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Tax Year 2025 Updates for Freelance Workers

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There are two inevitables in human existence and one of them is taxes. The good news is that in many cases, one can prepare and develop a strategy to minimize the impact of the tax burden. The ability to devise a good strategy requires current information and that is the topic today.

You’re probably aware of Federal legislation known as the One, Big, Beautiful Bill. You may not know that parts of OBBB have been revised and proposed changes to federal tax Form 1099-K were tabled and guidelines from previous years have been restored.  

Officially titled the Payment Card and Third Party Network Transactions form,1099-K reports payments received from income generated by self-employed workers and paid to them by Third Party Settlement Organizations such as PayPal, Square, Stripe 2, or Venmo. Revenue received from transactions from online marketplaces, including Airbnb and eBay and also revenue derived from billable hours earned at Freelance B2B services platforms such as Fiverr and Upwork also trigger a 1099-K.

It’s important that Freelance professionals remain updated on federal and state tax legislation so that you can anticipate and prepare for your tax liability. If you’re able to choose your payment method—maybe you’re thinking of offering digital payment options for client invoices?—you would be wise to first assess the impact of that change to your finances. Giving clients additional payment options is now considered a competitive advantage and an aspect of customer service. But when you’d like to initiate payment flexibility, first discuss the matter with a tax accountant and let the tax filing implications, and also other financial advice, guide your invoice payment options.

Internal Revenue Service Form 1099-NEC

What will not change is IRS Form 1099-NEC (non-employee compensation). The form will be sent to self-employed workers, including Freelance professionals, other independent contractors and side-hustle specialists, who’ve been paid $600 or more in a given year. Your earnings most likely will not trigger a 1099-NEC if you billed the client less than under $600 in a calendar year, but you are still responsible for reporting all income whether or not you were sent a 1099-NEC. As a self-employed Freelance consultant, you are required to report self-employment income if your net earnings were $400 or more.

Internal Revenue Service Form 1099-K

As noted above, IRS Form 1099-K reports payments that Freelancers and other sellers of B2B or B2C goods and services received through Third Party Settlement Organizations such as PayPal, Square, Stripe 2, or Venmo for sales transactions between buyers and sellers have returned to the $20,000 billables and 200 transactions thresholds. Upwork and Fiverr will send 1099-K to Freelance workers whose billables equal or exceed $600 in a year, as noted above. Be advised that the proposed $2,500 (for 2025 earnings) and $600 (for 2026 earnings) thresholds are no longer in effect for 2025 and 2026.

As with 1099-NEC (and W-2), 1099-K statements must be sent to you, by email or hard copy, no later than January 31, 2026. If your clients pay you directly by credit, debit, or gift card, you’ll get a 1099-K from your payment card processor no matter how many payments you received or the total dollar amount of those payments.

Keep in mind that your state may have a lower reporting threshold for TPSOs, which could result in you receiving a Form 1099-K, even if your total gross payments and transactions did not exceed the federal $20,000 annual reporting threshold. Some states have their own rules for 1099-K reporting and your state threshold could be lower than the federal limit. While the IRS requires payment platforms to issue a 1099-K only if you have at least $20,000 in payments and 200 transactions for 2025, several states have set their reporting threshold at $600, regardless of the number of transactions.

Qualified Business Income (QBI) deduction

If your business entity is structured as a pass-through, you could be eligible for a 20% tax deduction by way of the IRS Section 199A Qualified Business Income (QBI) deduction. If you are an owner of a pass-through business entity, including S-corporations, Limited Liability Companies (LLC), Partnerships, including Limited Partnerships (LP) and Sole Proprietorships, can claim the QBI benefit whether or not they itemize deductions or take the standard deduction.

The QBI deduction allows eligible taxpayers to deduct up to 20 % of their QBI, plus 20 % of qualified real estate investment trust (REIT) dividends (not to be confused with income generated from rental property). Income earned through a C-corporation or W-2 wages are not eligible for the QBI Section 199A deduction. Eligible taxpayers can claim the deduction for tax years January 1, 2018 through December 31, 2025.

So who can do this? If taxable income (before the QBI deduction) is at or below the threshold amount—and thresholds are different for every year from 2018 – 2025, with the 2025 upper threshold at $197, 300 for single filing status and $394, 600 for married joint filing status—you’ll have access to the full deduction BUT the amount paid by an S-corp or a partnership that is treated as reasonable annual compensation for the taxpayer will not be eligible. To determine if your business may qualify for the QBI, click here to see this older, but useful, IRS form. Most of all, reach out to your tax accountant ASAP and verify your status.

Retirement Plan contribution deferral increase

Have you made a contribution to your retirement this year? If not, you have until December 31, 2025 to slide under the wire and save for your future. These retirement contributions come right off your income, lowering your tax bill and boosting your retirement financial readiness.

The Solo 401(k)—also known as the self-employed 401(k), individual 401(k), personal 401(k) or, to use the IRS’s preferred term, the one-participant 401—is known for its high contribution limits that enable Freelance consultants who have no employees for whom you provide benefits, to save for retirement. That includes Freelancers and gig workers who are Sole Proprietors, or structure their business entity as an LLC, S-corporations, C-corporations, or Partnership. If you have no employees, step right up to launch your preferred version of a single-person retirement fund.

  • In 2025, the maximum contribution is $23,500 (wearing your entity’s employee hat), plus an additional 25% of compensation (wearing your entity’s employer hat). You can also contribute an additional $7,500 in catch-up contributions if you are age 50-59 or age 64 or older. Those between age 60 and 63 may contribute an additional $11,250 in catch-up contributions if the plan allows.
  • In 2026, the maximum you can contribute is $24,500 as the entity employee plus an additional 25% of compensation as the entity employer, with additional catch-up contribution opportunities if you are 50 years or older.

If you file tax form Schedule C as a Sole Proprietor and have a SIMPLE IRA retirement plan, you are also treated as both employer and employee when calculating and reporting your plan contributions. Report both your salary reducing employee contributions and your employer contributions (non-elective or matching) for yourself on Part II – line 15 of Form 1040 Schedule 1, according to IRS info. You must deposit your salary reduction contributions within 30 days after the end of the tax year. For most people, this means salary reduction contributions for a given year must be made by January 30 of the following year. For most individuals, the annual contribution limit for a SIMPLE IRA is $16,500 in 2025 and $17,000 for 2026. Those who are age 50 years and older can also make an extra $3,500 catch-up contribution in 2025 and $4,000 for 2026 if their plan allows it. 

Self‑Employment Tax & Deductions

You already know that Freelance workers must file IRS Form SE no later than April 15, 2026 and pay 15.3% total (12.4% Social Security + 2.9% Medicare) on the net amount of your self‑employment income—because you must fund your own Social Security and Medicare benefits. The good news is that you can deduct half of the self‑employment tax (the “employer equivalent”) from your adjusted gross income.

