Molly MacDonald is founder and CEO of The Pink Fund, a nonprofit that provides financial aid to breast cancer patients.
As a breast cancer survivor, she offers the following ten tips to others who are eager to launch nonprofits around causes that are dear to them:
Start out by volunteering your time. You may have to work for nothing for the first year.
Go slow. Some people will applaud your mission but will hang back before offering funding until they see that you’re successful.
Invite a well-known speaker to an event. Bringing in someone with a following could gin up interest in your nonprofit when you’re just starting out and under the radar.
Create a vision board to inspire you. That’s a collage on a big white poster board with images and magazine cutouts that home in on your dreams and goals for your nonprofit.
Use your connections to get the word out through the media. MacDonald got one of her former
employers, the Detroit Free Press, to run a story on her effort, and more than a dozen other newspapers picked it up.
Seek out nonfinancial donations or barter for services. The Pink Fund’s office space, legal work,
brochure, and website are all donated. Even its logo was designed by one of MacDonald’s friends in exchange for a table.
Make sure your financials are in good shape. Run a lean organization, keep impeccable records, file your taxes on time, and have a treasurer who advises you on how to spend money and stay within your budget.
Develop an intern program. It saves some costs and gives interns work experience for ten weeks or so.
Use social media relentlessly. Follow people on Facebook, Google+, LinkedIn, and Twitter to network and tap into their collective knowledge.
Network, network, network. Attend community events and volunteer to speak at local Rotary Clubs and similar organizations. You never know who you’ll meet or where your networking will lead.
You can read Molly MacDonald’s story along with expanded tips at www.kerryhannon.com/?p=4214.
Getting help: Organizations that support social entrepreneurs
When you’re starting a nonprofit, you’re not alone. Many people have traveled the path, and
almost everyone wants you to succeed. After all, you’re striving to make the world a better place.
One of the first steps is to get schooled in how to become a social entrepreneur and how to start a nonprofit. Here are several resources to check out:
The Bridgespan group (www.bridgespan.org) offers information and guidance along with support and networking opportunities to help you get started.
The Chronicle of Philanthropy (www.philanthropy.com) provides information and advice for leaders of philanthropic enterprises. You can also use this site to recruit people who want to work for a nonprofit.
CommonGood Careers (www.commongoodcareers.org) recruits for nonprofit careers at management level.
Encore.org (www.encore.org) is a go-to site for anyone interested in a career with social meaning and purpose; it includes a list of nonprofit job opportunities.
GuideStar (www.guidestar.org) is a leading source on nonprofit organizations.
Idealist (www.idealist.org) provides leads to more than 10,000 job opportunities
nationwide in the nonprofit sector. This is a great place to go to recruit volunteers and interns.
Independent Sector (www.independentsector.org) has research and resources of more than 600 charities, foundations, corporations, and individuals.
The National Council of Nonprofits (www.councilofnonprofits.org) is a network of state
and regional nonprofit associations serving more than 20,000 organizations.
Exploring Franchising Opportunities
Many who are eyeing a second career fancy the idea of running their own business. Yet the risk and work involved in starting a business from scratch can be daunting. One way to ease into entrepreneurship is to purchase a franchise. Many franchises provide a full range of services, including site selection, training, product supply, marketing plans, and even assistance in obtaining financing.
But franchising can be a tricky and expensive road. An initial investment ranges from tens of thousands of dollars up to $500,000. And it’s not unusual to hear franchisees gripe about ongoing royalty and advertising fees. For example, to own a Subway franchise store costs an estimated
$116,000 to $263,000 in the United States. On top of that, however, franchisees pay fees of 12.5 percent of gross sales (minus sales tax) every week to corporate headquarters: Eight percent is for franchise royalties, and 4.5 percent goes to advertising. That’s a lot of bread.
This section sheds light on franchising opportunities and offers advice on how to get started and what to watch out for.
Don’t rush in
One of the biggest mistakes franchisees make is to hurry into business without doing enough research and soul-searching to determine whether franchising is right for them or whether a certain franchise is really a good match. Don’t let the fear of missing out on a golden opportunity drive you to make a rash decision.
Take your time to evaluate your options and research franchises you may be interested in buying, including talking to other franchise owners, particularly owners of the same franchises you’re interested in. Find out what they like and dislike about the franchise. For more about reality-testing a franchise opportunity, see the later section “Do your due diligence.”
