Opinions expressed by Entrepreneur contributors are their own.
Thanks to record-high inflation, geopolitical instability and the first interest rate increases in years, the current market is, simply put, incredibly volatile. Existing investors are making strategic changes to their portfolios, and new investors are unsure if they want in at all. But for those fortunate enough to have disposable funds, is now the right time to get started?
Here are three reasons to wade in — slowly.
1. Time in the market is better than timing the market
Generally, when one starts investing isn’t as impactful as how long one invests. With a long enough time horizon, a well-diversified portfolio, and the power of compounding, portfolio volatility usually smooths out. This has been historically proven repeatedly as it pertains to the stock market.
By contrast, “timing the market” or waiting for stocks to hit a new low or drop from recent highs so that an investor can snag a bargain is risky. Short-term market behavior tends to be unpredictable, with current trends reversing on a dime. Waiting for the “perfect” moment to invest may mean passing up potential gains.
In other words, for many traders in waiting, now is as good a time as any to invest because markets are down. But exceptions may arise for those who need their money soon, as a short-term downturn can wipe out a portfolio overnight. If you are a new investor looking for a long-term “buy and hold” strategy, this is one of the best times to enter the markets and begin investing.
Many investors view short-term volatility as a risk that negatively impacts their portfolio. In the short term, this is true: volatility often drags down the total value of one’s investments.
That said, one of the primary ways that the stock market generates returns is when investors buy low and sell high. And what better way to profit off large price differences than buying in when the market swings downward? Forget timing the market — a good strategy for long-term growth is to buy when the market is down.
It may help to view market volatility as a form of bargain hunting. By buying high-quality investments when they go “on sale,” investors can increase their future profit margins when the market recovers. The trick is sorting the junk from the gems.
There’s no guarantee that any individual security will turn a profit. But historically, given enough time and increased economic activity, the stock market always performs — eventually.
That said, the time between a crash and recovery varies widely, and it certainly cannot be forecasted when that will happen. As such, pinpointing how long investors have to wait to realize gains is nearly impossible.
For instance, most stocks took 12 years to recover following the Great Depression. But during the COVID-19 pandemic, many stocks recovered within just four months. This a sobering reminder that there is no way to time bull or bear market cycles and that a market recovery can even mount in some of the worst economic conditions.
Start slowly to establish good habits and “feel out” the market
So, is now the right time to invest? For investors who aren’t on the cusp of retirement, the answer may be yes. Every investor should consider their risk tolerance and time horizon before deciding when and where to invest. Starting slowly can ease new investors into the market without introducing excessive risk.
Novices may also start simply with a dollar-cost averaging method, which involves investing small sums at regular intervals to even out the market’s ups and downs. While it’s not as exciting as day trading, dollar-cost averaging reduces the temptation to time the market and can even lead to more significant gains for investors.
As scary as the current market may seem, competent investing is less about day-to-day developments and more about the future. Be strategic, stay focused, and only risk what you can afford not to touch over the future.
If you’ve been looking into new ways to make electronic payments, you’ve likely encountered ACH payments.
There are several different methods for electronic money transfers, but not all methods are created equally in terms of security, fees and convenience.
For more information on ACH payments and how they work, keep reading for everything you need.
ACH is the acronym for Automated Clearing House. An ACH payment is a store-and-forward system that electronically moves funds. ACH is a type of authorization that permits the lender to retrieve money from your credit card account, bank or credit union through an electronic process.
For a payment to be authorized by the ACH, it must be a part of the Automated Clearing House Network. A financial institution member of the ACH holds credibility because it has been vetted thoroughly.
ACH is a cost-effective way to move funds because it eliminates the middleman process of writing paper checks or completing a wire transfer.
Millions of people use ACH payments every year, including:
Businesses
Individuals
Federal government
State government
Local government
If you’ve ever received a direct depositpaycheck, made an online bill payment, or signed up for autopay, you’ve participated in an ACH transaction. Although you might not have heard the name before, ACH payments are one of U.S. citizens’ most common payment methods.
The ACH process is a system of electronic fund transfers from one entity to another. There are several involved parties, even though most work behind the scenes to complete the seamless transfer.
1. Originator/client
This entity, such as a consumer or business, has agreed to participate in transactions through the payment system. Originators must consent to the transaction before it can occur.
Once an originator consents to the transaction, their financial institution will receive their payment instructions and send that information to the ACH Operator. This includes payment type, amount and payment schedule.
3. ACH operator
The ACH operator is a central clearing facility that receives payment information and instructions from the ODFI.
The Federal Reserve Bank and the Automated Clearing House are both ACH Operators. The ACH Operator performs the necessary settlement functions before the transaction can proceed.
Once the ACH Operator has cleared the transaction, it is forwarded to the RDFI, the receiving financial institution. The RDFI’s job is to post the transaction into the receiver’s account.
5. Receiver
The receiver is the entity, such as a corporation or entity, which has authorized the originator to complete the ACH deposit into the receiver’s account.
Third-party service provider
While not always a part of the process, a Third Party Service Provider is an entity that carries out ACH Network duties for originators, ODFIs or RDFIs.
Third-Party Service providers perform functions like:
Creating ACH files for an originator or ODFI
Acting as sending or receiving point for an ODFI or RDFI
Third-party sender
As a subsection of a third-party service provider, this entity transmits ACH deposits for originators with no ODFI contractual agreement.
Types of ACH payments
ACH credits
ACH credits happen when the originator passes funds into the receiver’s account, the receiver’s account is then credited and the originator’s account is debited.
This type of entry is considered an offset or settlement. The most common type of ACH credit is a payroll direct deposit.
ACH debits
ACH debits occur when the funds are pulled from the receiver’s account with the RDFI, the receiver’s account is debited, and the originator’s account is credited.
This type of entry is also considered an offset or settlement. Common types of ACH debit are insurance premium payments and utility bills.
ACH entries
Depending on the receiver’s account type, an ACH entry is a consumer or non-consumer payment. It is up to the originator to determine the type of account, consumer or business, that they have secured for authorization.
Account validation
Before any entity can participate in ACH transactions, they must complete account authorization.
Standard account authorization methods are:
Prenotifications with routing number and account number (a non-monetary entry that comes to the checking account or savings account before the first actual entry)
A CTX entry is a single-entry, recurring ACH credit or ACH debit. However, a CTX coming from a corporate account can support up to 9,999 addenda records. Corporate Trade Exchanges are generally used in partner trading correspondence.
Prearranged payment and deposit (PPD)
A PPD is a single-entry, recurring ACH credit or recurring ACH debit. These transactions happen between an originator and a consumer to make or collect an authorized payment.
Internet-initiated/mobile entries (WEB)
A WEB is a single-entry or recurring ACH debit. These transactions are digital, occurring when the consumer authorizes a transfer of funds with their online account or mobile device.
Telephone-initiated transactions (TEL)
A TEL is a single-entry or recurring ACH debit. These transactions are based on telephone authorization given by the consumer.
Pros and cons of ACH payments
Before you implement ACH payments into your business or opt-in for them in your personal life, make sure you have a complete picture of what they entail with their pros and cons.
Pros of ACH payments:
Benefits of ACH payments may include:
Convenience:ACH debit allows automatic recurring payments, which cuts paperwork and manual payments each pay period.
Accuracy: Using electronic automation reduces the margin for human error.
Cost: ACH processing fees are lower than credit card, debit card and wire transfer fees.
Security: The nature of ACH regulations and ACH payment confidentiality makes ACH transfers between accounts more secure than credit card payments and wire transfers.
U.S. exclusive: In this regard, wire transfers have the upper hand, as ACH payments cannot be made to or from international bank accounts.
Payment processing times: Because ACH payments occur in batches and go through a clearinghouse, ACH credit transactions can take up to three business days to process. However, debit transactions must be processed the next day, and other transactions are eligible for same-day processing.
Transaction limits: Different banks have different guidelines for transaction amounts, but many have limits — per transaction, daily, weekly or monthly.
Potential for payroll fraud: While automation saves time and reduces human error, it does mean that a physical person is not checking payroll amount each month. This allows room for employees to wrongfully inflate their hours or create fraudulent accounts while going unnoticed.
Automated Clearing House payments are secure electronic payments authorized by the National Automated Clearing House Association. The ACH is a payment processor that can approve, vet, push, and pull transactions from business to business and business to individual.
Implementing an ACH system can be a prudent payment method option to cut the hassle and boost the use of automated bank transfers, as long as you are not looking for a same-day processing option.
Are you interested in additional research? Visit Entrepreneur.com for information on financial planning, business tips and more.
Opinions expressed by Entrepreneur contributors are their own.
We came off a euphoric bull run in 2021 to an epic bear market in 2022. A lot has changed in this period, with protocol collapses, regulatory bans, code sanctions, CeFi obliteration, heightened FUD and bad actors causing an industry-wide contagion through acts of fraud.
There have been many positive developments in this period that lay the platform for blockchain adoption, like venture capitalist posture maturity and new technologies like Optimism and Arbitrum that address scaling issues with blockchain, the emergence of new categories like decentralized platforms and regulatory clarity in many countries. A few notable and likely trends for 2023 are shaping up.
Liquid tokens on a project’s balance sheet cannot drive valuations anymore; companies and projects must show tangible value to create free cash flow and harness network effects. Lately, the focus has been on the standalone ability to generate value versus buying growth using tokens in the short term.
Emphasis is shifting to user monetization from bought-out growth that has proven unsustainable as market cycles change. Investors view equity as claims to future cash flows and profits (minus liabilities) and tokens as value created from future utility or services delivered by the protocol.
Given the relative maturity of the market, many protocols have not charted a clear path to sustain value through future delivery of utility, causing a shift in investor mindset. Investors are now emphasizing the quality of revenue, which can raise the value of their equity profile while eventually accruing token value.
A “Tokuity” model evolves
Investors like the liquidity associated with the token; its volatility and longevity have been concerning to many. There seems to be a shift from pure short-term and liquidity-driven posture to long-term, value-creating models.
Investors would like long-term value creation incentivized by a combination of tokens (short-term liquidity) and equity (long-term incentives), reducing volatility and ensuring long-term thinking, i.e., a new model Tokuity (Tokens + Equity).
It was once possible that multiple new players would emerge to overcome Ethereum’s technical shortcomings, slow execution and market dominance. Many Layer 1 protocols squandered their windows of opportunity, failing to drive adoption at scale.
It may be difficult for a new platform to unseat Ethereum as the dominant player anymore as it embarks on many improvements in the months ahead. Ethereum and Polygon dominate use cases, consumers, enterprises and ecosystems. Users and enterprises will trade off minor technical advantages of other blockchains for security, interoperability and network effects.
Ethereum, the blockchain everyone loved to hate in the bull market, now has the last laugh for “ETH killers.” Most Ethereum-hating chains have completed or are racing to become EVM compliant (Hedera, Solana, Algorand, Near, etc.). Others like Phantom wallet (Solana’s wallet) and Trader Joe (Avalanche’s DEX) also extend support to the Ethereum ecosystem.
The future is still multichain
Even though ETH-killers will not likely deliver the advantages amassed by the Ethereum ecosystem (including Polygon, Optimism, Arbitrum, etc.), the future will still be multichain.
The concept of a “multi-chain” system refers to using multiple independent blockchain networks that can interoperate with each other allowing flexibility in application deployment for different transactions or processes. For example, one blockchain might focus on high-speed, low-cost transactions, while another might focus on security and immutability. For Defi, users will want their collateral on one chain and borrow on another. The portability of gaming assets across metaverses is another use case. A multi-chain system could offer the best of both worlds by allowing different blockchains to work together.
Interoperability is a critical capability required for a true multichain world to manifest. However, the current bridge technology is fragile, leading to security risks and hacks. Blockchains using bridges to Ethereum create more risk and less value with enterprise use cases.
