MONEY Startups

This Woman Turned a Backache Into a Million-Dollar Home Business

Katherine Krug

Working around the clock at a mobile app startup called Everest, Katherine Krug suffered a side effect from long hours at her desk: sciatica.

The back pain was intense, she recalls: “It was hard for me to sit.” But in her quest to alleviate the pain, Krug, now 33, stumbled onto a million-dollar idea.

The back pain itself was her inspiration. Unable to attract enough users, Everest shut down in 2014, and Krug found herself “emotionally spent” and “trying to figure out what to do with my time.” So she and a friend began experimenting with ways to create a strap that would provide back support.

As she mentioned the idea to friends and acquaintances, she discovered many fellow sufferers among them—and began to suspect there was a big market for a product that could help. Asking around, she was referred to industrial designers who helped her create a prototype for the supportive strap. She launched a new startup, Better Back, last year and now runs it from home in San Francisco.

Krug didn’t initially have the money to manufacture her product so she turned to crowd funding site Kickstarter. By effectively letting investors put in pre-orders for the product, the campaign raised $1.2 million. Krug plans to start shipping the preorders, currently priced at $65, this fall.

Believe it or not, Krug is one of many solo entrepreneurs who has grown a business to more than $1 million in revenue in recent years. Data released last week by the U.S. Census Bureau counted 30,174 “nonemployer” firms that brought in $1 million to $2,499,999 in 2013, up 2% from the year before.

So how did Krug create her million-dollar, work-at-home business? Here were some her successful strategies.

Get clear on your goal. Krug is a fan of Tim Ferriss’s book, The 4-Hour Workweek. But given the realities of the startup scene, she found the goal of working four hours a week elusive. “No matter how much you try to conceive of a business that gives you some work-life balance, there’s so much work that goes into it,” she says.

After Everest, she worked as interim COO for a company she really liked and was offered a permanent position, but, she says, “I had this nagging feeling in my stomach that something wasn’t right.” She realized she does her best work when she has flexibility in how she works.

Being an entrepreneur offered the freedom and control over her schedule that she wanted, but she wanted to do it differently this time. She didn’t want to slip back into her old lifestyle, where juggling management of her team with getting the actual work done led to very long hours. “I had all of these health issues from constant stress and lack of sleep,” she says. At the same time, though, she did enjoy working with others, so she looked for a business idea where she could still work in a collaborative way.

Design a business around your ideal lifestyle. Krug decided to use a business model where she works with a flexible team of contractors. “I’m really focusing on finding people who don’t need management,” says Krug. “I think a contract model really serves that. You can get people who are experts in their own field. You come to the table as equals and can have a wonderful collaboration.”

To launch the business, she contracted with two industrial designers who live in Washington State and Maine; enlisted a marketing firm based in Brazil; and hired a virtual assistant in the Philippines through the freelance platform oDesk, which was recently renamed Upwork. To keep everyone in sync, she uses digital tools such as Skype, Google Docs, and Trello, an organizing site.

Her approach is not unusual among solo businesses, according to Steve King, a partner at Emergent Research, a firm in Lafayette, Calif., that studies the independent workforce. A 2014 study by MBO Partners, to which King’s firm contributed, found that 38% of independent workers hired independent contractors in the past year, with most of these contractors doing the equivalent of a one-quarter time worker. Generally, says King, these “virtual” companies turn to contractors because they don’t have a consistent need for help, don’t want to manage employees, and want to stay agile.

Keep it lean. One thing that helped Krug grow her business quickly, she says, was her familiarity with the ideas of Eric Ries, author of The Lean Startup, and serial entrepreneur Steve Blank.

“It’s all about taking an idea—before you spend huge amounts of money and time bringing it to life—and doing cheap and easy iterations of it,” she says.

Using Kickstarter made this easier. By promoting her idea on the site, she quickly took the pulse of the marketplace. When more than 16,000 people responded by making pledges or placing pre-orders, she had her proof of concept—and a team of potential beta testers. Dozens of people who wanted to be distributors and partners also contacted her, she says, giving her confidence that the product had traction.

Expand your network. Krug didn’t know everyone she needed to create her product, but she wasn’t shy about asking people in her network for referrals—and then asking these new contacts for more intros until she found the help she needed. An industrial designer she found, for instance, was “a friend of a friend of a friend of a friend.”

