The Serial Entrepreneur: Insight for Small Business Owners

A DUNS Number: What it is and why you need one

Along with all the federal, state, and local government filings on the "starting a new business" checklist, don't forget to apply for a DUNS number. What's a DUNS number you ask? DUNS, or more accurately "D-U-N-S", stands for "Data Universal Numbering System". It's a unique nine-digit number assigned by Dun and Bradstreet, Inc. ("D&B") that identifies your business in their database. It has nothing to do with any government entity and is not required to start a business, but if you ever plan to open trade credit accounts with major vendors or suppliers, it will serve as the linchpin of that effort.

Who's Dun and Bradstreet ("D&B")? To quote D&B's Website: "Dun & Bradstreet maintains the world's largest business database containing information on more than 100 million businesses worldwide including 38 million in the United States. D&B is, by far, the leading provider of business information for credit, marketing, and purchasing decisions worldwide. Today, more than 150,000 companies of all sizes rely on Dun & Bradstreet to provide the insight they need to build profitable business relationships with their customers, suppliers and business partners."

What does that mean to you? As it relates to opening trade credit accounts, applying for certain kinds of business financing (like equipment leases), and just simply opening certain kinds of accounts, even ones that don't come with credit terms (some wireless carriers ask for your DUNS number when you open a business wireless account), these suppliers will use your DUNS number both to evaluate the creditworthiness of your business as well as to report payment experiences they have with you. In that sense, D&B acts like a clearinghouse of business credit reporting, similar to how the three big consumer credit reporting agencies compile and report on your personal credit. D&B provides other useful services to small businesses as well--more on those later...

Applying for a DUNS number, in and of itself, does nothing for your business credit. It simply establishes the "key" you'll need to start building a credit file with D&B. There are two ways to start building that credit file, both as you might expect, based on reports about your payment habits from existing suppliers: 1) almost any large company that you have an account with will automatically report on a monthly basis to D&B, and 2) you can specifically request that D&B contact your smaller non-reporting suppliers and query them on your payment history (D&B charges a small fee for the second option).

By the way, if you don't explicitly apply for a DUNS number, one will eventually be created for you whether you like it or not (unless you do business under a rock), but it's better to go ahead and apply for one to get the ball rolling.

So...you may have detected a chicken-before-the-egg problem above. If suppliers report on you when you have a trade account with them, but also use your D&B credit file in order to grant you a trade account, how does one ever get a trade account to begin with? Excellent question. The fact is, when you start a new business, you have absolutely no credit history at all, and your D&B file will reflect this. As such, it is absolutely worthless as a means for a supplier to evaluate your business creditworthiness. But there is no harm in having an "empty" D&B file (meaning an established DUNS number with the basis business information in it); in fact, even an empty file can help you establish certain kinds of accounts. But for your D&B file to really start helping you, it will take some time--time for the file to collect data (some that you can provide and some that your suppliers will provide, whether or not you have a trade credit account with them). This is just another reason to apply for your DUNS number as part of the startup checklist--the sooner you get the file started, the sooner it has the potential to start helping you.

Fair warning: If you don't have good payment habits or end up with tax or other liens, your D&B file will reflect this, which will hurt you (no difference here than what happens to your personal credit score if you consistently make late payments on your credit cards). But like I mentioned, your business will get a DUNS number assigned to it sooner or later anyway, so there's really no place to hide.

How do you apply for your DUNS number? Simple. Go to the D&B Small Business Website and click on the "Apply for a D-U-N-S Number" link. There is no charge to apply (although D&B will offer you a couple of options that do carry a fee: my recommendation is to go with the free application for now). Note: It's important that you have already completed your federal and state filings before you apply for your DUNS number--D&B will ask for some of that information and I'm pretty sure they also verify your filing status with your state. After you apply, it usually takes a few days, and D&B will respond with your newly assigned DUNS number. At that point, there is nothing else you need to do (except always supply your DUNS number on any commercial account application that asks for it, even if you are not applying for credit or are personally guaranteeing the credit line).

I mentioned that D&B provides other services. Some of these may be useful to your business, both short and long term. Among other things, they provide a slew of marketing and business research services, which you can read about on the D&B website. There are two services that I do specifically want to point out. Depending on how you buy them, D&B offers packages that combine the two in various ways.

The first lets you query D&B's database to check on the creditworthiness of your potential customers. Of course, that may or may not be relevant to your business (if you're operating a retail business, your customer's creditworthiness isn't really relevant--unless you plan to offer payment terms, and even then, if your customers are consumers, D&B won't "know" them), but if your business deals with other businesses, even if you don't offer terms, but especially if you deal in large-dollar transactions, having a quick way to check out a prospective customer's past payment habits and other pertinent details is worthwhile. Tip: If your customer is a public company, I wouldn't bother with their D&B file--you get plenty of information from looking up their ticker symbols on Yahoo! Finance, Google Finance, and similar sites that compile information on public companies. The same is probably true for well-known private companies that you yourself are comfortable doing business with (but if in doubt, look 'em up).

