2e:["$","$L2f",null,{"category":"$30","relatedArticles":[{"id":"cG9zdDoxMjcxNjc=","databaseId":127167,"postId":127167,"author":{"node":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/04483497dbd73f712b504e401c9c7d22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":776,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxMQ==","children":{"nodes":[{"name":"Business Insurance","slug":"business-insurance","__typename":"Category"},{"name":"Business Structure","slug":"business-structure","__typename":"Category"},{"name":"Employee Benefits","slug":"employee-benefits","__typename":"Category"},{"name":"Other","slug":"other-small-business","__typename":"Category"},{"name":"Raising Capital","slug":"raising-capital","__typename":"Category"},{"name":"Regulations","slug":"regulations","__typename":"Category"},{"name":"Taxes","slug":"small-business-taxes","__typename":"Category"}],"__typename":"CategoryToCategoryConnection"},"databaseId":11,"categoryId":11,"link":"https://smartasset.com/small-business/articles","name":"Small Business","postCount":{"pageInfo":{"offsetPagination":{"total":13,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"small-business","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$31","date":"2020-11-04T16:48:03","excerpt":"

Financing the purchase of essential equipment lets businesses preserve cash for working capital, hiring staff, expanding marketing efforts or other purposes. Equipment financing can be done with term loans, SBA-backed loans, lines of credit and credit cards. Equipment loans are …

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Many sorts of businesses use financing to acquire a variety of equipment types. Construction companies finance the purchase of bulldozers and cranes, restaurants finance refrigerators and ovens, fitness centers finance workout machines and computers to run their offices, to name a few.

","

Loans may be any amount up to the value of the equipment, with 100% loan-to-value financing, although 20% down payments could be required. Interest rates range from under 5% to more than 30%, with repayment terms extending 10 years or more, up to the useful life of the equipment. Approval for an equipment financing request often depends on the business credit score, size of the down payment and the existence of a business plan documenting cash flow projections adequate to repay the borrowed sum

","

Types of Equipment Financing

","

Businesses obtain equipment financing from a number of sources, including traditional banks large and small, online lenders, SBA-affiliated lenders and credit cards.

","

Term loans. Local and national banks and online lenders make equipment loans of one to 10 years in length for up to 100% of the equipment value, at interest rates ranging from 4% to 25%. Banks favor loans to established businesses with good credit scores and well-documented repayment plans. Online lenders have more flexible guidelines but also may charge higher rates and fees.

","

Small Business Administration 504 loans. These government-guaranteed loans are made by nonprofit Certified Development Company (CDC) lenders certified by the SBA. Known as 504 loans, they can only be for up to 40% of the cost of acquiring fixed assets, and require 10% down by the borrower, with a private lender providing the remaining 40%.

","

Lines of credit. Revolving lines of credit arranged through banks or online lenders can be set up in advance and used to purchase equipment as needed. Borrowers only pay for funds they have actually borrowed through the line of credit, and monthly payments may vary with changes in the balance owed. Lines of credit usually don’t require collateral or down payments but have higher interest rates than loans.

","

Credit cards. Business credit cards are easy to get as long as a business has a good credit score and some operating history. The application process is simple and funds are available immediately upon approval. Some other loans may take days or weeks before funding. However, the amount that can be tapped with a credit card is limited and rates and fees are higher than alternatives.

","

Equipment Leasing

","$41","

The downside of leasing is that it ultimately can cost more than buying. While monthly lease payments could be lower than loan payments, the total of lease payments may be more than the amount of all the loan payments. Also, while there is no down payment, the business won’t own the equipment at the end of the lease.

","

The Bottom Line

","$42","

Tips for Small Businesses

","$43","

Photo credit: ©iStock.com/Weerasaksaeku, ©iStock.com/zaemiel, ©iStock.com/ewg3D

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When starting a business, choosing the right structure can significantly impact your control and management of the business. A limited liability company (LLC) offers personal liability protection and flexibility in management for its owners. A limited partnership (LP), by contrast, features general partners who manage the business and face personal liability, and limited partners who […]

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","

A financial advisor can help you choose a business structure. Find an advisor today.

","

LLC vs. LP: What Are They?

","

An LLC is a business structure that combines elements of both corporations and partnerships. Owners of an LLC, known as members, are protected from personal liability for business debts and claims, meaning their personal assets are generally not at risk. LLCs offer flexibility in management and taxation, allowing members to choose between being taxed as a corporation or a pass-through entity.

","

An LP, on the other hand, includes both general partners and limited partners. General partners oversee the business operations and bear personal liability for its debts. Limited partners invest capital and receive a share of the profits without being involved in the business’s daily management. LPs are particularly common in fields like real estate and investment funds, where passive investment is prevalent.

","

LLC vs. LP: How Are They Different?

","

","

Areas where LLCs and LPs diverge include legal liability, tax implications, management and control, fundraising and investment, as well as operational continuity. Let’s take a closer look at each to help you choose the structure that best aligns with your goals and operational needs.