  1. Social Security Cap: On the first $176,100 of combined wages + self‑employment income in 2025.
  2. Additional Medicare Tax:
  • 0.9% extra if income exceeds:
  • $200K (single/Head of Household),
  • $250K (married filing jointly),
  • $125K (married filing separately).
 Quarterly Estimated Taxes & Penalties

Because Freelancers file 1099-NEC and there is no withholding of earned income, you know that filing quarterly tax forms is a must-do if you expect to owe $1000 in federal tax, including self-employment tax; estimated tax payment must be paid with the quarterly filing. To avoid penalties, pay either 90% of 2025 tax or 100% of your 2024 earnings tax (or 110% of 2024 adjusted gross income if your earnings exceeded $150,000. Quarterly filing deadlines are April 15 (the annual filing), June 15, October 15 and January 15 (because 4Q earnings are reported in the new year).

In closing, I have a gift for those of you who will be 65 years old, or older, in 2025? if so, You’ll receive an extra $2,000 standard deduction (single filers) or $1,600 (joint filers).

Thanks for reading,

Kim

Image: The Tax Collector’s Office (1620-1640) Pieter Brueghel the Younger, courtesy of University of Southern California Fisher Museum of Art, Los Angeles

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A Strong Financial Foundation Is the Launchpad for Growth

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Here’s the scenario: business is good, and growing—sales revenue is up as compared to last year, clients are happy and their number is growing. So what’s the problem? For some reason, business is not making a profit. What’s wrong?

This puzzling and frustrating problem is more common than you think. It could be that expenses or debt payments are eating you alive, but there might be a less obvious problem—your financial management leaves something to be desired, so you’re unable to find and fix the money leaks. Let’s take a look at the usual suspects.

Do you invoice clients in a timely fashion, say, within 14 business days after completing a project? Are invoices paid within 30 days of receipt—or is 60 days the more likely payment timetable? Do you keep up with accounting/bookkeeping functions and complete the business financial statements—Income Statement, Cash-flow Statement and Balance Sheet—within 14 business days of the next month? Most of all, do you review the financial statements and analyze the info so that you are aware of the story your business financial data is telling you? Do you act on that information by making adjustments in how you operate—trimming expenses, adjusting prices, invoicing on time, for example? Beyond that, do you have a business budget and do you operate within it?

The moral of this story is that businesses do not always fail because of a product-market mismatch or an aggressive competitor who gobbles up market share. Sometimes a business can be a victim of its own success and grow faster than its financial foundation can support. The weak points are often either cash-flow deficiencies caused by late client payments, which may be a result of slow invoicing, unwieldy debt and expense payments, poor pricing strategy, or inadequate working capital. Fear not, my friend—with a bit of disciple, you can control most of these issues.

Money is the lifeblood of the business and along with sales revenue, you want to focus on building up enough working capital: that is, the amount of money that remains after business liabilities are subtracted from business assets (see your Balance Sheet). Working capital is liquid, meaning it’s available to float you now. You also want to promote good cash-flow, so that you can stay on top of accounts payable and, if applicable, payroll (whether for 1099NEC or W2 employees)—ideally, without dipping into the working capital fund. Your intentions to grow, expand and/or make capital improvements or upgrades to your business depend on the amount of available working capital, which is supported by revenue and cash-flow. If necessary, working capital can be used to pay operating costs while you’re waiting for the accounts receivable to be paid. That said, keep in mind that business growth plans cannot be viable unless adequate working capital is available to put things in motion. In other words, getting your financial house in order, step by step, is integral to facilitating the business growth that you envision. To that end, below are financial management practices that you may find effective.

Accounting–Staying on top of accounting/bookkeeping functions will keep you fully apprised of your company’s financial condition. You know that it’s not possible to effectively plan or manage the company without accurate financial records that provide information that you can review, analyze and use as decision-making guideposts. If your monthly revenue exceeds $2000, you might have the wherewithal to hire a bookkeeper or business accountant to prepare the monthly financial statements and the quarterly and annual tax filings. Personal referral is probably the best talent search method, but social media or NextDoor can also be helpful sources. However, don’t be afraid to do your own bookkeeping! Taking on the financial management of your company, even if only for a year or two, will give you numerous valuable insights that you would otherwise never obtain. You might investigate Quicken Simplifi to start the process.

  • Ensure that all transactions are recorded—every business lunch, every office equipment expense, each fee paid to attend a business networking meeting or professional development session, all client invoices. Document every spend, every month.
  • Ensure that transactions are correctly categorized.
  • Can every payment you receive be cross-referenced to an entry in the books?
  • Are monthly Profit & Loss and Cash-flow Statements and the Balance Sheet completed and closed out within 14 business days of the next month?

Accounts Receivable–A joint study conducted by SCORE, the Small Business Association mentoring program and the financial services company U.S. Bank revealed that as many as 82 percent of startups and small businesses fail due to poor cash-flow management. Sending an invoice is a wonderful feeling, but you hold your breath until payment is received. You need to get paid within 30 days in order to control and predict cash-flow. Business plans cannot be made until you can confirm the amount of available funds. Help yourself by invoicing in a timely fashion and also by discussing the invoicing schedule with every client and following it.

  • Is anticipated revenue (i.e., accounts receivable) linked to agreed-upon project milestone payments or, if you sell a product or service via subscription, are subscription renewals linked to accounts receivable? Are invoices promptly, perhaps automatically, sent according to contracted agreements?
  • Is the status of receivables updated once they are collected? Is there timely follow-up on unpaid invoices (e.g., reminders are sent on day 45)? Automated reminders will be a helpful method to implement a formal accounts receivable follow-up process.
  • If you have the type of business where extending credit to customers is the norm, have you developed a standard set of credit terms and customer credit limits?

Forecasting and budgeting–Planning, budgeting and forecasting are central to financing the company’s operations and short- and long-term goals. When forecasting and budgeting, you will be greatly assisted by software such as QuickBooks, Quicken, or other financial software solutions.

Forecasting is the process of making informed predictions about future business outcomes. The process can involve projections for specific business metrics, such as sales growth, or for industry changes, or recommending how you will be best positioned to navigate the economic landscape in which your company operates. Forecasting uses your company’s historical data and analyzes current market conditions to make predictions as to how much revenue your organization can expect to earn over the next few months or years. Companies use forecasting to support the development of business strategies. Historical company data is analyzed so that patterns can be recognized and used to predict future outcomes. While forecasting consists of estimates of future conditions and possible outcomes, the process can encourage you to consider a range of potential scenarios and in that way position the company to capitalize on potential outcomes that appear most likely to occur or prepare the company to adapt to potentially challenging conditions if they arise. Forecasts are usually updated as new information becomes available, to promote accuracy and relevance.