The second service lets you keep an eye on your own D&B file, complete with email notifications when changes show up. Just like you may already do this for your personal credit file, knowing what's in your business file and making sure it's accurate and complete is well worth doing. Again, this feature is made available "on-demand" (less the email notifications) for a per-query fee or as part of a subscription. I'm fond of their subscription service, which can be had for under $100 a month; it includes a small package of "eValuator" reports (checking out other company's D&B profiles) and unlimited access to your D&B profile. Again, see D&B's website for details and current package and pricing information. Tip: D&B can also be a way to get "intelligence" on your competitors.

So back to the chicken and the egg. How do you build up your credit file in the first place? Frankly, your first several trade accounts probably won't have terms (other than COD), but even those will help you in time. Naturally, suppliers that you have prior relationships with and/or smaller suppliers that you can build a closer personal relationship with will likely be the first ones to give you terms, maybe starting you off on Net10 or Net15 until you prove yourself and ultimately moving to Net30. Bottom line, you have to "work it". Start off new supplier relationships paying with cash/check or credit card (but do open an account either way--even without credit terms and even if the supplier doesn't require it for "cash and carry" purchases). Then work hard to establish a personal relationship with your primary contacts at your suppliers, especially your "key" suppliers. Your goal is to let them see that they can trust you, and by extension, trust your company. When the time is right, ask them for credit terms, but don't be unrealistic with regard to timing or the credit limit you request--here you have to take it in small steps as you build credibility. Finally, I mentioned that D&B will (for a small fee) contact your non-reporting suppliers and add their feedback to your file. This is well worth the investment, but only after you have built relationships with at least three to five of these suppliers--doing this too soon is just a waste of time and money.

Your Business Address

Naturally, if you are starting a retail business or otherwise need office or warehouse space, your mailing address will likely be the same as your physical location. I'll talk more about that in another post (and there are lots of options to consider when choosing a physical location), so this post is mainly intended for "virtual companies" that don't have or require physical space. But even if you aren't virtual, unless you already have that space under lease, read on...

There are lots of examples these days of virtual companies. Most on-line/web-based businesses fall into this category, as do--almost by definition--all home-based businesses: independent consultants, service providers (think accountants, computer repair, electricians, and so on), and small groups of people working together from their respective homes (this is what many people think of as the "true definition of a virtual company").

As you will quickly discover as you go through the various steps in starting up your business, almost everything you do will require a mailing address (legal filings, securing a domain name, setting up a bank account, etc.), so getting one will be one of your first steps. There are really three primary options: 1) use your home address; 2) get a PO box at your local post office; or 3) get a box at a private mail receiving service. Note: As I alluded to above, if you need physical space and you already have that space under lease (or otherwise secured), that is certainly your fourth option.

Using your home address as your business address: My recommendation is to not do this, unless it is only temporary in the early stages of the startup process and you plan to secure a physical location. The list of reasons to not use your home address includes such things as security (you don't want customers showing up at your door at 3:00am on morning), external perception (home addresses often reflect negatively on the business), and just plain "separation" between your business and personal mail.

Using a PO box: This is an often-used solution to a business address and solves many of the issues inherent in using your home address, but it has some downsides. There is still a perception problem (yes, I know that lots of large companies use PO boxes, but they are already large companies, while you're trying to build up an image) and as a US Postal Service box, they can only send and receive US Postal mail. In other words, overnight shipping companies like FedEx and UPS won't deliver a package or overnight envelope to a PO box. To me, this reason alone takes this option off the table for most companies.

Using a private mail receiving service: These are similar to a PO box, but with a couple of distinct advantages. Available at locations across the country (many of them small local or regional companies),the two largest national providers of private mail services are UPS and MBE (which is also owned by UPS). Regardless of whether you choose a local, regional, or national provider, the benefits are virtually identical, as are the things to look for: a good address (with a little digging you can often find a convenient location that will let you use a "short" suite number at a business street address, instead of the typical "Suite 123-456" format, which is OK but not preferred), longevity (even the national brands are mostly franchises--find out how long the location you're considering has been there and how long the owners have been in business), and costs (with few exceptions I've seen, costs for a private mailbox is pretty consistent between providers and generally comparable with US Postal Service PO boxes). What the private providers offer that the post office can't is the ability to receive packages and overnight envelopes from any shipping company (and provide you with a convenient place to send mail as well as overnight shipments while you're there to pick up your mail). Also, depending on the location, the level of customer service is often a step up from what you can expect from the postal service, with such "fringe benefits" as being able to call in and see if a package has arrived. Bottom line, highly recommended!