","

Legal Liability

","

The structure of a business can significantly affect the owner’s legal liability. An LLC typically offers its owners protection from personal liability for business debts and claims, meaning personal assets are generally not at risk. In contrast, the general partners of an LP are personally liable for the business, while limited partners enjoy limited liability akin to that of LLC members.

","

Tax Implications

","

Business structure also dictates how a business is taxed. LLCs offer flexibility as they can be taxed as a sole proprietorship, partnership or corporation. This allows owners to choose the most advantageous tax treatment. LPs, on the other hand, are typically taxed as partnerships, meaning profits and losses pass through to the partners’ personal tax returns.

","

Management and Control

","

The management structure of a business is heavily influenced by its legal form. LLCs often provide a more flexible management structure, allowing all members to participate in management or appoint managers. LPs have a more rigid structure, with management duties usually vested in the general partners, while limited partners remain passive investors.

","

Fundraising and Investment

","

Raising capital can also be affected by business structure. LLCs may find it easier to attract investors due to their flexible profit distribution and management options. However, LPs might appeal to investors seeking a more passive role, as limited partners are not involved in day-to-day operations but still benefit from profits.

","

Operational Continuity

","

The continuity of a business can depend on its structure. LLCs generally offer continuity of life, meaning the business can continue operating despite changes in ownership. LPs may face dissolution if a general partner leaves, unless provisions are made otherwise. This stability can influence long-term planning and investment decisions.

","

When to Choose an LLC

","

","

An LLC may be ideal for small to medium-sized businesses that seek liability protection for all owners and flexibility in management and taxation. It is particularly suitable for businesses where all members want an active role in management and decision-making, such as professional services firms, retail businesses, and tech startups.

","

When to Choose an LP

","

An LP may be best suited for businesses that require significant capital investment and where investors prefer a passive role. It is often used in real estate, film production and other industries where the distinction between managing and investing partners is beneficial. LPs are advantageous when there is a need to attract passive investors without granting them control over business operations.

","

Bottom Line

","

Establishing a business as an LLC or an LP hinges on the specific needs and goals of your business. LLCs provide comprehensive liability protection and managerial flexibility, making them ideal for entrepreneurs who want an active role in their business operations. Conversely, LPs can be well-suited for ventures that require significant capital from passive investors, offering a clear division of management and investment responsibilities.

","

Tax Tips for Businesses

","$56","

Photo credit: ©iStock.com/maroke, ©iStock.com/Zhanna Hapanovich, ©iStock.com/FreshSplash

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The term “entrepreneur” is essentially synonymous with being a business owner. However, a serial entrepreneur takes things to the next level, as they often start many businesses in a row, regardless of if they’re successful or not. Some highly successful businesspeople are serial entrepreneurs, like Elon Musk. Startups organized by serial entrepreneurs are also generally regarded as attractive opportunities by knowledgeable venture investors.

","

Do you have questions about the finances it takes to start a business? Speak with a financial advisor today.

","

What Is a Serial Entrepreneur?

","

It’s not uncommon for people to start businesses, experience failure and then try again. A serial entrepreneur is generally seen as a different sort, though, as they often have a track record of starting multiple successful enterprises.

","

Serial entrepreneurs start several businesses one after another rather than beginning one venture and staying focused on it for many years, like a more typical entrepreneur. They may also sell their businesses after they reach a certain level of maturity. They may retain ownership while delegating day-to-day managerial responsibilities to other people. Or, if the business is underperforming, they may close it down and move on to the next idea.

","

There is no standard number of businesses that someone has to start to be considered a serial entrepreneur, but three may be a minimum. Nor do all the businesses have to succeed or produce profits. However, most people regarded as serial entrepreneurs have at least a couple of significant and enduring successes to their credit.

","

Pros and Cons of Being a Serial Entrepreneur

","

While each startup has unique characteristics, the process of beginning a new business does have some steps that are common to most if not all entrepreneurial ventures. Serial entrepreneurs learn from experience, sometimes the hard way by making mistakes, how to get an idea for a business in motion and off the ground. Along with developing skills, they acquire contacts among investors, talented employees and others who can help them with the next enterprise.

","

Venture capital investors have expressed a preference for backing companies founded by serial entrepreneurs because of the value the experienced startup leaders bring. This preference isn’t only for serial entrepreneurs whose past startups have all been successes. Failure can be a good teacher, according to this viewpoint, and past failure can pave the way to future success.

","

The practice of serial entrepreneurship can come with some limitations and risks as well as benefits. For one thing, a serial entrepreneur who builds and sells a startup that later achieves great success can miss out on the chance to acquire great wealth by cashing out too soon.

","

Another risk is that soon after starting a business a serial entrepreneur will be distracted by an idea for a new startup. That may lead the entrepreneur to fail to pay enough attention to the first business so that it flounders and is unsuccessful.