Set one meaty goal a day. Krug sets one important task a day—like “Find an industrial designer”—to tackle first thing in the morning. That keeps her from getting distracted by tasks that don’t move the business forward in a meaningful way.

In a startup, says Krug, “There’s always more to get done. I think a lot of people abandon their vision because they feel so paralyzed by how much there is to do. They get stuck.”

She’s also built in a safety valve to prevent burnout. Once she completes her key task, she gives herself permission to take a break. “If I have energy to do more I will move onto the next goal,” she says. “There are some days where the one thing is so hard I’m depleted. I give myself permission to say ‘That was enough’ and pick up again the next day—again focusing on only one thing.”

MONEY Workplace

These 5 Myths Keep Women From Starting Small Businesses

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Never sabotage your own success.

Deborah Sweeney owns a small business that helps launch other small businesses. She’s noticed an interesting trend in the last five years: Her clientele has changed from 10% women to 25%.

It would be more, says Sweeney, whose MyCorporation.com helps entrepreneurs deal with paperwork and legal hurdles, except for what she says are misconceptions that keep women out of the small-business world.

Women playing a bigger role in small businesses is no longer big news, of course. In 2014, there were roughly 9 million women-owned businesses in the U.S., employing nearly 8 million workers and recording nearly $1.4 trillion in sales that year, according to data from the National Association of Women Business Owners.

But Sweeney thinks more women would give entrepreneurship a shot if not for these five major myths:

1. It’s impossible for a woman to succeed as an entrepreneur.

When she tells people that she runs her own small business, Sweeney says, they assume she’s talking about something, well, small. They don’t imagine her being at the helm of a company that posts nearly $9 million in annual revenue.

“Oh, are you doing that out of your garage?” is a common question she’s asked, she says.

Some people just assume that when you’re a female small-business owner, you’re “making beaded necklaces or making nursing products for children,” she tells NerdWallet.

In Sweeney’s case, the false assumptions can be comically sexist.

Her husband, Tor, is also a small-business owner, and she says it’s not unusual for people to ask “if we work together at my business.”

People “have this mindset that I would not run it alone,” she says, “that I am a business owner, in essence, because I married a man who is a business owner. It’s funny.”

Coincidentally, Tor Sweeney’s company is called Dresses.com. It’s a clothing manufacturer that makes prom dresses and wedding dresses.

And yes, she says, people often also ask if she owns that company, not MyCorporation.com.

2. Women just aren’t as entrepreneurial as men.

“Women have a difficult time conceptualizing for themselves what entrepreneurship is about,” Sweeney says.

That’s because they don’t have enough role models, she says. Sweeney has met young women who say they want to be entrepreneurs but eventually pivot to another career, working for a company.

Sweeney notes that many of the women coming to MyCorporation.com are venturing into entrepreneurship for the first time, whereas many of the men are serial entrepreneurs who have used her company’s services multiple times.

3. Women don’t achieve as much success as entrepreneurs as they do in the corporate world.

Facebook executive Sheryl Sandberg sparked a national discussion in 2013 on how women can reach their goals in corporate America with the release of her best-selling book, “Lean In.”

“Many women who ‘lean in’ can be successful,” Sweeney says. “That’s what they want. I wanted more. I wanted not to have to hire a nanny to be with my kids. The way I could do that was to run my own business.”

Besides, she says, she simply was not happy in the corporate world. “You can be extremely successful, but I was going crazy,” she says. “You can forge your own path as an entrepreneurial woman,” and “compete on your own playing field.”

“I always say ‘reach up’ instead of ‘lean in,’” she says.

4. Running a small business is more time consuming than working in the corporate world.

Most people assume running your own business means working outrageously long hours. For female entrepreneurs, that has typically meant added pressure, given the traditional, if outdated, roles they’re often expected to play in the home.

But outrageous hours are another misconception, Sweeney says. She quit a corporate job six years ago to become an entrepreneur and says it “actually presents a fabulous opportunity” for achieving a better work-life balance.

For one thing, she stresses, “you’re not mandated by corporate America to work certain hours.”

5. Your children and family will suffer because of your small business.

Her work certainly keeps her busy, and she admits “you never stop thinking about your business when you’re a business owner.”

There are certain things she’s not able to do with and for her two sons. “We don’t do play dates in the afternoon,” she says.

