It may benefit you to learn a couple aspects of the financial world that can be valuable for a small business owner or entrepreneur like you. These topics are the SEP IRA plan and accounts receivable financing.
Although these topics are not the most complicated in the world, it may take some time to get a good grasp over them because they are not too common. In addition, there is not too much expert literature on these topics online. This is my attempt to define each in as simple terms I can.
Business accounts receivable factoring, or financing as referred to by many is simply the selling of a small business\’ receivables in exchange for liquoid cash. Now normally, a small business typically generates receivables by selling goods and services and then bills a customer. The amount to be collected from the customer later the receivable. Receivables financing is the act of trading these in exchange for cash payment today.
Why might a business decide to enter receivables factoring? There are many reasons. But a business often does this when it needs the cash upfront for working capital purposes, or to grow. For example, open new locations or get more product to sell.
Another topic I want to discuss is the SEP IRA plan. This is a retirement plan which small business owners can set up for its owners and staff. Large corporation typically offer a 401k retirement plan, which is a vehicle within which employees can put away savings tax free for retirement. Because smaller businesses do not offer this kind of a plan, the law allows them to establish a smaller, self directed SEP Plan where the employees and owners can save for retirement.
So there you have it. Two business related concepts explained in as clear English as possible. I hope you found this explanation helpful. Please share it with someone you think can benefit from it.
Read more about business financing here. And more on accounts receivable financing here.