While niche chains, e.g., Hedera (optimized for enterprise) or Flow (optimized for metaverse and gaming), may co-exist, the market simply cannot afford the number of Layer 1 protocols/blockchains in existence today. The L1 space is crowded, differentiation is limited, and the market is finite. A multichain future requires mature interoperability solutions.
Layer 2 is the new frontier
After the Ethereum ‘merge,’ the blockchain landscape is significantly altered by negating competitive differentiation for the ETH-killers. Ethereum is repositioned as the base layer for settlement under multiple Layer 2 protocols, forming a scalable ecosystem.
Blockchain’s scaling problems are unfolding. As enterprise adoption of blockchains grows, we will enter a magnitude of multi-billion daily transactions, and even baked Layer 2 solutions may not be enough. We will see the rapid evolution of new categories like decentralized platforms and new forms of roll-ups. These will migrate action up the blockchain stack while letting the base protocol accrue its own value. The last few cycles were about Layer 1 and infrastructure; it will now be about scaling, interoperability, and ecosystem maturity. Layer 1 battlefield is now empty with a handful of survivors; layer 2 is the new frontier.
Decentralized platforms will accelerate ecosystem adoption
For adoption scale, technology must make it easy by reducing barriers for non-technical users, deploying faster Decentralized Applications (dapp) deployment and faster routes to value creation. The new category of decentralized platforms sits between Layer 2 chains (layer 1 chains) and the fractured landscape of dapps and use cases driving a vibrant ecosystem.
A dPlat (decentralized platform) can simulate an iOS or Android-like effect, shielding the Layer 1 and Layer 2 chain complexities and abstracting blockchain features to enable ease of development for uses. Many users will not realize the complexities of the layer-one protocol underneath, and protocols will become easier to build on. The dPlat space is one to watch closely.
Concluding thoughts
Layer 2 technologies, robust network effects, regulatory considerations, decentralized platforms, and investment outlook changes will help the inherently raw protocols to scale adoption and transactions. The next 12 months bring a lot of positive changes to the ecosystem despite a bull or bear market; let us prepare for the new paradigms.
Opinions expressed by Entrepreneur contributors are their own.
Some projections state that a new startup could take as long as four years to start earning a profit. Your business may be growing, but waiting four years may not be an option. If you want to start earning passive income that you can use to grow your business, then the stock market may be a viable option. If this is your first foray into stock investing, then the 2023 Stock Candlestick and Options Profit Trading Bundle could help you learn to be a wise investor.
StackCommerce
This course can help you mitigate your risks and maximize potential payouts. It contains 25 hours of instruction, starting from the basics. Get your first look at investing strategies in Options Trading 101 and Learn to Trade Options from Some of the Industry Greats. Both of these courses are led by professionals from MoneyShow, an investment advising organization with 40 years of experience.
Once you’re confident in your investment strategy, you can automate it using Python and a style of coding you could learn in the course Automatic Stock Trading with Python. It even comes with its own automatic trading bot that can make investments for you based on parameters you input.
Opinions expressed by Entrepreneur contributors are their own.
Your employee is asking for a raise. And you can’t blame them. Inflation is running between 7-8%, and people need to, at the very least, keep up with the cost of living. This is now the norm in 2023. It’s happening everywhere. Payroll company ADP recently reported that employees received 7.3% more pay over the past months — with employees changing jobs seeing more than double that amount. And many experts say that trend will continue through this year.
But giving raises is certainly easier said than done. Big companies may be able to absorb the additional costs. But if you’re running a small or even mid-sized business doing so isn’t so simple. The good news is that there are options. So before handing out that raise and shouldering that extra expense, here are seven things you can do that may lessen the impact.
Consider a profit a sharing plan for your employees or a bonus tied to achieving agreed-upon goals. When someone asks for a compensation increase, this can be viewed as a mutual opportunity. You can be the one to happily agree to pay that increase — perhaps even more than what’s being requested — as long as you receive something in return. People don’t have to be in sales to earn a commission. You can set specific job-related goals that either increase revenues and productivity or decrease expenses so that a specific return on investment can be achieved, with added profits shared.
2. Offer more PTO and flexibility
Instead of increasing pay, consider increasing paid time off. Or provide more flexible work hours. Or maybe this is the time to implement a four-day workweek program or expanded work-from-home benefits.
Compensation does not always have to be in cash. People value their time just as much. Flexibility is important, and one of the biggest benefits of working for a small business is the ability to have that flexibility without the bureaucratic oversight experienced by employees at larger companies. Yes, paying someone not to work is still an added cost to you. But if you both agree on job deliverables, you and your employee can together make sure the work gets done on a schedule that suits you both.
Many business owners forget that, in most cases, health insurance payments are both non-taxable to the employee while still being deductible for the employer. If you just give a salary increase, the employee gets taxed, and you have to pay employer payroll taxes. But if instead, you offer to pay more for health insurance, you both save money on taxes, and the employee gets more in their net paycheck. It’s a win-win. Of course, talk to your tax accountant to make sure there are no other factors that would impose on this benefit.
4. Pass through the cost to customers
If you increase your employee’s pay, you may consider passing that cost increase to your customers in the form of higher prices or fees. But be careful. You don’t have to pass on the full amount of a pay increase if you can find savings elsewhere. And if you spread the cost across your entire overhead so that it’s fully absorbed, you may find it easier to spread the price increase across many customers and products and therefore cushioning the impact.
5. Offer a long-term employment contract
When an employee asks for more compensation, you can also ask for something in return: a longer-term commitment. Although most employer/employee relationships are “at-will” which means that both can end things whenever they want, by entering into a longer-term contract you can not only set goals and include future benefits that can be earned, but also agree on a fixed compensation increase over the term of that contract that will enable you to better budget your future costs.
6. Do a 401(k) match
Instead of a salary increase, you can offer to increase your 401(k) retirement plan match for that employee. Not only does that employee receive that money on a pre-tax basis (which means that you can pay a lower amount to the employee). It also means more money in your employee’s 401(k) account, which they can put away for retirement. You also don’t fail any of the required “discrimination tests,” which limits your contributions as a higher-paid employee or owner. Also, thanks to the recently passed Secure 2.0 retirement legislation, some businesses will soon receive a tax credit of up to $1,000 per employee every year for five years when they contribute to a 401(k) plan. This means you can give your employee added compensation and the government will pay for it!
7. Finally, consider an ESOP
Thanks to an aging population, there has been a significant increase in interest in employee stock ownership plans or ESOPS. So rather than dolling out increased compensation to your existing workers, you can create an ESOP where you get paid for a portion of your equity that you sell to an entity owned by your employees, and then you receive significant future tax benefits on both your payback to the bank for financing the transaction and for the income allocated to that ESOP. A great resource to figure out whether an ESOP is right for your business is here.
You’re going to have to pay your employees more this year. That’s a given. But just because your employees request (and need) a raise doesn’t mean you have to bear the entire cost burden. There are options.
Opinions expressed by Entrepreneur contributors are their own.
Cryptocurrency is nothing new. While many people discuss the digital asset as an enigma, it is a medium of exchange worth significant value. True, digital coins do not have the same tangible backing as cash, but the security of design, and the blockchain setup, create (or should create) a level of confidence.
If your business has yet to embrace crypto as a form of payment, it is falling behind and missing valuable opportunities to thrive. While not all companies yet embrace crypto, those that do experience unparalleled access to otherwise distant consumer pools.
The number of companies embracing crypto is rising, including such names as Gucci, Paypal and Visa. Permitting crypto payment options can expand your market share and improve your position in the marketplace; it can also demystify this legitimate form of payment.
The reasons crypto is right for your business model
It is easy to look at the failings of FTX and lose confidence in the system, but investors and businesses need to review the market’s otherwise successful history. Bitcoin is only one asset out of thousands that continues to outperform investor expectations. The folly of one digital coin should not deter innovative businesses from embracing a payment option that proves time and time again its ability to persevere.
If your company wants to look toward the future, it must embrace crypto because it isn’t going anywhere. The financial “new normal” demands that businesses adapt and embrace changing structures. Besides the need to adjust, there are many reasons businesses benefit from accepting crypto payments.
Many companies are victims of friendly fraud or mistaken consumers. In the digital subscription age, many consumers don’t remember all their purchases and may report an issue of credit card fraud where there is none. Unfortunately, whether friendly mistakes or criminal, chargebacks cost businesses billions yearly.
Embracing bitcoin payments can reduce fraudulent chargeback risks. Crypto payments report to an immutable public ledger. The payment method does not allow for alteration, meaning once a transaction is complete, nothing can reverse it, eliminating the false claims of fraud on the purchase end.
Cryptocurrencies exist within the blockchain — a decentralized, distributed digital ledger. All transactions are permanent, unmodifiable, and impossible to delete. The entire crypto concept is a vision for secure monetary assets.
A business can improve the security and usability of crypto by partnering with blockchain monitoring services. Some payment processors will offer additional security measures; however, even bare-bones, cryptocurrency is more secure than credit cards and other payment methods.
Accepting crypto shows your consumers that you care about their security and yours. The additional security and finality of digital coins also provide assurances for businesses providing subscriptions or other services in a techno-focused era.
Credit card fees present a significant thorn in the side of many merchants. Fees represent a profit loss on individual transactions. Besides the on-top percentage taken from the sale, many credit card processors also charge a nominal fee per incoming transaction.
Cryptocurrency transactions eliminate any additional fee structures when handled on the business end. If you decide to use a payment processor (recommended), you will need to pay a service fee, typically less than traditional processors will charge.
4. Improve transaction speed, regardless of country of origin
Besides transaction fees, credit card transactions take time to process. As a business owner, you do not have time to waste. Most cryptocurrency transactions occur in real-time — one of the many perks of a decentralized system.
Traditional credit card or debit card payments can take several days, depending on a consumer’s location. Crypto is borderless, so location does not affect or inhibit transaction speed. Also, because the digital asset does not involve cross-country settlements or obstacles, there are no costly currency conversions.
The growth potential of crypto is twofold for business owners: financial and market share. Any crypto investor can tell you about the exponential growth of digital assets in recent years. For a business owner, the potential valuation increases for some cryptocurrencies are enough to embrace the payment method. Permitting crypto payments means you can potentially earn greater profits from the same volume of purchases.
Besides the monetary gains, permitting crypto also opens your business to a wealthier consumer pool and buyers who may not have considered your company before. Crypto allows for a level of anonymity and privacy that other payment forms do not. Newer, more private consumers will appreciate your business’s steps to secure their privacy.
6. Taking crypto means getting cash
You get cash, not crypto, for your payment by dealing with a reputable payment platform. Trusted platforms will convert crypto payments into cash. And by taking crypto, you’re making it easy for crypto holders to buy products and services, all while receiving cash in your bank account. It’s a win-win and a great cost-effective opportunity to increase your revenue.
Crypto is the future and the future is now
Whether a high-end, established retailer or a small, young business, it is time to use cryptocurrency, permitting it as a payment option. Digital currency is more secure than other transaction methods and allows for growth opportunities while maintaining consumer privacy. Embrace crypto and embrace the future of your business.
Opinions expressed by Entrepreneur contributors are their own.
If you need funds for your enterprise, it can be very tempting to go for the first business loan on offer. However, there are a number of things you should look for before you sign on the dotted line.
1. The right loan type
As with personal finance, there are several different forms of business loans, so you need to choose the one that best suits the needs of your enterprise.
Traditional loans: These are the business equivalent of a personal loan, which can be secured or unsecured. You’ll borrow a set amount and have a set repayment schedule with a fixed interest rate.
Line of credit: A line of credit provides you with a set funding amount but you don’t need to receive and pay interest on the full amount. You can call down funds as you need them and you’ll only pay interest on the amounts you borrow.
Equipment financing: If you need funds to purchase equipment, this type of business lending is designed to suit your needs. The piece of equipment you purchase will act as collateral for the loan, so you can usually access more flexible terms.
