What Your Credit Score Means

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Understanding Credit Costs

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Working with Creditors

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Understanding Your Debt Load

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You have to make a lot of financial decisions in your life. How much money should you deposit in your 401(k) plan every two weeks? Should you apply for a rewards credit card or a traditional one? Should you sink your dollars into a traditional IRA or a Roth IRA?

With so many big decisions to make, you might give little thought to your checking account. That, though, can be a mistake. Bank checking accounts are rarely alike. Make the wrong decision, and choose a checking account that doesn’t mesh with your spending habits, and you could end up paying big fees each month.

So that is far from a financially sound move.

Here’s what you should look at before opening a checking account.

Your Spending Habits

Do you want dozens of checks each month? Do you have the bad habit of bouncing checks on a fairly regular basis? Do you frequently find yourself withdrawing money from ATMs that aren’t connected to your financial institution?

These can all factor into which checking account makes the most financial sense for you.

For instance, if you write many checks, you’ll want to apply for a checking account that allows you to write an unlimited number of them each month. Some checking accounts allow you to write a limited number of checks per month. You’ll then pay a fee for every check you write over that limit. If you use checks to buy your groceries, pay your bills and fill up your gas tank, you could end up paying big each month if you do not take out an unlimited checking account.

What about bouncing checks? You’ll pay a big fee from your financial institution every time you bounce a check. If you are habitual bouncer, you might consider taking out a checking account with overdraft protection. If you write a check at your local department store for $200, but only have $150 in your account, your financial institution will cover the difference, allowing you to complete your purchase.

Of course, overdraft protection is not free. You’ll have to pay for the service. However, you’ll pay much more in overdraft fees.

You can also lose a lot of money each month if you are frequently withdrawing money from out-of-network ATMs. You can solve this problem by taking out a checking account with a bank that boasts a large network of ATMs. If that is not feasible, you might find a bank that covers any out-of-network ATM fees that you incur.

Finally, some checking accounts charge a monthly maintenance fee. Avoid these. There are plenty of free checking account options out there. There’s no reason to pay for one.
Interest

One of the factors that should have little impact on your decision, though, is earning interest. Yes, it is nice to earn interest on the money in your checking account. However, if you use your checking account to pay your bills, the odds are that you will not have all that much money sitting in it at any one time. If that is the case, you will not earn much interest on a relatively low balance. Generally speaking, checking accounts do not perform well as savings vehicles. You would be better off opening a savings account and keeping funds that are in excess of your transaction needs in that account.

When you are deciding on a checking account, then, take a far closer look at the fees you might have to pay. Those are far more important than earning interest.

Finding the Right Checking Account for You

View Resource Finding the Right Checking Account for You

Savings vs. Money Market Accounts

View Resource Savings vs. Money Market Accounts

The Benefits of Prepaid Cards

View Resource The Benefits of Prepaid Cards

Putting Money in a Certificate of Deposit (CD) Account

View Resource Putting Money in a Certificate of Deposit (CD) Account

Using a Debit Card

View Resource Using a Debit Card

Popular Budgeting Methods

View Resource Popular Budgeting Methods

Why Budgets Fail

View Resource Why Budgets Fail

Use Direct Deposit to Build Savings

View Resource Use Direct Deposit to Build Savings

The Wonders of Compounded Interest

View Resource The Wonders of Compounded Interest

Little Cuts to Save You Money

View Resource Little Cuts to Save You Money

The True Cost of Buying on Credit

View Resource The True Cost of Buying on Credit

Relocation Assistance

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Life and Disability Insurance Plans

View Resource Life and Disability Insurance Plans

Tuition Reimbursement

View Resource Tuition Reimbursement

Direct Deposit and Paycheck Allocations

View Resource Direct Deposit and Paycheck Allocations

Types of Retirement Plans

View Resource Types of Retirement Plans

Finding the Right Home

View Resource Finding the Right Home

Buying Down an Interest Rate with Points

View Resource Buying Down an Interest Rate with Points

Using the Equity in Your Home Wisely

View Resource Using the Equity in Your Home Wisely

Understanding Home Equity

View Resource Understanding Home Equity

Cash-Out Refinancing or a Home Equity Loan?

View Resource Cash-Out Refinancing or a Home Equity Loan?

Understanding Student Loans

View Resource Understanding Student Loans

Now That You’ve Graduated: Repaying Your Student Loans

View Resource Now That You’ve Graduated: Repaying Your Student Loans

Student Loan Repayment Options

View Resource Student Loan Repayment Options

Special Situations to Consider Before Starting Social Security

View Resource Special Situations to Consider Before Starting Social Security

Down-Size Your Home, Right-Size Your Life

View Resource Down-Size Your Home, Right-Size Your Life

Managing Your Retirement Funds

View Resource Managing Your Retirement Funds

Stretch Your Retirement Budget

View Resource Stretch Your Retirement Budget

Renting Your First Apartment

View Resource Renting Your First Apartment

Getting Married

View Resource Getting Married

Taking Care of Elderly Parents

View Resource Taking Care of Elderly Parents

Smart Spending

View Resource Smart Spending

Spending on Your Child

View Resource Spending on Your Child

Understanding Money

View Resource Understanding Money

Allowances and Children

View Resource Allowances and Children

Common Phone Scams

View Resource Common Phone Scams

Website Password Strategies

View Resource Website Password Strategies

Credit, Debit and Fraud Prevention

View Resource Credit, Debit and Fraud Prevention

Protecting Your Identity While Travelling

View Resource Protecting Your Identity While Travelling

Consumer Privacy

View Resource Consumer Privacy

• Qualifying for the card: You will need to have a high credit score, usually well above 700, to get the advertised 0% interest rate. If you are not deemed creditworthy, you may instead be offered a card with a less attractive introductory interest rate. Check the fine print before using your card to ensure you know what rate you will be paying.


• Credit card costs: You should have a detailed understanding of the terms of your credit card agreement. Within some agreements are items that could cost you. For example, if you are 60 days late on a payment during the introductory period, your low rate could suddenly jump up to a penalty rate. Those rates could be as high as 30% APR on some cards. Also, you need to pay attention to the different interest rates you may incur on balance transfers, new purchases, and cash advances.


• Repayment terms: Understand how the cards repayment terms work. If you transfer account balances from another card, obtain a cash advance and make purchases with the card, all of those items may be at a different interest rate. With some card offers, monthly payments will go towards the balance with the lowest interest rate, and only after that item is paid off is your payment applied to balances at higher interest rates.


• Balance transfer fees: If you are planning to transfer a balance from another credit card, pay attention to the balance transfer fees that you will typically incur. You should expect to pay between 3% and 5% of the balance you transfer. That cost gets added to the balance on your new credit card. Paying the balance transfer fee can still save you money, depending on your existing credit card’s APR and the length of the 0% rate period. You’ll benefit more if you pay off your account balance during that introductory period


• Other costs: Some credit cards, especially rewards cards, charge an annual fee, so note the amount of that. Also, if you plan to keep the card after the promotional period is over, know what your interest rate will be. If you intend to close the account, be aware that continually obtaining new cards, keeping them for a year, and closing them will damage your credit score.

About Those Interest-Free Offers

View Resource About Those Interest-Free Offers

• Do you have many small debts that you have a hard time tracking? The snowball method is very helpful because you will quickly pay off the smallest debts and reduce the number of accounts and payments you have to track.


• Do you need to have a quick win to keep motivated to continue paying down your debt? If your emotions have a strong effect on your behavior, you will benefit from using the debt snowball to build confidence in your ability to get out of debt.


• Do you feel overwhelmed by what you owe on your largest balances? The debt snowball plan lets you have some practice with the smaller debts first. As you make progress, you are more likely to stick with the plan and be ready to address the most significant debts when it is time to tackle them.

Paying Off Debts with the Snowball Strategy

View Resource Paying Off Debts with the Snowball Strategy

• Turn on the encryption feature on your wireless router, selecting WPA2 encryption if it is available. If not, use WPA, or in a pinch, WEP encryption. Both are weaker than WPA2.


• Change the default name and default administrator passwords that your router had when you bought it. Most hackers know these defaults and can change your router’s settings if they use them to get into the administrative panel.


• Set up a password requirement to access your wireless network. Choose a password that’s hard to guess, is at least eight characters long and includes a combination of uppercase and lowercase letters, plus numbers and symbols.


• Enable the firewall on your router and also enable the firewall on your computer. In addition, use anti-virus software to protect yourself from any malicious attacks you may stumble across.

Make Sure Your Home Network is Secure

View Resource Make Sure Your Home Network is Secure

• Use direct deposit if your employer offers it as a way of getting your paychecks into your checking account faster. That way, you are less likely to be in a situation where you overdraft your account because you have not had time to deposit your paycheck yet.


• Keep track of the balance in your checking account. It may seem old-fashioned to keep a checkbook register, but this is the best way for you to know exactly how much money you have available at any given time. It can take several days for electronic bill pay withdrawals to go through, and even longer for paper checks to clear. Note them in your checkbook register, along with ATM withdrawals and debit card transactions. Then check your balance before making a purchase or writing a check to ensure you have enough money to cover it.


• Opt out of courtesy overdraft protection and instead have your bank link your checking account to a savings account you have at the bank. Then rather than paying the difference and charging you a hefty fee, your bank will transfer money from your savings account to your checking account to cover the purchase and charge you a smaller fee.


• Do not use your debit card to rent a car, buy gas, or check into a hotel. Each of these merchants will often place a hold on your account for an amount far larger than you actually end up spending. The hold may cause you to overdraw your account accidentally because you were not aware that the money on hold was unavailable to spend.


• Keep a buffer in your checking account all the time. Even just keeping a minimum $100 account balance will prevent you from triggering an overdraft when you spend a little more than you planned. Just be sure to think of the last $100 as unavailable. Quickly deposit money to get back up to $100 if your balance drops below that amount.


• Set up an alert so your bank will notify you if your checking account balance falls below a specified amount. If you receive the notifications on your phone, you can instantly adjust your spending to avoid making an overdraft on your account and incurring a fee.


• Carefully manage joint accounts and consider separate accounts if you cannot coordinate your spending habits. If one of you is making purchases the other does not know about, this could easily lead to triggering an overdraft. Unless you can agree on how to track your purchases and maintain clear communication about the joint account balance and scheduled payments, you may be better off with separate accounts.


• If you do trigger an overdraft, deposit money into your account as soon as possible to pay the fee and get a positive balance again. Some banks may charge you an additional fee for each day your balance is negative, or another large fee if your account has a negative balance for several days in a row after an overdraft.

Avoiding Non-Sufficient Fund and Overdraft Fees

View Resource Avoiding Non-Sufficient Fund and Overdraft Fees

• Budgeting and bill payment will be simpler because you do not have to think about setting aside money to make your annual or semi-annual property tax and homeowner’s insurance payments.


• If you make your mortgage payment each month, you will always have the money available to make the property tax and insurance payment, and will never pay late penalties.


• Depending on where you live and your lender, your escrow account may pay interest on the account balance. The interest rate on your escrow account might be higher than market rates on other types of personal deposit accounts.

• When closing on your home mortgage, you will typically need to come up with more money to establish the buffer of two months payments in your escrow account. That amount could be larger, depending on when your property tax and homeowner’s insurance payments are due.


• Your monthly mortgage payment is larger when you have to make a payment into an escrow account in addition to your regular principal and interest payment.


• The bank gets to hold your money, rather than you retaining control and having the money available to make investments.

How Escrow Accounts Work

View Resource How Escrow Accounts Work

• Interior painting: If you are willing do the painting yourself, this is one of the few projects that returns over 100% of your investment. In particular, one or two neutral colors painted throughout the house is very appealing to potential buyers.