But being a small-business owner has made her a more effective parent, she says.

“Some say, ‘I can never be an entrepreneur as a mom.’ And I say, ‘It has given me flexibility.’ You can find the right balance when you’re the master of your own destiny.”

Yes, her schedule can get hectic. “At 2 p.m., I run and pick my kids up and take them to work with me,” she says.

But that’s been good for her children, she says. When they’re with their friends, she says, “I hear them talk, ‘There’s my mom’s office and she has 30 employees.’”

“There’s something about engaging your family in your career,” Sweeney says. “They see an example of work ethic and believe in it.”

More From NerdWallet:

MONEY Startups

5 Creative Ways To Fund Your Small Business

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A look at the fast-evolving options for entrepreneurs on a money hunt—including several that first-time entrepreneurs tend to overlook.

When Mike Shapiro quit his job as a corporate lawyer to launch a group of community news web sites in 2008, he relied on savings he’d frugally socked away for years. “I wasn’t an Armani suit guy at my firm,” says Shapiro, CEO and publisher of TAPInto.net, a five-employee franchise chain, based in New Providence, N.J., that now has 37 locations.

But self-funding the business turned out to be stressful. During the first two and a half years, he poured about $250,000 into his startup, taking no salary while he and his family lived on their savings. And as he was launching the business, his son, then an infant, had to have open heart surgery, and his wife stayed home to care for the baby.

“I put all of my money into the company,” says Shapiro. “I had to work to bring in enough revenue so we could survive as a family. It was pretty high pressure.” And it didn’t help that he was launching the business while the global economy was collapsing.

So Shapiro took another approach in 2012, when he was looking for a $150,000 cash infusion. He raised the money in a transaction known as a private placement, selling equity in the business to supporters in the community who bought a stake in the company in $25,000 increments.

His efforts have paid off, enabling him to keep growing the business and invest in technology that keeps his sites visible. This year he projects that revenues at the profitable business will be in the range of $650,000 to $1 million.

As many entrepreneurs discover, raising money to fund a small business isn’t for the faint of heart. Only 46% of small firms received some or all of the financing they sought in 2014, according to a 10-state survey by the Federal Reserve Banks of New York, Atlanta, Cleveland and Philadelphia. More than half of the applicants sought credit of $100,000 or less.

But fortunately, new options for small business owners on a money hunt are fast evolving. Here are five that first-time entrepreneurs often overlook.

1) Private placements

To raise the $150,000 he needed, Shapiro offered to sell equity directly to handpicked individuals on TAPInto’s advisory boards for various towns. “They were business and community leaders in those towns,” he says. That’s one way to do it, but it’s now possible to find such investors through online platforms, such as AngelList, CircleUp, and EquityNet, notes Richard Swart, crowdfunding and alternative finance researcher and scholar-in-residence in the Institute for Business and Social Impact at the University of California, Berkeley’s Haas School of Business. “There are dozens of platforms to connect entrepreneurs to accredited investors,” says Swart. When you do a private placement through these online platforms, it is called equity crowdfunding.

Pro: You can potentially raise millions this way.

Con: You will have to share ownership of the business with your investors who may not agree with how you are running it.

2) Community banks

It can be tough to win a bank loan, but given that banks generally offer the lowest interest rates on loans, they’re worth approaching. That’s especially true if you’ve logged a few years in business during which you showed steady growth and profitability—qualities that bankers want to see.

Even so, big banks can be tough to interest early on, so your best shot at finding a lender may be at a community bank. According to Biz2Credit, an online matchmaker between borrowers and lenders, lending approval rates at small banks were 49.6% in April, compared to 21.7% at big banks with more than $10 billion in assets.

“I would say between the two, if you have the option of going to a smaller bank, you should do that,” says Rohit Arora, CEO of Biz2Credit. “They are better in terms of approval. They understand your business better.”

When exploring your options, keep in mind that loans backed by the U.S. Small Business Administration aren’t your only option, and many entrepreneurs prefer standard bank loans that don’t come with a government guarantee. “SBA loans require a lot more paperwork,” says Arora. Capital One’s Spark Small Business Barometer, a survey released in May 2014 found that only 9% of small business owners have applied for SBA-guaranteed loans, even though 79% of respondents were aware of them. Among those who had applied, 73% said the process is somewhat or very complicated.