SBA loans: SBA or Small Business Administration loans are an option if you would struggle to qualify for a bank business loan. The lending criteria is more flexible, which could be a more agreeable choice for new enterprises.
Before you agree to a business loan offer, it is well worth assessing the other types of business lending to confirm the loan is the best fit for your enterprise.
2. Manageable loan repayments
Before you sign the loan contract, you should have an opportunity to check the details of the loan repayment requirements. You will need to think carefully about whether you can comfortably accommodate the monthly payment in your budget, not only now but throughout the lifetime of the loan.
If you have concerns that the payments may be difficult, or you may struggle to meet the payment deadlines, it is best to look for another loan product. Missed or late payments can not only create additional financial stress but can have a massive impact on your credit.
This follows on from the previous point, but you should also be fully aware of what fees you will incur with your new business loan. In addition to paying interest, you may incur origination fees, and processing fees. These will be added to your loan principal or you’ll need to pay them upfront. Ideally, your new business loan will have little or no such fees.
You also need to watch for the fees you may incur during the lifetime of the loan. For example, you don’t want to get stung with a massive late fee if there is a mix-up at the bank. It is also a good idea to look out for early repayment fees. If your business finances change and you want to clear the loan, you won’t want a loan that imposes a hefty early repayment fee.
4. A good lender reputation
Unfortunately, not every lender in the market offers the same level of service, in fact, some can be downright risky. The adage of “too good to be true” certainly applies here. So, it is vital to investigate the lender’s reputation and be on the lookout for some red flags. These include:
No verifiable credentials: If the lender does not have a professional website and does not provide details of a physical address.
Lack of fee transparency: Lenders should be very clear about their loan fee structure, so you are completely aware of how much the financing options will cost.
Pressure selling: If the sales rep is trying to pressure you to immediately accept a business loan offer without presenting you with information and the time to study it.
5. The correct loan amount
While it may be tempting to get the biggest business loan you can get approved for, this is not likely to be a good idea. Likewise, if the loan offer won’t cover your immediate funding needs, it is not the right choice.
Think carefully about what funds you need and how you’ll use them, so you can be sure to obtain a loan for the correct amount.
6. An attractive interest rate
As with any form of finance, your interest rate will determine the cost of your business loan. Lenders will use a variety of criteria to determine your risk profile and therefore your rate. However, these criteria vary from lender to lender, with some lenders being more rigid and some lenders being more flexible.
If you have a brand new enterprise, you’re not likely to get the best rates, unless you have excellent credit yourself. But, it is still important to compare rates to ensure that you’re getting the lowest possible rate for your enterprise.
However, you may be prepared to pay a slightly higher interest rate if there are minimal fees or other benefits to the loan. So, don’t look at the interest rate comparisons without some context.
While you may not need the funds urgently, you are still likely to want to implement your plans as soon as possible. So, check the funding times each lender offers for their business loans. After you submit your application and receive approval, when can you expect to receive the funds in your bank account?
Some lenders can release funds in 24 hours or only a few days, but other lenders are slower. If you will have to wait weeks or months for your funds, it is a good idea to look at alternative options.
8. Solid customer support
Finally, it is worth checking the levels of customer support offered by your potential lenders. If you have queries or questions about your loan, can you speak to the support team quickly? Some lenders have phone helplines, while others rely solely on email or chat. So, you need to be comfortable with the customer support options.
It is well worth reading some reviews of the lender to see if there are any red flags about long call wait times, slow responses to emails or other customer support issues before you become a customer.
Bottom line
Getting the right business loan for your needs requires some time to compare the different aspects and lenders. When you follow the factors above and make sure to maximize each of them, you can save money, time and financial stress.
Opinions expressed by Entrepreneur contributors are their own.
Over the past couple of years, I have been working with my team at Broxus to develop the infrastructure necessary for central banks to deploy digital versions of their currencies. While we have been doing this work, and other projects have been engaged in similar endeavors, the dialogue around CBDCs has taken on something of a life of its own, colored by misconceptions about what Central Bank Digital Currencies (CBDCs) are and their purpose.
At their essence, CBDCs are digital versions of a country’s fiat currency that are pegged at a 1-1 ratio with the original currency. For example, if the US were to release a CBDC, that would be in the form of a digital dollar that is always equal to its fiat counterpart. While CBDCs are related to cryptocurrencies and blockchain technology, some key distinctions exist.
CBDCs are, by definition, recognized digital legal tender. That means that, unlike other similar digital assets like stablecoins, CBDCs carry the equivalent legal weight as fiat currencies. This is important as one of the main drivers of CBDC expansion is the shift occurring globally to cashless societies. As more societies become increasingly cashless, the current economic infrastructure has struggled to support local and international economies. CBDCs are a potential way of solving these issues.
Much of the disconnect has arisen from many’s perceptions concerning cryptocurrencies, and the association CBDCs have in the public’s eye with cryptocurrencies. The truth is, while cryptocurrencies remain primarily speculative, CBDCs are something else entirely. Here, speculation plays no role. CBDCs, if instituted correctly, would be able to optimize financial systems that have grown outdated and been failing to meet the needs of the world’s most vulnerable demographics from a financial perspective.
While the value of cryptocurrency is often tied to future developments and use cases, with CBDCs, the value is in the here and now. The utility of these digital currencies is something real, something that addresses shortcomings that are palpable around the world right now. I believe that the framework in which we discuss CBDCs needs to change so that ongoing efforts to integrate this technology into the fabric of the world economy may come to fruition.
Social security systems of the 19th and 20th centuries have all required the construction of a significant state body to redistribute wealth. These bloated governance structures have generally not been able to adequately assist the people who find themselves in the more vulnerable spheres of society. To address this issue, an experiment was conducted in Finland that sought to provide a Universal Basic Income (UBI) to generally unemployed people. Rather than using a welfare model, benefits were given out in Finland through a €560 direct cash deposit each month. On the one hand, this provided direct support to those in need and, on the other hand, reduced the costs of collecting, accounting and spending funds that run high in welfare programs.
The final results of the Finnish experiment are now in, and the findings are intriguing: the UBI in Finland led to a modest increase in employment, greatly improved results in the material well-being of recipients, and increased positive individual and societal feedback.
CBDCs can be uniquely positioned to improve the performance of Universal Basic Income (UBI) programs. Since most of the launched pilot projects and prototypes for CBDCs are focused on a 0% deposit rate, i.e., a situation where CBDCs are subject to inflation and depreciation, central banks could gain more effective leverage in managing aggregate demand in the economy by collecting taxes and distributing part of them to UBI recipients. By issuing currency in digital form, central banks will be able to radically reduce the costs of the state to ensure the circulation of the national currency and social support for the population.
In 2021, according to the World Bank Group, 1.4 billion adults were still unbanked. That is a massive portion of the world’s population, and the failure to provide these people with adequate banking services is likely to prolong poverty cycles and have a stunting effect on global economic growth.
This problem is acute in South East Asia, and a good example of it can be seen in The Philippines, an area that we have focused on in our work. Just over half of the adult population in The Philippines has access to banking services. In a healthy economy, small and medium-sized businesses need access to banking services to thrive. With just over half of the population having access to those services, the Filipino economy cannot flourish, leaving the less affluent to bear most of the brunt.
The lack of banking services has led Filipinos to utilize alternative financial methods and seek work in other countries. Nowadays, remittances from Filipinos working overseas and sending money home account for 10% of the Philippine GDP or roughly 70-80 billion dollars. At the same time, the cost of money transfers is approximately 8-10% of the total amount of the transaction.
Even here, CBDC technology can be effective in improving the situation. As part of our work in CBDC development, we have established a partnership between the Everscale network and DA5, one of the leading authorized direct agents of Western Union in the Philippines. The blockchain remittance service created by Everscale and DA5 will be the first technology in the Philippines capable of speeding up and lowering the cost of this process. As a result, people will no longer have to pay such high fees on their transactions once the service is launched.
The first phase of the partnership will see the launch of Everscale’s new stablecoin, which will be tied to the Philippine peso. After the stablecoin is released, users in the Philippines can immediately exchange fiat for its digital counterpart at industry-low rates. But this is just a stablecoin; if The Philippines were to launch a CBDC, there would be benefits for all sectors of the economy.
The privacy debate
A common argument against CBDCs is their lack of privacy. However, this is only partially true: it can be shown that more centralized systems can allow more privacy than decentralized protocols. The bad privacy properties of Ethereum, in which states are made up of reused addresses, are widely known. In addition, users sometimes use uniquely linked domain names, making their transactions transparent to outside observers.
There is a trade-off when designing decentralized protocols: complete on-chain privacy can lead to an inflation problem within the protocol that cannot be tracked – because the recipient and quantities are not known. A sidechain like Liquid gets around this problem quite simply: no more bitcoins can be created inside the protocol than were received at the input. In a centralized system, one trusted oracle can be provided that determines the boundaries of the issue.
Centralized solutions based on Chaumian e-cash could use more advanced cryptographic methods to hide counterparties and quantities and selectively disclose this information at the request of the parties involved in transactions. In addition, there is no limitation on how privacy-enhancing features can be implemented since they are not bound to decentralized protocols with limited network resources and free space on the blockchain.
CBDCs as a vehicle for real and necessary economic change
The issues above are not going away, and as countries worldwide continue to develop, the people affected by them are likely to continue to suffer. Quite simply, governments have never had the tools necessary to implement adequate benefits programs for those who need them. Now, however, that opportunity is here.
That is the real utility that all of the efforts towards developing CBDCs are based upon, and that should be at the center of the discussion around this new technology.
Opinions expressed by Entrepreneur contributors are their own.
It’s tough out there for businesses looking to raise money. After several record-breaking years, startups saw funding cut in half in the third quarter of 2022, according to Crunchbase News. Even as many of us wonder if we’ve hit bottom, there’s reason to be hopeful that dollars in reserve could boost prospects in 2023. Whatever the market holds, venture capital funding will likely look different in the coming years, with VCs prioritizing evidence of focused, sustainable growth in the companies they back.
Simply put: In this environment, it’s about going back to basics.
A 1099 form is a document that businesses use to report various types of government payments to both the IRS and payees.
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This includes payments for services, dividends, interest, rents, royalties, and other types of income. There are various 1099 forms, each with specific instructions for filling them out.
If you’re an entrepreneur or small business owner who wants to stay compliant with the IRS, it’s critical to understand what a 1099 form is and how it applies to your business. Read on for an overview of the different types of 1099 forms and how to navigate the filing process.
What is a 1099 form, and what is it used for?
A 1099 form is an information return that reports taxable income other than wages, salary, and tips.
For example, if you’re self-employed or earn rental income, you’ll likely receive a 1099 form.
The 1099 form reports what’s referred to as miscellaneous income, and there are many different types of 1099s.
Here’s a quick run-through of some of the other common 1099 forms and what they report:
Form 1099-B: Proceeds from broker transactions
Form 1099-C:Cancellation of debt
Form 1099-DIV: Dividends and distributions from investments
Form 1099-H: Health insurance premiums that the taxpayer pays
Form 1099-INT:Interest income earned throughout the year
Form 1099-K: Merchant card and third-party payment transactions
Form 1099-NEC:Nonemployee compensation
Form 1099-Q: Distributions from qualified education programs
Form 1099-R: Distributions from pensions or annuities
Form 1099-S: Proceeds from real estate transactions
Form 1099-SA:Distributions from health savings accounts (HSA)
All that said, the most common type is the 1099-MISC, used to report income earned from rental property, providing services as an independent contractor, or earning royalties. If you receive a Form 1099-MISC, you’re considered self-employed (an important fact to remember).
While this may seem like a lot of extra work, being self-employed has some benefits, such as the possibility of deducting business expenses on your tax return.
Be sure to speak with a qualified tax professional if you have questions about filing your taxes after receiving a 1099 form.
A 1099 form is not the same as an income tax return. It’s an informational form that reports specific types of income and other financial activities. Essentially, you use the information from the 1099 forms to complete your taxes.