• New entry door: Replacing your front door with a reinforced steel entry door has an average 97% return on investment. These types of door are very low maintenance and improve both your home’s curb appeal and energy efficiency.


• New exterior siding: Many homeowners are choosing to replace aging siding with types of exterior siding that require less maintenance over the years. This improvement will boost curb appeal and have an average 80% ROI.


• Kitchen renovations: These days, the kitchen tends to be the heart of any home. Minor kitchen renovations, like refinishing cabinets, updating hardware and fixtures, and upgrading appliances have an average ROI of 82%. More extensive improvements, which might include new countertops and flooring, offer a lower ROI of about 66%.


• Attic bedroom conversion: If you are looking to add to your living space, the best return on investment comes from converting your attic into a bedroom. This project has about an 80% ROI because it adds lots of square footage without changing the footprint or profile of your home.


• Window replacement: Replacing aging windows has about a 75% to 80% ROI. These projects improve the appearance of your home and help with energy efficiency, which are top concerns of many buyers these days.


• Deck addition: Adding a wooden deck has an average return on investment of 85%, not to mention that it gives you a pleasant place to spend time outdoors. This is an appealing renovation because it adds living space at a very low cost.

• Home office conversion. Converting a spare bedroom into a home office by removing the closet and adding built-in storage might sound like a good idea, but the ROI is only about 45%. This is because many people do not need a home office and would prefer the extra bedroom.


• Sunroom addition: Adding an enclosed sunroom will return only about 45% of your investment. Overall, you will be better off with just a deck, which is less expensive but has a similar added value.


• Swimming pool: This is one of the lowest projects for ROI, primarily because potential buyers often don’t want the added costs of maintenance and insurance. The actual ROI varies widely depending on your climate and how common pools are in your area.

The ROI of Home Improvement Projects

View Resource The ROI of Home Improvement Projects

• You are more likely to qualify for a mortgage on a home if you have two incomes and two savings accounts that you can tap into for the down payment and closing costs.


• Buying with a friend allows single people who would only want one or two bedrooms to buy in neighborhoods where there aren’t any smaller homes available.


• You can share the cost of utilities, taxes, insurance, and upkeep on the home, helping you both have low ongoing costs.

• You will be in a difficult financial situation if your friend does not make payments on time because missed payments affect your credit score.


• You will need to sort out among yourselves how you will pay for needed repairs and improvements, and how you will decide what projects to undertake.


• One of you may want to move, and you will have to figure out what to do with the home you own together.

Buying a Home with a Friend

View Resource Buying a Home with a Friend

• Unreimbursed medical expenses for you, your spouse, or your dependents
• Purchasing or repairing damage to your personal residence
• Payments to avoid eviction from a primary residence or foreclosure on a primary residence
• Paying college expenses or room and board for you, your spouse, or your dependents
• Funeral expenses
• Other types of immediate and substantial financial needs

• Medical costs that exceed 10% of your adjusted gross income for the year
• You are totally and permanently disabled
• A court order to give money to your child, other dependent, or ex-spouse
• Leaving the workforce when at least 55 years of age
• Setting up “substantially equal” withdrawals (usually based on life expectancy) that must continue for at least five years or until you are age 59-1/2. This is based on IRS rule 72(t)
• You are a military reservist being called to active duty

Should You Withdraw Funds from Your 401(k)?

View Resource Should You Withdraw Funds from Your 401(k)?

• Do you like the satisfaction of knowing you are using your money as efficiently as possible to repay your debts? The debt avalanche method helps you cut down the amount of interest you are paying as quickly as possible.


• Do you have the discipline to stick to your debt repayment plan for the long haul? The debt avalanche method does not always have a quick win because your highest interest debt may have a large balance, which could take many months, or even years, to pay off.


• Do you have self-control with the way you spend your money? You will need to stick to a budget and carefully manage your bills to make the most of the debt avalanche and achieve your long-term financial goal of getting out of debt.

The Avalanche Debt Repayment Method

View Resource The Avalanche Debt Repayment Method
As a parent, you hold primary responsibility for training your children in the skills they’ll need as adults. One of these major skills is saving money, and if you start early, you can ingrain principles and habits in your kids that will give them a strong financial footing for their future. Many problems with debt are the direct result of not knowing how to save money well, so teach your kids about saving from an early age. Basic principles As soon as kids understand what money is, they’ll be ready to learn what they can do with it. It is your job to discuss with them the concepts of spending versus saving. Talk to them about how every time someone wants to buy something, he needs to have enough money for it. Because some things cost a lot of money, you might not have enough if you did not save some of the money you got before. Your kids will be a lot more likely to take hold of these principles if you are practicing them too. When you make a big purchase, like a family vacation, talk about how you had saved up for it. You can even discuss saving when they ask for something you cannot afford, and you tell them they cannot get it because you are saving the money for a particular purchase. Earning interest Saving money under the mattress, in a cookie jar, or in a piggy bank is not the best way to do it. Kids should understand that they can earn even more money on the money they are saving. This concept is at the foundation of retirement savings, and even if you do not frame it in that context, it is still valuable for your kids to learn. Help your child understand what it means to earn interest by helping them open a savings account at your local credit union or bank. Many banks or credit unions have accounts designed specifically for children that yield relatively high interest rates on their low balances, and don’t charge any fees either. Make a habit of looking over the account statement with your child each month so she can see the interest deposits and watch the money add up. Older kids can also learn about earning interest through certificates of deposit, bonds, and other long-term investments. Saving up to buy Help your kids put all of these principles into practice in their lives by encouraging them to save up to buy the things they want. Help them research how much something will cost and make sure they have a place to put saved money. Then, every time they get money, whether from an allowance, working or receiving it as a gift, ask them how much of it they want to save for the item they plan to buy. This works for everything from small toys to bigger items like electronics, special trips, a car, and college. Hopefully, as your kids get age, they’ll start applying the principles even without prodding.

Learning to Save

View Resource Learning to Save
Your customers are the foundation of your business success. You stay profitable by selling. That means engaging with customers and building trust and loyalty. To make a solid relationship happen, you need to provide great customer service. How you do that is both simple and complicated. The heart of effective customer service is treating customers like you would like to be treated. However, as always, it gets more involved when you try to figure out the details. Many firms just use the platitude “The customer is always right” as a basis for managing customer relationships. Other companies use detailed checklists, which can predictably lead to canned responses. Neither approach is the remedy for long-term success. The Right Mindsets You need a combination of these two approaches in order for your customer service to be top notch. First, let’s look at the mindsets you want to cultivate in yourself, your managers and in staff who deal one-on-one with customers.
• Come from a place of abundance. This is not just new age thinking. If you feel successful, you can afford to be generous to your customers. They pick up on this immediately. It engenders a feeling of security when you are generous. It can be as simple as a free refill on coffee or giving a refund. In the long run, you will benefit from using generous business policies and practices.


• Make the most of every interaction. Each personal interaction gives you a chance to make your company, service, and brand memorable to a customer. They in turn will pass their impressions, good or bad, onto a wide range of people in their network. It might seem inefficient to take the time to interact with someone who may not even buy from you. However, that does not take into effect the ripple effect of each and every contact you and your staff have with a person.
Tips for Providing Great Customer Service Here are five concrete tips for providing the best possible customer service.
1. Listen to complaints and act on them quickly. Word-of-mouth about a bad interaction spreads quickly. Defuse it by answering your customer’s complaints immediately.


2. Find out what your customers need by listening to them. This can be done in person when they come into your store, when they email you about locating a hard-to-find product, and when they talk to each other via social media. The more you listen, the better you know what they are looking for and what you need to provide to keep them coming back.


3. Identify customer needs and provide them. You do this by keeping abreast of industry trends in trade publications and reading the results of surveys. Write a survey and get customers to fill it out by offering a discount on future purchases. This is taking the idea of listening to your customers a simple step further.


4. Make each customer feel important. Use their name, so they feel like an individual to you, not just one of the teeming masses you claim as a customer. Thank them at the time they buy from you and follow up by offering special promo codes for future business.


5. Ask for feedback. Then act on it and respond to it with individual customers. Have a suggestion box prominently displayed in your brick-and-mortar store. Have an easy-to-use contact form on your website. Check back regularly to see how the product is doing for them.
Your customers may not always be right, but they are your customers, the people who ultimately pay your salary. Be decent to them, fair, and caring, and you will inspire trust and loyalty.

Providing Great Customer Service

View Resource Providing Great Customer Service
Zoning laws play a major role in where you set up and conduct your business. Being aware of what is in force in your area will save you money and frustration. To remain in good legal standing, your business must be in compliance with your local ordinances, so it pays to stay abreast of those that will impact your business. Reasons Laws Exist Zoning laws and ordinances do not exist just to bedevil your business plans. It may seem that way when you cannot operate out of your home or have your factory expansion plans halted. Most ordinances are passed to keep neighborhoods livable and preserve property values. This is why you cannot build a commercial building on a piece of property zoned for residential use. For that matter, you may not be able to construct a home in a rural area if it is against the local agricultural zoning regulations. To be proactive, find out what the current zoning laws are in the areas you are considering doing business. Modify your plans to fit the rules. Alternatively, hire a lawyer and attempt to get a change in local ordinances passed. Business Impact Zoning laws can have a significant impact on home-based businesses. Starting in your home is logical for many new businesses. You are small enough to not need separate offices and not paying rent reduces overhead substantially. If all you need is the kitchen table or even a room in your house, you probably won’t have to worry. However, your local regulations may make it a difficult proposition if you are making products or want to sell to customers from your home. On the other hand, if customers visit to conduct business or employees work out of your home, you may face problems. This is because it can affect:
• Parking in your neighborhood
• Traffic levels on local streets
• Noise levels
• Inviting strangers into the neighborhood
All of these may not be relevant to your business, but it is important to know what the laws are and to figure out ahead of time the impact they can have on your plans. Zoning Laws There are several categories of zoning regulations, including:
• Residential
• Industrial
• Commercial
• Recreational
• Agricultural
Each has a multitude of subcategories. This is what makes zoning laws so complicated for the small business owner to figure out. To be sure that you are in compliance, the help of a lawyer or real estate professional is invaluable. Among the most common types of restrictions that local laws establish are:
• Building height
• Building size
• How close one building can be to another
• Types of facilities and permitted uses
• Where on a piece of property you can locate structures
For example, a retail store is covered by several zoning laws that limit how big the building is and how many parking spots it needs. Permit Requirements You can ask for a conditional-use permit if you work out of a structure not zoned for business. You obtain one by filing for a zoning variance or conditional use permit or even a zoning change. This conditional use permit lets you operate your business for the time being in the location, even though the zoning does not permit it. You will have to pay a filing fee, which can cost several hundred or several thousand dollars, depending on the municipality. Have a lawyer work with you and the governing locality to give yourself a chance to get the conditional use permit changed to something more permanent. Staying in compliance with local ordinances and zoning regulations makes it possible to conduct business legally at the location you choose. If you are caught not following the regulations, you may be subject to a substantial fine. It is not worth the hassle. Work with a lawyer, find out what each area requires, and locate your business accordingly.