Budgeting details how the financial plan will be carried out each month and addresses items such as revenue, expenses, debts and anticipated cash-flow. A budget is a forecast of revenue and expenses over a specified future period, typically one year, and details how the financial plan will be implemented each month. The budgeting process can be challenging, particularly if clients don’t pay on time and undermine cash-flow, or if sales revenue is intermittent or your sales cycle is long. It is acceptable to adjust your budget to reflect the actual amount of revenue received or compare actual financial statements to determine how close they are to meeting or exceeding the budgeted revenue and expenses. Once the budget period has ended, it is essential that you compare the forecasts to the actual numbers. It is at this stage that you’ll discover whether the budget aligned with the expected expenses and revenue.

  • Operating Budget: The operating budget includes the expenses and revenue generated from the day-to-day business operations of the company. The operating budget also represents the overhead and administrative costs directly tied to producing the company products and services.
  • Cash-flow budget: A cash-flow budget helps determine the amount of cash generated by the company during a specific period. The company’s inflow and outflow of cash is critical because timely payment of expenses is dependent on cash that is both generated and available. Monitoring and encouraging the collection of accounts receivables helps you forecast the income that is due in a particular period.
  • Strategic Forecast: A spark of inspiration may strike like lightening and you might be amazed by your own creativity. If you’re serious about bringing your brilliant idea into reality, you’ll test its potential viability with strategic forecasting; the goals you pursue be both realistic and most likely attainable. Strategic forecasting is integral to making that determination. In Step I, you’ll determine whether your goal should be a primary or secondary target and whether it is short-term (e.g., one year) or long-term (e.g., three years) initiative and address the question of what the business aspires to achieve by pursuing this goal. Next, you’ll define the market conditions that the company operates in, to further evaluate the capabilities and resources needed to take on the goal. In Step 2, you may find it helpful to categorize the strategies you’ll use to pursue your goal into functional strategies and operational strategies. Functional strategies refer to the action plans and tactics you’ll use to implement the strategies; operational strategies focus on resource allocation used to achieve the goal. If your goal passes muster in Step 3, you can then develop your strategy roadmap. A successful strategy will anticipate challenges that are endemic in today’s fast-moving economic environment and will integrate risk management and an agile approach that bakes in the ability to adjust your strategies as new trends, opportunities and—to be realistic—obstacles appear.

Pricing–how you price your products or services is based on factors such as market demand, customer behavior, competitors and market position. Identifying a pricing strategy capable of driving revenue and maximizing profit without alienating customers is critical; identifying the pricing sweet spot your service or product can be challenging. Begin your pricing strategy by determining your pricing objectives, e.g., maximizing profit, increasing market share, or stimulating client acquisition. 

Remember that pricing influences your ability to pursue, and achieve, business goals because it determines the sales revenue and is, in most cases the primary, if not sole, contributor to working capital and profit—the engine that keeps your entity solvent and sustainable. When evaluating potential business goals, examine and, when necessary, adjust your pricing to enable the company to generate sales revenue that’s capable of providing the financial foundation that will facilitate your ability to achieve the growth, scale or expansion goals that you envision.

Give yourself reliable data and insights that enable informed pricing decisions, rather than relying on intuition or outdated market info when determining prices. Avoid methods inclined to produce ineffective pricing strategies that are unlikely to access the full revenue generation possibilities of your services and products.

Finally, be aware that clients may be willing to pay a premium for services or products that possess what they feel is a desirable differentiating characteristic. A unique characteristic may be perceived as a competitive advantage that sets your service or product apart from what is offered by other vendors—sustainability, for instance. Furthermore, clients are not infrequently willing to pay a premium to do business with a brand they consider trustworthy or prestigious. Below are pricing strategies and factors to keep in mind.

  • Cost-plus pricing is based on the cost and value of the time and effort (talent) required to develop your B2B solutions, or source/manufacture B2B or B2C products. From there, a profit margin that target clients will presumably accept is added, to create the selling price.
  • Value-based pricing is particularly attractive in that it reflects the maximum amount clients are willing to pay, and minimizes the focus on service or product production or acquisition coat, which might be difficult to calculate when developing B2B solutions.
  • Tiered pricing targets different customer segments and may produce additional revenue from those willing to pay a premium for upgrades and add-on features, or offer volume discounts to attract clients who have higher consumption rates.

Thanks for reading,

Kim

Image: Quentin Metsys (Flemish, 1465/1466-1530) The Money Changer and his Wife (1514) courtesy of the Louvre Museum in Paris, France.

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Freelancers and SMBs Find Flexible Funding

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The year is drawing to a close and signaling forward-thinking Freelancers and small business owners that it’s time to consider goals and strategies that have the potential to advance your entity in 2025 and beyond. Your business goals will be shaped by the plans implemented earlier this year, and previously, but topics that may capture your attention could include workflow automation tools to optimize operational efficiency and a Customer Relations Management platform, to upgrade the performance of your inbound marketing funnel and also improve the customer experience and relationship-building activities your company presents.

Face2Face networking may also become a renewed priority in 2025, prompting you to pay attention to notices of local business association meetings and industry conferences. Creating and nurturing relationships, obtaining actionable information and continually honing your skill set make all the difference for B2B professionals.

It won’t take long to realize that the business building actions you’d like to take come with a price tag; the prospect of financing your SMART goals may be worrisome. If your budget estimate indicates that you could come up short of cash, you’re certain to feel discouraged. You may feel too uncomfortable to ask family or friends to lend money that will allow you to proceed with plans you are so excited to carry out. You may likewise feel uncomfortable, maybe even frightened, by the prospect of using credit cards to finance your business upgrades. Applying for a business loan is an obvious possible solution to a cash-crunch, but you’ve read depressing articles in business publications during the year and the message was clear—banks have pulled back on business lending and tightened eligibility requirements. It takes money to make money and being stuck in financial quicksand is not a condition you care to accept. So, what can you do to move forward?

It takes money to make money

Freelance professionals, SMB owners and start-up entrepreneurs are susceptible to challenges when in need of business capital; unfortunately, many lack the credit rating and other requirements that lending institutions demand, or they cannot rely on family, friends, or personal savings to become their funding source. More than half of SMBs in the US do not have a readily available source of funding to survive a cash flow crisis. A shortage of cash, whether the problem is an unexpected cash-flow glitch or an insufficient financial reserve fund, is a serious impediment to building and sustaining a successful business venture. In fact, almost 62% of businesses with annual revenues below $150,000 lack ready access to financing; a UK study found that 31% of SMBs have had to stop or pause an area of their business due to lack of financing.

Banks, the traditional source of loans for several centuries, continue their control of business funding decisions, when ever they approve or decline a loan application. In 2023, Forbes Magazine Advisor confirmed that banks remain a go-to source of funding, with 27 % of entrepreneurs surveyed citing that business loans are their primary source of financing. Still, it will come as no surprise to even casual observers of the start-up world that financial privilege—affluence—is another enabler of funding access. The 2023 Forbes Magazine Advisor survey also found that 20% of new businesses are funded by borrowing from family and/or friends and 17% are backed by the founder’s personal savings.