Pro: Banks generally offer the best interest rates—and you don’t have to give up equity to get a bank loan.

Con: It’s often hard to get a bank to lend to a startup.

3) Online financing sites

If you can’t qualify for a bank loan, check out the growing number of internet-based financing companies that offer short-term cash infusions via the web. “There are online funding platforms that can provide very substantial amounts of money, sometimes in the millions,” says Swart. These sources range from peer-to-peer lenders like Prosper and Lending Club, where individuals and institutional investors lend you money through the platform, to merchant cash advance providers, which offer an immediate cash infusion in exchange for a share of your future revenues.

Pro: What these platforms have in their favor is speed. They tend to approve or reject applicants quickly. “In the small business space, interest rate is one thing, but timing is important, too,” says Arora, CEO of Biz2Credit.

Con: The catch is that they’re usually not cheap. “Depending on what type of product you get, your APR can be anywhere from the low teens all the way to extremely high, probably 100% or 200%,” says Swart. The fine print on some alternative financing arrangements can be hard to understand, so if you’re not clear on what effective annual percentage rate you’re actually paying, ask your accountant before you sign any agreements.

4) Hedge funds, endowment funds, and family offices

In the past few years, these types of large investment pools have been looking for new ways to enhance their returns by lending to small businesses, says Arora. “These pools of money have never been available for small businesses,” he says. These lenders behave more like banks than online financing companies, and often are willing to make longer-term loans.

So how do you get access to their money? As a small business owner, you probably won’t get anywhere by cold-calling a hedge fund. But several online platforms such as Biz2Credit, Funding Circle, and Lending Club provide such loans.

Pros: Many entrepreneurs don’t know about this type of financing, so the pool of those competing for it hasn’t maxed out.

Cons: The interest rates can be higher than for bank loans. Typically, they range from 8% to 22% a year, says Arora. In comparison, the maximum interest rate for an SBA-backed back 7(a) loan—the kind used for working capital—is lower, currently ranging from 5.5% to 8%.

5) Third-party loan guarantees

With banks more eager to lend to small business but still using stringent lending criteria, third-party loan guarantees are becoming more popular in recent years, says attorney Andrew Sherman, a partner at Jones Day in Washington, D.C. who advises businesses of all sizes. In these deals, an entrepreneur teams up with private investor, known as an angel, to get a bank loan that the angel personally guarantees. In return for doing so, the angel gets equity in the business.

“The person that is picking up the equity is using their personal balance sheet to earn equity and not have to write a check,” says Sherman. “The bank gets more comfortable and gets to do the small business lending, and the entrepreneur gets access to the capital with minimal dilutions.”

Pro: Third-party loan guarantees can help you get a loan a bank might otherwise be leery of making.

Con: You have to give up an equity stake to get the loan.

READ NEXT: 5 Ways to Tackle the Problem That Kills One of Every Four Small Businesses

MONEY Startups

5 Ways to Tackle the Problem That Kills One of Every Four Small Businesses

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Smart strategies for managing your cash flow

It’s a phenomenon that most people who have never run a business have a hard time understanding: That a seemingly healthy business—even one that is both profitable and growing—can go bankrupt.

The explanation comes down to what’s known to accountants and business people as a cash flow problem. Your company might have a contract to deliver a gazillion widgets in December at a fantastically profitable price. But it’s July now, and in the meantime you need to buy the raw materials needed to produce those widgets and pay people to assemble them—and if you don’t have enough cash on hand to make it until December, well, let’s just say the holidays are going to be kind of bleak this year.

That’s why, for example, Chris Carey, CEO of Modern Automotive Performance, works hard to keep his cash flow as smooth as the rides his customers crave in their souped-up cars. Carey’s 40-employee company, based in Cottage Grove, Minn., provides auto and truck parts to owners of vehicles like the Mitsubishi Evo X and Dodge Neon SRT-4, allowing them to do things like handle better and accelerate faster.

It’s a seasonal business that peaks in the spring, when drivers get ready to hit the roads—and sometimes the racetrack. One way Carey avoids running short of cash to pay his bills during the frigid winter months is by charging all of his customers in advance. “We’re being paid for the products before we have to pay our vendors,” he says.

By keeping a close eye on cash flow, Carey has enough available cash and access to credit to keep Modern Automotive Peformance well stocked with the type of inventory that keeps customers flocking. He has grown the business to $11 million in revenue annually since 2006.