Laws and Local Ordinances That Impact Your Business

View Resource Laws and Local Ordinances That Impact Your Business
Selling products or goods to customers is the reason many companies are in business. To be successful, that means you must have the products on hand for them to purchase. However, to be profitable, you will have to make efficiency with inventory control integral to the success of your business. The topic may seem unexciting when compared to sales, marketing, and product innovation. However, inventory management needs to be treated as a critical part of your everyday business endeavors, one that is at the frontline to customer satisfaction. To help you get a handle on this core part of your business, here is a look at the ins and out of managing your inventory. Types of Inventory Inventory is your product stock, the goods you sell, and any materials you need to run your business successfully. Depending on your type of business, there are different types of inventory. Raw materials Raw materials are typically commodities such as minerals, chemicals, steel, wood or basic food items that your business uses to create components or finished products. They may also be things you purchase from external suppliers that have already been assembled or manufactured, such as nuts and bolts, electronic components, and canned food. Raw materials can also include goods that are only partially finished, which you then take to completion. For example, if you sell vegetable juice, the raw materials include vegetables, flavorings like sugar or spices, preservatives, and the juice container you sell. The raw materials for a computer company would include circuit boards, diodes, chips, and the housing for these components. Work-in-Progress Materials What you have in the form of materials and parts that are waiting for you to transform them into something else are considered work-in-process materials. It also refers to partially assembled items that are in line to be made into a finished product. Goods that you have finished, but haven’t packaged yet are also work-in-progress materials. Using the earlier example, cucumbers and carrots are raw material inventory for the juice company. When they have been transported from the storage area and into the assembly line, they now become work-in-progress inventory. Finished products These are items that are ready to be shipped or sold to customers, which can include retailers or wholesalers. These can be stored on the shop floor or in a special storage area. Other Types of Inventory Your company needs a range of goods on hand to stay in business, including items for maintenance and repair, as well as those needed to stay in operation. These types of inventory are given names that designate their purpose.
• Transit inventory is the name for products moved from the warehouse to the factory.


• Buffer inventory refers to items kept on hand so you will not run out because of poor quality or slow delivery.


• Anticipation inventory means items that you stock up on in case there is sudden demand. This often happens in the build up to the Christmas shopping season.
Inventory Costs It costs money for you to purchase inventory, process it, store it, and sell it. In order to make a profit, you must include these costs with other operational costs, balancing all of them against the price you charge for the product. Inventory costs can be broken down into different types as well:
• Purchase costs. This is the most basic cost. For a retailer, it means buying finished products. For some factories, it means buying parts that they can assemble. For other companies, it means buying raw materials they work with to produce their products. The way to control this cost is to find reliable suppliers with prices you can afford.


• Processing costs. This refers to the cost of assembling or processing the materials you buy from outside companies. The cost involves labor for the processing and utility costs for the work area.


• Distribution costs. Most companies need to ship their products to market in order to sell them and get paid. These are called distribution costs. Most large companies use warehouses to store goods for later distribution. Distribution costs include freight or shipping, by truck or rail, for example, as well as local delivery costs.


• Inventory holding costs. This refers to the costs associated with storing your inventory at your place of business or in a warehouse. Items like rent, operational costs for the space and insurance would go into inventory holding costs.


• Shrinkage costs. Anything that makes a product not salable is called shrinkage. This can be poor quality, theft, or spoilage.
Best Practices for Managing Inventory The better you closely manage your inventory, the more efficient and profitable your company can become. Here is a look at three strategies that will help you stay on top of your inventory. Don’t keep too much in stock. If you have too much inventory on hand, you’ll have lots of cash tied up in its purchase. Additionally, you will have added costs for storage. Idle inventory can also become obsolete or get damaged. The way to avoid these situations is by keeping on top of your sales projections through proper forecasting. Track your inventory accurately. Maintain good records as inventory moves through your business. Make sure to take into consideration unusable inventory due to damage or poor quality. Monitor pilferage and other forms of shrinkage. You need accurate records of what you have on hand in order to control costs, maintain customer satisfaction and reach sales goals. Use reliable software to track inventory. An Excel spreadsheet might work if you are just starting out, but it is easy to mistakenly delete a file. It is more reliable to use Quickbooks, Peachtree or one of the other inventory management programs available. They make it easy to track what you have on hand, both at an item level, as well as its associated dollar value. If you want to keep your customers happy, you need to have inventory available to meet their needs. Holding excess amounts of inventory, however, can be costly and put a strain on your company’s finances. Regular inventory monitoring, strong forecasting, and detailed cost tracking will help you manage inventory levels properly. How you manage your inventory can make all the difference in the world in terms of profit margins and the competitiveness of your business. It is worth your full attention.

Managing Your Inventory

View Resource Managing Your Inventory
Keeping your records up-to-date, in a safe place and for the required legal period is tedious, but essential for your small business. Whether you store them in a shoebox in a manila envelope or use an advanced electronic storage retrieval system, you need a reliable way to keep your records. The size and complexity of your business will dictate what methods you use. The important thing is to have a system in place from the beginning and to use it routinely. Why the Need for Recordkeeping? The primary reasons a small business needs to keep accurate records are:
• Detail tracking
• Planning
• Legal compliance
• Tax preparation
Detail tracking means keeping an eye on your customers, inventory, and sales. Without this data to refer to, you’ll never know if you are profitable or making progress towards profitability. Keeping in touch with new and old customers, monitoring what types of goods they buy, and when, helps you plan your production schedule and marketing efforts. The more personal attention you can give a customer, the more favorably they will view you and your company. When you keep detailed records, you can reference them and keep an eye on preferences and buying habits. Planning is done by tracking where you’ve been, where you are and where you are going with your business. You do that by looking at the day-to-day activities and financial records of your company. It is harder to plan next year’s inventory if you do not have the data about what you ordered this year and last year, and how it sold. Documentation for legal compliance and tax preparation can have grave consequences for your firm if they are not complete. These issues are looked at in more detail below. Legal Compliance The primary records you need for legal compliance are contracts, leases, other legal agreements, licenses, and permits. Contracts come in a variety of forms:
• Service contracts
• Sales contracts
• Financing contracts
• Leasing contracts
• Purchasing contracts
It is important to have them available so you can check the terms, conditions and obligations of both parties. You need to follow the terms of the contract in order to keep them legally in force. Always keep the original copy of all legally executed contracts for your legal safety. Government agencies at the local, state, federal and even internationally issue licenses and permits that may be instrumental for your business. Examples include a license to operate your business in a given municipality, a seller’s permit, home occupation permit or food preparation permit. States license certain professionals like doctors, accountants, and architects. You might be legally required to display these permits at your place of business. Contractors might be required to show proof of insurance. If you cannot produce the right licenses and other documents, you can be liable for fines or litigation. Payroll and Personnel There is a broad range of federal, state, and local laws that require any business with employees to produce current and old records for payroll and employment. You need to track many types of information, including:
• Hiring practices and how you evaluate prospective employees
• Social security numbers
• Hours worked
• Deductions from and additions to wages
• Income tax withholding
• Injury reports
• All types of employment records
• Fair Labor Standards Act required information
• Wages paid
• The method and basis of paying wages
This is a lot of records to keep for the average small business. Hiring a payroll service simplifies the process, as does using accounting and financial software. You can also reduce your record keeping by using an employment agency or by working with independent contractors. Tax Requirements Tax requirements at the local, state, and federal level are complicated and ever-changing. A new business can be overwhelmed by the demands of tax collectors. You need to keep your new records organized, but you also need to hang on to old ones. New records are essential for filling out tax forms for the current quarter and year, but forms going several years back can also be demanded by officials when they audit. Getting the help of a professional accountant to keep your records up-to-date and organized is an investment in peace of mind. When tax collectors from any government level come calling, you will not have to put your business on hold while you try to figure out where everything is. Records should be kept only as long as the government demands and then shredded. For example, tax returns need to be kept on file permanently. However, employee withholding records should just be kept for seven years. Keeping records longer than is mandated for compliance can put you at risk of litigation. It also uses up space and takes time to keep in good condition and organized. So keep your records for the mandated period, and then get rid of them. Your records, whether employment, legal or financial, contain the day-to-day story of your business. You need them to make realistic, useful plans for the future. You must be able to produce them to stay in compliance with legal requirements. Setting up a system for organizing and storing them, then using the system consistently, are essential steps for the prosperity of your company.

Recordkeeping Basics

View Resource Recordkeeping Basics
At a certain point, every businessperson needs to know what his company is worth. While it might sound simple, accurate business valuation is quite complex. No prospective buyer is going to take your word for how well your company is doing. When you claim your business is profitable and has great potential, you need to back up those statements with numbers and documentation. Whether you are considering purchasing an existing business, selling your business, looking to attract investors or thinking about going public, here is a look at how to approach the process of valuing your business. Reasons for Valuing Two common reasons for needing a business valuation is because you want to sell your business, or someone has made an offer to purchase it. However, other financial circumstances might require it, like a divorce, disagreement about the value of an estate, or a problem with gift taxation. When you need to figure out what your business is worth, three common approaches for calculating the value of your business are:
• Asset-based
• Income-based
• Market-based
Each model is appropriate in specific circumstances. Asset Approach With this model, you calculate the net value of all the assets your business owns, taking into account depreciation, and the result is your firm’s value. Assets include land, buildings, equipment, inventory, copyrights and trademarks, customer lists, and improvements to the physical structure. The owner’s discretionary cash for a single year called the owner benefit, is also included in the total asset figure. This method should also account for liabilities, such as outstanding loan balances and accounts payable. These liabilities should be deducted from total assets to yield a net asset value. Prospects love assets like these because they are built-in insurance. If cash flow slows down after he buys, he can sell assets to bring in money. This is the sensible method for retail and manufacturing firms, which are considered asset-heavy. It is usually not the best one to use for a small business. Income Approach With the income approach, which is also called capitalization of income, you focus your attention on cash flow and the return on investment. For example, if your business has revenue of a million dollars and $750,000 in expenses, you will have an income of $250,000. However, businesses are typically not valued based on a single year of income, but their ability to produce continued earnings in future years. The capitalization method uses a capitalization rate and anticipated earnings to value the business. Different industries typically use different standard capitalization rates as a basis for valuation. However, the capitalization rate for your business might be lower or greater than the industry average based on a number of key financial and operational factors. These include things such as business growth, competitive environment, management team and an earnings history. The capitalization rate eventually used for your business will be used as an earnings multiplier. As an example, a capitalization rate of 33% will yield a three-times earnings valuation, and a rate of 50% will yield a two-times earnings value. Market Approach This method is much like what realtors use when tempting buyers to purchase a home. The realtor shows prospects comparisons of what similar homes in particular neighborhoods have sold for in the recent past. Similarly, with a market approach for your business, you use sales figures based on industry averages as a multiplier. This makes it the most subjective of the three approaches. The challenge with this method is that it is easy to over or underestimate the value. A prime example is the internet company with an inflated value, selling for many times its estimated gross revenue before they have made a penny in profit. Documenting Your Work Most every prospect interested in your company will expect proper documentation. When they have an accountant or lawyer perform due diligence before deciding to buy or invest, they will want to check the numbers that tell the financial story of of your business. They want to review at least the following:
• Basic financial reports
• Sales reports
• Personnel organization charts
• Job descriptions
• Production reports
• Manuals that cover plant and office operations
Naturally, the more complete your company’s documentation is, the higher your prospect’s comfort level will be. By the same token, if you do not have a complete set of books, it sets up danger flags to potential buyers.. This is not reassuring to someone who wants to buy a moneymaking concern. In summary, figuring out how much your business is worth is one that makes the most of a prospect’s perception of the business. It is not a mere number-crunching exercise. In fact, experts consider it more art than science. A sensible prospect will use professionals to help him determine the value of your business. That can mean employing the expertise of an appraiser, broker, accountant or lawyer, or all of them. It is important that you, as the owner, sit down with them and go over your financials and other documentation. This gives you a chance to ask and answer questions, point out intangibles and help them get an accurate understanding of what makes your business so potentially valuable. It also lets you get a close-up view of how they arrived at the business value they did, making you more comfortable with the end valuation.