The Internal Revenue Service (IRS) requires businesses to file 1099 forms for almost any payment over $600 made throughout the year. That includes payments for services, mortgage interest, royalties, and other miscellaneous income.
The payee doesn’t need to issue a 1099 form for any payments under $600; nonetheless, both the issuer and recipient must report this income on their tax returns.
A 1099 is an IRS form that shows an individual’s income from specific types of payments.
A Form W-2 is a tax form that reports the wages an individual has received.
The primary difference is that 1099 forms are issued to non-employees, whereas W-2 forms are issued to employees. Businesses are responsible for reporting employee wages on W-2 forms, while self-employed individuals (think freelancers and independent contractors) must report payments outlined on their 1099s.
Additionally, self-employed individuals may receive 1099s and W-2s, depending on the work they perform.
Generally, W-2 forms report wages from full-time employment or an employer/employee relationship, whereas 1099 forms report income from freelance work, contract labor, royalties, or rent payments.
Unlike 1099s, W-2 forms withhold federal income taxes (and state taxes) from employees’ wages. Therefore, individuals need to note whether their income was reported as a W-2 or 1099 to know what taxes they must pay.
A 1099 form reports income from freelance work, rentals, investments, and other alternative sources. In most instances, if you earned more than $600 from any of these sources during the year, the person who paid you must send you a 1099 form by January 31st. You will then use this form to complete your taxes.
When reporting your income on your taxes, use the correct 1099 form.
For example, if you received payment from freelancing, you should generally fill out a 1099-MISC.
Note that you’re responsible for paying taxes on all of your income, regardless of whether or not you receive a 1099 form.
Speak to a tax professional if you have any questions about whether or not you need to file a 1099 form. They can guide you through all the reporting requirements and help keep you above board.
For businesses, 1099 forms are due by January 31st of the year following the calendar year when payments were made. This applies both to copies to be sent to contractors and the IRS.
For individuals, 1099 forms must be received by January 31st, following the calendar year during which payments were made. All relevant 1099 forms should be reported on individuals’ tax returns by April 15th of the same year.
If an individual does not receive a 1099 form from a business or other payer, they should still report the income on their tax return. Individuals should keep track of their income throughout the year in case 1099 forms are not provided.
Failure to meet these deadlines can result in expensive penalties. Businesses that fail to file 1099 forms on time face a minimum penalty of $50 per form, with a maximum of $290 per year. The specific penalty depends on the form type and the time passed after the deadline.
The IRS can also impose additional penalties for what it finds as intentional or negligent filing errors.
How do I file a 1099 form with the IRS?
If you’re an independent contractor or self-employed individual, you’ll need to file a 1099 form with the IRS come tax time.
Here are three things to know about 1099 forms and how to file them with the IRS:
1. A 1099 form reports income not subject to withholding tax.
This includes interest, dividends, royalties, and payments made in exchange for services (including rent, commissions, fees, and tips). The payer of this income should send a 1099 form to both the payee and the IRS.
2. There are many types of 1099 forms (more than 15), each for a different type of income.
The most common is the 1099-MISC, used to inform the IRS of miscellaneous income. You would file a 1099-MISC if you received income such as rental income or freelancing income during the year. Other common 1099 forms include the 1099-INT (for interest income) and the 1099-DIV (for dividend income).
3. When it comes time to file your taxes, you’ll need to include your 1099 forms with your return.
You’ll also need to send a copy of each form to the IRS, so be proactive about keeping the informational report handy.
Here are some tips for filing your 1099 forms correctly:
Review each form you receive and make sure the information is accurate.
Choose the correct filing method, whether direct entry, paper filing, or digital e-filing.
Double-check your work to ensure all your forms are filled out completely and accurately.
File your forms with the IRS and report them on your tax return by the deadline.
Correctly filing your 1099 form is essential for ensuring that you comply with the IRS and local tax agencies. It also helps to protect you from any potential penalties and audits.
Common mistakes people make when filing 1099 forms
Perhaps the most common mistake is failing to report all the income they receive. While this can be fraudulently intentional, unintentional misreporting can happen if you forget to include income from a side gig, lottery winning, or receive cash payments instead of a check or money order.
If you don’t know whether to report a specific type of income, it’s generally best to err on the side of caution and include it. Otherwise, you could face IRS penalties or miss out on potential tax credits.
Another common mistake made on the business end is incorrectly reporting the taxpayer identification number (TIN) of the person or business you paid. The TIN can be either a Social Security number (SSN) or an employer identification number (EIN).
If you report an incorrect TIN, the IRS might flag the return as inaccurate and send you a notice asking for clarification. As such, you always want to double-check the TIN before filing your return.
Lastly, some taxpayers fail to file their 1099 forms (and other information returns) by the established deadline. The deadline for paper filings is February 28th, and the deadline for electronic filings is March 31st.
If you miss the deadline, you may be subject to late fees and interest charges from the IRS. By avoiding these mistakes, you can ensure that your 1099 filing process goes smoothly (or at least increase the chances of a smooth process).
Are there penalties for not filing a 1099 form on time or incorrectly filing one?
The IRS imposes various penalties for businesses that fail to file 1099 forms on time or file them incorrectly. Perhaps the most significant penalty is the failure-to-file penalty, assessed at a rate of 0.5 percent of unpaid taxes per month; a business will be subject to this penalty if it fails to file a 1099 form within 30 days of the due date.
Moreover, if a business files a 1099 form more than 60 days after the due date, the penalty can increase to $435 per form.
In addition to the failure-to-file penalty, businesses may also be subject to a failure-to-pay penalty if they don’t pay the amounts shown on the 1099 forms by the due date. This penalty is equal to two percent of the unpaid tax liability and accrues monthly until the total amount gets paid.
Finally, businesses may be subject to interest charges on any unpaid taxes.
How can I get help if I’m having trouble filing my 1099 form correctly?
If you struggle to fill out or file your 1099 form correctly, there are a few places to turn for help.
IRS website
The IRS website has a wealth of helpful resources to answer most tax filing questions.
You can call them if you can’t find what you’re looking for on the website. They have customer service representatives who can help answer your questions and get you on the right track.
Remember that IRS employees and those who work for other financial institutions are often overwhelmed with calls, especially during tax season, so you may need to plan for long wait times.
Tax professionals
Another great resource is your tax preparer or accountant. They can guide you through each step of the process and ensure everything is filed correctly.
Your tax professional can also help you get the maximum amount on your tax refund. If you don’t have a tax preparer or accountant to rely on, make it a priority to find one as soon as possible.
Tax filing software
Finally, there are many software programs available that can help you file your taxes. These programs can walk you through the process in an easy-to-use interface.
If you’re overwhelmed by the different options on the market, read online reviews highlighting each product’s features and costs. Then, choose the best tax software for your needs and budget.
Getting help with your 1099 form can be easy, whichever route you choose. Research the plethora of resources available to help you get everything filed correctly and on time.
Ready to file a 1099 form?
1099 forms are important documents for both the IRS and taxpayers. Businesses and individuals should understand who needs to file them, when they are due, and how to get help filing them correctly.
Filing deadlines are strict, so it’s best to start gathering your information early and contact a tax professional if you have any questions.
Opinions expressed by Entrepreneur contributors are their own.
As I write this, commercial interest rates — the rate businesses pay for working capital, equipment and property loans — have more than doubled over this past year. My clients are now seeing commercial rates exceed 10% — that’s going to be a big challenge for those that rely on debt to fund their operations and expansion, let alone those entrepreneurs looking to startup and grow their businesses.
The financing environment will be tough in 2023. Less businesses will get approved for loans as the financial services industry contracts in response to continued high interest, inflation and a slowing economy. But it’s not a catastrophe. There will be money out there if you’re willing to pay for it. Here are your best choices to consider.
For starters, if you don’t need a loan, then you should definitely go to a traditional bank. I’m kidding, of course. But traditional banks — and you know the names — are the most risk-averse of all lenders. They are going to lend money to businesses that have collateral, history, solid credit and the ability to pay the loans back almost without question. Interest rates and terms, assuming you meet those requirements, will always be the most favorable compared to other financing options.
Small bank loans
Besides the big banks, there are independent and community banks and credit unions all of which offer different types of loan arrangements and may be more amenable to dealing with a smaller company that isn’t as qualified to get a loan from a big bank. But still, these banks, though a little more entrepreneurial, tend to also be very risk averse and will require significant due diligence.
SBA Loans
The best option in 2023 is to seek out a loan from a lender certified by the Small Business Administration. Those loans (called Section 7a or 504) can be offered at market or slightly above market interest rates. Because most of the amounts are guaranteed by the federal government, the banks offering these loans can do so to smaller companies with less of a financial history or collateral available and are less at risk. But it’s still not a slam dunk and you’ll have plenty of hoops to jump through.
If you’re looking for a very short-term loan to satisfy an immediate financing need (a big inventory purchase, a down payment on a lease, a deposit on a new piece of equipment) you can try an online banker like Kabbage, Fundbox and OnDeck. These companies charge extremely high annual interest rates, but no sane business person would borrow from them for the long term. The upside is that these services provide funds very quickly — in some cases within 24 to 48 hours — and (as opposed to many banks) are more technology-oriented to gather data, monitor their loans and communicate issues.
Merchant advances
If you’re in the retail world then you might want to consider a merchant advance, which are short-term loans provided by popular payment services like Square, PayPal and QuickBooks Merchant Services. Your loan qualifications are determined by your actual sales volume to which these payment services are privy because, well, they’re already handling your cash. Like online lenders, interest rates are much higher than what traditional banks offer but the funds are quickly deposited in your account and payback is done automatically through the sales transactions you record with the service.
SSBCI
If you’re a very small business or a minority business owner or someone located in a lower-income part of the world then you should definitely look into the State Small Business Credit Imitative. Thanks to prior pandemic-related legislation, $10 billion is being distributed this year and next by the Treasury Department to states (based on a number of factors) that will then be allocated to local nonprofits and other organizations that support small and minority-owned businesses. You can Google your state and the State Small Business Credit initiative to find out what organizations are getting this funding and then apply directly to those organizations. Grants and equity investments are also available through this program.
Micro loans
For startups and very small businesses, you can also look for microloans offered by nonprofit organizations like Kiva, for example. These amounts are — by definition — very small but organizations like this one also provide good consulting services and can connect you to other places that offer finances for companies at your early stage.
Private lenders
Although these companies don’t charge as much interest as some of the short-term online lenders mentioned previously, interest rates are still higher but so are approval rates. Collateral — oftentimes receivables (for companies that “factor these amounts) and inventory — will be required. The best place to find these lenders (and other more traditional forms of financing) are platforms like Lendio and Fundera which offer a “marketplace” of different vehicles provided by their partners and an easy way to apply for them all.
Credit cards
What about credit card financing? You know you’ll pay a hefty interest rate but don’t knock it entirely — it may be a bad choice unless it’s for very short-term needs. Just make sure you’re not building your business around credit card debt because as interest rates continue to rise, so will credit card rates.
Family and friends
Finally, there are friends and family. A lot’s been written on this so I don’t have to tell you of the potential perils. You already know them. But getting a loan from a reasonable friend or family member can provide you with a reasonable rate of interest and flexibility. It all depends on the people involved.
The takeaway is that 2023 will be a tough year for financing. But not impossible. Just make sure you can afford it. And give yourself the flexibility to renegotiate in the future when rates do eventually come down.
Opinions expressed by Entrepreneur contributors are their own.
As a small business owner grows over the years, one aspect of finance that they often overlook is that of the ability to use investments as a means of growing revenue, increasing net worth and building the overall financial security of their business. The majority of small business owners don’t even think about this course of action because they don’t know about it, because they don’t think that they can qualify for it, or because they are unfamiliar with how it all works.