Unfortunately, his attention to cash-flow is rare among entrepreneurs. “It’s not something most small business owners think about,” says Dave Kurrasch, a former senior vice president of Wells Fargo who is now vice president and general manager of Small Business Payments Company, a financial technology provider.

That can be a fatal mistake. Recent data compiled by the research firm CB Insights found that 29% of startups fail because of a cash crisis. It was the second highest cause. (The number one factor, at 42%? A lack of a need for their product in the marketplace.)

So how can you make sure your business beats the odds? Here are five strategies to keep your cash flow healthy.

Strategy #1: Choose a lower-overhead business. It may seem obvious—and for some businesses, simply too late—but the fact is that certain enterprises require much more or less cash to launch and grow than others. If you don’t have much access to startup funding, your best bet may be business you can fund mostly through the revenue you receive from customers.

“Consultants, if they’re good at what they do and are well known, can be instantly cash-flow positive,” says Kurrasch. That’s because they tend not to have a lot of inventory and if they hire people, the team members often contribute directly to producing revenue. “Most businesses that have inventory—restaurants, retail outlets, manufacturers—tend to be negative cash flow producers, at least for the first three to four months, if not longer.” Which leads us to our next point….

Strategy #2: Secure credit before you need it. By talking with experienced business owners in your intended industry before you open your doors, you can find out how much cash you’ll likely need to survive until revenue starts coming in the door—and finance your operations accordingly.

Start by being realistic about it. “If you own a restaurant or a Hallmark card shop, a real traditional small business, [venture capital giant] Kleiner, Perkins isn’t going to come along and put a bunch of money into your company,” says Kurrasch. “Either you have cash reserves or you have friends and family you can call on.”

Start your money hunt long before there’s any chance you’ll run short of cash. “Try to get as much credit as you can before you enter the business,” advises Nat Wasserstein, managing director of Lindenwood Associates in Upper Nyack, N.Y., a provider of services such as crisis management. If you wait until you’re in a jam, you’ll find it hard to get anyone to lend to you.

Strategy #3: Find your ideal dashboard. By keeping keep close tabs on the money coming in and out of your business, you’ll reduce the chance of getting caught short when it’s time to meet payroll or pay a key supplier. “A lot of entrepreneurs don’t even understand that they could be profitable and strapped for cash at the same time,” says Wasserstein. If you need money now to pay your bills and don’t expect customers to pay you in the immediate future, you’ll find yourself in a crunch where you need to borrow.

Fortunately, there are simple tools to help you keep on top of cash flow without spending a lot of time on it. You can get a free excel worksheet to figure out your cash flow through from the CCH Business Owner’s Toolkit. Or, if you want a more automated solution, you can use inexpensive accounting software such as QuickBooks to create a “statement of cash flows.” Kurrasch’s company offers a cash forecasting app, called Small Business Workbench, that costs $6 a month for the basic plan.

Strategy #4. Put your credit card to work for you. Carey has found that one of his most valuable tools in managing his cash flow is his business credit card. He happens to use the American Express Plum card, which offered him 2% cash back if he paid the balance in full when he signed up in 2006, and now offers users 1.5% back. Carey will often spend as much as $750,000 a month on his card to pay for inventory and other expenses, enabling him to get anywhere from $10,000 to $15,000 a month once he pays the bill on time. That gives him a big incentive to keep on top of the money coming in and out of his business. “Everything in our cash flow revolves around making that payment for the American Express card,” he says. The American Express Plum card is one of many cards offering cash back, so shop around for a good deal.

Strategy #5. Know when to say no. It’s easy to get excited if a big retailer offers to carry your product or a big contract drops in your lap at a professional services firm. But before you say yes, make sure you understand how quickly a client will pay you—and figure out if you can manage the outlay to fulfill the deal in the meantime. If you won’t be seeing any cash for 120 days, it’s very possible to run out of money and find your company on life support. “Not every sale is worth taking,” says Wasserstein.

Of course, before you turn down business, it’s worth exploring creative ways to get customers to pay you more quickly. For instance, some small vendors offer early-payment discounts to big suppliers to get them to cut checks more quickly and sign up for direct-deposit payments to their bank accounts, which may speed payments by a few days. These approaches are often a lot cheaper than borrowing.