Valuing Your Business

View Resource Valuing Your Business
Hanging onto your money and handling it competently is a challenge from the time you are a youngster getting an allowance to when you become a small business owner. For an owner, it can be the make or break factor for being able to stay in business, let alone turning a profit and growing. Why Is Money Management Essential? Even if you have an accountant, you still need to know how to handle your money. That means understanding the basics of bookkeeping, knowing how to make and keep a budget, and paying your bills on time. Competence in money management sets your business up for growth. With it, you pay bills on time and earn a solid credit score. Banks, credit unions, and investors will look positively on you when it comes time to borrow or invest. The more adept you are in managing your money, the better your cash flow will be. That is the lifeblood that keeps your business vigorous. Money from customers and investors needs to keep circulating, paying employees, settling accounts with your suppliers, and keeping the taxman happy. Here is a look at how you can master money management in your business. Basic Steps to Take To Manage Money Use a business bank account. Whatever the size of your business, even if you are just one person working on a laptop at the local coffee shop, you need to open a business bank account. Run all money that is business related through this account. That means all payments from customers go into it, and all bills from suppliers get paid out of it. This is essential for the organization and to create an accurate picture for tax purposes. Use an accounting system. Set up your accounting books right away. Do it yourself using Fresh Books, QuickBooks or another accounting software. You can farm the entire process out to an accountant, handle part of it yourself and have the accountant handle taxes, or take care of the entire process yourself. Whichever method you choose, understand how the software operates, keep on top of what money is coming in and going out, and don’t get behind on logging transactions. Set up a payment system. You need an effective way to accept money for your product or service. This can be as simple as using Paypal, or more complex using a shopping cart and merchant account. The more payment options you give customers, the easier it will be to collect what is due. Offer credit sparingly. Extend credit wisely and conservatively. Check the credit score of your customers before giving them credit. Be clear and consistent with your credit-granting criteria. This will save you hours of angst trying to collect and keep the cash flowing. Learn how to estimate a job. Estimates should be as accurate as possible. Understand what your overhead is, how many hours a job will take you, and the minimum you need to quote to make a profit. If you consistently charge too little in an attempt to keep money coming in, you are leaving money on the table, or worse, you run the risk of eventually going out of business. To make sure you are making enough money, track time and expense for every job. Many accounting programs, like QuickBooks, let you produce a job-costing report for every job you handle. Review the reports weekly to make sure you are charging correctly. Keep your overhead to a minimum. Hire staff only when you can afford it and need them. If they sit around with nothing to do, you lose money. When you are starting out, don’t set up your office in expensive quarters. Spend just what you need to make clients comfortable if they come in, but avoid high-cost decorating schemes. Put your extra money into research and development of new products and marketing. Invest in areas that will produce a true profit. Make a budget and stick to it. Budgets provide structure, which every business needs. They help you decide how much to spend in each area and how much to earmark for growth. Base the budget on expenses from previous years, how the market is doing, how much your suppliers are charging, and your overhead. Be sure to include money for emergencies and to fund future growth. Taking a proactive stance toward handling money radically reduces the risk that you will be caught unawares by a big expense. It will let you keep adequate cash flowing through your business, letting your business prosper and grow.

Money Management

View Resource Money Management
You need your suppliers. They need you as well. It is a win-win relationship between you and your vendors. However, it takes effort; it does not just happen. Managing your vendor relationships is essential to ensure a steady supply of materials or services that you can use for your products or to enhance your services. This means selecting suppliers with care and building a connection based on mutual trust. When you have a good working relationship with your vendors, you can navigate downturns in the marketplace and respond quickly to a big upsurge in orders. Here are several ways to ensure a mutually beneficial outcome with your suppliers. Evaluation and Selection Select your vendors with care. Don’t rush in and simply choose the least expensive price for the goods you need. Like every decision that has long-term outcomes, base it on thorough research. Follow this process when looking for a supplier:
• Make a list of potential vendors.


• Request quotes and a business proposal from each.


• Evaluate the information you receive with an eye to the requirements of your business.


• Decide on the best one or two matches.


• Negotiate a contract.
The slow, steady process of researching and negotiating lets you know what you will be paying for, when you receive goods after ordering, and if there are extra fees or expenses involved in the transaction. The last thing you want is to succumb to a fast-talking salesperson with questionable reliability. Managing Vendors Just like any major component in your business, vendor relationships need proper management. It is not usually wise to sign up with a supplier, then put the entire process on autopilot. It is always best if each vendor works with one person in your organization. They should check in frequently with their contact with phone calls and emails, and visit their office periodically. This makes the connection stronger and more personal, enhancing loyalty and awareness. It makes the vendor feel a part of your team. Make sure the person managing each vendor responds to questions and concerns quickly. Without up-to-date information, the supplier can end up providing too little or too much of a material or miss deadlines. You need to show that you respect their time and the resources they have available. You are just one of their customers, not the only one. Your aim is to encourage a strong connection. The only way to do that is with frequent contact. Always pay on time. If something happens where you cannot, get in touch with the vendor immediately. Explain what is going on, set up a payment schedule and stick to it. Nothing will get you on the bad side of a vendor faster than a spotty payment record. Even after you know a vendor well, get everything in writing. Never depend on verbal agreements or someone’s memory. Ask your supplier for progress reports so you can spot potential problems early. Getting the Most Out of Vendor Relationships As in any relationship, you teach your vendor how to treat you. Let him know directly and often exactly what your needs are. Make it clear that you expect good service. Expect loyalty from your vendor and be loyal to them. If they are going through a bad patch, try to help and don’t drop them if they have been a reliable resource for you in the past. Give them referrals. Send them more work when you have it. Don’t make outrageous demands and expect immediate compliance. Feel comfortable asking for discounts if you have been a good customer. How much you get will depend on how much business you send their way, what the terms are and how long you have been working with them. This is also where a good relationship shows its worth. Bring problems with service to the attention of your supplier quickly. Make sure you get the matter resolved, even if you have to keep working your way up the chain of command. Remember, take your time finding the right vendors. Then make the effort to get to know them, their capabilities, and their needs. Develop a good working relationship and keep communication consistent and constant. With reliable vendors as part of your team, your business can grow.

Managing Vendor Relationships

View Resource Managing Vendor Relationships
Time is money, so managing this valuable resource is good for your bottom line. Time is a finite resource, so you need to guard it well from people and events that waste it. Small business owners can be constantly confronted with small emergencies and social interruptions that can eat up their day. Meanwhile, more important goals and tasks get placed on the back burner. The latest app or a new gadget can help, but only if you first decide on your purpose and what is worth focusing on at work. Tips to Manage Time for Small Business Owners Be clear about goals. The best first step is to know what your goals are. Be clear about where you want your business to be in 10 years, five years, next year, next month, and tomorrow. This will help you clear through the clutter of unnecessary demands on your time. Decide what is important in helping you reach your goals, and concentrate on making progress toward them. Try to delegate, though this can be hard for a small business owner. Once you become clear on where your focus should be, you will find it easier to avoid time wasters. Be in charge of your time. Don’t put yourself at the mercy of others who will take minutes and hours out of your day. As a business owner, you, and no one else are responsible for how you spend your time. That means you must develop the skill to say no. Be polite and be firm. Move to productive tasks if you see that what you are doing is not serving your goals. Plan your time. Write out a schedule at the beginning of the day. Include what you must accomplish — the urgent, and what will bring you closer to your short-term and long-term goals — the important. Your schedule does not have to be minute-by-minute. It can be a simple to-do list with space for appointments and for tasks that support your goals. Without a schedule, you will find yourself unnecessarily jumping from one fire to another. With a plan to refer to, you can spend quality time in a focused manner on each task. Moreover, the important doesn’t always get crowded out by the urgent. How do you decide what is important? Use the 80/20 rule that says 80% of your results come from 20% of your efforts. It is the same concept that says that 80% of your money comes from 20% of your clients. So focus your attention on what produces money and results. Applied consistently, you will eliminate unproductive clients or tasks and increase results in the areas where you can gain the most. Delegate. Many small business owners started off wearing all hats. As they expanded, a staff was hired. However, it can be hard to transition from being the one doing the job to the one overseeing it done by others. The results are micromanaging and putting far too much time into tasks that others are being paid to do. When you trust your employees, jobs get done routinely without your input or interference. Unless there is a major problem, let your employees get on with their jobs. Don’t waste your time getting involved in problems at the staff level that don’t require your input. Avoid distractions. Facebook can be a time waster for a business owner just like it can be for an employee. Set aside 15 to 30 minutes every day for social media. Likewise for email: schedule time once or twice a day for answering it. Focus your time and attention on the things that matter for your small business. Take a proactive stance when it comes to your time, and you will be far more productive.

Time Management

View Resource Time Management
Owning your business means the freedom to set your hours, make your rules, and live your dream. It also means the chaos of setting up a company, meeting deadlines, dealing with employees and customers, and the chance to work 10 to 15 hours a day at times. The rewards may be two-sided, but the right to call be called the boss is payoff enough for many entrepreneurs. The job description for “Boss” is one that develops on the fly, and you often learn by doing. Here are some tips to make the transition a little easier. Have Money to Fall Back On Breaking even in your new business takes about one-and-a-half to three years, according to small business expert Melinda Emerson in her book “Become Your Own Boss in 12 Months”. It will cost more than you think and take more time that you planned. You’ll need enough money to cover living expenses and for startup costs. The simplest way to handle this is by starting the business while you still have a job and a paycheck. It is hard to get investors interested until you have customers and products. Cut expenses to the bone. Do whatever you need to do to make sure you have the cash for the first few months. Choose a Field You Love Starting and growing a business may be your dream, but it can easily turn into a nightmare because of the challenges finding startup money, dealing with customers, and weathering market conditions. If you love the field you are in, that can help sustain you over the bumps. Take Advice from Experts When you start a business, everyone has an opinion. One person might question why you’d leave a good job in the first place for an idea that may never work. Another person might suggest that you switch from selling apples to ice cream because the market is better. Rely on experts primarily, rather than relatives and friends for advice. Get guidance from mentors at SCORE, the Senior Corps of Retired Executives and the Small Business Administration. Ask others in the same line of work. Take classes and research trade publications. Base your decisions on respected, educated, experienced opinions. Develop a Business Plan Research and make a plan. Even if you do not stick totally to it, it will start you on the path with confidence and clarity. It does not have to be pages long, but it should at a minimum answer these questions:
• What do I want to sell, build, offer as a service? What is my big dream?


• Who is my ideal customer?


• What are my objectives and the steps to achieve my goal?


• What is my target in one year and five years for myself and my customers?
Get Support This is the time to tap into your network. They know people who know people, and on down the line. Find people who are positive and upbeat when you need an injection of reassurance and encouragement. Be clear about what you need, ask friends to put the word out, whether it is a contact, the best place to buy supplies for cheap or an office to rent. Offer the same back to your network, and keep growing it. Starting a business is a grand adventure in life. Be prepared for surprises, be careful with your money, connect with people, educate yourself. Enjoy it.