As of this writing, Q4 2022, rates are moving upward, which makes a larger purchase more expensive for a small business, and it also increases the cost of carrying balances on things like credit cards or other lines of credit. However, savings accounts and CDs will do better — but all of this could change and most likely will. So, the question becomes, how do you take advantage of this style of opportunity? And did you know that your bank, just like Key Bank’s liquidity management solutions, is designed to help you efficiently manage your short-term or long-term cash balances?
When a small business owner is newer to this type of funds management method, going basic, short-term, is a great way to start. Maybe once there is a comfort level, you can look at more long-term aspects.
Short-term is just what it sounds like, but what that translates to (for normal people) is a year or less. This can be very beneficial for many small businesses as having funds tied up for a period longer than a year can often cause a negative impact on the annual fiscal operations of a business.
Short-term cash balances can be managed in three ways:
Operational cash: cash needed for day-to-day operations. These funds are generally held in a checking account or in investments that are very liquid and provide immediate access.
Reserve cash: typically serves as a cushion for unforeseen events. The investment strategy for this is fairly conservative, and the funds are usually held in a savings account.
Strategic cash: reserved for a particular purpose and period of time and is held in time deposits or liquid vehicles to achieve a higher yield. Our Relationship Managers work with you to determine the best combination of accounts to achieve your liquidity and investment goals.
Long-term investments are just what they sound like — longer than short-term. What that translates to is over one year. But truthfully, much of what makes investments short- or long-term is how they are used on your balance sheet and also when the investments are sold.
A common form of long-term investing occurs when company A invests largely in company B and gains significant influence over company B without having a majority of the voting shares. In this case, the purchase price would be shown as a long-term investment. However, that might not be up your alley as a small business owner. So, be sure to talk to your advisor to see if any of that makes sense for you now or in the future.
Here some examples of long-term investments for a small business:
Income stock strategy: a long-term strategy that includes a range of distribution choices intended at identifying well-known entities that provide above-average distributions without big risk of default, such as large-cap and blue-chip stocks
Growth stock strategy: aims to maximize the appreciation of all the stocks in the portfolio over a period of time, such as 10 years or thereabouts
Balanced investment strategy: intended at uniting investments in a portfolio so that the risks and rewards can balance one another out. Usually, the stocks and bonds are of equal percentages of the holding for this type of portfolio. This can be a good strategy for a small business owner with a medium-risk appetite.
Real estate: a great way to add assets to the long-term growth strategy of a business as it will increase in value over time making a larger profit when the owner sells the business.
Pro-tip: Small business owners usually never consider either long- or short-term investment management for their businesses. In fact, they never even open a basic Roth or Traditional IRA because they think “I’ll sell my business for millions!” Yeah, well, it usually never happens like that. So, get with your financial advisor soon, and see what steps make sense for your business to take to grow for both the short- and the long-term.
It was 2017, the year before they got married, when Ali and Josh Lupo took a serious look at their finances — and realized they owed more than $100,000 in student loans.
Courtesy of The FI Couple
Despite working long, hard hours in human services, the couple was still living paycheck-to-paycheck, unsure how they’d afford a wedding or pay off their staggering debt.
“So we started having that conversation of: ‘Is this what we want to do for the next 30 to 40 years, or do we want to start learning how to live differently?’ And that was where our mindset around money really started to evolve,” Josh tells Entrepreneur.
The Lupos began tracking their expenses and saw they spent most of their income on rent and car payments, followed by food and dining out. Their first plan of attack? Implementing a strict budget: No date nights, no Netflix subscription, etc.
But the extreme approach burned the couple out quickly, so they went back to the drawing board. They needed to find a creative way to reduce their largest expense: housing.
Self-education led them to a solution (Ali emphasizes how many online resources, podcasts and books on financial freedom exist). If the Lupos purchased a multi-family home with a low down payment, they could dramatically decrease their monthly payments by renting out the other unit.
So that’s exactly what they did.
In the years since then, the Lupos have continued their journey to financial independence. They manage numerous streams of active and passive income, including their work as personal-finance content creators running the educational platform “The FI Couple.”
If you’re ready to get your finances on track in 2023, read on for the Lupos’ step-by-step strategy.
Define what success looks like for you
The first step is the foundation for all the rest: Figure out your unique definition of success.
The couple suggests considering what your ideal day and life look like. In other words, be clear about how financial freedom will allow you to do more of the things that make you happy.
“Our life was ‘easier’ when our heads were in the sand, ignoring everything about our finances,” Ali says. “Our lives are more complicated and harder now because we’re more in tune with all of the responsibilities that come with this. But to have the power and autonomy over our time is worth all of it, so [you have to be] clear with your why.”
Build a community that can help you stay the course
The road to financial freedom can be a difficult one, but it’s even harder for those going it alone.
Finding a community geared towards financial wellness can make all the difference, according to the Lupos.
“Unfortunately, being financially savvy is not the norm,” Josh says, “and pursuing financial independence can get lonely because a lot of people aren’t necessarily living the same lifestyle. So whether it’s in person or online, having that community of like-minded people can be really inspiring.”
Know your numbers: income, expenses, assets and debts
Another critical move?Get thoroughly acquainted with the reality of your financial picture.
As of September 2022, consumer debt in the U.S. was at $16.5 trillion, according to Bankrate. But many Americans are unaware of how much they actually owe: A 2019 survey from U.S. News found that one in five Americans doesn’t know if they have credit card debt.
The Lupos stress the value of familiarizing yourself with all of your numbers.
“So literally outlining and understanding your income, expenses, assets and debts,” Ali explains, “and having a crystal clear understanding of your financial situation.”
Figure out how to lower expenses and increase your income
Next up, consider how you might save and earn more money — “the two biggest levers a person can pull,” Josh notes.
The couple acknowledges that increasing your income significantly can seem challenging at first, but the key is to get creative.
“We decided to focus on how we could radically lower our expenses to increase our savings,” Josh says, “and doing so helped us pay off all the debt and buy real estate.”
“If you’re able to increase your income and reduce your expenses, you’ll have more of a gap in between,” Ali adds, “and what you do with that gap is the key to becoming financially independent.”
Never underestimate your earning potential either.
“Coming from backgrounds in social work and human services that are historically lower-income opportunities, for a long time we identified ourselves as people [whose] value was a little bit lower and [thought] earning more just simply wasn’t in the cards,” Josh says. “In hindsight though, [the key is] getting around the right people and understanding different opportunity vehicles.”
Consider which strategy makes the most sense for your lifestyle
It’s not enough to brainstorm a solution and go all in — part of the secret is choosing an approach that aligns with your values and priorities.
As fundamental as real estate investment has been to the Lupos’ success, the couple recognizes that it’s not for everyone.
“The goal of financial independence is to have enough assets to pay for your overall cost of living,” Ali says. “So you have to [ask], What strategy makes sense for me? Do I want to invest in stocks? Do I want to invest in real estate? Do I want to be a business owner?“
“We talk to people all the time,” she continues. “They say, ‘I want to buy real estate.’ But then we talk to them, and I’m like, ‘It doesn’t really sound like you want real estate. Because real estate’s not that passive — and it’s a little more hands-on.’ You really have to think about which investing strategy makes sense for [your] life.”
Real estate isn’t always “passive”
Then again, neither are 40-50 hour weeks at a job
At least with real estate “hard” weeks are still only 2-3 hours of work
Maybe the most important thing to keep in mind, though? Don’t forget to enjoy the journey to financial freedom.
“When we first started out, it felt like a chore,” Ali says. “Through the process, we’ve learned that the journey to financial independence is more important than the destination and that it’s really important that whatever you do to get there is sustainable and you don’t sacrifice the quality of your life to achieve [your] goal. Because then once you get to the goal, what life do you have?”
Opinions expressed by Entrepreneur contributors are their own.
Measuring brand value and equity is similar to shopping for a home as an investor. While many home valuations are based on intangibles like square footage, the number of rooms and the home’s condition, there are also a lot of intangible factors, such as style, architecture and a certain je ne sais quoi that are more subjective than objective in value.
If you’re a business looking to acquire another brand in your portfolio and struggling to calculate its valuation, I’ve outlined a few points to help you calculate the value of a brand based on its quantitative and qualitative metrics.
Before a merger, it’s vital to differentiate between brand value and brand equity when assessing total value. Brand value is the financial or market value of a brand and all of its assets. On the other hand, brand equity measures consumer sentiment and awareness of a specific brand.
Differentiating between these two metrics will help you decide how much you are willing to pay for a brand. For example, suppose you were looking to acquire a recently expanded boutique with a dominant presence in the Dallas market. In that case, their market valuation may be lower because it has a high current ratio (e.g., more debt than it could pay off at the present moment). However, if you conducted a customer survey and found that almost all of its customers were satisfied and excited to shop with the brand, you would conclude that its equity is worth more than its current market value.
Ultimately, calculating brand value and equity will provide a baseline for what you and other competitors would be willing to pay for a brand. In competitive markets, understanding present and future value will help you make a competitive bid that will satisfy both parties involved.
In addition, calculating brand value can help in several financial aspects, including:
Using a brand’s value as collateral for a loan
Understanding its tax evaluation
Tracking its financial performance
Understand areas of weakness the brand can improve in
With this in mind, let’s explore how to calculate the value of a brand using traditional financial metrics and then quantify the quality of a brand’s equity using some of these same ideas.
To begin with our valuation, we can take a few different approaches to calculate a brand’s financial value.
Market valuation: The total value of a brand’s assets, profit margin, capital structure, debt, stock price, or the comparable market value of other brands sold.
Income valuation: The estimated value of income that would result from purchasing this asset (i.e rate of return over X years)
Cost valuation: The total value of costs required to build a brand to its current valuation (e.g. raw materials consumed, marketing spend, labor costs over time)
Market valuation is similar to pricing a home, while income valuation would be similar to assessing the total profit of a rental property or passive-income instrument. On the other hand, cost evaluation provides a good estimate of the rate of return of all previous marketing and business efforts to scale a brand to its current value.
By combining these estimates with qualitative metrics like consumer loyalty, we can gain a good idea of the total value of a brand and whether or not it will be a profitable investment.
While calculating brand equity is mostly subjective, we can get rough scale estimates by assigning value to things like CLV, customer sentiment and brand awareness to quantify the total value of a brand’s equity.
Here are just a few examples of calculating brand equity in dollar value.
Customer lifetime value (CLV): Assign a value to a customer and then multiply this by the number of transactions and their average length of retention. CLV quantifies the long-term value of a brand.
Marketing ROI and brand awareness: Assign a value to each customer reached based on CLV and calculate the number of conversions for each impression against the cost spent for those total impressions.
Customer sentiment: Conduct customer surveys and invest in social media monitoring tools to assess how satisfied customers are with a brand. To quantify, you can score customers in a survey (0-10) on how willing they are to shop with the brand again, recommend it to friends or family and whether they would spend more or less on future purchases. Then, assign a value to each score to get a rough estimate of the value of total consumer sentiment.
While customer sentiment and loyalty could be more difficult to evaluate, they also provide a pretty good idea of how much money your most loyal customers provide to a business. Taking a basic Pareto approach, most specialized businesses receive about 80% of their revenue from about 20% of their total customer base.
Overall, brand equity is more a determinant of long-term brand value than short-term profitability.
With these metrics in mind, you can create a financial overview of the total value of a business and its brand equity to determine whether its future valuation justifies its current purchasing price.
While businesses could easily improve a brand’s reputation over time and opt for a lower-priced brand, your business will ultimately benefit more from purchasing a brand with a strong and loyal local presence that requires very little maintenance or costs to keep profitable.
To run a company successfully, you need to know everything about your business, including its financials. One of the most critical financial metrics to grasp is the contribution margin, which can help you determine how much money you’ll make by selling specific products or services.
More importantly, your company’s contribution margin can tell you how much profit potential a product has after accounting for specific costs.
Below is a breakdown of contribution margins in detail, including how to calculate them.