MONEY Small Business

New Ways to Invest in Small Businesses

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When nonprofessional investors are able to put money into small businesses, everyone can benefit.

I met with Paul on Tuesday. He is the CFO of a business start-up. He’s not sure if the next phase of his company’s financing is going to go through. Although he believes in the business model and the mission of the company, some days he thinks he won’t have a job in three weeks.

I met with David on Wednesday. While he’s a great saver and earns a decent buck, he isn’t wealthy. He wants to invest in small companies so much that we’ve set up a “fun money” account, which is 10% of his otherwise well-diversified, passively managed portfolio. “Fun money” is specifically set aside so that he can make individual investments he believes in.

Because of the way small business investing is structured in this country, the likelihood of Paul and David connecting has been infinitesimally small.

This drives me mad.

It’s not just these two who are missing out. Because small companies drive job and economic growth, the economy of the country loses when Paul and David don’t connect. And because the current system of funding is biased, some small businesses are a lot less likely to get funding despite their worthy ideas.

Recent developments could change all this.

To raise their initial start up money, small business owners typically first use their savings, and then appeal to their friends and family. Next, they go to banks. If they get big enough and have certain ambitions and contacts, they can get venture capital funding or private equity funding, which is what Paul was waiting on.

These sources of capital are all enhanced if you are affluent and well connected. Do your friends and family have extra money to invest in your business? Do you know anyone you can talk to at a bank? What about impressing people in the venture capital world? A lot of people with good ideas are shut out.

Enter the Internet. Raising money got a lot easier.

The Power of Reward Sites

With reward sites, startups with good ideas raise money in exchange for rewards.

Sesame, which opens doors remotely from smartphones, raised over $1.4 million on Kickstarter.com. The reward here was a chance to order the device.

Then there is Lammily, Barbie’s realistically proportioned cousin, whose designer raised almost $500,000 through Tilt.com. The reward for funding Lammily was the chance to pre-order the doll, and sticker packs with stretch marks, cellulite, freckles, and boo-boos.

The reward sites show that companies can raise large amounts of money through small contributions from a large number of people. Research suggests that Kickstarter.com reduces company funding gender bias by an order of magnitude and reduces geographic bias as well. Reward sites cater to consumers who love new products and want to support new ideas.

You may get first dibs on a cool new doll, but sending money to a reward site isn’t investing.

The Risks of Private Equity

Traditionally, to get private equity funding, you have to sell to accredited investors — the richest 1% of the population, roughly speaking.

Accredited investor regulations were set up in in the wake of the 1929 crash, when a lot of people got ripped off because they invested in dubious enterprises. The idea was that people with a high level of wealth are sophisticated enough to understand investment risk. Unfortunately, this leaves the Davids of the world — investors who are sophisticated but wealthy — shut out of these types of investments.

Private equity placements are not always a great deal. When I’ve looked into them for clients, I’ve concluded they are expensive, risky, and difficult to get out of, even if you die. The middlemen who offer these and the advisers who sell these seem to be the ones most likely to make money. The best deals I’ve looked at weren’t hawked by sales people or investment advisers, but came through clients’ friends and family.

The rise of Internet portals set up to connect small companies with accredited investors has the potential to cut down on intermediary costs. Still, the sector remains small.

In 2012, President Obama signed the JOBS act, which directed the Securities and Exchange Commission to devise rules opening up small business investing to non-accredited investors.

Some organizations didn’t wait for the SEC to issue the rules. Instead, they dusted off exemptions in the securities legislation that most of us have ignored for 80 years.

States Get Into the Act

Some states have picked up on crowdfunding to boost their economies. Terms vary, but generally investors are subject to investment limits and companies are subject to a cap on raising money. Each individual, for example, might be limited to investing $10,000; each company might be limited to raising $1 million. Both investor and company are generally required to reside in the state.

This is music to ears of people who want to invest locally. The first successful offering using this type of exemption was in Georgia in 2013, where Bohemian Guitars raised approximately $130,000 through SparkMarket.com.

Other Exemptions

Village Power is another example of raising money using an exemption. This intermediary helps organizations set up and fund solar power projects. Village Power coaches their community partners to use an exemption in the SEC rules, which allows for up to 35 local, non-accredited investors.

New Rules Open Doors

New rules issued March 25 by the SEC removed a lot of the barriers for companies raising money and for non-accredited investors.