Becoming the Boss

View Resource Becoming the Boss
Technology is fascinating, changing daily, and confusing all at the same time. It can help keep you organized, handle tedious chores automatically, and connect you globally. It can also cost you lots of unnecessary dollars if you are not careful. Here are tips based on the experience of other small business owners who have previously navigated a technology minefield filled with the latest and greatest. Establish a Budget The first step in deciding which types of technology to invest in is putting together a budget. The newest gadgets and software run the gamut in price from a 99 cent app to a high-end scanner that costs thousands. Set up a budget and stick to it. Base it on how much you can reasonably afford to invest. Having a fixed amount to work with will reduce the temptation of the newest add-on or gizmo. Be Aware of the Full Cost. New technology is the sum of the sticker price plus the cost of implementing it. Consider these points:
• Does it need special installation?


• Do you need a subscription to an online site to keep it updated?


• Does it need ongoing maintenance?


• Does it break down often?


• Do you need to pay for training?


• Are upgrades free or do you pay for them?


• Are there data storage costs involved?


• Do you need to buy additional software?


• What accessories are essential?
Fit the Technology to Your Needs Make sure the electronics you are thinking of investing in match your business lifestyle. If you constantly travel from customer to customer, bulky electronics are a bad investment. Think laptop or tablet, instead of a desktop. Do you really need to upgrade your server? Instead of buying the software yourself, would a Software-As-A-Service, or SaaS offering be more cost effective? Can you rely on the cloud? Look for Compatibility and Security Make sure that new devices you purchase will work with your existing equipment. A great piece of Mac software will not do you any good in a Windows environment unless you buy additional software. Is it secure? This is a very real hazard for a small business. Make sure that what you buy can be protected with the proper levels of security. Taking shortcuts with the cost of security could come back and severely damage your business. What Small Businesses Use A 2013 survey by the Small Business Owners Association listed these four items as essentials:
• Desktop (87%)


• Laptop (84%)


• Smartphone (74%)


• Landline (78%)
Though the landline is something of a surprise, these rates show how important technology is for your small company. Start with the basics when you first invest in electronics and slowly add what you need. Cloud Computing In the survey mentioned, 43% of the owners polled had switched to cloud computing. In the last five years, cloud-based services have grown exponentially. This offers small businesses a number of benefits:
• Your content and data can be accessed anywhere there is an internet connection.


• Since you do not have to install software, you do not have to buy updates or worry about getting the latest version.


• Storage problems are solved.


• Apps run on any device.


• Backups are automatic.


• Connections are secure.
Using cloud-based services offers simplicity and peace of mind, since you do not have to worry about storage and updates. You do not have to pay for software, but instead subscribe to it using a SaaS model. Today, the right technology can help streamline your business and make life easier — if you buy the right type. Do your research when you look at what’s new and exciting on the market. Ask questions before you buy and stick to your budget.

Selecting the Right Technology and Tools

View Resource Selecting the Right Technology and Tools
The decision to create a business plan is an important one, whether you are starting a new business or growing an established one. A solid business plan is fundamental to long-term business success. It serves two main purposes:
• It acts as a roadmap for your business.
• It is a tool that helps you obtain outside financing.
While the phrase “creating a business plan” may conjure up feelings of trepidation and dread, it will not be as difficult if you break your business plan down into its more essential parts. Why Do You Need a Business Plan? Benjamin Franklin said it best: “If you fail to plan, you are planning to fail.” While a business plan will not guarantee success, failing to have one almost guarantees that you will not find the success you seek. Remember the roadmap analogy? It is an accurate one to consider. The first thing you need to do before creating the roadmap, though, is to figure out where you are heading. In order to do that, you should ask yourself four simple questions.
1. How do you want your business to look in one year?


2. How would you like it to look in three years?


3. Where do you want to see your business going in five years?


4. What would you like to have accomplished by your tenth year in business?
Seek the answers to those questions, keeping in mind profits, revenues, expansion, growth and other critical drivers and metrics for your business. What Does a Business Plan Include? In order to build the roadmap to reach your intended business destinations in a timely manner, you must include key pieces of information and analysis in your plan. The many moving parts of running your business become the fundamental building blocks of your long-term business plan. Consider each of them a pit stop along the road to business success. Business Concept Your business concept is a summation of your company in a few concise and simple sentences. It should clearly communicate the idea, design or value proposition behind your business so that a customer, investor or potential partner can quickly grasp what you will do and the value it will provide. Keep the concept statement to one paragraph. Business Strategy Your business strategy provides the detail on how you will execute the business concept. It describes your industry, explains your product or service, and the critical factors that will drive your business success. Those factors might include such things as your management team, operational plans or cost advantages. In essence, it is an executive summary that explains why your business is uniquely suited to succeed. Specific things you should consider while creating the strategy section of your plan include:
• Products or services offered now.
• Products or services to offer in the future.
• The size of the market.
• How the market is changing.
• Industry trends.
Market Analysis In the market analysis section of your plan, you need to explore the ins and outs of your potential customers or markets.
• Who are they?
• Where are they?
• What motivates them to buy the items or services you offer?
• What do they want or need from you?
• How are you going to attract new customers?
• What do you plan to do to keep them coming back?
Most importantly, though, is to answer this one question: “How are you profitably going to meet the needs of your target customer?” Competitive Analysis In order to be complete, your marketplace analysis must pay attention to your competitors. This is necessary whether you are an established business looking to expand or a new business interested in taking business away from other established businesses in the area. Questions to ask yourself here, include:
• How is your business going to succeed in a market that is already being sufficiently served by another business in your industry?
• Is there sufficient demand to bring another business into the market or expand your existing business?
Financial Analysis This section of your business plan will look at the financial aspects of your business. As a new business you will need to include:
• Break-even analysis.
• Financial ratio calculations.
• Internal and external funding requirements.
• Projected revenues and profits over one, three, and five-year terms.
Don’t forget to include plans for assets the business needs to acquire and the costs of the marketing plan the business intends to follow coming out of the gate. Existing businesses need to include cash flow statements, balance sheets, and pro-forma income statements, for example. Keep in mind, you should provide information that will assist potential lenders (banks and credit unions) and investors in approving loans or green-lighting investments in your business. Maintaining Your Business Plan You should not just write a business plan and place it in a drawer. To get the most benefit from it, it should be a dynamic evolving plan. You must adjust your plan as necessary with changing markets, new product concepts, evolving technology, need for additional financing, and goal achievements, just to name a few. An old business plan may not reflect reality any longer, so be sure to revisit your business plan periodically. Having a update checklist helps you to do just that. In the beginning, making a business plan may seem like a onerous task. It can be simpler if you break it down into its individual components. Once you have a plan in place, you will begin to see the effectiveness of how such a simple business tool can take the guesswork out of starting a business or growing one.

Creating a Business Plan

View Resource Creating a Business Plan
Your business name is usually a customer’s first introduction to you. Make a positive impression by picking a name that attracts attention and trust. It can be a hair-pulling process finding a name that resonates with your intended audience. Here are some tips for choosing a name that does, and once you find it, making it legally yours. Factors To Consider In naming your business, the goal is to find a name that arouses genuinely positive feelings when customers encounter it for the first time. It should be web-friendly and attention-getting too. Be aware of what connotations a potential name evokes. If you have a beach shop selling sports gear, for example, a corporate sounding name is probably not a good match for your company. Choose a name that will look good within a logo, on business cards, stationery and your website header. Image is important for a company, and that starts with the name. Pick a name that expresses the essence of your business, what it does, what it produces, what its purpose is. Express the emotional meaning of the company as well as give people practical information. Try to make the name short. It is easier to remember and fits more artistically on business cards and headers. If you do pick a longer name, be sure to check how it will look when abbreviated. You do not want any acronyms with unforeseen meaning! Should you use your name? This is typical for many new entrepreneurs, but it has limitations if you intend to expand. Down the road, it might make it more challenging in building a brand. If you are having problems coming up with the perfect name, the free website BustAName.com is one option that can help you come up with possibilities. Name Availability Ideally, your name should also be unique to your business. Check to see if a claim for the name exists within your state. However, even if another firm has that name, it is possible you can still use it if you offer an entirely different set of goods or services, and your location is not in the same area. Check with your state’s business filing agency to check if the name is available. Many states let you do this online. Go to the U.S. Patent and Trademark Office online and use the search tool to find out if the name you want, plus variations of it, are already trademarked. You need a name that is free and clear. Of course, a web presence is essential. One of the best things you can do for your company’s future is to find a name that is available as a high-level domain, especially a .com. It is worth reworking the name to find one that is free. You can check the WHOIS database online to find out if the registration status of the name you want. Registering Your New Name To legally claim the name you choose, you need to register it as a “Doing Business As,” or DBA, with your state filing office. This is different from incorporating a business and trademark protection. This only lets the state legal entities know that you are in business and using a name separate from your personal name. Be sure to apply for trademark, protecting the words, symbols, names, and logos that are distinct to your business. One of your company’s biggest assets is your name, so you want to keep it safe. Over the long-term, getting trademark protection is inexpensive at under $300. Lastly, register your domain as soon as you decide. Claim your corresponding social media identity at the same time. At the very least, this should include Facebook and Twitter, but don’t forget about Pinterest, Instagram, YouTube, and Google+ for businesses too.

Naming Your Business

View Resource Naming Your Business
If you are putting together a business plan before approaching lenders, you’ll want to be specific in your calculations about your market share. Figuring it out takes time and research, but is well worth the investment. It helps not just for financing, but also when you make product development, marketing, and manufacturing decisions. Understanding Market Potential The potential of the market rests with what is needed to solve a problem. Listening to music is an excellent example to illustrate how to understand a market’s potential. In this instance, the problem is: how can a music lover listen to their favorite music affordably and conveniently? Through the years, methods have included using Victrola records, long-playing records, singles, cassettes, CDs, MP3s, and products like iPods and Beats headphones. With time, a new technology will become the norm. The “market” isn’t necessarily the product: namely, an iPod or Beats headphones. The market is the music lover. The opportunity depends on how many there are, and how much of the market you can realistically expect to capture. This recurs over and over in every type of market: personal, home, office, agricultural, and industrial. You will not go down the wrong path if you keep your eye on the problem and its solution. You can miscalculate the size of the market if you focus on one type of product and the numbers sold. Do that, and you will miss the wave when new technology comes along, as it always does. Remember, you are sizing the market, not what the product you are selling. Identifying Your Niche and Segment Once you have identified the problem and corresponding solution, you can move on to the next step: defining the market niche you want to serve by identifying your target customer and market segment. For instance, if your overall market is providing customers with pool cleaning supplies and equipment, you can break that down by eliminating people that wouldn’t be interested in your product. That might include homeowners who are too busy, like families where both parents work. Another group to eliminate might be high wealth households that might hire a pool cleaning service to handle the task. Keep trimming. Eventually, you might end up with quite a small market. Many successful businesses appeal to only a small fraction of the market. Estimating Your Market Share Now that you have determined the problem, the solution, and your niche, you can use traditional methods to compute the size of a market. There are multiple approaches to zero in on a good market share estimate, including governmental databases, surveys, industry studies, and competitors. For starters, find out the number of people or businesses that need your product or service. Resources to help you estimate this include the Small Business Administration, industry associations, and statistics kept by the federal government. Pinpoint companies that sell the type of product you want to market. Then start asking questions to see how close they are to the kind of business you wish to become.
• What does their typical customer look like?
• How much does their product cost?
• What type of service is offered, beyond an actual physical product?
• What technology is needed to produce and deliver the product to the consumer?
This will give you a list of companies that you can reasonably assume are your competitors. Next, find out their annual sales.
• How much of that could you tap into as a startup?
• Would 10% of that market provide you with sufficient living income and offer enough room to grow your business?
Figure out a realistic estimate of how much of your competitors’ market you can attract. This is a very rough guess as to your market share. Check your estimates by conducting surveys of individuals who buy these products. You can do this yourself by setting up a short, free survey online or by hiring a company that specializes in them. Keep in mind that interest in a product and service is not necessarily action in buying the product or using the service. Sizing the market is an important task for market planning and budgeting for all startups, and all along the way throughout a product’s lifecycle. Markets change however, sometimes quite rapidly, so market size estimates should be considered fluid numbers.

