Got a “million dollar idea”? Turning a patent into a business…

Have you or someone you know ever had an idea for a new invention? Have you thought about getting a patent? The US Patent Office receives an average of 500,000 applications per year, so it’s safe to assume that many people are in the same boat. And as fascinating as creating something new is, the possibility of becoming rich from it may be even more exciting. But how do you get from the idea to the money?

There are television ads for companies that offer to help you get your invention made; however, these kinds of services aren’t free. Before you contact either a patent attorney or the people advertising, it’s important to realize that the patent process is not easy, is not quick, and is not cheap. More importantly, please know that having a patent is no guarantee that an invention is going to make money.

When a large company comes up with an idea for a new product, they do a great deal of market research to see who will buy it and estimate how much money they can make. This will determine how much they’re willing to invest in research and development (R&D), production, marketing, advertising, etc… or determine if they bother making it at all. Most inventors don’t have the expertise or time to do this, but this doesn’t mean they can’t get the same help.

If making money is your goal, doesn’t it make sense to run your idea past someone who can help explain how to make money off of your idea?

Brightleaf Consulting Group has been trusted by inventors to help evaluate the value of new inventions and other business ideas before they invest a great deal of money in completing development, protecting it legally, and bringing it to market. Before hiring a patent attorney to file the patent, work with Brightleaf to help you figure out what kind of return you’ll get on that investment.

- John Thrush

What qualifies as a business expense?

A challenge for many new business owners (and more current business owners than you’d think) is knowing what qualifies as a legitimate business expense. While it is possible to use company funds to pay for many things, it may not always be deductible for tax purposes and, in some cases, may actually count towards an individual’s income.

One example of this is clothing. Clothing can be tax deductible if it must be worn as a condition of your employment AND that clothing cannot be suitable for everyday wear. So, while you may be required to wear a jacket and tie at the office, you are not legally allowed to deduct it from your taxes. What would make it deductible is if that clothing was a uniform with the company name printed or embroidered on it. This makes it a promotional item and an advertising expense.

Another example is gifts given by the business. While gifts are generally deductible, only $25 of gifts given to an individual can be deducted by the company each tax year. So if a gift basket of snacks to a client costs $60, the company can only deduct $25. This doesn’t prevent the company from giving the gift, it just means the additional $35 spent will still be taxed as though the money wasn’t spent… as will any additional gifts bought for that person for the rest of the tax year. There are some exceptions to this rule, though. Items that have your company’s logo permanently engraved or otherwise attached can exceed this limit, again, as an advertising expense. Another example would be an item that would be given to a client’s company to help with their own operations, such as a specialized tool that might relate to your company’s products.

Confused? You’re not alone. But this is why it helps to have people who deal with these issues regularly to help you understand the regulations and how to use them to your advantage. If you have questions or just want to understand things better, please reach out and let Brightleaf help you!

- John Thrush

Funding Business Expansion and Start-ups

Because starting a business requires money, one of the first things any entrepreneur needs to think about is where to get capital. Most business owners can’t fund a business out of pocket for long and must choose between debt (loans or other borrowing) or equity (selling a percentage of ownership or taking on a partner) to get the rest of what’s needed. Each has advantages and disadvantages which are important to know before you take on either.

Borrowing money has advantages, mainly that it doesn’t dilute the ownership of the company. Many of the uninitiated believe loans from banks or the SBA are an easy source of funding but eventually find out how much work it can be to borrow money and how difficult it can be to qualify.

Others think they can take on investors but may not realize how complicated it can be and how substantial risks can be if not done properly. Many don’t understand where SEC regulations and rules regarding accredited investors will impact them much less consider the impact that additional owners will have on accounting and taxes. Not only will these rules and regulations impact the business, but they will also greatly affect investors.

In many cases, smaller companies approach family and friends to either loan money or invest without realizing that the same rules apply. While family and friends tend to be more forgiving than banks, they may be less so if they realize that they may be required to pay additional taxes. They may also not have much sympathy if the company fails and they don’t get paid back.

Those who have started their own businesses know that the need for additional capital never really ends, not even after you’ve started selling or even profiting. Though the needs vary based on the type and scale of the business, growth always comes with a cost.

Before taking any money or making any agreement regarding a loan to or investment in your business, it is best to speak to someone who has been there before and seen how others have done it. If you can speak to someone who’s seen it done both right and wrong, even better. Brightleaf Consulting Group has spent a decade helping clients understand the funding process so they can avoid making mistakes that can cost them more later.

Do you have questions about finding money to start or expand your business? Contact Brightleaf and let us help you.

- John Thrush