framework, and a dependable brokerage firm will be a huge help. Reliable brokerage services from CL King & Associates are available, and you can put them to work for you.

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