Do a self-assessment
Buying a franchise is a huge time and money commitment. You’re putting tens or even hundreds of thousands of your own dollars on the line and will be working 60 or more hours every week to make your franchise a success. Before making that commitment, answer the following questions:
Is this concept, product, or service something I’m passionate about? The answer had better be yes, because passion provides the drive to help you overcome the inevitable setbacks and frustrations.
Am I prepared to work hard? Although the franchisor provides you with a ready-made business, its success is entirely up to you. You need to show up and work hard to satisfy your customers and attend to all the details of running a business. The franchisor won’t do that for
you.
Am I customer-focused? To succeed, you need to be honest, fair, personable, service-
oriented, and customer-focused. If you’re not, you’re more likely to drive away customers than attract them.
Am I optimistic and confident? Optimism and confidence are contagious and convey to customers and clients your belief in the products and services you’re selling.
Do I have the skills to run a business? Franchisors are looking for people with transferable business skills, such as sales, marketing, management, communication, customer service, and an ability to balance the books.
Am I a quick learner? The learning curve is steep. You need to be able to read and follow instructions and “catch on” to the way the franchise wants the business run.
Am I willing to follow orders? As explained next, franchisors make the rules, and franchisees follow them. If you’re not comfortable with that, you may be better off starting your own
business.
For more on navigating the world of franchising opportunities, check out Franchise Management For Dummies, by Michael Seid and Joyce Mazero (Wiley, 2017).
Accept that you don’t call the shots
Franchising is a cookie-cutter approach to expanding a business. It’s important to realize that, regardless of the sales pitch, you’re not really your own boss. You must follow the formula.
There’s little wiggle room for innovation. Franchises depend on the by-the-book execution of a business plan. For the most part, you have to be willing to do what you’re told. And if you don’t, you could lose your right to own the franchise.
Franchise guidelines may cover site selection, marketing materials, signage, employee uniforms, bookkeeping procedures, sales area, which vendors you use, and more. If you’re independent and like to call the shots, franchising may not be your thing.
Do your due diligence
When researching franchise opportunities and narrowing the field, perform your due diligence to select a franchise that’s likely to succeed and meet your goals. To perform your due diligence, take the following steps:
1. Gauge demand for the franchisor’s products or services.
Is there a need in your community that’s not being met or a problem that’s not being addressed that the franchise is uniquely positioned to meet or solve?
2. Assess potential competitors.
Are other businesses addressing the same need or problem successfully within your community or online? What makes the franchise you’re considering that much better that potential
customers would choose it over what’s already available? If the franchise has competitors and isn’t significantly better than them, cross it off your list.
3. Evaluate brand recognition.
Does the franchise have a strong brand presence and a good reputation in your community for delivering quality products and services? Do people talk about a desire to have that particular brand available locally?
4. Search the web for complaints about the franchise.
Visit the franchise’s website and find it on Facebook, LinkedIn, and Twitter, and read what others (customers and franchisees) post about it. Search the web for the company’s name followed by “complaints” or “rip-off” to find out what customers and perhaps former employees and franchisees have to say about the franchise. Check also with the Better
Business Bureau or local consumer protection agency for any complaints that have been filed.
5. Find out how long the franchise has been in the franchising biz.
A long track record proves that the franchise is doing something right.
6. Find out how supportive the franchise is.
Support often comes in the form of training and advertising. In addition, some franchises may offer financing to get up and running. If you get the feeling that the franchisor is more interested in its own wealth at the expense of franchisee success, cross it off your list.
7. Obtain and read the franchisor’s disclosure agreement.
It provides contact information for previous purchasers in your region, audited financial statements, a breakdown of start-up and ongoing costs, and an outline of your responsibilities and the franchisor’s obligations. Pay close attention to the pages in the document showing franchisee turnover. Names and phone numbers of former and current franchisees in your area should be listed.
Check whether the franchise you’re exploring has the SBA’s stamp of approval (www.sba.gov/content/franchise-registry-approved-brands). SBA-approved franchises are ones whose disclosure agreements have been reviewed and accepted by the SBA.