Sizing the Market

View Resource Sizing the Market
You’ve come up with a plausible idea for a business. That is great! An idea gets you to the starting gate. However, you get into the race with money. Startup financing is the means to turn that idea into a real business. Thankfully, today there are more sources of startup funding than ever before. While there are traditional financing sources from banks, credit unions, and investors, there are also new twists on startup funding with innovative crowdfunding and angel investors. Here is a look at traditional and creative methods of funding your startup. Major Sources of Startup Funding Overall, most funding for startups falls into one of the four following categories.
1. Revenue. This is probably the most common method. You sell your product or service, receive money for it, and plow it back into the business to fund growth. It is also called bootstrapping, self-funding, and internal financing.


2. Equity. This is selling shares in your new venture in exchange for money, services of value to the new business, or work for the venture, called sweat equity.


3. Debt. Loans fund many startups. They can come from banks, credit unions, friends, family, and private investors.


4. Grants. This is money that is given to help a business get going, but requires no equity or repayment of the money. Not-for-profit companies receive most grant money, but for-profit entities are often eligible as well.
Specific Types of Funding Here is a quick overview of the most common types of funding methods for startup companies. Crowdfunding. Kickstarter and Indiegogo, among others, have provided robust, innovative ways for startups to raise money. The entrepreneur takes his case directly to the public in a crowdfunding campaign. Angel Investing. Individuals with money and interest in investing in trendy ventures with strong growth potential are called angel investors. The best kind are accredited investors, with a net worth of at least $1 million or an income of $200,000 or more for each of the last two years. They often seek investments as a group. Venture Capital Investing. The entire purpose of venture capital firms is to find promising businesses in their early stages of development who are looking for funding. The money often comes with a formal agreement that covers the timeframe for the firm to begin seeing a return on their investment. Bootstrapping. Some aspiring entrepreneurs also obtain startup funding by self-funding: selling assets, withdrawing savings, borrowing against their home, maxing out credit cards, or tapping into their 401(k) savings. Friends and Family. Loans can often come from the people who know you best and are rooting for you to succeed. Bartering. Exchanging your products or services to other companies to get what you need to grow, whether office supplies, computer repair or expertise. Small Business Grants. These can come from the local, state or federal government as part of an effort to stimulate the economy. Some nonprofits also offer them. Small Business Administration (SBA). The SBA extends small loans and expertise to new businesses. Lines of Credit. Banks and credit unions offer commercial lines of credit that are well-suited for startups. With a line of credit, you only pay interest on the funds you use rather than the entire approved loan amount. Incubators. These can be universities, nonprofits, and companies specializing in this type of work. They provide labs, consulting, office space, marketing advice and sometimes money. Often they require equity in your startup in exchange. Partnership. This involves finding someone who has substantial skills, friends, or money to contribute to your business in exchange for a percentage of it. Major Customer. If your product or service is valuable to a single major customer, it might be willing to give you money for development and startup expenses. In exchange, it will have input and varying amounts of control over your production process. Most new businesses use a mix of sources for startup financing. With the many options available and a commitment to your new business, you have an excellent opportunity to turn your idea into a thriving company.

Sources of Start-Up Funding

View Resource Sources of Start-Up Funding
The joy of owning a business is the dream of many would-be entrepreneurs. If you are one of them, you have two main choices: start a company from scratch or find an already existing business. Your dream can become a reality more quickly if you decide on the latter. Here’s a look at important points to consider if you are thinking about buying a company. Pros and Cons The biggest benefit of buying an existing business is that the company is already in operation. Many of the kinks and early startup decisions, such as the site’s location, have already been worked out or decided. Money is one of the biggest concerns of a budding entrepreneur. Buying a business has both pluses and minuses in this regard. On the plus side, you do not typically have to worry about startup costs. Another plus is that immediate cash flow is often available from receivables and inventory. A company that is already in business has existing customers, and hopefully, goodwill on tap, too. If you need a loan to upgrade equipment or purchase new supplies, financing is usually a smooth process based on the business’s’ track record and profit and loss statements. Of course, there are downsides. The biggest is the upfront cost: namely, the purchase price of the company. In addition, hidden costs and problems may be buried where they are hard to see prior to taking ownership. There can be debts and taxes owed by the business or uncollectible receivables. There could be problems getting inventory, technological advances that make the product line obsolete, or overwhelming competition. Though you will now be a proud new business owner, you still need to build a good working relationship with the managers and employees currently running the company. Finding a Business to Buy Deciding to buy is step one. Then, you need to start researching existing businesses to find one that is a good fit for your budget and your interests. Good places to look include:
• Trade associations, magazines, and websites
• Local chambers of commerce
• Online businesses-for-sale websites
• Brokers
• Your immediate area
The process of identifying and evaluating a business can seem daunting. Hiring a business broker is a good way to ease your way through the confusing jungle of buying a company. They can help you figure out exactly what type of business, location, size, and price you seek. Then they can use their industry contacts, skills, and experience to pre-screen firms for you. Negotiating is an intricate dance, but brokers are well versed in the process. They also know how to handle the paperwork required by local regulations, licenses, permits, bank financing, and escrow. Things to Consider When Buying a Business You need to protect yourself when buying a business. Having a team in place to advise you, including an insurance agent, accountant, attorney, and banker, is highly beneficial. Together, you can conduct due diligence and a thorough analysis of each company you are consider purchasing. Among the questions you need answers to are:
• Why is it for sale?
• What is the outlook for success, in the immediate future, the next year or two and then five and ten years down the line?
• Is the industry a growing one? Is this particular business growing?
• Does it have the customer base now and in the future to show a profit?
• Is inventory a problem? Are raw materials scarce?
• Is the product line viable? Does it need to change? What is the overall cost of that?
• What is its reputation with customers, suppliers, within the industry, with the Better Business Bureau and credit bureaus?
If the business looks viable and the future looks profitable, the next step is for you and your team to dig deep into the operating details of the firm and analyze the overall financial health of the company. This involves an in-depth review of the history of earnings and losses, analysis of potential growth, and the worth of its brand name, goodwill, and position in the market. Next, you’ll need to investigate financial statements in order to project future returns. If this is not in your wheelhouse, you’ll need an expert who understands balance sheets, cash flow statements, accounting footnotes, tax returns, and income statements. You should go back at least three years if the information is available. Buying the Company Once you decide a business has potential and is within your financial means, it is time to negotiate a price. Most owners prefer to let members of their team, including the broker, do this. They are professionals who keep a focused, impartial view of the process. The result of their more impersonal bargaining style is often a better price for you. It is critical to have professionals around you that you trust. There are many types of legal and finance documents, from security agreements to bills of sale and IRS forms, that may need expert review. The process is complicated and can be stressful. Rely on a team of experts so that you get the best deal possible. Lastly, your final step is transitioning into the ownership position: getting to know the employees, the product line, new premises, customers, and suppliers. Taking on an existing business is not always smooth or uncomplicated, but with some expert help, hard work, and patience, it can be a profitable and exciting endeavor.

Buying an Existing Business

View Resource Buying an Existing Business
One of the biggest expenses many businesses have to deal with is the cost of leasing space for their business. Getting familiar with what the lease covers and which sections are negotiable can save you money and frustration. Here are important factors to consider when considering your space needs. Affordability Since leasing costs are one of the largest items in your budget, spend time looking at different locations and then comparing the pros and cons of each. Using a spreadsheet to compare variables is helpful. The items to account for are:
• Leased square footage
• Unit lease price
• Incremental expenses like maintenance
• Term of the lease
• Individual pluses and minuses of the each property
Now is the time to learn how to read a lease. Ask your accountant, insurance agent, lawyer, or broker for help. Commercial leases are not easy to understand. Some are even hundreds of pages long. Factors that impact your total leasing costs, include:
• Monthly lease payment
• Maintenance fees and typical repair costs
• Upkeep for common areas
• Utilities
• Hidden fees
After you get a handle on how much these additional costs will add to your monthly lease payment, compare it to how much you can afford. The rule of thumb is to spend no more than 10% of your projected gross revenues. That means if the rent is $3,000 a month, you need to generate $30,000 a month in revenue to afford it comfortably. Lease Terms and Negotiable Items Much of what is in a lease agreement is negotiable. That is why it makes sense to hire a broker. Find an experienced agent who understands the local market well. You want one who works for you, not for the property owner. Make sure that the same time they represent you, they do not also work for a competitor or someone who needs the same type of space as you. Your agent can help you negotiate a deal that fits your budget. Here are the areas that are open to bargaining:
• The lease term. Though most run 5 to 20 years, you can negotiate for a longer or shorter period.


• Starting date of the lease. If you are making improvements, it might be better for your budget to delay the beginning of the lease until you move in, not when construction or remodeling begins.


• Percent rent clause, common with grocery stores and other retail businesses. You can negotiate a beginning rent at a lower percentage. You can also ask that the higher rate does not start until you reach your targeted revenues for 12 consecutive months.


• Kickout clause, which gives you the right to terminate the lease if you do not reach the revenue levels you expected.


• Co-tenancy agreement, which gives you leverage if a major tenant in a shopping mall leaves, reducing the number of people coming through. You can negotiate a rent reduction or the right to move too.


• Tenant improvements and move-in incentives. If the rental market is soft, the landlord might agree to fix up the building to meet your needs, absorbing the cost himself.


• Limits on shared area maintenance fees, including caps, fixed rates and not paying associated administrative fees.


• Radius clause, which some landlords will impose, requiring that you not open another business within a certain radius, like five miles. This is a problem if your shop gets busy and you want to expand. You can negotiate a time limit cap on this.


• Exclusivity clause, which means the landlord agrees not to rent to a competitor.


• Personal guarantee, which means you agree to pay the rent with your money if your business goes under. You can negotiate to limit this clause to your first few years in business.
Other Caveats Surprises cost money when it comes to leases. It is not uncommon for a business owner to call the landlord when the roof leaks into the IT department and get the reply, “That is your responsibility. Didn’t you read the lease?” Any legal document running to tens or hundreds of pages needs expert analysis. Find a reputable real estate attorney experienced in your property needs. Since leases typically run five to twenty years, you want to have a qualified professional make sure it benefits you. It is an investment in the future of your business, as well as your peace of mind. Getting the best deal on a lease means finding a broker, researching the market, comparing properties, and having an experienced real estate lawyer check it before you sign it. Investing time now can save you a bundle in the years ahead.

Leasing Space for Your Business

View Resource Leasing Space for Your Business
Are you thinking about forming a business partnership? Starting a business with a partner affords many benefits. In a perfect world, that means sharing the expenses, ideas, workload, responsibilities, and profits. In the real world, it can mean personal liability for the partnership’s activity, emotional ups and downs, personality conflicts, and differing ideas about the company’s product line, vision, and future. Before you decide to form a business partnership, it is helpful to learn about the different types of business models and the advantages and disadvantages of going down the partnership path. What Is a Partnership? There are three standard types of legal entities called partnerships. You must register with the business agency in your state for any of them.
1. General Partnership.
   In a general partnership, each partner shares equally in the profits, liability, and responsibilities involved in running the business. Unequal partnerships are also available, in which different percentages are assigned to each partner, as laid out in an official partnership agreement.