","

Examples of Serial Entrepreneurs

","

Many high-profile entrepreneurs have come to attention because of their long-term association with a single startup. Microsoft co-founder Bill Gates, who is not thought of as a serial entrepreneur, is an example of one of these. However, serial entrepreneurs have a special way of gaining public attention because of their repeated, sometimes spectacular, successes in a variety of fields.

","

One of the best-known serial entrepreneurs is Richard Branson, who has begun hundreds of ventures in fields from airlines to soft drinks, all under the Virgin label of his first company, a mail-order record firm. Many of Branson’s new companies have been folded after failing to achieve traction. But Branson’s multiple wins in such diverse fields is one matched by few other serial entrepreneurs.

","

Oprah Winfrey is another serial entrepreneur who parlayed an early success into the foundation of a diverse empire, this one focused on media. Winfrey has started prominent players in television production, cable television and magazine publishing.

","

A more recent arrival to the scene, Elon Musk, began as a web software entrepreneur, moved to online financial services and has since been upending industries from tunnel construction to space transport. However, he joined Tesla, the electric car company that may be his most prominent venture, after it was founded.

","

Bottom Line

","

Serial entrepreneurs go from one idea for a new business to the next, starting companies and then selling, closing or delegating them to others to manage. While their track record may not be one of perfect repeated success, their hard-won experience and demonstrated diligence makes serial entrepreneurs attractive to some new venture investors.

","

Tips for Entrepreneurs

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","$66","

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The franchise tax is a levy imposed by certain states on businesses and corporations in exchange for doing business in that state. Unlike income taxes, which are based on a company’s profit, franchise taxes are typically calculated based on the company’s net worth, capital or assets. This type of tax can impact a business’s financial […]

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","

A financial advisor could help you decide where to incorporate your business and how to structure it for tax efficiency.

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What Business Owners Need to Know About the Franchise Tax

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The franchise tax is a state-level tax imposed on businesses for the privilege of operating in that state. This tax is not based on income or profits. Instead, it is based on the value of the company’s assets, net worth or a similar measure of capital. The tax’s primary purpose is to generate revenue for the state and ensure that businesses contribute to the cost of state services and its supporting infrastructure.

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The way franchise tax is applied can vary significantly from state to state. Some states charge a flat fee, while others use a sliding scale based on the company’s size or revenue. For example, a state might impose a minimum franchise tax of $800 for small businesses, with larger corporations paying a higher rate based on their net worth or capital employed in the state.

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Franchise taxes are typically due annually, but the exact deadline varies by state. Failure to pay can result in penalties, interest charges or even the loss of the right to conduct business in the state.

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Which Entities Are Subject to the Franchise Tax?

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Franchise tax obligations vary by state and the type of business structure. Here’s an overview of which entities are generally subject to and exempt from franchise taxes.

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Entities Subject to the Franchise Tax

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Entities Not Subject to the Franchise Tax

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Sole proprietorships: Sole proprietorships (excluding single member LLCs) are typically exempt from franchise taxes, as they are considered extensions of the individual owner rather than separate legal entities.
Nonprofit organizations: Nonprofits often receive exemptions from franchise taxes due to their tax-exempt status and mission-oriented operations.
Certain small businesses: Some states provide exemptions or reduced rates for small businesses that fall below specific revenue or asset thresholds, offering relief to startups and small enterprises.

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How Is the Franchise Tax Calculated?

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Calculating the franchise tax will depend on the business structure, state regulations and the formula used by the state. There are a few common methods states generally use to calculate franchise taxes:

","$7f","

Frequently Asked Questions About the Franchise Tax

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How Does the Franchise Tax Differ From Corporate Income Tax?

","

The franchise tax and corporate income tax are distinct forms of taxation. While the corporate income tax is based on a company’s profits, the franchise tax is often based on factors like net worth, capital or gross receipts, regardless of profitability. This means a company could pay franchise taxes even if it reports a loss.

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Can a Business Be Exempt From the Franchise Tax?

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Yes, certain businesses may qualify for exemptions from the franchise tax. Nonprofit organizations, small businesses with limited revenue and certain sole proprietorships often receive exemptions. Additionally, states may offer reduced rates or full exemptions to specific industries or businesses meeting particular criteria, such as those involved in renewable energy or technology startups.

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What Happens If a Business Fails to Pay the Franchise Tax?

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Failure to pay the franchise tax can result in severe penalties, including fines, interest on the unpaid amount and legal actions by the state. Additionally, the business may lose its right to operate within the state, leading to the revocation of its license or registration.

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Bottom Line

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The franchise tax can impact the operational costs of a business, making it an important factor for those looking to establish or expand their operations. Knowing how the franchise tax is calculated and which entities are subject to it, can help businesses better manage their financial planning and ensure their compliance with state laws.

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Tax Planning Tips for Businesses

","$80","

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