What is a contribution margin?
A contribution margin represents the money made by selling a product or unit after subtracting the variable costs to run your business.
Consider its name — the contribution margin is how much the sale of a particular product or service contributes to your company’s overall profitability. It’s how valuable the sale of a specific product or product line is.
In a contribution margin calculation, you determine the selling price per unit (such as the sales price for a car) and subtract the variable cost per unit or the variable expenses that go into making each product.
You may need to use the contribution margin formula for your company’s net income statements, net sales or net profit sheets, gross margin, cash flow, and other financial statements or financial ratios.
What does a contribution margin tell you?
The contribution margin is one of the critical parts of a break-even analysis. A break-even analysis is a financial calculation weighing costs of production against the unit sell price to determine the break-even point, the point at which total cost and total revenue are equal. Break-even analysis can help you with risk management
Break-even analyses are useful in determining how much capital you’ll need for a new product and calculating how much risk will be involved in new business activities. They are often used to determine production cost and sales price plans for different products, such as:
How much you should price specific products for.
How many products you need to sell to turn a profit (the number of units can determine whether you have a low contribution margin or high contribution margin).
How much product revenue you will generate.
The contribution margin further tells you how to separate total fixed cost and profit elements or components from product sales. On top of that, contribution margins help you determine the selling price range for a product or the possible prices at which you can sell that product wisely.
Other things the unit contribution margin tells you include the following:
Profit levels you can expect from the sales of specific products.
Sales commission structures you should pay to sales team members.
Sales commission structures you should pay to agents or distributors.
How to calculate a contribution margin
Luckily, you can calculate a contribution margin with a basic formula:
C = R – V
“C” stands for contribution margin. “R” stands for total revenue, and “V” stands for variable costs. With these definitions, the equation goes like this:
Contribution margin = total revenue – variable costs
Note that you can also express your contribution margin in terms of a fraction of your business’s total amount of revenue. The contribution margin ratio or CR would then be expressed with the following formula:
CR = (R – V) / R or contribution margin = (total revenue – variable costs) / total revenue
Fixed costs are one-time purchases for things like machinery, equipment or business real estate.
Fixed costs usually stay the same no matter how many units you create or sell. The fixed costs for a contribution margin equation become a smaller percentage of each unit’s cost as you make or sell more of those units.
Variable costs are the opposite. These can fluctuate from time to time, such as the cost of electricity or certain supplies that depend on supply chain status.
Contribution margin example
Imagine that you have a machine that creates new cups, and it costs $20,000. To make a new cup, you have to spend $2 for the raw materials, like ceramics, and electricity to power the machine and labor to make each product.
If you were to manufacture 100 new cups, your total variable cost would be $200. However, you have to remember that you need the $20,000 machine to make all those cups as well. The machine represents your fixed costs.
Now imagine that you make those cups to be sold at three dollars per unit. You can now determine the profit per unit by plugging in the above numbers:
SP – TC = Profit per unit, where SP is the sales price, and TC is the total cost.
$3 – $2 = $1 profit per unit.
In this example, the profit per unit is the same as the contribution margin. It’s how much each cup sale contributes to “real” profits.
How can you use contribution margin?
You can use contribution margin to help you make intelligent business decisions, especially concerning the kinds of products you make and how you price those products.
A contribution margin analysis can help your company choose from different products that it can use to compete in a specific niche based on available resources and labor.
For instance, you can make a pricier version of a general product if you project that it’ll better use your limited resources given your fixed and variable costs.
You can also use contribution margin to tell you whether you have priced a product accurately relative to your profit goals.
For instance, if the contribution margin for a specific product is too low, that could be a sign that you need to either increase the price as you sell the product. It could also indicate that you need to reduce the variable (i.e., manufacturing and supply-related) costs associated with that product to turn more of a profit.
Contribution margin compared to gross profit margin
Contribution margins are often compared to gross profit margins, but they differ. Gross profit margin is the difference between your sales revenue and the cost of goods sold.
When calculating the contribution margin, you only count the variable costs it takes to make a product. Gross profit margin includes all the costs you incur to make a sale, including both the variable costs and the fixed costs, like the cost of machinery or equipment.
Furthermore, a contribution margin tells you how much extra revenue you make by creating additional units after reaching your break-even point.
Put more simply, a contribution margin tells you how much money every extra sale contributes to your total profits after hitting a specific profitability point.
This is one reason economies of scale are so popular and effective; at a certain point, even expensive products can become profitable if you make and sell enough.
When should you use contribution margin?
Generally, you should use contribution margin to tell you:
If you have priced a product incorrectly.
How many products you need to sell to make a profit based on variable costs.
Whether you need to reduce operating or labor expenses related to making a product.
A negative contribution margin tends to indicate negative performance for a product or service, while a positive contribution margin indicates the inverse.
However, it may be best to avoid using a contribution margin by itself, particularly if you want to evaluate the financial health of your entire operation. Instead, consider using contribution margin as an element in a comprehensive financial analysis.
Use contribution margin alongside gross profit margin, your balance sheet, and other financial metrics and analyses. This is the only real way to determine whether your company is profitable in the short and long term and if you need to make widespread changes to your profit models.
You may also use contribution margin as an investor. Investors and analysts use contribution margins for a company’s staple or primary products.
They can use that information to determine whether the company prices its products accurately or is likely to turn a profit without looking at that company’s balance sheet or other financial information.
For instance, if a company has a low contribution margin for its essential products, it could be spending more money than it is bringing in.
Conversely, a good contribution margin may indicate that the company is an excellent operation and uses its resources wisely.
So, what are the takeaways about contribution margins?
As you can see, contribution margin is an important metric to calculate and keep in mind when determining whether to make or provide a specific product or service.
Once you calculate your contribution margin, you can determine whether one product or another is ultimately better for your bottom line. Still, of course, this is just one of the critical financial metrics you need to master as a business owner.
Businesses are primarily successful based on how much money they make or their revenue. But while anyone can roughly grasp revenue, what it means and why it’s essential, revenue as a business figure is a little more complex, especially when you compare it to other metrics like income.
Below is a breakdown of revenue in detail and how to calculate revenue using a revenue formula.
Revenue is the money a business generates from its normal business operations, things like gross sales of products and other income streams. It is calculated by looking at the average product sales price and multiplying it by the number of units sold.
For example, a car dealership’s revenue is the combined sales price for all cars it sells in a given timeframe, like a day, week, month or quarter. Total revenue is the “top line” for gross income metric on a balance sheet or company income statement.
While revenue is an essential metric, it is distinct from other key metrics such as operating income, gross revenue and total profits. The net profit, for example, is the amount of money you get to keep or count as profits based on the sale of goods.
Types of revenue
You can calculate and analyze different types of revenue for your business purposes or for calculating other ratios.
Generally, corporate revenue is subdivided according to the divisions or products that make that revenue. For instance, if you have a restaurant, you might divide and analyze your revenue by categorizing your offerings as sides, main dishes and alcoholic beverages.
Alternatively, a company can distinguish revenue by analyzing cash flow from tangible or intangible products or services. Tangible products are products you can feel and physically sell to customers, while intangible products are usually services, such as internet and cloud services.
You can further divide your revenue into operating revenue and non-operating revenue. Operating revenue is any revenue from a company’s core business. For instance, if you run a restaurant, your operating revenue is from the food and drinks you sell to customers.
Nonoperating revenue is any revenue from secondary income sources. If you run a restaurant, your nonoperating revenue could be from sales of loyalty program cards, gift cards or restaurant merchandise, like T-shirts and mugs.
Nonoperating revenue is critical to incorporate because it can be unpredictable and nonrecurring. You might, for instance, get money through a litigation victory or selling an asset.
In any case, it’s essential to divide your revenue by source and type to understand where most of your money comes from and make smarter business decisions.
Revenue vs. Income
Revenue is distinct from income, even though the two concepts are very similar. At its core, the revenue is all the money you make from your products and services.
But income is the money you “take home” or have left over after subtracting the necessary expenses to make those products and services.
This includes the cost of goods and other operating expenses, which get taken out of your revenue. In this sense, income is closer to your gross profits than revenue taken by itself.
Example of revenue
Here’s an example:
Say you create handmade jewelry for your online store or a platform like Etsy.
You have to spend $100 on materials for a single set of earrings.
When the earrings are complete, you can sell them for $150. Should you sell the pair of earrings, you’ll make a profit of $50.
In this sense, your revenue is $150, but your income is only $50. Understanding these distinctions can help you grasp your finances more accurately and responsibly.
Note that even though income is vital to calculate, it needs to consider the time or cost of labor that is not accounted for in salaries.
Again, say you run your own business and don’t employ anyone. While you can calculate income by subtracting the material expenses you have, you won’t be able to tally up the cost of your labor unless you pay yourself a salary.
Why and when is revenue important?
Revenue is essential because it helps a company understand how much money has been brought in over the last quarter, month or timeframe.
Businesses can’t make wise decisions regarding employee salaries, product purchasing and other expenses without knowing how much money flows into their coffers.
Revenue is the top-line income metric because it appears first on any corporate income statement. When you hear “top-line growth,” you can translate it in your head to “revenue growth.”
It’s contrasted with net income, also called the bottom line income metric. Income, as mentioned above, is a company’s revenues minus expenses.
Contrasting these two numbers can help companies understand how much money they spent to earn their profits. It’s one of the central accounting principles that should guide your business activities.
While revenue is significant, it cannot and should not be considered in isolation. Instead, you should look at revenue in conjunction with other metrics so you can understand the total financial health of your business relative to other organizations or your business goals.
For example, if you have high revenue, such as $1 million per quarter, you might think that you are earning a lot of money.
But when you compare your revenue to your net income, which is just $20,000 per quarter, you’ll notice that you aren’t taking home a lot of money relative to your expenses or the costs of doing business.
Armed with information about revenue vs. profit, you can then make decisions such as:
Decreasing your expenses in some way.
Offering new products or changing the way you price your products.
Revenue, along with profit margin, is an integral part of forecasting, fundraising from investors and accrual accounting, all of which consider a company’s financial health.
How can companies increase revenue?
Companies can increase revenue in a variety of ways. For example, a company can try to reduce its operating expenses by laying off employees, finding better supply chain arrangements or streamlining or simplifying the manufacturing process to make producing each business unit cost less.
Alternatively, companies can increase revenue by increasing the cost of each unit sold. They may increase prices by a certain amount to bring in more money.
This tactic, while risky, can be successful if a company’s target audience members are willing to spend more money on the same products for one reason or another.
How to calculate revenue
You need to know how to calculate revenue if you are to analyze it properly.
Fortunately, you can use a simple revenue calculation formula to get this metric, no matter how many things you have sold or how much money you have made.
Note that this revenue formula is helpful and generalized, but service companies, production companies, and other corporations may use different formulas.
An excellent basic revenue formula to use is:
Net revenue = (quantity sold X unit price) – discounts – allowances – returns
Here’s a more detailed breakdown of this formula: net revenue is what you are trying to find.
The discounts are any discounted prices you have to account for, such as when selling products on sale.
Allowances are other monetary benefits afforded to customers, such as store credit. Returns are subtractions to your revenue because you give back money to a customer.
To complete this formula, you first multiply the units sold by the unit price for each unit. Say that you are trying to find the revenue for selling a batch of glasses from your business.
You sell each glass for $50, and you sell 75 glasses in total. You end up with a revenue of $3750.
However, you need to subtract any discounts, allowances, or returns that may have impacted that revenue number.
Say that one of your customers returned 10 of the glasses because they ended up needing fewer. You have to subtract $500 from that total, resulting in a new total of $3250. Remember, this is just your revenue, not your income or profits.
Essentially, you can always calculate revenue by calculating how much money you made, then subtracting any expenses, discounts or other elements that might reduce how much money you take home or put in the bank.
When should you calculate revenue?
