SBA micro loans for tax prep startup?

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#1
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California
1. Anyone have experience with SBA loans for tax prep startup?

2. Anyone just do taxes during tax season? How do you handle office rent/office hours for the rest of the year?

3.For a newbie, what’s a good number of clients to have before you can transition from home office to rented space?

4. For a newbie stuck in a home office trying to attract new business, does having a virtual office help? Would potential new clients feel safer meeting me or dropping off their tax info at a safe and secure virtual office?
 

#2
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FL
SBA loan - be very, very, very, very careful. Be sure you know what you're getting into. Own a house? They take a mortgage on it (and that might trigger an event of default). You have to give them copies of your annual financials and tax returns. You have to give them copies of your quarterly payroll tax reports. They will limit what you can take out in owners compensation (both payroll and distributions). They may require you spouse to co-sign even if the spouse has nothing to do with the business. While you get longer to pay back the loan, the interest rate is usually higher.
 

#3
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California
Thanks for your reply,
I worked in retail banking back in the '90s and it seemed a lot easier to get or qualify for SBA.

Any advice for Questions 2-4?
 

#4
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I use a virtual office. Pay an annual fee for use of the conference room and receptionist. I meet with clients there, and clients drop off/pick up items with receptionist. I don't want clients coming to my home, so this works well for me.
 

#5
ATSMAN  
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When I first went on my own I did look into getting a SBA loan for startup/working capital for the first 2 years and was not successful. They will first ask you to submit a business plan along with financial statement before even considering anything else. I took a home equity loan out and drained my retirement to get going.

I think once you establish yourself they may be able to help you expand your business.

In most strip malls that are partially occupied you can find retail space for the tax season. Keep in mind that you may have to spend your own money besides the rent to bring it up to specs to be used as a tax office. I had an unfortunate experience in my early years where the heating system was totally inadequate and I spent a fortune heating the office on electric heat in New England winter!
 

#6
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California
First, thank all of you for your advice and responses.

I am leaning towards the virtual office setup for the beginning stage of my enterprise. Even though I will be doing a lot of tax work from my home office, I think it would be more appropriate for new clients to meet or drop off documents at a virtual office. I’m thinking that what money I can save from normal office rent, I can use to beef up my business web sight and additional marketing.
 

#7
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Portland, Oregon
I've never quite seen how the virtual office arrangement could work, but if it DOES work, more power to you.

Our clients, certainly, expect someone to go over the return with them at pick up. What if they owe a lot more than expected? What if additional forms need signatures (and explanations)? A general all-purpose-utility receptionist has no knowledge of any of this. He or she just hands packets of info over to someone (and, I assume, collects money).

Yeah, collects money: that's important. You should NEVER let a tax return go out the door unless it's paid for. Believe me, you will regret it if you don't follow this advice.

In Oregon, a receptionist can hand over a return and collect the fee, but he or she can NOT -- by law -- say anything about what the return shows or means. Need a license to do that. California requires the CTEC license, and may have similar rules. Again, even in most states where licensing is not an issue, few clients are going to be very satisfied picking up and signing a return blind without any kind of explanation about the bottom-line results. (And what if the return required 3 hours more to prepare than you expected. You just give that away, or increase the invoice? Tell the client ahead of time or just hit them when they pick up? Either way, they'll want to discuss and maybe dispute it. The receptionist won't have a clue).

I think the virtual office set-up can still work, but I'd imagine you'd need to schedule pick-up days (and specific times for each client) when you'd be there to smooth everything.

As for SBA loans: my understanding is that they tend to prefer to finance businesses with lots of fixed assets -- small factories, retail outlets, etc. Personal service businesses like tax prep are too easy to fold up and vanish into the night. This, at least, is what the SCORE adviser told us a decade ago when we were first starting.

Many preparers do, in fact, work JUST during the tax season. I'm not quite sure how they manage it. First, most clients want and need occasional help year-round. What do you do when some of them (as invariably happens) get IRS notices due to mistakes you or they made? If you've vanished, they are kind of screwed. And how do you handle all the clients who must go onto extension because they were missing info or simply came in too late to meet the deadline?

As for number of clients you need: that entirely depends on what you charge and what kinds of returns those clients require. As a general rule of thumb, you don't want to spend more than 10% of your gross revenue on an office. That percentage will be more initially, of course, and may also be more if you're in a high-rent area. Don't ever let it go above about 15%, though, or you will be in a world of hurt.
 


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