Companies will be able to raise up to $50 million. Non-accredited investors are welcome to invest, sometimes with limits — 10% of their net worth, say, or 10% of their net income.

Although Kickstarter has said that it won’t sell securities, other fundraising portals, such as Indiegogo, are looking into it.

And if all goes well, Paul, David, and I can start looking for the new opportunities in June of 2015.

———-

Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.

MONEY Taxes

How the Sharing Economy Makes Tax Filing Tougher

Lyft driver
Lyft Being a Lyft driver may not feel too fun at tax time.

When you make money working for a business like Uber, Task Rabbit, or Airbnb, doing your taxes can a pain.

Before Jane LeBoeuf started driving for Uber and Lyft, doing her taxes was cheap and easy.

LeBoeuf would swing by the local H&R Block office, pay $150 and end up with a refund. But now, that is not the case.

The 32-year-old from Providence, R.I. paid $470 this year to a professional tax preparer, and her refund got eaten up by the taxes on her side gig income.

As it is with so many other millennials—whether they are driving for a car service, renting property through Airbnb.com, or picking up jobs through TaskRabbit.com—LeBoeuf needed help sorting out the complexities of freelance income that comes with a host of possible deductions.

“There are a lot of people out there who are starting to realize they don’t have it all together,” says Robert Wheeler, who runs an accounting firm in Santa Monica, Calif. “Things are just getting more complicated. People don’t know what to do.”

Accountants point out that one of the biggest problems they see with those earning a sharing-economy income is a lack of record-keeping.

Freelancers like LeBoeuf agree: “I just find it to be too much for me on a daily basis,” she says.

Sometimes all it takes is asking for record-keeping help during the first year. But others need constant attention. Here are some tips on how to get started:

1. Get the right help

Some accountants are starting to specialize in sharing economy tax strategies, like Derek Davis, 28, who is based in Culver City, Calif.

Davis says he had his eureka moment after a ride home from work one night with an Uber driver who had no idea what expenses he was allowed to deduct, like repairs and gas.

Otherwise, tax preparers who specialize in freelance or small businesses would know their way around a Schedule C, which is where freelancers report income.

Since just about anyone can hang out a shingle that says they do taxes, consider looking for a preparer with certified credentials, which you can find by searching the databases of the National Association of Tax Professionals or the National Association of Enrolled Agents.

2. Develop a record-keeping system

Independent contractors are responsible for recording all their income—not just what is sent to them on a Form 1099. Equally, they are responsible for tracking their own expenses. But this can get very complicated for those tracking mileage—when you can count more than just the actual Uber trips you drive, for instance.

And it can be dizzying for those renting out spaces in their homes. For starters, those renting for fewer than 14 days get a break—they do not owe taxes on the income. Go past that, however, and you can deduct any expense directly related to your rental.

Solutions range from traditional spreadsheets to new apps. Intuit, the parent company of TurboTax, partnered this year with the freelance marketplaces Fiverr.com, UpCounsel.com, and TaskRabbit to offer for free its new QuickBooks Online Self-Employed, which can be directly transferred to TurboTax.

Among independent efforts, Derek Davis developed his own free app—Tabby Tax—to help sharing economy workers keep track of expenses.

Drivers can use any number of tools such as MileIQ, EasyBiz Mileage Tracker, and Easy Mile Log to keep track of car expenses.

3. Know what you owe

LeBoeuf was surprised how much her extra income boosted her tax liability and lowered her usual refund. But some people are caught by an even greater surprise—owing money to the Internal Revenue Service.

Many new contractors learn the hard way that you have to pay taxes on freelance income quarterly rather than rely on an employer to deduct enough taxes from a paycheck. Most tax software programs, and any tax professional, should be able to generate an estimate of what you will have to pay based on your projected earnings. Then you can adjust as you go so you do not end up with a penalty for underpayment.

MONEY workplace etiquette

The Phrase You Should Never Use In Your Office Voicemail Message

office phone
Johnny Greig—Alamy

"Not available" conveys to the caller that you're not interested in their business. Here's what to say instead.

How many times a day when you make a phone call do you get someone’s voicemail and hear, “I’m not available?”

What exactly does that mean?

The person could be powdering their nose for two minutes, gone to a client meeting for two hours, on maternity leave for six months—or, have been transferred to the mailroom in Beijing! You have no idea.