There is an other "variant" of these private mailbox services that will receive and forward your mail to you (presumably at your home address). One such example is NYmail (and there are many others). They offer the same advantages as the retail outlets, often with a "prestigious" address, at similar monthly costs. Nothing wrong with this approach, but two negatives to consider: there is additional cost (because you pay for the postage/shipping to get the mail/packages from them to you) and it is somewhat less convenient (you have to wait for the "second leg" of the shipping or pay overnight shipping charges, rather than just stop by the local store to pick up your mail).

A closing note on "executive office space": I'll discuss executive offices in another post, but under the heading of "your business address", this is certainly an option to consider. If you're not familiar with these, they are usually nicely-appointed, full-service (i.e., voice mail, copy machines, receptionist, coffee service, conference room, etc.) offices where you rent a single office instead of a whole office suite, typically (at least, that's the idea) for much less than it would cost you to do all this on your own. Frankly, it's a great solution for an otherwise virtual company that needs to have a professional office environment to meet with clients (assuming that you wouldn't normally meet at the client's office); but make no mistake, you won't be fooling anyone into thinking the whole office is yours. In any case, if this arrangement is appealing to you, there's no reason you can't use that physical location as your mailing address (and a good example of using your home address for the bare minimum startup requirements, since you'll generally need to have your business filings and possibly a bank account in place before you can sign the executive office space lease), but also consider this: The cost of a private mailbox is very low; if you decide to change executive offices (most offer short lease options) or you decide the executive office ultimately isn't necessary, your business mailing address won't have to change.

Starting a New Company: Opening a Business Bank Account

Back in the day, it was typical to open a bank account at the same local bank where you had your personal accounts, and thus, a history and at least a passing relationship with (or the ability to form a relationship with) the bank President or owner. These days, that's more of a rarity. With all the bank consolidations in recent years, even banks that used to be "locally owned" have been merged into the various national brands, the highest ranking official in the branch is the branch manager (who often gets replaced at an unnerving rate), and you and your accounts have been reduced to little more than computer data. Sad to say, but banking has gotten very impersonal. Beyond that, much of the "relationship" aspect that used to mean something in a "banking relationship" doesn't mean that much any more, with decisions being based on credit scores and software algorithms as opposed to personal relationships.

If I sound cynical, it's because I have become so over the last 20+ years. My experience is that the bigger the bank, the more "like an account number" you will be treated. It's a case of the brochures and commercials looking nice (talking about their focus on small business, their excellent customer service, etc.), but the reality being very different. Dirty little secret: Relationship banking is still alive and well if you are a "major account"; but since most small business startups will be far from "major", we can safely assume that you aren't on that list.

Having said that, if you can find it, a small local bank (where it's still possible to speak with the people that own the bank--or at least to their direct reports) is your best bet in most cases (see some caveats below). I'd say the smaller the town you live in, the more luck you'll have. To that point, I know of many people that have intentionally opened accounts at "small town" banks where they grew up, even though their business is many miles away in a "big city".

If you can't find it (and again, taking into account the points below), just about any bank will do. Most banks these days offer some variation of free checking for businesses, so do your research on-line to compare offerings from various banks that have branches conveniently located to you. Look for things like free ATM transactions, a free Visa Debit Card, low or no minimum balance requirements, etc. What you're looking for here is a safe place to keep your money, that costs you little or nothing to so do, and let's you conduct the most basic of banking functions--making deposits and writing checks. Note: You'll find that business checking accounts that offer interest are rare (maybe impossible) to find for anything other than sole proprietorships.

Some other considerations for choosing a bank (in no particular order):

• Compatibility with Quicken or QuickBooks
• Web-based access to your accounts (even better with check imaging)
• Free e-check service (via Quicken/QuickBooks and/or web)
• Overdraft protection (although rare on business checking accounts)
• Secure night deposit if your business deals with a lot of cash

What about SBA loans? That's a subject for another post, but let me note here that if you plan to apply for a SBA loan, you will specifically want to look for a bank that's a SBA Certified Lender, or better yet, a SBA Preferred Lender. You can search on the SBA website for a list of banks that fall into these categories.