You or your accountant should calculate revenue at the end of each quarter at the bare minimum. Revenue is a crucial element of any balance sheet, which collects essential metrics and shows you your company’s financial health.
However, you can calculate revenue whenever you need to understand the relationship between the money you bring in and the money you spend to make that profit.
Whether you should decrease or increase your labor salaries or lay people off.
Whether you should reduce the prices of your products to drive sales.
Whether you need to take other, more drastic measures to improve the profitability of your company.
If you have an accountant, they may calculate the revenue for you automatically or regularly. However, it may be wise to calculate revenue regularly.
Since it’s only accurate for a short period, regularly calculating revenue could help you see how your company evolves or see what “good” revenue looks like compared to “bad.”
Summary
Revenue is just one part of a company’s overall balance sheet. While important, remember to be careful about calculating revenue in isolation; instead, consider analyzing it in conjunction with other metrics such as income, gross profits and expenses.
Running a business and understanding your finances is an ever-evolving, ongoing process.
Opinions expressed by Entrepreneur contributors are their own.
The collapse of the crypto exchange platform FTX is sending shockwaves into the metaverse. The cryptocurrency exchange was once thought of as a stable and responsible leader in an industry which is often fast-changing and unregulated. In the wake of its failure, many wonder what the implications will be on the metaverse.
While this moment for FTX will likely be viewed as a learning moment for crypto, metaverse and Web3 organizations and projects, it will also probably be seen as a huge opportunity that some saw for what it was while others missed it entirely. It’s essential to recognize that this is a great time to consider what’s possible in the metaverse and how you can best take advantage of it through your personal brand.
The metaverse is only just beginning to take shape. As exciting as the VR and AR experiences offered today are, these are only the embryonic stages of what’s to come. A recent survey showed that 54% of experts expect the metaverse to be a refined and immersive aspect of daily life for a half billion or more people globally by 2040. This would be a cultural shift similar to the rise of the internet.
As the metaverse develops, AR and VR experiences will be better able to reach and serve consumers than current technologies can. These new technologies will become a more significant part of our lives and offer users opportunities to purchase virtual and physical goods, travel and even receive healthcare.The metaverse will be an expansion of our daily lives.
In this post-FTX moment, it’s possible that users will spend less in metaverse contexts because of FTX’s challenges on many cryptocurrency holders. This isn’t much different from the effects of an economic downturn, and it isn’t permanent. There will be an impact that’s widely felt, but it won’t last forever, and this momentary setback shouldn’t cloud our vision of what the metaverse will become.
Now is the time to gain positioning in the metaverse. This technology will be a massive part of the future and offers unique opportunities to shape your brand and connect with consumers. Our lives are increasingly happening in a hybrid of on- and offline spaces. Don’t let fear prevent you from getting a foothold in this important space.
A lack of clarity on many levels made the end of FTX particularly shocking to many. The lack of clarity makes it seem like this came out of nowhere. An important lesson to learn here is that clarity is vital to the success of CEOs in metaverse and crypto spaces. People want to know what’s going on. They also need to have things explained to them in a way they can understand.
The metaverse creates new opportunities to garner connections with customers and clients. Much like social media, the metaverse blends social connection and commerce in a way that allows people to connect with your brand on a human-to-human level. These connections can generate value for you and your customers and clients in new ways through the metaverse.
Because the metaverse technology is so new, it’s easy to get caught up in the spectacle of the metaverse itself. Keep in mind, however, that customers value quality, authenticity and clarity in the virtual world just as much as they do offline. These things should be central to your brand –– they will help your customers to ease into the new world of the metaverse.
Now is the perfect time for a reboot. Valuing clarity means being honest with users and customers about your business’s operations and values. This moment is an opportunity to show how things work behind the scenes. 58% of Americans say they do not understand the metaverse and NFTs –– you can be the one to guide them through this new world and get them excited about it.
Be clear, simple and engaging when it comes to the metaverse. Go off the beaten path when communicating about crypto, NFTs and the metaverse. Emphasize user experience, and get people excited about what you’re doing in the metaverse. Don’t get overly technical; show users and customers that these spaces can be fun and easy to understand.
The fall of FTX will certainly have an economic impact within the metaverse since crypto is central to the financial functions of most metaverse platforms. These impacts won’t last forever, though –– economic recovery will occur over time. That being said, this is only one that we will see in the metaverse.
It will take time to build back trust with investors. The days when the metaverse was seen almost as a get-rich-quick investment by venture capitalists are likely over. Investors will be pickier and more careful about the NFT, crypto and metaverse-based companies and products they choose to invest in.
Clarity will be necessary to build back trust. Branding that emphasizes authenticity, transparency and clarity will connect with investors who feel less trustworthy of the metaverse. Investors will want to take advantage of the lower investment price in the metaverse we’re seeing right now. The opportunity is there; you just have to be willing and able to close the gap in trust.
Crypto got its start in the wake of the financial crisis of 2009. It originates in people’s desire for decentralization, clarity and trust. Crypto is fundamentally adaptable, and it is still growing. Recovery is already happening. Remember where crypto came from and what its purpose is. Remain calm, emphasize clarity and trust and connectivity will continue to grow.
When you want to know a company’s financial health, it helps to look at its balance sheet. But if you’ve never seen a balance sheet before or don’t know how to read one, all you’ll see is a collection of impenetrable numbers and strange terms.
You’ve likely heard about line items and balance-sheet-related terms like working capital, net income, net assets or bonds payable; however, without a cursory understanding of how balance sheets work, these terms can confuse you.
This article will solve that by breaking down balance sheets in detail, explaining what a balance sheet is, and how it works, as well as showing you some balance sheet examples.
A balance sheet is a detailed financial statement that breaks down all of a company’s assets, liabilities, and equity at a specific time, such as the end of a month, the end of a quarter or the end of a year.
You can also make balance sheets for “random” points in time to see how a company is doing at any given moment. No matter when you make one, a balance sheet allows you to evaluate a business’s capital structure and determine how profitable it is relative to its expenses.
Think of a balance sheet as a snapshot exploring what a company owns and owes and how much shareholders invest.
Balance sheets, combined with other financial statements, allow investors and business owners to analyze business performance and make the wisest decisions possible.
All balance sheets are comprised of three primary sections — here’s a detailed breakdown of each:
Assets
First, you’ll find a breakdown of the company’s assets. The assets are everything that a company owns that has a dollar value. More specifically, a company can turn assets into cash at some point.
Current assets can impact a company’s financial position and can include the following:
Money in business checking accounts.
Physical products and equipment, such as inventory.
Prepaid expenses.
Short-term investments.
Money in transit, like money from invoices.
Accounts receivable, which is any money owed to a business by its customers.
Cash equivalents, like stocks, bonds, marketable securities, and foreign currencies.
However, this is by no means a comprehensive list of all total assets, which would also include non-current assets (long-term investments) that a company does not expect to liquify within a given fiscal year.
Additionally, assets can be tangible things, such as business buildings or equipment.
Intangible assets include things like intellectual property, copyrights and trademarks. Note that tangible assets are usually subject to depreciation, so they lose value over time.
Assets may be further broken down into both long-term and short-term assets. You can sell short-term assets relatively quickly, typically in less than a year.
They include the majority of the assets described above. Long-term assets are things like buildings, land, corporate machinery and equipment.
Liabilities
Next on a balance sheet should be liabilities. Liabilities are any of the financial debts or obligations that a company has. Liabilities should be listed by the due date, with the debts or liabilities that are due the soonest listed on top.
Total liabilities can include but are not limited to:
Taxes owed, including upcoming tax liabilities.
Accounts payable or money owed to suppliers for items purchased on credit.
Employee wages for hours already worked.
Loans you must pay back within a year.
Credit card debt.
Liabilities can be broken down into current liabilities and non-current liabilities. These are essentially long-term liabilities that don’t have to be paid back or settled within the year and can include the following:
Long-term debt or loans.
Bonds issued by a company.
You’ll need to calculate all liabilities to complete balance sheet accounting equations, practice good bookkeeping and complete or calculate other financial ratios using programs like Excel or others.
Equity
Equity is the other significant section of a balance sheet. It’s any money currently held by the company. It can be called shareholders’ equity, stockholders’ equity, owner’s equity or similar names. In any case, this balance sheet section should break down what belongs to business owners and the book or monetary value of any investments.
Equity can include:
Capital in the business — this is how much money the owners have invested into the business.
Public or private stock.
Retained earnings, which can be calculated by adding up all revenue minus expenses and distributions.
Note that equity may decrease if an owner takes money out of the company to pay themselves. Equity can also decrease if a corporation issues dividends to shareholders.
All three of these sections combined to tell you what the company owns, what it can turn into cash if it sells those things and what debt obligations it has or the money it owes.
Major balance sheet equation
In a broad sense, every balance sheet’s numbers should add up properly according to the following equation:
Assets = liabilities + shareholders’ equity
All of the company’s remaining assets are the same as its liabilities, added with the equity from its shareholders. The company has to pay for all these things by borrowing money (i.e., liabilities) or by taking value from investors (i.e., issuing shareholder equity).
How does a balance sheet work?
Balance sheets provide clear-cut, mathematically accurate information about a company’s finances for a given moment. For instance, if a potential investor wants to know whether a company is a good investment, they may request a balance sheet.
The balance sheet can tell them:
What the company owns, and what its general profits are.
What the company owes in terms of debt or liability, which can tell the investor whether the company is a risky investment.
What the equity in the company is, which tells the potential investor whether investing in the company may provide them with profits later down the road.
Investors can use different ratios and formulas using the numbers on a balance sheet to determine a company’s financial well-being. These include debt-to-equity ratios and acid test ratios.
Along with an income statement, an earnings report, and a statement of cash flow, an investor has everything they need to determine the state of a company’s finances.
Whether you’re an investor or business owner, remember that a balance sheet should always “balance.” This is where balance sheets get their names.
Put more simply, the company’s assets should equal liabilities and shareholder equity.
If for whatever reason, the numbers on a balance sheet do not balance, there are problems, which can include:
Inaccurate or incorrect data.
Misplaced data (such as one number being put in a spot where it should be somewhere else).
Errors with inventory or exchange rate.
Miscalculations.
Deliberate falsifications on the part of shareholders, company owners, or accountants.
Why are balance sheets important?
Balance sheets can be essential for every company, regardless of size or operating industry, because of their many benefits.
In short, balance sheets help investors and business executives determine risk. Because it is a comprehensive financial statement, it explores everything that a company owns and everything that the company owes in terms of debt or liability.
In this way, someone looking at a balance sheet can easily assess the following:
Whether a company has overextended, such as whether it has borrowed too much money.
Whether the company has enough liquid assets to pay off its debts in the event of liquidation.
If the company has enough cash on hand to meet current debt obligations.
Balance sheets are also important because they are a prime means to secure investment capital. Business owners usually have to provide balance sheets to potential investors, whether individual investors or large corporations like banks and credit unions. No investor is likely to put money into a business unless they look at a balance sheet first.
In the long term, balance sheets are essential tools that managers can use to determine profitability, liquidity, and other metrics for their company.
Once they have this information, they can make wise decisions, such as paying down company debts instead of expanding during a costly, risky period of time.
What might you need beyond balance sheets?
Balance sheets are excellent financial documents to have and understand, but you can’t just use these to understand the company thoroughly. There are some limitations and drawbacks to balance sheets.
For example, balance sheets are static, so they have to be updated regularly. Because of this, an out-of-date balance sheet may not give an accurate picture of a company’s financial health. A company might look financially healthy on one day and appear to be heading toward insolvency on another.
Because of this, it’s a good idea for investors, business owners, and managers to also acquire cash flow statements, income sheets, and other financial documents if they want to determine a company’s holistic, comprehensive health.
Balance sheet example
The best way to truly grasp balance sheets is to look at concrete examples. While you can create balance sheets using Microsoft Word and other word processors, you can also check out premade sample balance sheets from Accounting Coach.
