32:["$","$L33",null,{"category":"$34","relatedArticles":[{"id":"cG9zdDoxNzI0Mw==","databaseId":17243,"postId":17243,"author":{"node":{"id":"dXNlcjoyOA==","databaseId":28,"userId":28,"avatar":{"url":"https://secure.gravatar.com/avatar/c2129e3c852ac8063af4562fe9605e22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children. Rebecca also holds the Certified Educator in Personal Finance (CEPF®) designation.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Rebecca","fullName":"Rebecca Lake, CEPF®","lastName":"Lake, CEPF®","name":"Rebecca Lake, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":1252,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"rlake","__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":"$35","date":"2014-05-26T14:30:38","excerpt":"

\n","featuredImage":{"id":"cG9zdDoxNzQ1ODc=","databaseId":174587,"altText":"Kids running a lemonade stand on a sidewalk - Are You Ready to Be an Entrepreneur?","date":"2022-11-08T18:56:25","fileSize":122079,"mimeType":"image/jpeg","modified":"2022-11-08T18:56:25","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2014/05/8648874129_01b4c4a807_z-1.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-9-2","readable":"September 2, 2023"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/small-business/are-you-ready-to-be-an-entrepreneur","metaDesc":"Being an entrepreneur involves both risk and reward, so there are a lot of things to prepare for before taking the leap. Here's a checklist.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":4,"title":"Are You Ready to Be an Entrepreneur? | SmartAsset","__typename":"PostTypeSEO"},"slug":"are-you-ready-to-be-an-entrepreneur","status":"publish","title":"Are You Ready to Be an Entrepreneur?","uri":"/small-business/are-you-ready-to-be-an-entrepreneur","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjoyOA==","databaseId":28,"userId":28,"avatar":"$36","description":"Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children. Rebecca also holds the Certified Educator in Personal Finance (CEPF®) designation.","additionalMeta":"$37","email":null,"firstName":"Rebecca","fullName":"Rebecca Lake, CEPF®","lastName":"Lake, CEPF®","name":"Rebecca Lake, CEPF®","postCount":"$38","slug":"rebecca-lake-cepf","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybToxMQ==","children":"$3b","databaseId":11,"categoryId":11,"link":"https://smartasset.com/small-business/articles","name":"Small Business","postCount":13,"slug":"small-business","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

The landscape of the American economy has changed dramatically over the last several years, resulting in near record-high unemployment and a shrinking job market. While companies are opening their doors to new employees once again, millions of workers are choosing the path of the entrepreneur, taking their careers into their own hands. According to the Kauffman Foundation, there were 476,000 new business owners each month throughout 2013.

","

If you’ve got the entrepreneurial itch, you’ll need more than just a great idea if you want to succeed. Building a business requires hard work, patience and know-how and you need to be sure you’re up to the effort. Before you quit your day job, ask yourself these questions to help figure out if you’ve got what it takes to be your own boss.

","

Why do I want to own a business?

","

One of the most important things you need to consider when starting a business is why you want to work for yourself in the first place. If you think being an entrepreneur means sitting around in your pajamas all day and raking in the big bucks while only working ten hours a week, you’re going to be in for a rude awakening.

","

Examining your motives can tell you a lot about whether you’re really cut out for entrepreneurship. For some, owning a business is about providing a quality product or service that’s not currently available anywhere else. For others, it may mean creating a company culture for their employees that was lacking in their previous job. Making money is obviously a goal of any business but if that’s your sole focal point, you may find that your vision is a little short-sighted.

","

What are my strongest and weakest points?

","

Knowing what you’re good at and what you need to work on is a vital part of taking the leap into business ownership. At a minimum, running a business requires a solid work ethic, strong organizational skills and the ability to manage your time effectively. If you’re the type of person who can’t remember where they put their car keys you may find things like keeping up with paperwork or sticking to a schedule challenging.

","

Part of being in business also means being able to sell not only your product or service but yourself as well. The approach you take to marketing your business can either make or break your success. If you’re not comfortable promoting yourself and what you do, it may be a sign that you’re not ready to put your business idea in the spotlight.