What about "conventional" loans? Again, a subject for another post, but here it all boils down to collateral. With the exception of small "signature loans" (that amount to credit card accounts without a card), banks only loan against collateral, and further, against collateral that they understand (i.e., if you want to borrow money for farm equipment, talk to a banker that understands farm equipment). As a general rule, the big banks are great for "signature loans" (of course, this is your personal debt based on your personal credit history, not the company's), while the small banks are better for "specialized" loans (keeping in mind that these essentially depend on the bank clearly understanding how to quickly liquidate your collateral if you default on the loan).

What about wires? The fact is that any bank can send and receive wires (electronic transfer of funds from one bank to another), but if you expect to do a lot of wires--and especially if timing of "funds availability" is important--you'll want to avoid a bank that relies on another bank for their wires. I've never personally had an account at such a bank, but I have encountered them on the other end of the wire. None of the big banks have this problem, but a lot of small banks, especially those in smaller towns, often rely on a bigger bank to facilitate the wire. This can cause confusion and delays in the wire process. Also, again if you expect a lot of wires, look for a bank that let's you initiate and monitor wires on-line.

What about foreign currency transactions? Definitely a topic for another post, but as it relates to choosing a bank, if you expect a lot of foreign currency transactions, you'll want a bank that is well versed on this. As you might expect, this often means going with a larger bank, as small local banks often think only in local currency.

Bottom line, there are lots of pros and cons to weigh when choosing a bank. There is no single right answer or one type of bank that's ideal for any business. I've promised several other posts dealing with various banking and financing related topics, so admittedly, this only brushes the surface. Whatever you do, spend a little time up front to itemize your needs and research the various options before you make a decision. While it's not impossible to change banks in the future (and you almost surely will as your business evolves), that's a nuisance you don't need in the early stages of your new venture.

One final note on the topic of "e-banking" (working with a bank that has no local presence--at least not local to you)--a great example of this is E*Trade Bank (although most of the big national banks provide this as well). They're a great bank (I use them for various personal accounts), but even in today's "Internet age", there are certain times when you'll find it useful and even necessary to have a local physical branch you can walk into and conduct a transaction. This is especially true if your business will get a lot of paper checks or will deal in cash (with cash being a virtual showstopper).

Starting a New Company: Choosing the Legal Structure

In short, a Limited Liability Company or "LLC" is most likely what you want. Just about every attorney I've talked to about this says that LLCs are preferred in almost all cases. There are only two reasons I can think of that you wouldn't want to use this structure (and only one of them is a good reason).

The first (and not so good reason) is that it does cost a bit to set one up, as compared to the negligible cost of setting up a sole proprietorship, which is usually just limited to the DBA filing fee. But, if there's more than one founder (i.e., sole proprietorship is out), or you plan to do business in multiple counties, or you plan to get any sort of outside funding at all (even if it's from "friends and family"--the most likely source for seed capital), you're much better off with an LLC, even considering the cost to form one.

But why not just do a DBA if there's only one owner? One word: Liability. A sole proprietorship, DBA or not, is "you". If things go wrong (which you always need to plan for), creditors will be coming after you personally, as will anyone that files a lawsuit against your DBA. The trivial cost of forming an LLC and the ease of operating one will be worth its weight in gold if you get into such a situation. Oh, and another reason: having an LLC makes it easier to take on partners and/or investors.

The second (and good) reason for not choosing an LLC is if you need a Sub-C Corporation for some reason. Why would you need one? Basically, if you are starting off with venture capital funding (most VC firms prefer or insist on Sub-C-Corp), are planning to go public very soon (if your IPO "event horizon" is more than a few years out, it's better to start off with an LLC and convert it to a C-Corp later), or plan to have a lot of investors early on. Otherwise, the additional paperwork and overhead of a C-Corp just doesn't make sense.

But what about a Sub-C Corporation? With the advent of the LLC, I'm not aware of any real advantage of an S-Corp over an LLC. Both provide the same level of liability protection and neither are taxed as entities (i.e., the profits flow through to the owners/shareholders). As these are the typical reasons for forming a S-Corp, the LLC is preferred. It's cheaper to form and easier (thus cheaper) to operate.

How to form an LLC? There are several web-based services (like LegalZoom.com, CorpAmerica, MyCorporation, and others) that make the process quick and easy at minimal cost. Having said that, if you aren't well-versed at such things, I really recommend having an attorney do the work (not including state filing fees--which you have to pay the on-line providers as well, it should cost around $500). Besides, if you don't have an attorney for your new business, forming your LLC is a great way to start a relationship with a new attorney--a necessary and valuable resource as you as a new business owner. The best way to find an attorney is ask people you know and trust. Short of that, there are a number of referral services on the Internet (like The Attorney Store, Legal Match, The Attorney Referral Network, and others). Above all, don't choose an attorney lightly--they are working for you, so you should interview them in much the same way as you would interview a new employee.