So how can modestly funded aspiring entrepreneurs pull themselves up by their bootstraps, as is so often recommended in America, and finance their entrepreneurial plan? As it turns out, exciting new options have arrived by way of fintech start-ups whose mission is to provide business funding solutions. These fintech entities are called neobanks and they proclaim to have greater lending capacities than traditional banks; several have been set up specifically with SMB loans in mind.

Rise of the neobank

A disruptive new presence in the banking and financial services sector is the neobank, a fintech company that provides financial services through a mobile app or website, including checking and savings accounts, budgeting tools and cash advances. Because neobanks don’t carry the costs associated with maintaining branch offices, they can offer lower fees and higher interest rates on savings accounts.

Those looking to do business with neobanks must realize is that fintech lenders are not actually banks and they are not chartered by the Office of the Comptroller of the Currency. In order to provide certain of their products and services, perhaps most importantly guaranteeing that customer deposits are insured by the Federal Deposit Insurance Corporation (FDIC), the neobanks must partner with chartered banks.

Found, a U.S neobank launched in 2019, partners with Piermont Bank to offer FDIC-insured business checking accounts that provide services that are attractive to Freelancers, including automatic expense categorization, built-in invoicing and tax calculation, plus the ability to auto-save and set aside money to pay taxes. When Freelancers hire subcontractors, Found enables you to manage their tax forms and pay them with no fees. Chime is the leading fintech neobank and partners with The Bancorp Bank and Stride Bank to provide bank and credit accounts. Chime markets itself as a (mostly) no-fee option for customers—no minimum balance requirement or monthly maintenance fees, no overdraft fees and there’s free ATM access – customers can access over 60,000 in-network ATMs for no fee, which you can locate through the Chime app.

As neo-banks expand their penetration in the under-served and hungry SMB market, their success has encouraged other, much larger, players to enter the fray and now, some of the largest online marketplaces in the world have begun to offer financing to their merchants. Shopify Capital, Shopify’s financing service for its merchants, has lent more than $5 billion to small businesses. Loans have ranged from the low hundreds to $5 million. The Amazon Lending platform for sellers invites US sellers can apply for a loan up to $750,000, while UK merchants can apply for anywhere up to £2 million (around $2.6 million). While Amazon stopped underwriting its own loans in the US and UK earlier this year, it’s outsourced the process to third parties.

Overall, new ways of financing are increasing accessible, with neobanks and other fintech creative financing leading the way to support SMB owners, Freelancers and other small players who need an alternative financing approach to business lending. It is expected that as more Freelancers and other business owners become increasingly comfortable with emerging technologies, spurred on by the need for business capital whose access requirements are less stringent, will be willing to consider and eventually trust start the alternative neobank solutions as their primary business funding source.

Thanks for reading,

Kim

Image: © courtneyk | Credit: Getty Images/iStockphoto

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Making Sense of Your Data

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When you think about it for a minute, you might agree that basically every aspect of your business can benefit from relevant and timely information—-i.e., data. However, your potentially helpful data can leave you with a puzzle to put together, unfamiliar terrain to navigate, before you can make sense of the information and understand the picture it’s trying to show you.

The puzzle pieces that contain your data could be expressed in various formats, e.g., columns of numbers, pie charts, bar graphs, or the written opinions of researchers and thought leaders. Furthermore, the data sources often use different benchmarks and measuring standards and make getting a sense of things sort of a wrestling match.

Analyzing data reminds me of buying produce at Trader Joe’s and Whole Foods. At Trader Joe’s, the bananas are 19 cents each and there are no scales. At Whole Foods, bananas are 49 cents a pound. How can I calculate what I’m paying for the fruit or the other produce that I buy at each market and compare prices?

Data analysts and other experts say that for much of the information we access, tools that cut through the maze and bring focus to the picture, such as identifying patterns and trends for you to consider, are a must. Otherwise, you’ll be unable to fully comprehend the data’s story, unable to make good use of the information and enable it do what you need it to do, which is to support good decision-making. Micrsoft Excel or Power BI, Python, Jupyter and Apache Spark are among the most highly rated data analytics tools.

Among the most common functions that data analysis is called upon to provide insight are:

Marketing teams use data to examine website visits, often by way of Google Analytics and social media stats, by way of services such as BuzzSumo, Sprout Social, or HubSpot. Understanding what’s happening in the company’s marketplace and revealing customer behavior by analyzing Descriptive Analytic data is a typical goal.

Sales teams use data to understand the customer buying journey and learn what motivates a sale, along with revealing customer buying patterns. With access to unlimited online information, prospective customers are better informed about potential purchases than they’ve ever been. B2B sales researchers have documented that prospects are usually 80% of the way through the buying cycle before making contact with a sales team. Customers are in the driver’s seat.

Finance/ Accounting teams have always had access to the reams of data that’s attached to invoices, accounts payable and receivable transactions, sales revenue, inventory counts and other movements of money and resources.

Operations teams are charged with continually reviewing any number of business processes, from how to source or manufacture the products and services that a company sells, to recommending the most optimal methods to connect those products to customers, to ensuring that company offices are equipped with effective HVAC systems. Obtaining data that reveals operational efficiencies and enables business functions to be executed in the easiest, fastest and least costly or risky methods is the eternal goal.


Yet the question has always been, how can anyone—-multinational conglomerate or Freelance solopreneur—-maximize the value of your data?

  • Put data to work Your data is wasted unless you examine it, interpret it and let it guide your actions and decision-making.
  • Sort and analyze Appropriately grouping, categorizing and analyzing your data makes business intelligence tools necessary when working with large amounts of data. Today, data analysis means Artificial Intelligence. AI-powered systems will in mere seconds collect, sort, analyze and make meaningful recommendations for you and your team to review and evaluate. If that’s not enough, your AI tool will ”learn” from the data you feed it and the recommendations it makes to continually refine and improve the outcomes.
  • Strengths into opportunities Let your data show you where you shine. Maybe it’s your amazing referral rate or customer retention rate. Maybe it’s the memorable customer experience that you create or the loyal followers who’ve turned into brand cheerleaders for your company.
  • Prioritize Get clear and pragmatic about goals and objectives the organization would be wise to pursue over the long and short terms. Your customers and their emerging preferences and priorities are certain to influence the strategies and actions that emerge at the head of the line. Let the marketplace guide you.