","

How much time am I willing to invest as an entrepreneur?

","

When it comes to launching a business, overnight success is far from the norm. It can take months or even years before you start to see a profit and that requires a willingness to stick with it in the long haul. When you’re contemplating becoming an entrepreneur, you have to be realistic about how much time you’re able and willing to invest into it.

","

Unless you have a large cushion of cash set aside, chances are you’ll need to work on developing your business idea while continuing to work at your current job. While it may take you a little longer to reach your goal if you’re only able to work on your business part-time, that’s not necessarily a drawback. Working at a slower pace gives you time to figure out if entrepreneurship is a good fit and whether your idea is actually viable.

","

Do I have a plan?

","

Getting a small business off the ground starts with having a well-thought out plan for how you’re going to do it. A good business plan identifies what your objectives are and spells out how you’ll execute your goals. If you haven’t taken the time to write out a business plan, you could be sabotaging yourself before you even get started.

","

There are plenty of free resources you can use to draft your business plan. The Small Business Administration is a good place to start. Getting all your ideas down on paper makes it easier to map out where you want your entrepreneurial path to take you.

","

It’s estimated that for every ten businesses started, only five will last beyond the three-year mark. Just a third go on to stay in business for ten years or more. While these figures may seem discouraging, they don’t seem to have affected the recent upward trend in entrepreneurship.

","

If you think you’re ready to join the millions of Americans who work for themselves, taking a personal inventory beforehand can give you an idea of whether or not you’re truly prepared.

","

Photo Credit: Maryland Route 5

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\n","featuredImage":{"id":"cG9zdDoyNzEwODc=","databaseId":271087,"altText":"A small business owner researching how off-balance sheet financing works.","date":"2024-12-11T18:26:13","fileSize":169714,"mimeType":"image/jpeg","modified":"2024-12-11T18:30:51","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/12/iStock-1353983779.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-12-11","readable":"December 11, 2024"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":{"url":"https://secure.gravatar.com/avatar/9fffe2eb35204e151b68731435d247c5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. 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Business owners often look for ways to manage their finances while keeping a healthy balance sheet. Off-balance sheet financing has become a popular method for this purpose. It allows businesses to exclude certain assets and liabilities from their balance sheets, which can make the company appear healthier financially and more attractive to investors and lenders. Techniques like leasing, forming partnerships, or creating special purpose entities allow small businesses to acquire necessary resources without increasing their debt, which is especially useful for those planning to expand or invest in new projects without affecting their financial ratios.

","

A financial advisor can help you optimize off-balance sheet financing strategies so that they align with your small business goals.

","

How Off-Balance Sheet Financing Works

","

Off-balance sheet financing helps companies effectively manage their finances by not recording certain assets and liabilities on the balance sheet. This technique is useful for maintaining lower debt levels or adhering to loan agreements that limit debt. Common methods include operating leases, joint ventures, and special purpose entities (SPEs).

","

With operating leases, a company leases an asset instead of buying it, keeping both the asset and its liabilities off the balance sheet. Joint ventures share the costs and benefits of a project without merging it into the company’s main financial statements. SPEs are set up for specific projects to separate financial risks.

","

In response to financial scandals, regulations have tightened around off-balance sheet financing. Organizations like the Financial Accounting Standards Board (FASB) and the International Financial Reporting Standards (IFRS) now require companies to disclose more about their off-balance sheet activities, offering greater transparency to help investors understand the company’s financial risks and make better investment decisions.

","

Examples of Off-Balance Sheet Financing

","

","

Here are five common examples of off-balance sheet financing:

","$51","

Pros and Cons of Off-Balance Sheet Financing

","

Off-balance sheet financing allows companies to improve their financial ratios by not listing certain liabilities on their balance sheets. This can enhance their financial standing, making them more attractive for additional funding or investment. It also gives businesses the flexibility to chase growth without increasing their reported debt, helping them adhere to debt covenants that limit how much they can borrow.