These example balance sheets include fake corporations with real numbers and equations. They also include balance sheets in different forms, such as account form balance sheets and report form balance sheets.
Check out these example balance sheets to see how these documents should look when correctly filled out. Try filling in a balance sheet template like your company’s balance sheet to get a practice picture of your company’s financial position.
So, what are the takeaways about balance sheets?
Balance sheets are relatively easy to scan once you know what to look for.
More importantly, balance sheets can tell you a lot about the company’s financial health and help you make wise business or investment decisions depending on your goals.
Running a business means more than just reading your balance sheet accurately, though.
Opinions expressed by Entrepreneur contributors are their own.
Forecasters are growing increasingly confident that a large-scale economic downturn is imminent. In a recent Bankrate survey, economists placed a 65% chance of a recession in 2023. Meanwhile, a mid-November American Association of Individual Investors survey showed nearly twice as many investors predict that the stock market will go down in the next six months than those who think it will rebound.
One of the latest economic watchers to sound the alarm is Bloomberg, whose forecast models show a 100% chance of a recession. All this is to say that it’s nearly impossible to know exactly when a global recession will begin — or how long it will last.
But while past performance does not guarantee future results, historical data can help investors predict how certain assets might hold up in times of turmoil. As we head into the New Year, here’s why you might want to consider real assets to help safeguard your portfolio from the uncertainty ahead.
Historically speaking, stocks and bonds tend to have a negative correlation with each other, meaning if stocks take a turn, bonds should still hold their value and vice versa. Typically, the two act as a hedge against one another. That’s not necessarily the case in today’s environment.
Following the Fed’s decision to begin raising interest rates, coupled with growing fears of a potential recession, both stocks and bonds have experienced massive sell-offs this year. As a result, the values of both assets have dropped in tandem; year-to-date, the S&P 500 is down nearly 18% while the Bloomberg U.S. Aggregate Bond Index has surrendered about 13%.
As two of the most common asset classes gear up to finish the year with net losses — which would be the first time since 1969 — traditional portfolios may be in for a painful drawdown.
Across the board, investors are increasingly looking for non-correlated assets to help cushion their portfolios in times of volatility.
Real assets, such as real estate, infrastructure and farmland, have historically low or negative correlations to traditional stocks and bonds, as well as to each other, meaning they are not often exposed to speculative trading in public markets. In the last three decades, farmland, for example, has had a -0.06 correlation to stocks and -0.24 to bonds, according to research from my own firm, FarmTogether.
As a result, these assets can offer welcome diversification for investors looking to create distance between their portfolios and the markets.
Capital preservation
For nearly 30 years, real assets have provided similar or higher average annual returns than stocks, and with much lower volatility, resulting in historically higher risk-adjusted returns. From 1991 to 2021, average annual real estate returns had a standard deviation of 7.73%, while S&P 500’s was over 16%. Meanwhile, farmland’s standard deviation was just 6.75%.
This stability is largely driven by a host of factors, including real assets’ intrinsic value, comparatively lower level of uncertainty around future cash flows and long-term structural trends driving values upward. The demand for necessities, like shelter, food and energy, for example, is inelastic, meaning it tends to remain consistent throughout the year. In turn, the value of these assets is not likely to experience swings like those seen with the markets.
During the 2008 Global Financial Crisis, the Dow Jones dropped 54%. By comparison, gold values actually increased in value by 4%. Today, despite stocks and bonds both showing negative returns this year, the NCREIF Real Estate and Farmland indices have returned around 9% and 6% year to date, respectively.
In addition to their physical value, many real assets have the potential to deliver passive income through operating or rental income. Global real estate has historically generated an annual cash yield of 3.8%, while infrastructure investments have yielded 3.3%. Farmland cash receipts from the sale of agricultural commodities are forecast to be up $91.7 billion in 2022, to $525 billion, a 21.2% increase from last year.
While inflation cooled to 7.7% in October, the inflation rate is not projected to return to the Fed’s 2% target until the end of 2025, with some econometric models still showing 3%+ inflation through 2024. With many signs pointing to continued inflation, investors may find refuge in real assets.
The value of real assets is ultimately derived from their physical characteristics, meaning they’re more likely to retain long-term value than other, more traditional investments.
But this unique quality of real assets is even more attractive when you combine the limited supply of natural resources with the rising demand from a growing population, which just topped 8 billion people last month. With stable supply-demand dynamics, real assets are well-positioned to increase in value year after year.
Also, because real asset returns are inherently tied to commodity prices, which tend to move in lockstep with inflation, these investments have had a historically positive relationship to inflation indices like the Consumer Price Index (CPI). Simply put, when the CPI rises, so too should the value of your investment; over the last 20 years, real assets have historically outperformed traditional investments in inflationary environments.
Preparing for a potential recession
In an increasingly uncertain market, real assets can present an attractive opportunity for investors in 2023 and beyond. By expanding into real assets, investors have the potential to help spread overall investment risk, generate historically attractive returns and help hedge against persistent inflation.
And thanks to the rise of real asset investment managers in recent years, investors now have access to a wide variety of investment channels and diverse opportunities.
Contributing to a 401(k) may be one of the smartest things you can do to set yourself up for a comfortable retirement in your golden years.
However, unlike simply stashing money in a savings account, you can only put so much into your 401(k) retirement plan each year due to 401(k) contribution limits.
Unfortunately, things get a little more complex because the government changes the contribution limits for 401(k)s yearly. Here, you’ll get all the necessary information about 401(k) contribution limits for 2023.
What are 401(k) contribution limits?
Put simply, 401(k) contribution limits are federally capped maximum contribution amounts that you can put toward a 401(k) retirement plan. In other words, you can’t funnel every extra dollar you have in your salary toward your 401(k) plan beyond your annual contribution limit.
There are tax advantages for retirement plans, and higher-paid workers can afford to allocate more funds toward 401(k) and other plans. Limits are put in place to prevent these wealthy individuals from disproportionately benefiting from these plans, which offer tax advantages at the expense of the U.S. Treasury.
When you invest in a 401(k), you put money toward your future by:
Giving your money to the managers of a 401(k) retirement plan.
Those managers then use that money to invest in various stock market assets, like mutual funds.
401(k) managers traditionally invest in relatively safe, slow-growth assets that aren’t ideal for earning a lot of money quickly. But they are beneficial to you in ensuring you have enough money to enjoy your golden years.
Plan limits prevent individuals from gaming the system, especially by taking advantage of employer-matched contributions.
The IRS also does this to prevent highly compensated employees (HCEs) from taking advantage of employee contributions to inflate their after-tax savings or to scheme the income tax system.
Many 401(k) plans allow your employer to match your contribution to a set limit (usually a certain percentage or dollar amount).
For instance, if an employer volunteers to match your 401(k) contribution up to 3%, and you earn $2,000 every month for your salary, you can put 6% of that salary’s value toward your 401(k), or about $120.
If there weren’t any compensation limits, people could try to take more money from their employers by contributing more and more money into their retirement accounts.
To recap, 401(k) contribution limits stop people from taking advantage of 401(k) plans and their monetary benefits. However, contribution limits for 401(k)s don’t usually stay the same. Instead, they change continuously to keep up with inflation and other economic circumstances.
Do These Limits Apply to Other Retirement Plans?
Yes. Generally, 401(k) contribution limits apply to any other “defined contribution plans.”
These are plans that have defined contribution limits or policies, and they include:
403(b) plans, which are retirement plans typically used by nonprofit and educational workers.
457 plans, which local and state government employees use.
Thrift Savings Plans, which the federal government offers.
401(k) contribution limits for 2023
With that said, it’s essential to know the 401(k) contribution limits for 2023 so you can plan for how much you’ll invest or how much you’ll deduct from your employment paychecks.
Here’s a breakdown of the 2023 401(k) income limits:
$22,500 — maximum salary deferral or automatic contribution limit for workers.
$7,500 — maximum catch-up contributions for any workers aged 50 and up.
$66,000 — total contribution limit for the year overall.
$73,500 — total contribution limit, including the catch-up contribution mentioned above.
In other words, you can divert a certain percentage of your salary with each paycheck up to $22,500 plus $7500 if you are 50 or older. However, your employer can contribute extra money to your 401(k) up to a maximum of $66,000.
How did 401(k) contribution limits change from 2022?
Because inflation has affected the US economy, the 401(k) contribution limits above have changed from 2022.
For instance, the 2022 salary deferral limit for workers was $20,500, representing a $2,000 increase in 2023. Similarly, the catch-up contribution limit for all workers 50 and older was previously $6,500 but is now $7,500.
The total contribution limit was $61,000 and $67,500 for total contribution limits and total contribution limits plus catch-up contributions, respectively. As you can see, the 401(k) contribution limits changed for 2023 by adding a few thousand dollars here and there.
It’s not a massive change, but if you invested early and wisely, that money could be worth hundreds of thousands or millions of dollars by the time you withdraw it after retirement.
Employer contribution limits for 2023
In most 401(k) plans, employers contribute to their employees’ retirement plans up to a certain amount. Employers have much higher maximum contribution limits.
The maximum amount you can contribute to a 401(k) plan (between you and your employer) is $66,000 in 2023. This limit was $61,000 in 2022.
Because of this, employers can contribute much more money to your 401(k) plan than you can, but this isn’t typically what happens. Instead, most employers offer relatively meager or moderate 401(k) matching contributions.
Don’t expect to add $66,000 to your 401(k) plan yearly. However, if an employer does offer a retirement benefit to this effect, consider taking them up on a job offer to maximize your retirement savings.
Are there differences between traditional and Roth 401(k) contribution limits?
No. Whether you have a traditional 401(k) or a Roth 401(k), your contribution limits are the same. The only difference between these two types of 401(k) retirement plans is whether you are taxed on your contributions or tax on your withdrawals.
Your contributions are tax-deferred with a traditional, employer-sponsored 401(k) plan, and you can deduct those contributions from your gross income each tax year. This elective deferral may let you max out your contributions each year.
However, when you withdraw money from your traditional 401(k), you must pay taxes on those contributions.
If you end up in a higher tax bracket when you retire because of how much money you have saved up, you could have to pay much more in taxes than if you had initially paid taxes on your deductions.
Roth 401(k) plans are the opposite. With a Roth 401(k), you pay taxes on any of your retirement plan contributions in the tax years you earn them. In exchange, you don’t have to pay any taxes on your Roth 401(k) withdrawals later down the road.
Therefore, Roth 401(k) plans are usually more profitable and affordable in the long run, but they place more of a financial burden on you in the short term. But remember, there aren’t any changes or differences in contribution limits between both plan types.
What is the ideal amount to contribute to your 401(k) plan?
Generally, you should contribute as much to your 401(k) plan as possible up to the contribution limit. But the ideal retirement contribution percentage can vary depending on your age, the cost of living, and your personal finances.
For example, it may be a good idea to contribute between 10% and 15% of all your gross income toward retirement. You can contribute this amount toward a 401(k) or a 401(k) combined with an IRA (individual retirement account) in your 20s and 30s.
If you are behind in retirement savings in your 40s or 50s, consider contributing more to your 401(k) account. If you’ve already hit your 401(k) plan limit, look into alternatives like IRAs or Roth IRAs.
Both IRAs and Roth IRAs also have contribution limits. But IRA contribution limits are separate from your 401(k) contribution limits. For instance, if you can only contribute $22,600 to your 401(k), you can still contribute another $6500 toward your IRA (the contribution limit for traditional IRA and Roth IRA accounts in 2023).
Don’t forget Social Security, too. Depending on how many calendar years you worked and your taxable income, you could receive additional funds in retirement.
Summary
Contribution limits for 401(k) plans have increased since 2022. Since these limit changes are meant to keep up with inflation, that’s a good thing for millions of Americans who rely on 401(k)s to help them save money for retirement.
Still, there’s much more to saving successfully for retirement than simply putting cash in your 401(k).