2. Limited Partnership.
   Also called partnerships with limited liability, limited partnerships have a more complicated setup than general partnerships. Here, each partner has both limited liability and limited input on decisions for running the company. Limits are defined based on the percentage each partner has invested. Limited partnerships are often preferred by individuals interested in short-term projects.


3. Joint Ventures.
   Very similar to the general partnership, a joint venture lasts for a particular period or the duration of a single project. These can merge into a regular, ongoing partnership, but doing so requires a new registration of the business.
Benefits of a Partnership When you are evaluating all of the work needed to get a business up and running, a partner can look very attractive. Having someone whom you can share the workload, decision-making, expenses, and the emotional roller coaster of starting a business can mean the difference between making the big jump or letting it stay a dream. Other strong points in favor of a partnership include:
• Ease of setting up a partnership.
• Broadening the businesses available skillset.
• Having multiple perspectives on running the business.
• Leveraging the strengths of each partner.
• Shared accountability.
• Enhanced ability to share and discuss ideas
• An expanded business social network.
• Having a wider pool of options for financing.
Drawbacks of a Partnership Choosing the right partner will be the key as to whether your partnership succeeds or fails. It can be detrimental to the success of your business if your partner does not mesh in skills, outlook, commitment, money, and goals. That is just one of the issues you can face when working with a partner. Others you may encounter include:
• Work ethic: one person meets deadlines, the other is much more casual about it; one follows through, the other doesn’t.
• Level of experience: one has years in the field, the other has enthusiasm but little training.
• Plans for the business: one is in for the long haul, the other wants to sell as soon as you can find a buyer.
• Liability issues: if one partner violates the law, both are liable.
• Reputation: the reputation of one is bound to impact the reputation of the other.
Reasons for Starting a Partnership Just as there are good and not-so-good partners, there are good and bad reasons to enter into a partnership. Good reasons:
• Gaining specific skills, such as marketing, operations or finance.
• Sharing the workload with an able co-manager.
• Teaming up with someone with a track record in your industry.
• Your working style is that of team player. A partnership is your natural habitat.
Bad reasons:
• Needing a yes man.
• Wanting someone to run the business for you, either because you do not have the time or the confidence.
• Friendship—this is always easier to maintain outside the work environment, which is filled with daily stresses.
Deciding to form a business partnership is one of the most significant decisions you can make for your business. Deciding on a partner is equally, if not more, important. Weigh the pros and cons of having a business partner. Choose someone you trust who adds additional skills to your business and has a personality that meshes well with yours. That is the formula that the most productive, successful partnerships have in common.

Partnership Pros and Cons

View Resource Partnership Pros and Cons
What are the three most important factors when starting a business? Some will tell you it’s location, location, and location. In many ways, it is true. The spot you choose has a significant impact on the success of your business. That is especially true if you are a service business like a restaurant or a store, but also true for factories and business-to-business firms. Factors To Consider There are many factors to consider in terms of choosing a business location, each of which will impact your success and decision-making.
• Accessibility. Every brick and mortar business needs customers, inventory to bring in, and products to deliver out. That means customers, salespeople, employees, and suppliers need to be able to find you. They need easy access, which may require nearby parking or closeness to public transit. Do you get regular truck traffic for delivering or transporting your products? They often need ample turnaround space and an area for loading and unloading. Do you rely on walk-in trade? This is important if you are a restaurant or service business. Look for a spot that has close-by traffic generators. Look for large businesses, office parks, colleges, schools, hospitals, shopping malls, strip malls. Locations that are in central downtown cores close to office buildings and other retails shops can provide generous foot traffic as well.


• Safety. Your location needs to be safe and attractive if you want people to feel comfortable patronizing your business. If your site or the building is unsafe, prospective workers might be inclined to choose other employers .


• Future growth. If your shop or factory takes off, you may need room to add space for offices, services, and manufacturing, all without losing your parking and loading areas. Are there empty lots next to the property or ample rental space to expand?


• Zoning regulations. You need to stay legal. That means your product or service fits the municipal building codes and legal zoning requirements for the area. Your building must meet the standards for the neighborhood. The amount of traffic you generate must not overwhelm local roads and available parking. If you do not make sure you fit the zoning regulations, you’ll end up unnecessarily spending money either on bringing your premises up to the standard or on moving.


• Taxes. Setting up a business at a new location or moving there involves tax implications. Make sure you can afford the taxes imposed with owning a business. Seek the advice of a lawyer and an accountant to figure out what to expect from local, state, and federal taxes.
Points That Impact Your Business When deciding on a location, some things can have a significant impact on the success of your business.
• Demographics. Who is your target audience? You want to select a location that makes it easy for them to find you. For instance, if you operate an upscale salon, it makes no sense to choose a building in a low-income area.


• Business friendly local government. Do the local and state governments offer incentives for setting up shop in a particular area? Do local laws, taxes and zoning regulations favor small businesses? You can nurture growth much more easily in an environment that is friendly to your company. Ask the local chamber of commerce for advice. Find a small business specialist to guide you through any confusing laws and regulations.


• Labor market. Unless you are a one-man band, you need to consider how easy and affordable it is to attract the right type of employees. If your business requires particular kinds of skills, be sure the local area can supply your needs at the pay you can afford. Further, what is the minimum wage in the area? Make sure workers can get to your business easily via public transportation.
Where you set up your business can be the make-or-break decision for future success. Put the time into considering all the factors. Research more than one spot. Confer with your accountant, lawyer, the local chamber of commerce, and other local business resources. Talk to business people in the same area. The more research you conduct, the better chance you have of finding a profitable location.

Location, Location, Location

View Resource Location, Location, Location
Improving your collection of receivables is essential if you want your business to thrive. Effective receivables collection not only provides you with the necessary cash flow for everyday business operations, but also furnishes you with crucial working capital to grow your company. Here is a look at the problems you might encounter getting your money and what you can do to streamline payment. Impediments to Payment There are many reasons a customer does not pay an invoice right away or in the period you designate, whether that is Net 10, two weeks or 30 days. The most likely reason is that they are trying to hang on to their money to pay their bills. In that case, a gentle reminder will often get the payment in the mail or paid online. On the other hand, it could be that the customer is a bad credit risk that is a habitual late payer. If you suspect this is the case, devise stricter guidelines for extending credit. If you have a very small business, not extending credit and expecting payment upon receipt is often the only sensible choice. Your customers have a budget and must manage money just like you. To take care of their cash concerns, they may put off paying you in a timely manner. Though this is often a part of operating a business, it can have a negative impact on your ability to pay your suppliers and your employees. Collections Best Practices To improve your accounts receivable collection strategy, take note of the 12 best practices tactics you can implement for your business.
• Make it easy for customers to pay. Be sure what the customer orders is the same as what you ship.. This reduces the number of returns and slowdowns paying the invoice because of problems with the order.


• Bill what you quote. If you need to make changes, get in touch with your customer immediately. You will have quicker payments if there are no surprises.


• Include documentation with your invoices. This lets customers do their research quickly and pay right away.


• Bill in increments on large projects. This keeps the money coming in throughout the period you work on it.


• Resolve disputes quickly. Find out what happened, make a decision and move on. Lingering problems make for poor customer relations and no payment.


• Design a standard policy for extending credit and collecting invoices. Don’t reinvent the process for each new customer. Having standards means not making exceptions. This lowers your risk from those with poor payment history. Extend credit to profitable companies that are good payers.


• Be proactive. If customers regularly pay late, set up a routine to contact them on a regular basis to remind them to remit what they owe.


• Educate your credit and collections employees. Make sure they present the best face of your business and that they thoroughly understand your requirements.


• Get to know the person who pays the bills. It is always easier to fix a problem if you already have a relationship with the person in authority at each company you do business with.


• Offer discounts for early payment. This can be one of the most effective ways to ensure timely payment.


• Have a collection process in place that standardizes:
  • Invoices
  
  
  • Statements
  
  
  • A way to track where the invoice is in the aging process
  
  
  • A system for making reminder calls
  
  
  • Already written collection letter templates
  
  
  • A reliable system of recording payments
  
  
  • A method for recording customer payments and deposits
  
  
• Contact each customer when you send the invoice. Either by phone, email or text message, make sure they have received it and give them a chance to ask questions.
Collecting receivables is a tricky topic when dealing with customers. However, every business needs to have a set of guidelines in place that sets standards for extending credit, getting payment, and collecting late invoices. Assure your business of a steady flow of cash that will allow you to produce more inventory, sell more, and keep the budget cycle moving forward.

Effective Receivables Collection

View Resource Effective Receivables Collection
To propel your startup into the marketplace, you need working capital. It is hard to ask friends and family to get onboard on a speculative venture, even if you are sure that it is a winner. Without a track record, banks are often not keen on lending to new businesses. Investors are hard to find, and it is challenging to get noticed on crowdfunding sites. That leaves you with credit cards. According to the National Small Business Association, credit cards are the number one method for funding a new business in the U.S. If you have no other way to bring your dream to life, it can be a viable way to give your vision traction. However, it requires research, number crunching, and a good, hard look at the benefits and drawbacks. Here are a few things to consider before you pull out the cards for your new business venture. Pros and Cons of Using a Personal Credit Card for Business Using credit cards to finance a business has both advantages and disadvantages. You’ll need to weigh the benefits against the risks, for you and your startup. Benefits of Using a Personal Credit Card for Business
• You have instant access to working capital.
• Credit card financing may be your only option.
• You don’t have to share equity with investors. Control stays in your hands.
• You can make use of 0% credit card offers. That is a great rate for funding your startup, and the rates usually last a year.
• You don’t have to worry about collateral. This is a requirement for banks and most investors.
Downsides of Using a Personal Credit Card for Business
• You mix your personal and business funds right from the start. This is a big no-no according to accounting experts.
• Your personal credit score could take a hit. If your business goes under, you still need to pay the balance on your cards. This can be next to impossible if you are carrying a heavy load.
• Lawsuits are a possibility. Debt collectors can come after the assets of your business and you.
• In the future, you may have trouble getting credit cards for your business with a decent rate, based on problems you had paying off your personal cards.
• Your credit cards have a debt limit, usually around $50,000, and it may not be enough to fund your startup.
• If you overextend yourself, you may end up without funds to keep going.
Alternatives to Credit Card Financing Besides credit card financing, there are other ways, potentially less risky, to fund your new business.
1. Unsecured SBA loan. For example, SAM’s Club has partnered with Superior Financial Group to provide these loans, which require a personal guarantee. Most are in the $10,000 to $20,000 range. Check with the SBA to see what options are open to you.


2. Crowdfunding. Kickstarter has provided funds to a broad range of people who have a great idea but little financing. Two others are Indiegogo and RockthePost. Crowdfunding requires a strong online presence, persuasive copy, and perseverance to sell your idea.


3. Factoring. For a startup, this may not offer much help if you don’t have any receivables yet. However, if you do, you can often get immediate cash for your invoices at a discounted rate.


4. Use your retirement funds. This is a big risk too, and it isn’t advisable to jeopardize your retirement. However, for many people their 401(k) offers a vast amount of money. You might have the option to borrow money against your 401(k) instead of withdrawing it.
You need money to start a business. Using credit cards is simple and doesn’t involve others in the risk of launching a new business. Be sure to look at the pros and cons from every angle before deciding if it is the right option for you.