Thanks for reading,

Kim

Image: © Warner Brothers Pictures. Malcolm McDowell in A Clockwork Orange (1971), directed by Stanley Kubrick 

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Crowdfunding for a Business

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What do you do when you need money to either launch or expand your business venture and the bank won’t give you enough money? For many entrepreneurs, crowdfunding is the answer. Originally used to fund charity drives or creative projects like recording music or film making, crowdfunding is now recommended as a business financing strategy by organizations that support aspiring entrepreneurs.

That said, I remain skeptical. I understand the allure of crowdfunding—people will give someone money to finance a creative project or business venture and that person will, ideally, achieve the goal without taking on debt. In exchange for the financial support, the entrepreneur, in many cases, will promise to give backers a reward, or even a small equity stake (ownership) for certain investors.

But ask yourself—why would a total stranger contribute to a crowdfunding campaign for a start-up, unless it’s a not-for-profit venture and I believe in the cause and would like to support it? Well, some folks are just of a mind to be a part of someone’s success and that’s the best reward. However, campaigners are advised to align the reward offered with the project.

If the campaign will fund the production of a big special event, for instance, the campaigner might offer free admission, backstage passes, or even a chance to hop up onstage and jam with the band. For consumer products, the most obvious reward would be to provide backers with a digital or physical copy of the item in advance, or offer a purchase price that is far less than the typical retail value. Bear in mind that creativity pays: among the most consistently popular rewards are those that offer personal or unique touches, or provide singular opportunities, e.g, lunch with the founders or the inclusion of donors’ names in the new software product’s credits.

Since there is growing interest in the entrepreneurial community about this nontraditional funding source, I decided to research. Here’s the first half of what I learned. Next week, I’ll follow-up and examine how one might create a successful crowdfunding campaign for a business.

WHICH PLATFORM IS FOR YOU?

CircleUp—Best for fitness, food & beverage, technology

  • Campaign types: Equity, credit
  • Industry focus: Early-stage consumer brands
  • Funds you can keep: All or nothing
  • Funding fees: N/A
  • Payment fees (US): N/A
  • Startup locations allowed: Worldwide

If you’re an entrepreneur working to get your consumer product on the market, CircleUp offers an excellent array of services, including a platform for connecting with accredited investors, insights from machine-learning technology and access to special lines of credit for start-ups. Accredited investors must have a net worth of at least $1 million and earnings of $200,000 a year or more, per SEC regulations. In other words, the investors are quite affluent and capable of writing big checks.

While the focus is on early-stage companies, the platform is nevertheless best suited for more established start-ups looking to scale, rather than companies in their infancy.  CircleUp doesn’t charge any fees for friend and family investments and provides special access to funding through partnerships with Procter & Gamble and General Mills. 

Fundable

  • Campaign types: Equity, rewards
  • Industry focus: Healthy startups ready to expand
  • Funds you can keep: Whatever you raise for equity; all or nothing for rewards
  • Funding fees: $179 monthly subscription
  • Payment fees (US): 3.5% + $0.30 per transaction for reward campaigns
  • Start-up locations allowed: Must be headquartered in the US

Most crowdfunding platforms, whether equity or reward, take a percentage of funds raised. However, this platform just charges a flat monthly subscription fee. As long as you’re subscribed, you can create campaigns to raise money.

The flat fee makes it a great deal for many successful crowdfunding campaigns. The only problem is that campaigners must pay the fee whether or not one is successful. A failed campaign will lose you money, so Fundable is best for start-ups that have a high-potential business model.

But if you’d like a little extra help with your campaign, Fundable offers consulting services and will do everything from design assets to market your campaign. These consulting services do cost more than Fundable’s monthly fee; contact Fundable to obtain pricing.

GoFundMe—Best for not-for-profits and charitable causes

  • Campaign types: Reward, donation
  • Industry focus: People and causes
  • Funds you can keep: Whatever you raise
  • Funding fees: 0% for personal campaigns in the US; 5% for charities and countries outside the US
  • Payment fees: 2.9% + $0.30 per transaction
  • Start-up locations allowed: 19 countries

GoFundMe campaigns are donation-based and focus on not-for-profit start-ups and charities. If you operate a not-for-profit, or are trying to raise money for a cause, this is the preferred platform.

IFundWomen—Best for women entrepreneurs

  • Campaign type: Reward
  • Industry focus: Women-led businesses
  • Funds you can keep: Whatever you raise
  • Funding fees: 5% of all funds raised
  • Payment fees (US): 2.9% + $0.30 per transaction
  • Start-up locations allowed: 23 countries

Women entrepreneurs, who own a growing share of new startups, still face significant challenges in securing investment capital to get their businesses off the ground. iFundWomen offers a a solution to some of those challenges. The founders created the platform as a “fundraising ecosystem for women-led startups and small businesses.” It also provides coaching, marketing and other services for start-up owners.

Unlike some reward-based crowdfunding sites, iFundWomen lets campaigners keep whatever funds they raise. Of the money the site earns from funding fees, 20% goes back into supporting campaigns and services that benefit women business owners.

Indiegogo

  • Campaign types: Reward, equity
  • Industry focus: Tech and innovation
  • Funds you can keep: All or nothing; whatever you raise
  • Funding fees: 5%
  • Payment fees (US): 2.9% + $0.30 per transaction
  • Start-up locations allowed: Worldwide

A big plus is that Indiegogo allows campaigners to choose to structure either a fixed or flexible funding arrangement for your campaign. If you choose flexible funding, you still get the money even if you don’t fully reach your goal. Fixed funding is the same as all campaigns on Kickstarter. Reach your funding goal or the funds are returned to prospective backers (see below). Either way, campaigners must deliver the equity and/or rewards that you promised to supporters.

The site has millions of visitors and the traffic can, in theory, be great for your campaign. If you get featured in your category, your project will be exposed to a ton of people and possibly bringing in many backers. The problem with the mega-sites is that it’s difficult to get featured and your campaign can easily get lost in a sea of other aspirants.

Kickstarter

  • Campaign type: Reward
  • Industry focus: Creative arts
  • Funds you can keep: All or nothing
  • Funding fees: 5% of successful campaigns
  • Payment fees (US): 3% + $0.20 per pledge $10 and over; 5% + $0.05 per pledge under $10
  • Start-up locations allowed: US, UK, Canada, Australia, New Zealand, the Netherlands

Red alert people! Kickstarter campaigns are all or nothing. Meaning, if you can’t meet or exceed your funding goal, all the money is returned to your prospective backers. You had better know that you have enough check-writing friends to get your campaign to the first milestone and that the strength of your project, supported by a very compelling marketing outreach, will carry you across the finish line.

On top of that, the platform is highly competitive and carefully selects the projects allowed on the site. You cannot fund just any business on Kickstarter—you must “create something to share with others.” Your project also needs to fall under one of site’s curated categories, such as arts and crafts, fashion and design, film and photography, games, and technology.