","

However, this financing method carries the risk of reduced transparency, potentially eroding trust among investors if financial obligations are not clearly disclosed. With increasing regulatory oversight, using off-balance sheet arrangements to obscure liabilities can lead to legal issues and damage a company’s reputation. Authorities are vigilant in ensuring that these financial practices do not misrepresent a company’s actual fiscal health.

","

Bottom Line

","

","

For small businesses, off-balance sheet financing can offer increased flexibility and access to resources that might otherwise be out of reach. It allows companies to manage cash flow more effectively by avoiding large upfront expenditures and spreading costs over time. However, it’s important for business owners to fully understand the implications and risks involved, as these arrangements can sometimes lead to hidden liabilities or financial misrepresentation if not managed carefully.

","

Investment Planning Tips

","$52","

Photo credit: ©iStock.com/gorodenkoff, ©iStock.com/Eva-Katalin, ©iStock.com/Liubomyr Vorona

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It takes money to start and keep a business running, and access to capital is one of the major roadblocks to business ownership for many would-be entrepreneurs. However, there are several ways individuals can use their retirement funds to finance …

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","

ROBS Basics

","

A ROBS arrangement allows an individual to roll over assets from an existing retirement account, like a 401(k) or an IRA, tax-free. Then the funds can be used to buy stock in the new business, providing capital for startup or expansion.

","

ROBS offers a number of potential advantages over other ways of funding startup businesses. The benefits can open business ownership up to more people, and also potentially improve the success rates of new firms. Benefits include:

","

Using ROBS for financing instead of personal savings conserves cash.
A ROBS arrangement is not a loan, so it avoids the need to take on debt to pay for a startup.
There is no need to qualify for a loan, even if a would-be entrepreneur has poor credit.
Without the requirement to make loan payments, the business will have better cash flow.
ROBS funds don’t have any built-in costs because no interest payments are required.

","

ROBS funds can be used for any business-related expense. This includes paying salaries to employees or to the owner.

","

A ROBS can be a better alternative than a business startup loan but, especially for businesses that need more money than the owner has in his or her retirement account, it can also be paired with a loan. The cash from the ROBS rollover can be used to satisfy the common lender demand that the owner inject a certain amount of his or her own funds in the business in order to qualify for the loan.

","

ROBS Requirements

","$61","

Beyond that, the requirements for a ROBS include:

","

Having a qualifying retirement plan. Not all plans can be used as sources of ROBS funds. For instance, Roth 401(k) plans don’t qualify.
Obtaining permission from the plan administrator. Not all plans allow ROBS rollovers.
You need at least $50,000 to start the business. That’s because a ROBS plan costs a lot to set up and there are significant ongoing legal, accounting and administrative fees.
You are going to work in the business as an employee.

","

ROBS Steps

","

Performing a ROBS rollover calls for a lot of preparation, often starting with organizing or re-organizing your business entity. Here are the required steps:

","

Incorporate your business as a C corporation. This is required because only corporations can sell shares to investors, and the ROBS works by using retirement funds to buy shares in the business. A sole proprietorship, partnership, LLC or other entity won’t work.
Organize a 401(k) retirement plan for business employees. This can require retaining a custodian to oversee the plan.
With the assistance of the administrator of your existing retirement plan, conduct the rollover of funds from your existing retirement plan into the new 401(k) plan for the new business.
Use the funds in the new 401(k) to buy shares in the corporation. This will inject the funds into the business.

","

The ROBS-related work isn’t finished when the business is funded. The IRS requires a number of ROBS-related forms to be filed, including the annual Form 5500 or 5500-ES. There are restrictions on how much the owner’s salary can be. And any eligible employees also must be allowed to purchase shares in the company, just as the ROBS 401(k) did.

","

ROBS Risks

","$62","

ROBS Alternatives

","

As an alternative to ROBS, entrepreneurs can borrow from their 401(k) accounts. This is best for businesses that need less than $50,000 to start and are confident of being able to pay the loan back. It can help business owners whose credit history is too poor to let them qualify for a loan.