You had phoned for a reason: to get information, to place an order, to extend an invitation to meet, to do business. But now you hang up in disgust, your mission thwarted.

Now you have to invest time figuring out your next, hopefully productive, step. Do you check the web for their corporate number, another branch number, or simply find another “source” altogether, giving your business to a competitor? Perhaps with your time constraint you are forced to simply table your project.

If this were your business, you’d have just lost a customer.

Now it’s time to check your own voicemail.

With all of the competition out there and access to information at one’s fingertips on the web, people have untold choices when they need a real estate attorney, a construction engineer, an investment advisor, a party planner, a temp agency… or whatever it is you do.

If you want to build your business, you need to build relationships, and this requires showing respect for your caller’s time and energy.

“Not available” is simply dismissive. It communicates to the person that their need is not that important to you.

And it either causes your potential customer to hang up, or to get stuck going through an obstacle course in which they get the main switchboard and are given the third degree: “What’s your name? What’s your affiliation? Why are you calling? Whom do you want to speak with?

The alternative is simple: Provide in your voice message a phone number and refer the caller to an assistant, a colleague, a cell number—any way of expediting their quest. Help your caller to reach someone who can, in your absence, be helpful and succeed in keeping the business.

And remember to update your voicemail message when appropriate. Recently I called an office and heard: “I’ll be back February 1st.” It happened to be March 17th!

Investing a mere 60 seconds can keep a client and their business while enhancing your reputation.

Arlene B. Isaacs is an executive coach in New York City.

MONEY Financial Planning

4 Things You Need to Change Your Career

Want to change your career or launch a new business? A financial planner explains the four things you need.

A few years ago a client, Peter, came to me and said, “I’m doing all the work, but my boss is making all the money. I could do this on my own, my way, and make a whole lot more.”

Peter was an instructor at an acting studio. He was working long hours for someone else, knew the business inside and out, and felt stuck. He wanted a change.

We talked through his dilemma. Peter wanted to know what he needed to do to venture out on his own and start his own acting academy.

Many of us find ourselves daydreaming about making such a bold life change, but few of us do it. So what is stopping us from taking the leap? Why don’t we have the courage to invest in ourselves?

Peter and his wife, Jeannie, sat down with me to chart out a plan. We determined that they needed four major boxes to be checked for Peter’s dream business to have a real shot at success:

  1. Support from the spouse
  2. Cash reserves
  3. A business plan
  4. Courage to take the leap

Let me break these down:

1. Support from the spouse: Peter and Jeannie had to be in full agreement that they were both ready to take on this new adventure together. In the beginning, they would have significant upfront investments in staffing, infrastructure, and signing a lease for the business. Money would be tight.

2. Cash reserves: Peter was concerned. “How much money can we free up for the startup costs?” he asked. We discussed the couple’s financial concerns, reviewed financial goals for their family, and acknowledged the trade-offs and sacrifices they would need to make. We determined a figure they were comfortable investing in their new business. Then we built a business plan around that number.

3. Business plan: It has been said that a goal without a plan is just a wish. Peter and Jeannie needed a written plan in place so that their wish could become a reality. Their business plan would serve as a step-by-step guide to building and growing the acting academy. It included projections for revenues, expenses, marketing strategies, and one-time costs.

Once we wrote the business plan, we had one final step remaining: the step that so many of us don’t have the courage to take. Peter and Jeannie had to trust in themselves, believe in their plan, and…

4. Take the Leap: Regardless of how confident we are, how prepared we feel, and how much support we have, this is a scary step. We have to walk away from our reliable paycheck, go down an unfamiliar road, and head out into the unknown.

I’m happy to share that Peter and Jeannie’s story is one of great success. They faced obstacles and bumps along the way, but Peter persevered and succeeded in accomplishing his goal. He is now running a thriving acting academy with multiple instructors and a growing staff. If you decide to invest in yourself, you will need to take the four steps too.

———-

Joe O’Boyle is a financial adviser with Voya Financial Advisors. Based in Beverly Hills, Calif., O’Boyle provides personalized, full service financial and retirement planning to individual and corporate clients. O’Boyle focuses on the entertainment, legal and medical industries, with a particular interest in educating Gen Xers and Millennials about the benefits of early retirement planning.

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