Moreover, investors will expect some type of reward, so you’ll need something of value for the swag bag you must distribute to investors (and you must categorize rewards by their value, to correspond with the amount of donations). So if you’re trying to scale your Public Relations business, what might your reward be—3 years of free press releases? I dunno.

Kiva—Best for micro-loans

  • Campaign type: Debt
  • Industry focus: Startups interested in microloans
  • Funds you can keep: All or nothing
  • Funding fees: N/A
  • Payment fees (US): N/A
  • Start-up locations allowed: United States

If you will accept taking on debt, this not-for-profit style platform could be your most affordable option. Successfully funded Kiva campaigns give your start-up a 0% interest loan, the best of all borrowing options.

The loan must be repaid, but there are no funding or payment fees for you to worry about. Since Kiva requires that you prove your social capital by kicking off your campaign with donations from family and friends, that means convincing people you know to fund your business—but were’t you going to do that anyway?

Note that Kiva loans top out at $10,000; this is micro loan territory. But if you want affordable debt crowdfunding for your small fundraising goals, Kiva’s worth a look.

Publishizer

  • Campaign type: Equity
  • Industry focus: Book publishing
  • Funds you can keep: Whatever you raise
  • Funding fees: 30% of money raised
  • Payment fees (US): 2% – 4% per PayPal transaction
  • Start-up locations allowed: United States

Not all crowdfunding sites are giants, as are GoFundMe, Indiegogo and Kickstarter. In fact, most are smaller, niche-specific platforms, such as Publishizer, which was designed specifically to help authors crowdfund their books. Authors can certainly still use Kickstarter or Indiegogo, but this platform gives the benefit of having a specialized audience that supports authors and books.

Republic

  • Campaign types: Equity, reward
  • Industry focus: Start-ups with a focus on diversity
  • Funds you can keep: All or nothing
  • Funding fees: 6% for the startup + 2% Crowd SAFE fee
  • Payment fees (US): 3.5% per transaction
  • Start-up locations allowed: United States

As an equity-focused crowdinvesting platform, Republic is the new kid on the block and with it’s highly selective curated selection of companies, it’s not for everyone. But for growing U.S. companies with large revenue potential, Republic’s 95% success rate for selected campaigns make it one of the most enticing platforms for connecting with willing investors. Furthermore, Republic also looks for organizations with diverse founder teams.

SeedInvest

  • Campaign type: Equity
  • Industry focus: Technology startups
  • Funds you can keep: All or nothing
  • Funding fees: 7.5% of successful campaigns + 5% equity fee
  • Payment fees (US): $0 paid by the startup; 2% paid by the investor
  • Start-up locations allowed: United States

Founded by MBA graduates and experienced investors, SeedInvest started as a way to give technology startups access to capital from people willing to make sizeable equity investments.

To start, you need at least a minimum viable product or prototype, proof of concept and two or more team members. If you make the cut, you’ll get access to both accredited and non-accredited investors for campaigns starting at $100,000.

SeedInvest’s biggest drawback is its expensive 7.5% placement fee on all successfully funded campaigns. Still, the site has a growing base of investors and successful companies, as well as a positive reputation in the entrepreneur community.

I’ll be back next week with information on how to set up your campaign. Thanks for reading,

Kim

Photograph: ©David Cairns/ Getty Images. Roulette at the Playboy Club in London, England early 1960s

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7 Kinds of Business Financing

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Is 2020 your year to launch a business, or is growth and expansion of your existing venture on this year’s must-do list? If so, congratulations and best of luck to you! I’m sure you’ve thought of the most advantageous way to obtain the required financing for your plans and we’ll look at some good options right now.

A study conducted by the National Small Business Association found that 19% of small business owners cite a lack of available capital as the biggest challenge to plans for future growth and 82% of businesses outright fail because of cash flow management issues. In preparation for borrowing, I remind you that financial institutions will evaluate your credit score, so make paying off bills and boosting your savings immediate priorities.

According to the 2018 Small Business Lending Index, big (national) banks approve 25% of loan applications made by small business owners and smaller (community and regional) banks approve nearly 50% of loan applications made by small business owners. So whether it’s your food supply or your money supply, keeping it local is a good thing, am I right? https://www.biz2credit.com/small-business-lending-index/january-2018

Line of credit

A business line of credit functions like a credit card and it’s available to borrowers with either good or less than perfect credit. Borrowers can be approved for a potentially generous amount of funding that can be accessed immediately. The application process to obtain a line of credit is usually quick, and many businesses receive approval in a day or two. Interest rates range from 7% – 25% and repayment terms are usually between six months and one year, (meaning that one cannot run a balance ad infinitum) depending on the business’ revenue and credit score.

Short-term loan

Pursue this type of loan to, for example, bridge cash flow gaps, stock up on inventory that is available at an attractive price, or take advantage of a lucrative business opportunity. Surprisingly, borrowers often don’t need a great credit score to be approved for a short-term loan and that can be an advantage. In fact, the borrower could use the loan to pay off higher-interest debt and improve the credit score. Furthermore, short-term loans tend to involve less paperwork and processing is usually fast, making funds available quickly.

Short-term loans must be repaid in rather a short amount of time, often in just one year, and payments are usually due weekly, not monthly. They also generally come with a relatively high interest rate when compared to other types of loans and loan amounts are usually capped.

Secured loan

Secured business loans require a specific piece of collateral, such as a business vehicle or commercial property, that the lender can claim if the borrower fails to repay the loan. Unsecured loans, on the other hand, are not attached to collateral. Personal loans, student loans and credit cards are common examples of unsecured loans. Unsecured loans have higher interest rates and stringent approval requirements, to ensure that lenders gets their money back. Secured loans are often easier to obtain and may also have a lower interest rate, because the lender has a guaranteed way to recoup money lost to default by selling the borrower’s collateral.

Because of the increased risk an unsecured loan represents to the lender, borrowers may be asked to sign a personal guarantee in order to receive approval. If the borrower defaults on the loan, s/he will then be personally liable for repaying it. While a creditor can’t seize business property under a personal guarantee they can legally claim the borrower’s personal assets, including bank accounts, cars and real estate, until the loan is repaid.

Another common method used by institutions to mitigate the risk associated with secured loans is by reserving the right to file a blanket lien against the borrower’s business assets. Most business loan terms include a blanket lien clause that allows the lender to claim and resell business assets to collect the debt.

Term loan

Term loans, also known as long-term loans, are best for business owners with great credit and who are requesting a big loan. They may not be a good option for those who are launching a new business, however, since lenders usually want to see a track record of success (evidenced by 3- 5 years of business financials) before taking on the risk. 

The term loan application process is lengthy. If the application is accepted, borrowers must pay a principal amount plus interest each month until the debt is paid in full. Term loans are most often used to buy real estate, acquire another business, remodel or renovate a commercial space, or support long-term business expansion.

