Jobs to be Done: How to help US SMBs keep their personal assets separate from their business finances
This is the third instalment of a 6 part series that explores the Jobs to be Done (JTBD) for US SMBs that we identified in our recent research. Each blog post explores one of the jobs and how we examined it with a JTBD canvas. If you missed the first post that explains JTBD and the canvas, check it out before reading this.
JTBD #2 | Protect my personal assets from my business finances
Our research highlights that we must not ignore the JTBD associated with setting up a business. In the early stages of a small business (and beyond), the JTBD around providing financial support is table stakes.
It seems obvious that businesses will need financial capital to cover the set up costs involved with providing goods or services. But before they even get to this point, the owners we interviewed and surveyed highlighted how ignored and underserved they are by financial services providers during the very first step of incorporating their business.
This is a small but important process that owners are typically left to figure out on their own. Incorporation is particularly important for SMB owners, whose entrepreneurial spirit is necessarily accompanied by significant personal financial risk. Should the business come into any difficulty financially or legally, the owner will need to protect their personal wealth from these liabilities.
53% of businesses that self-describe as ‘starting out’ don’t have a dedicated business bank account.
53% of businesses that self-describe as ‘starting out’ don’t have a dedicated business bank account. That said, for many this is not just a short term or transitory state and they often continue to let their personal and business accounts intermingle.
34% of businesses not using a business bank have been running for more than 10 years, indicating that even as their business matures they see no benefit or need above and beyond what their personal bank account can provide. By not separating their personal and business finances, owners risk losing their entire savings pot and personal assets should the business take an unprecedented turn, as many will have experienced this year due to the coronavirus pandemic.
To open a business bank account, the business must be incorporated. There are a number of options for incorporation, although few fully limit owners’ liability. Incorporating as a limited liability company (LLC), rather than a sole proprietorship or partnership, is the best way to protect personal property from any potential lawsuits or major business debts.
Every state has its own corporation law and it can be confusing for owners as to what the benefits or limitations might be of incorporating their business in a particular location. Loans, grants, tax benefits and business mentorship schemes are available to SMBs depending on where they are legally incorporated, but finding out this information is difficult and time-consuming for owners, meaning many end up missing out on valuable opportunities.
Digital provider Stripe has started to solve for this particular pain point with its dedicated Atlas platform, which offers incorporation for startups. One of our business owners told us how amazing and helpful it was to be able to set up her business digitally from the airport in the time it took her to board for a plane. Another digital service provider, Azlo, has a clear content strategy targeting the first time business owner, helpfully guiding them through the process and connecting users to a community of other early stage small business founders.
This goes to show that service providers that help SMBs set up their businesses the right way can establish an early relationship with the potential to grow as the business grows.
One of our business owners set up her business digitally from the airport in the time it took her to board for a plane.
How did we draw up the canvas?
- Current state - The current state for this job focuses on the fears and risks associated with relying on the founder’s own personal wealth to set up the business and build momentum. There may be a sense of urgency to take a leap of faith and commit to the business more seriously, not treating it like a ‘side-hustle’ and leaving behind the security of another full-time job.
- Contextual triggers - The business may be seeking access to funding or other benefits and opportunities, however there is a requirement that the businesses be incorporated and have a business bank account. At this stage the owner may have already incorporated as a sole proprietor or partnership, but before putting any more money into the business there is a realisation that their personal finances are not protected should plans fail.
- Barriers to behavioural change - Inertia, propelled by confusion around a perceptually highly bureaucratic process, is a major barrier to getting this job done. While the incorporation process itself is quick, there is a perception that it is harder work than it actually is. Many owners describe the “walk down to City Hall” with an inconceivable amount of paperwork to be something they keep putting off. Others may have incorporated but not taken the next key step of opening a business bank account.s.
- Desired state - Business owners want to feel confident in themselves as a credible entrepreneur, able to take more risks in their business without it impacting their personal financial security. They also want to be taken more seriously by banks and by their customers, seen to exist as a business that is reliable and here to stay, not just a hobby project.
How is the job evolving?
The COVID-19 pandemic has forced many SMB owners to face up to the importance of separating their personal assets from their business finances. Many without limited liability will have learned this the hard way, forced to sustain failing businesses using their own personal capital.
For businesses able to secure US government emergency funding, such as the relief loans offered under the Paycheck Protection Programme (PPP), it is necessary to keep it separate from personal finances in order to adhere to the rules of the CARES Act. Loans will be forgiven for SMBs that can prove that funding has been used for its allotted purpose, providing a clear incentive to manage it in a separate account.
Digital providers, such as Stripe and Azlo, are tapping into this JTBD by offering services that can help facilitate the separation of personal and business finances. Whether this is through fast online business incorporation or streamlined business account application and onboarding.
As the COVID-19 pandemic highlights a need for US SMB to better distinguish their assets, demand for such services is likely to accelerate and those providers that can respond quickly will be well positioned to grow their customer base.