","

But a 401(k) loan only works if the entrepreneur’s existing retirement plan allows loans, and many do not. There is also a maximum of $10,000 or 50% of the retirement plan balance, which either is largest. Finally, if an entrepreneur voluntarily or involuntarily stops working at the employer sponsoring the plan that gave out the loan, the funds have to be repaid or risk being treated as an early withdrawal, with significant consequences including a 10% penalty and immediate payment of any income taxes.

","

Another option for older entrepreneurs may be to withdraw from their retirement plans. Those over age 59 and a half can do without having to pay the 10% penalty. Withdrawals still incur regular income taxes. But, since they aren’t loans, entrepreneurs aren’t on the hook to make repayments or pay interest.

","

Bottom Line

","

ROBS can help entrepreneurs who lack other financing options use their retirement funds in a tax-free transaction to fund a new business, refinance or make an acquisition. ROBS work best for amounts over $50,000 and can involve significant initial and ongoing complexity and cost. They are also risky, since if the business fails the entrepreneur will have lost some or all of the money intended to fund a secure retirement. Finally, be sure to carefully weigh the pros and cons to ROBS alternatives.

","

Tips on Financing Business

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Financial planning and analysis (FP&A) is the process businesses use to prepare budgets, generate forecasts, analyze profitability and otherwise inform senior management decisions of how to implement the company’s strategy most effectively and efficiently. The FP&A functions can be accomplished by an individual or a team working alongside other finance professionals such as the controller and treasurer and reporting to the chief financial officer (CFO). While FP&A is often performed by people with an accounting background, it differs from accounting by focusing primarily on forward-looking information as opposed to historical data.

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Typical members of an FP&A team include financial analysts and one or more FP&A managers charged with coordinating the work of the analysts. In larger organizations, a director or vice president of FP&A oversees the overall process and strategic direction and communicates with the CFO, CEO and members of the board of directors.

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FP&A Functions

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To fulfill its function of providing information and insight connecting corporate strategy and execution, FP&A performs a wide range of activities. These can be divided into a few broad categories including planning and budgeting, forecasting and management reporting.

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The central output of the FP&A process consists of long- and short-term plans. The job requires using financial and operational data gathered from throughout the company. A key part of the FP&A process is collecting and combining a wide variety of figures from operations, sales, marketing and accounting departments to produce a unified view of the entire business that can guide strategy decisions by senior executives and board members.

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Producing budgets is a big part of the FP&A planning function. Budgets describe expectations for the timing and amounts of arriving income, cash generation, disbursements to pay bills and debt reductions. Budgets may be monthly, quarterly and annually. Often FP&A creates a rolling budget for the following 12-month period that will be reviewed, adjusted and extended at the end of each quarter. FP&A also creates income statements and cash flow statements.

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One of the performance reporting functions of FP&A is identifying variances when actual numbers reported by business units don’t match up to the budgeted amounts. In addition to identifying and quantifying variances, FP&A can offer recommendations for strategies that could be used to bring actual results in line with expectations.

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Reports and forecasts from FP&A may be presented to the board of directors, to the CEO or other senior executives or to outside stakeholders such as lenders and investors. At a strategic level, decision makers use these analyses to choose how best to allocate the company’s resources.

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Public companies reply on FP&A to provide shareholders and analysts with guidance on revenue and profits for upcoming quarters and fiscal years. The accuracy of the guidance supplied to the markets can have a sizable effect on stock prices.

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Decision Support

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Initiatives to find ways to trim costs and make a business more efficient are also likely to involve input from FP&A specialists. Because it is in constant communication with all areas of the company in order to gather data for its budgets and plans, FP&A is well suited to optimization efforts.

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FP&A’s responsibilities could extend to nearly any department in the company, from operations to marketing to finance. For instance, FP&A may conduct internal audits, research markets or evaluate individual customer profitability. FP&A could also be called upon to provide risk management insights or assess the financial impact of tax policy decisions.

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Bottom Line

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Tips for Small Business Owners

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Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
The 80/20 Rule can help businesses gain insight into issues and opportunities so they can respond more effectively and efficiently. By identifying elements contributing most to a given outcome, businesses can better target resources to remove obstacles and exploit openings.

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