Equipment loan

Owners of businesses large and small often need to purchase, replace, repair, or upgrade various kinds of equipment to process, manufacture, or produce their products and equipment loans are essential to this process. These loans can be a great option for start-ups as well as established businesses, and they can be used to finance nearly every type of business equipment, including company vehicles. Owners of new businesses can take advantage of an equipment loan because the equipment secures the loan, regardless of the success or failure of the company. Interest rates are often reasonable and will reflect the individual’s or business’ credit rating and financial picture.

Be aware that excellent credit is required for most equipment loans. In general, borrowers will be able to finance 80% of the total purchase price of the equipment. A down payment of about 20% is typically required for most small business equipment loans.

Borrowers with less than stellar credit should investigate the terms of leasing the desired equipment. Leasing typically does not require a down payment and that especially benefits businesses that have little or no available working capital. When a down payment is required, it is typically relatively small compared to what a traditional loan down payment would be.

Purchase order financing

To qualify for purchase order financing, the company must sell finished goods (not raw materials or product components) to B2B or B2G customers with profit margins of at least 15%. Start-ups can qualify for PO financing because approval is based primarily on the creditworthiness of, and borrower history with, those customers and suppliers. The chances of being approved are even greater if customers and suppliers are well-established, reputable companies.

PO financing can present a great opportunity for start-ups that receive lots of orders but don’t have the cash to fulfill them. In these cases, similar to invoice financing, the purchase order secures the loan. Once the business receives a purchase order from a customer, the lender directly pays the supplier to manufacture and deliver the product to the customer. Once delivery is accepted, the customer pays the lender. The lender then deducts their fees from this amount and pays the remainder to the borrower, which can be counted as profits. 

PO financing is a great way to help your business grow without taking on bank debt or selling equity in your company. If sales outpace your incoming cash flow, then purchase order financing might be a good strategy to fulfill big orders.

Invoice financing

Also known as accounts receivable financing or factoring, this loan allows Freelance consultants to survive slow-paying clients. Small and medium- sized businesses will be able to manage the increasingly common practice of “net 90” receivables payment that large companies impose on smaller organizations, in exchange for big orders.

With invoice financing, lenders advance to borrowers the value of accounts receivable, less a fee of perhaps 15%. The borrower will pay a weekly fee while waiting for the customer to pay up. Invoice financing helps businesses improve cash flow, meet the employee payroll, pay vendors and suppliers and reinvest in operations and growth earlier than they could if they had to wait for clients and customers to pay their balances in full.

Thanks for reading,

Kim

Image: Money Lenders (1784) an etching by Thomas Rowland. The aspiring borrower (L) is George, Prince of Wales (George IV 1820 -1830).

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Recipe For Success

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Solopreneurs and owners of small businesses can benefit from what can be called a basic recipe consisting of time-tested business practices that will put you on the path to building a profitable enterprise that will make you proud.

Business strategy

Every business needs a strategy and a business plan is a very helpful tool that supports you as you implement your strategy to develop and launch your venture.  A complex strategy or business plan aren’t necessary to achieve success.  A one-page business strategy and a five-page business plan may do the job, as long as both are well thought out and executed.

A good business strategy (and plan) defines and drives the activities and behaviors of the entire organization. Without it, the business becomes a rudderless ship, lost at sea.  A well-conceived business strategy and properly written business plan reflect and support the business model and always address marketing, operations, finance, staffing and customer service, at a minimum.

Business model

The business model is the plan for how your company will generate revenues and make a profit.  The business model answers the question “Who is the customer and what does that customer value?” As a result, your business model must also spell out the company’s value proposition and what differentiates your products and services from those of competitors.

The business model will keep company leaders focused on the core markets and measuring success as defined by the business strategy.  Here you’ll detail a step-by-step action plan to operate profitably within your marketplace.

Marketing

In order to develop a realistic and potentially effective marketing strategy, it is essential to thoroughly research the most likely target customers for the venture.  What problem or goal will be solved with your products or services—what is the customer’s motive for doing business with you? How much will potential customers pay to obtain the solutions that your venture will offer?

Finding out which competitive products target customers now use to get their needs met is another essential marketing research function.  As well, you must learn the type of marketing and information gathering outreach that potential customers will find and trust.  An effective marketing strategy addresses how you will:

  • Identify target customers
  • Identify the products or services now used  (competitive products)
  • Describe how you will promote your products and services to those customers
  • Explain the positioning strategy for products and services
  • Discuss the branding strategy
  • Describe the sales strategy—how will you sell to customers
  • Address the pricing strategy
  • Identify advertising and social media marketing activities

Sales

The sales strategy that you adopt will depend on your target customers, your access to those customers and the competitive landscape.  You may be able to build referral arrangements and strategic alliances that allow you to generate enough sales to be profitable.  On the other hand, cold calling may be the most effective way to generate sales for your organization.  Will you sell in a physical location, or online? Will customers pay immediately, or will they be billed? The preferred selling approach a company uses is defined in the marketing plan.

Operations

Predictable, practical and streamlined business operations processes are a must.  The customer experience is closely linked to what happens in the behind-the-scenes delivery systems of products and services.  Think of it this way—when you go to your favorite breakfast place to get a muffin and coffee, you expect to receive what you’ve ordered with a minimum of fuss. That is how you start your day because it’s convenient and it makes you feel good.  You, business owner and leader, must create a similar experience for your customers if you intend to retain them.  Smooth business operations also play a role in building good word-of-mouth for your business.  Fail to develop a good operations plan and things could blow up in your face as disappointed customers spread the word about your shortcomings.

Unfortunately, many businesses give short shrift to the operations section of their business plan.  The purpose of thinking through operations processes is to increase business productivity and reduce costs as you offer the same (or better) outcomes to each customer, time and again.  There may be some trial and error along the way, but most of all it takes thought and planning.

Successful business leaders understand the need to continually improve business processes, to become more efficient and productive and able to respond to market changes faster, all the while providing excellent service to customers.

Technology

While technology is important, it needn’t be complex or costly to be effective.  Up-to-date technology products enable upgrades within any number of company functions: product manufacture, delivery of services, inventory management, payment systems, sales and distribution, marketing campaigns, quality control and customer service.

Finance

A realistic financial plan is the cornerstone of building a profitable enterprise.  Every business requires a financial roadmap and budget, along with the discipline to follow it.  You must anticipate and plan for business start-up or expansion costs,  projected sales and assisted by a break-even analysis, project that point in the future when the business will be positioned to make a profit.

The financial plan ensures that the business owner recognizes the most likely sources of business launch or expansion capital (will a bank loan or a partner be necessary?). A financial plan reminds owners where and how to spend money and it provides ways to measure progress, promote healthy cash-flow and warn of impending shortfalls.

Customer service

Smart business leaders treat customers well, because they are aware that there can be no business without customers who make purchases that create revenue and lead to profits.  Integrate customer service into your business practices and review those practices frequently to ensure that they are having the intended effect of facilitating customer satisfaction, repeat business and referrals.