8. Contact current and former franchise owners.
Ask them what they like and dislike about the franchise and what they think could be done better. Contacting former franchisees may take some legwork, but the key is to find out why they’re no longer in business.
Interview franchisees in person. Chances are that they’ll be more forthcoming in a face-to-face meeting. Be aware that some may have signed confidentiality agreements that prevent them from talking to you.
Consult an accountant or attorney with experience in franchising to help you gauge the entire franchise package, including costs, projected profits, tax implications, and your ability
to sell the franchise later, if desired.
Be sure you have enough money
How much can you afford to lose? Do you have a financial cushion or another source of income to cover your living expenses for a year or more? If not, pump the brakes. Create a budget and figure out how much you will need to live on while your start-up gains traction.
Although some franchises break even quickly, most take 12 months or longer before a newcomer can draw a salary. The initial fee for a franchise is clearly stated in the disclosure documents, but newcomers often underestimate operating costs.
Consider getting a loan
Many franchisees take out a loan to cover initial investment and start-up costs. You may want to try a bank where you’ve been a longtime customer or one that’s familiar with the franchise field.
Applying for a preapproved franchise loan is often easier and quicker. To find the green- lighted list, go to the Franchise Registry (www.franchiseregistry.com) or to
FRANdata.com (www.frandata.com). You can search by name if you have a certain franchise in mind or by industry. Plan on a down payment of 20 to 30 percent of the loan amount.
Check out additional resources
For more information and guidance on buying and running a franchise, check out these resources:
American Franchisee Association (AFA) at www.franchisee.org is a national trade association of franchisees and dealers with more than 7,000 members.
American Association of Franchisees & Dealers (AAFD) at www.aafd.org has developed fair franchising standards for franchisors and franchisees to adopt.
Blue MauMau (bluemaumau.org) presents accounts of the ins and outs of franchising.
The Federal Trade Commission’s (FTC’s) Franchises, Business Opportunities, and Investments page at www.ftc.gov/tips-advice/business-center/selected-
industries/franchises,-business-opportunities,-and-investments features links to several relevant areas on the site.
The Federal Trade Commission’s (FTC’s) “Buying a Franchise: A Consumer Guide”
(www.ftc.gov/tips-advice/business-center/guidance/buying-franchise-
consumer-guide) which is available on the web or as a downloadable PDF. It’s a 16-page booklet that’s well worth the time required to read it.
International Franchise Association (IFA) at www.franchise.org is a great place to go to
find out more about franchising and specific franchise opportunities.
Small Business Administration’s (SBA) Franchise Businesses page at
www.sba.gov/content/franchise-businesses provides a good overview of franchising.
Unhappy Franchisee (www.unhappyfranchisee.com) features stories of franchises gone wrong. What a way to end a section on franchising, eh?
Chapter 4
Tracking Small Business Revenues and Costs
IN THIS CHAPTER
Developing and maintaining a business accounting system Fulfilling tax filing requirements with good record keeping
Running your own business means hard work and long hours.
One of the ways that you keep score of how you’re doing is to track your business revenue and expenses; the difference between the two is the profit or loss for your company. You should utilize a system for accounting for your business inflows and outflows to stay on top of what’s going on in your business — and to ease the pain of completing the never-ending stream of tax forms required by state and federal government tax authorities quarterly and annually.
This chapter explains the basics of developing a business accounting process for your small business. It also discusses how to fulfill the myriad filing requirements of the tax authorities by keeping proper records.
Establishing an Accounting System for Your Business
If you’re thinking about starting a business or are already in the thick of running one, make sure you keep a proper accounting of your income and expenses. If you don’t, you’ll have a lot more stress and headaches at tax time.
Besides helping you over the annual tax-filing hurdle and fulfilling quarterly requirements, accurate records allow you to track your company’s financial health and performance during the year. How are your profits running compared with last year? Can you afford to hire new
employees? Analyzing your monthly or quarterly business financial statements (profit and loss statement, balance sheet, and so on) can help you answer these important questions.
Here’s another reason to keep good records: The IRS may audit you, and if that happens, you’ll be asked to substantiate particular items on your return. Small business owners who file IRS Form 1040 Schedule C, “Profit or Loss From Business,” with their tax returns are audited at a much higher rate than other taxpayers. Although that dubious honor may seem like
an unfair burden to business owners, the IRS targets small businesses because more than a few small business owners break the tax rules, and many areas exist where small business owners can mess up.