Thanks for reading,

Kim

Image: One scene in a mural displayed in the Templo Mayor Museum in Mexico City, where thousands of artifacts were excavated from the ruins of Tenochtitlan, the former capital of the Aztec Empire (now called Mexico City).

 

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Only Those Who Have Money Can Borrow Money

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Here is a typical story: A passionate would-be entrepreneur launches a venture, often with the romantic and exciting intention of bootstrapping the finances.  But realistically, bootstrapping is not the correct description of the financial plan.  The term that applies here is under-capitalized.  The idea may have been realistic,  but before our intrepid entrepreneur could get traction with the concept, the money ran out.  The only thing remaining was debt.

Our hero would like to start over, since valuable lessons were learned and baked into business plan and model 2.0.  However, start-up capital that was not requested in the first go-round must be sought now, because the realization that there will be no success without adequate funding is now apparent.  What can be done to give our story a happy ending in a world where it takes money to make money? Let’s take a look at some possible funding options, some common and others less so.

Friends and family financing

Besides your own bank account, the most obvious place to look for start-up capital is with friends and family, that is, if you have a very good idea of whom you can do business with and those relatives or frenemies who must be avoided.  Many business ventures are funded in this way.

If you choose to borrow from family and friends, put into writing the loan amount, terms and repayment schedule and agree only to what you are certain you can uphold.  According to CircleLending’s Business Private Loan Index, the average current interest rate on business loans made by family members and friends is 7.6%.  Do everything possible to preserve relationships and not let money divide you.  The last thing you want are tense holidays (there are more than enough ways for that to occur as it is).

Micro-lenders and web-based lenders

There are several non-bank lenders found only online that offer micro-loans to small entrepreneurs.  The loan amounts are usually between $5000 – $25,000 and these outfits can be excellent sources of start-up and expansion capital for entrepreneurs with debt and /or limited resources.  There is sometimes a potentially very useful credit repair feature available through certain of these lenders when loan repayments are reported to credit bureaus.  On-time payments will raise your credit score, improve your credit rating and lower your future interest rates.

Here are sites to visit, including the Small Business Association’s Micro-loan Program:  http://prosper.com   http://www.zopa.com   http://www.accion.com https://www.sba.gov/loans-grants/see-what-sba-offers/sba-loan-programs/microloan-program

There may as well be small not-for-profit organizations that are micro-lenders in your state, but they may not be found online.  To obtain contact information on these loan source possibilities, please visit  www.microenterpriseworks.org

CircleLending data demonstrated clearly that comparison shopping is a must-do.  The loan interest rate at Accion was 12%, while the rate at Prosper was more than 20%, for those with poor credit.

In 2016, the National Small Business Association found that 73% of small businesses used some type of funding to launch a venture, expand a business, purchase inventory or equipment, or strengthen the company’s financial foundation.  The 2012 U.S. Census Bureau Survey of Business Owners found that 57% of start-ups launched the venture with personal savings; 8 % used personal credit cards; 6% used other personal assets (retirement account?); and 3% used a home equity loan. Only 8% used a bank loan.

While it is possible for individuals who are in tight financial constraints to obtain bank loan financing and business credit cards as noted above, interest rates are high.  More than that, even those who might qualify for bank loans are not going there.  You want to put your money not into interest payments, but rather into building your venture into a successful enterprise and paying off debts, in that way positioning yourself to save and invest capital and build for yourself a strong financial future.

Thanks for reading,

Kim

Triple Dollar Signs, Andy Warhol (1982)   Christie’s Images, Ltd.

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In the Belly of the Beast: Selling to 4 Types of B2B Buyers

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Sometimes, decisions are made by committee—groan!—and that means a lot more leg work for a Freelancer who’s trying to sign a contract or a sales professional trying to sell a product or service.  When you must gain the confidence of several staff members, you may never know whose opinion really controls the sale (although you can ask).  All you can do is be prepared by understanding the kind of information that the designated contact person in each department is likely to appreciate and make sure that you deliver it.

Finance

When the Finance Department contributes to buying decisions, you have to know that tangible and intangible value received in exchange for dollars invested is the primary concern. Therefore, present your product or service in language that communicates the expected ROI of the purchase, over the short and long-term, and indicate whether the organization will save or earn money when the product or service is introduced.  A case study to illustrate the financial impact of your product or service on a reasonably comparable organization (in terms of operating revenue or type of business, for example) would be greatly appreciated by the this team.  If Finance does not have confidence in the pricing or ROI of what you’re selling, you will be asked to make monetary concessions or the C-Suite execs will decline the project.

IT

If your product or service will require technical support, this decision contributor will want to be assured that its set-up and maintenance will be easy and compatible with other systems currently in use.  Provide the team with information on how to integrate the online requirements of your product or service with the existing technical infrastructure and software.  Reliability is another IT concern and the fear of system crashes lies just below the surface.  Present data to demonstrate that the online component of the purchase will be dependable and low-maintenance.  Finally, a show-and-tell to illustrate that the system is intuitive and user-friendly, thereby minimizing staff training time or frustration of the end-users.

C-Suite

As you might expect, C-Suite executives, including department heads, are the most important of all those with input into the decision-making process because they have the power to green-light your proposal or kill it outright.  When selling to the higher-ups, it’s important to learn which factors matter most and whose opinions will have the most sway on their opinions (usually the end-users).  If the end-users clue you in to the hot button issues, then discuss them and keep your message simple and clear.  Emphasizing high-level value, as the executive defines it, is probably a useful guideline.  A case study that makes you and your product or service look particularly brilliant, especially regarding the most pressing issues, would be a good selling tool.  Be aware that C-Suite executives are usually too busy to process a complicated sales narrative. Think of soundbites that communicate impactful and tangible benefits.

End users

These team members will use your product or service most often.  Their opinion carries a great deal of weight and their approval of your product or service is a priority of the C-Suite.  Key selling points for this team revolve around the functionality, practicality, ease of use and time-saving potential of your product or service.  Seek feedback from this team as to what they consider the most relevant features and benefits and as well, how you might best promote your sale to the other decision-makers.  You may be able to convince this team of the benefits of certain add-ons and upgrades, which will enhance the user experience and the amount of the sale or billable hours.

Take time to demonstrate and ensure that your product or service will reliably meet or exceed the expectations of the end-users because if it does not, this is the team guaranteed to express concerns that will damage your credibility and the potential for future business and referrals.  Your in-house advocate will be found in this department  (try to cultivate a team member with a title that confers authority) and if you cannot convince the right person to step forward and take on the role of champion, then your sale or contract will most likely suffer diminished prospects for approval by the ultimate judges in the C-Suite.

Thanks for reading. May many billable hours find their way to your door in the New Year!

Kim