If your small business is audited, well-prepared and organized financial records will help. Auditors are so used to “shoebox” accounting that being organized in and of itself helps establish you in the auditor’s eyes as a responsible business person.
The following sections cover the key tax-organizing things that small business owners need to keep in mind and get right.
Separating business from personal finances
One of the IRS’s biggest concerns is that, as a small business owner, you’ll try to minimize your company’s profits (and therefore taxes) by hiding business income and inflating business expenses.
Uncle Sam thus looks suspiciously at business owners who use personal checking and personal credit card accounts for company transactions. You may be tempted to use your personal accounts this way because opening separate accounts is a hassle — not because you’re dishonest.
Take the time to open separate accounts (such as bank accounts and credit card accounts) for your business and your personal use. Doing so not only makes the tax authorities happy but also makes your accounting easier. And don’t make the mistake of thinking that paying for an expense through your business account proves to the IRS that it was a legitimate business expense. If the IRS finds that the expense was truly for personal purposes, it will likely dig deeper into your company’s financial records to see what other shenanigans are going on.
Documenting expenses and income in the event of an audit
It doesn’t matter whether you use file folders, software, or a good old-fashioned shoebox to collate receipts and other important financial information. What does matter is that you keep complete and accurate records of both expenses and income.
Expenses: You’ll probably lose or misplace some of those little pieces of paper that you need to document your expenses. Thus, one advantage of charging expenses on a credit card or paying by check is that these transactions leave a trail, which makes it easier to total your expenses come tax time and prove your expenses if you’re audited.
Just be careful when you use a credit card because you may buy more things than you can really afford. Then you’re stuck with a lot of debt to pay off. Only charge on a credit card what you can pay off in full by the time your statement payment due date rolls around.
On the other hand (as many small business owners know), finding lenders when you need money is difficult. Signing up for a low-interest-rate credit card can be an easy and quick way for you to borrow money without groveling to bankers for a loan.
Income: Likewise, leave a trail with your revenue. Depositing all your checks in one account helps you when tax time comes or if you’re ever audited. Be sure to use a dedicated account for your business; don’t be tempted to deposit business income into a personal account.
The later section “Keeping Good Tax Records for Your Small Business” provides full details on the process of stashing the right items.
Keeping current on income and payroll taxes
When you’re self-employed, you’re responsible for the accurate and timely filing of all your income taxes. Without an employer and a payroll department to handle the paperwork for
withholding taxes on a regular schedule, you need to make estimated tax payments on a quarterly basis, or pay a fine.
If you have employees, you need to withhold taxes from each paycheck they receive, and you must make timely payments to the IRS and the appropriate state authorities. In addition to federal and state income taxes, you must withhold and send in Social Security and any other state or locally mandated payroll taxes, and you need to issue W-2s annually for each employee and 1099-MISCs for each independent contractor paid $600 or more. Got a headache yet?
For paying taxes on your own self-employment income, you can obtain Form 1040-ES, “Estimated Tax for Individuals.” This form comes complete with an estimated tax worksheet and four payment coupons to send in with your quarterly tax payments. It’s amazing how user-friendly government people can be when they want your money! The form itself has some quirks and challenges, but you’ll be happy to know that Book 1, Chapter 5 explains how to deal with them.
To discover all the amazing rules and regulations of withholding and submitting taxes from employees’ paychecks, ask the IRS for Form 941, “Employer’s Quarterly Federal Tax Return.”
Once a year, you also need to complete Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for unemployment insurance payments to the Feds.
If your business has a part-time or seasonal employee and the additional burden of filing Form 941 quarterly, the IRS has made the paperwork a tad easier. You may be able to file Form 944, “Employer’s Annual Federal Tax Return,” if your tax withholding on behalf of employees doesn’t exceed $1,000 for the year (which translates to about $4,000 in wages). If you qualify, you need to file only once each year. To see whether you qualify, call the IRS at 800-829-0115 or visit its website at www.irs.gov. If you do qualify, the IRS will send you something in writing.
Also check to see whether your state has its own annual or quarterly unemployment insurance reporting requirements. Look for your state’s Department of Labor or use the links on the U.S.