Using Credit Cards for Financing

View Resource Using Credit Cards for Financing
Cash flow is an ongoing concern of most every business owner, whether they are just in the startup phase or have been in business for years. A business line of credit can fill those gaps when you are experiencing a cash crunch or get hit with unexpected expenses. Benefits of Having a Line of Credit One of the biggest advantages of a line of credit is the fact that you have control over your business. A business line of credit saves you from retrieving money from your personal savings account, using credit cards as a means of funds, or approaching family and friends if you have a sudden need for cash. Unsecured lines of credit are much like a cash advance but at a fraction of the cost. They offer funds that are quickly available when you have unexpected expenses. Unlike a cash advance on a credit card, they have no cash advance fee and offer standard payment rates and APRs. With a cash advance, these amounts can often be hard to figure out. If your business is new, a business line of credit is an excellent way to build a positive credit history. Obtaining a Line of Credit Like any credit or loan, most of the lending decision is based on how much of a risk you are. If you have a high personal credit score and your business is profitable, you are likely to qualify. You might also receive a better rate and a larger amount. Most likely you may have to secure the loan personally, especially if you are a startup with a sparse track record. Here are four things you should prepare for when applying for a business line of credit:
• You might be asked to give a personal guarantee for the line of credit amount.


• You might need to offer personal collateral.


• Principals of a partnership or corporation might be asked to provide collateral.


• You must provide all the standard types of documents that banks routinely ask for when considering a loan application.
Using a Line of Credit Effectively Once you get the line of credit for your business, use common sense to make the most of it. Use your line of credit efficiently with the help of these three tips.
• Tip #1. Don’t mix personal and business finances. Your business line of credit is strictly for your company. Though you might very well have put up personal collateral to get it, that does not mean you can use it for non-business expenses. Mixing personal and business finances can severely impact your business credit score and chances for loans further down the line.


• Tip #2. Use good accounting practices. Get up to speed on business planning, how to budget, and knowing the current dynamics of the marketplace. Invest in the services of a professional accountant if you need help in this area.


• Tip #3. Plan, don’t react. Though a line of credit is excellent when cash flow suddenly dries up, plan for expenses as much as possible. Stay on top of your budget, your suppliers and customers, and market conditions. Be prepared as much as possible for dry periods. If you simply take money out of your line of credit piecemeal as a routine reaction to diminished cash flow, it will not be there when a major problem arises. Don’t nickel and dime its effectiveness away.
A line of credit is an asset to every business. Take the necessary steps secure one and then use it sensibly. It not only provides cash to meet seasonal demands and delays in collecting receivables, but also provides you with peace of mind.

Business Lines of Credit

View Resource Business Lines of Credit
The marketplace is competitive. Prospective customers expect you to extend credit to them. However, is it the right decision for your business? Offering credit to your customers has its pros and cons. If you choose to do it, establishing the right processes will be critical factors for a successful operation. Making the Decision Credit comes in many forms. For example, perhaps you think of checks as cash, but they are a form of credit. Credit cards are, of course, credit. Billing by invoices is a very common credit practice. Accepting these methods of payment comes at a price. You are trusting individuals and businesses to pay you at a certain point for your goods and services, which they are already using or have used. The positive aspects of extending credit include:
• Buyers appreciate it, it encourages loyalty and goodwill.
• More people will become customers because your offering becomes more affordable for them.
• Customers may buy more from you.
• You will be competitive in a marketplace that has come to expect credit.
• You build a reputation as a reliable business, one that is stable and mature enough to extend credit.
• You are telling your customers that you stand behind your product.
The drawbacks of extending credit include:
• You need to be able to determine which customers are creditworthy in order to generate a reliable accounts receivable flow.
• Cash flow is dependent on when your customer pays.
• It takes time, paperwork, and phone calls.
• After invoicing, you need to collect the money each month. With some customers, that means pursuing the money aggressively.
• Some customers may react badly to getting reminded they are behind on paying and move to a different supplier.
• Sometimes credit collections means making a settlement in which you lose money overall.
• If you are a small service provider, ask yourself if you need to provide credit. Would an all cash business work for your market and customer base? Offering credit is the norm, but don’t assume you have to do it.
Setting Up Credit Practices If you decide to extend credit, you need to have a system in place before you take your first order and send out your first invoice. Here are four points to include in your system.
1. 1. Determine creditworthiness. Run a credit check on each business before you offer credit. Just because an individual is pleasant and hardworking doesn’t mean they are worthy risks.
1. 1. Set up guidelines and stick to them. Mark your invoices with the due date. Show at which point it will be considered delinquent. Put the contact information for your accounts receivable staff clearly on each invoice. This encourages customers to call when they have questions or need help.
1. 1. Set up an accounts receivable department or hire out the work. You want it professionally run, with good communication among customers, accountants, and management.
1. Create a collection plan and implement it. Get all the pertinent information from your customer before you start doing business. Send out invoices on time. Give each customer a copy of your payment policies, which includes late fees and penalties. Get everything in writing in case the collections go to court later.
Knowing Credit Laws You are required to comply with all consumer credit laws. They dictate how you advertise interest rates, how you handle claims that there was a mistake in billing, and the method you use to collect debts. ScoreInfo, created by FICO, offers an excellent overview of consumer credit laws. There are many aspects of the debt collection process that consumer credit laws and the Federal Trade Commission (FTC), regulate. Be sure you keep on the right side of them. Dealing with Collections Your credit system needs to include a process for dealing with a customer who can’t or won’t pay a bill. Your procedure needs to take into consideration the local consumer protection agency rules for debt collection and well as FTC guidelines. Collecting a debt can be time time-consuming and expensive. In some cases, it is just easier to write it off. For example, if a customer declares bankruptcy, you may or may not be eligible to collect even a small percentage of what they owe. If you get awarded money, you still may need to pursue the customer to collect it. What’s the takeaway? It is easier to prevent the problem in the first place by extending credit wisely. Check out every prospective customer. Be very conservative in your choices. You are not required to extend everyone credit. While most customers come to expect credit, it is essentially a benefit from your business to theirs, and not merely a right.

Extending Credit To Your Customers

View Resource Extending Credit To Your Customers
Depending where they are in their startup phase, new businesses often get several types of investment funding. Though some entrepreneurs can bootstrap, that is fund themselves from savings and continue growing out of first revenues; many need outside sources of capital to hit the ground with products and services ready for market. Here is an overview of what you might encounter when it comes to partners, investors, and funding stages. Do You Need an Investor or Partner? Both partners and investors provide working capital that enable you to pay your employees, suppliers, business taxes, and even yourself. While investors typically provide an infusion of funds in exchange for a future return or ownership share, a partner often offers skills, experience, and know-how to help grow the business. Whether you require an investor or partner depends on your business needs and goals. Pursue an investor if you intend to:
• Purchase a new business facility.
• Purchase new equipment.
• Build or launch new services or products.
• Commence a new marketing campaign.
• Pay down or settle high-interest debt.
Enlist a partner if you intend to:
• Acquire access to capital.
• Need complementary skills, expertise or knowledge.
• Gain new customers and contacts.
• Pursue new target markets.
• Build in-house business functions.
Overall, if you want to maintain control of your business and only need funding, look for lenders or investors. If you are looking for someone to share the responsibilities of running the business and need the help of human capital, then choose a partner. Investments Based on the Stage of Your Company Your company has several stages in its funding cycle. Every company may not go through all these stages, but you should understand who funds businesses at various stages of growth. The amount of money you need and the people who can provide it may change as your business transitions from one stage to the next. Idea stage. You are the one involved at this stage, just you, your idea, your finances, and a dream. Co-Founder stage. Getting it up and running often takes some help in the form of a co-founder. Their enthusiasm, skills, contacts — and maybe even cash — can help get you on a more solid foundation. Because you have nothing of substantive value yet, this person is taking a risk. To compensate for this, you may give them equity. Family and friends stage. Before you get a working product to show real investors, you might very well run out of money. One option is to turn to your parents, siblings, relatives, and friends who might invest what they can afford. Hopefully, it is enough to keep working on your prototype. Angel stage. As time passes, you may have exhausted money received from family and friends, yet you are still not ready for market. Your next step may be to look for an angel investor to put in a more substantial investment. You might also get accepted into a startup incubator or accelerator program. These types of programs can provide you with working space, advice, and possibly even some money. Venture capital stage. By this time, you have a working model of your product and can attract the attention of a venture capital group. This stage might have several levels of investment that occur over time, with either the same or different venture capitalists adding additional funds at the next level. IPO stage. At this point, you are a real working company. You decide to go public to let your early employees, and you, cash in on the success of your business and the stock they’ve been holding. It can also give your company a significant injection of funding to make a major push in marketing, research, and manufacturing. Things To Look for in An Investor If you’ve decided to accept outside investment, make sure the people you are getting money from are a good fit for the long-term financial health and growth of your business. Here are five points to consider when working with venture capitalists and angels.
1. Look into their background. Investors will check you and your company out thoroughly. Do the same with them. You want no surprises. Ask other startups that they are working with if they are good communicators. Are they reasonable and intelligent? Are they stable and courteous?


2. Competition is good. Let them know that other investors are strongly considering investing in your startup. Much like a resume, a little creativity is helpful. Negotiate to get the best deal.


3. Don’t be emotional. Yes, it is your dream. However, you are talking money now, so detachment and pragmatism are the watchwords.


4. Understand everything. Ask questions. Have a lawyer and an accountant look over everything. Read each word before you sign.


5. Get your own lawyer. Moreover, particularly one who has experience with startups. You need someone on your side who can not only explain the deal terms and conditions to you, but negotiate terms to make them more favorable to you and your business.
The bottom line: funding is out there, but it often comes with strings attached. Make sure being attached to those strings is something with which you are comfortable.

Working With Outside Investors

View Resource Working With Outside Investors
To lease or buy equipment: It can be a puzzling question for a startup or existing business. The answer, primarily, depends on your current and long-term needs and financial situation. It is not just about the monthly payment. You need to factor in maintenance, flexibility, tax deductions, and other issues. Here’s a breakdown of the pros and cons of both leasing equipment and purchasing equipment. Pros and Cons of Leasing Equipment Equipment Leasing Pros
• Do you need to update your equipment on a regular basis? This may be especially true if your company is technology driven. Leasing means you do not get left with outdated equipment taking up space, requiring maintenance, or needing insurance coverage.


• Is money tight? Leasing requires less money up front than purchasing. You know how much you will need to pay each month, an amount that is usually affordable. This makes it easier to budget than if you spend a large sum at once to buy the machinery.You can afford to invest in something new because you know it is for just a limited time, and the payments are affordable.


• Are you looking for tax deductions? The lease payments are tax deductible, as it is considered an operational expense by the IRS.


• Do you not want to worry about maintenance costs? Many maintenance costs get handled by the leasing company. This is true if the problem is due to normal wear and tear or if it just breaks down.

Equipment Leasing Cons
• You pay more overall than if you bought the machinery and paid for it in one lump sum.


• You have no equity in your equipment. You cannot sell it to get some of your investment back.


• You need to pay for the entire term of the lease, even if you are no longer using the equipment. That means wasted money on lease payments, plus you have to house the equipment.


• You might have trouble convincing the lease company that a maintenance cost is their problem, not yours.
Pros and Cons of Buying Pros of Buying Equipment
• You own it, so it is an asset you can sell.


• You can modify the equipment any way you choose.


• Since you are responsible for maintaining it, you can repair it immediately, not waiting for the lease company to do it.


• There are certain tax incentives in Section 179 of the tax code that apply to buying equipment that can lower your tax bill.


• Buying is straightforward, unencumbered by contracts and agreements.
Cons of Buying Equipment
• It costs more upfront. This may delay your decision to purchase, costing your business chances to make money. The upfront payment may deplete your cash supply.


• You buy it and are stuck with it. Meanwhile, technology keeps advancing. You cannot afford all the latest and greatest when you buy because it just costs too much.


• You pay for all maintenance.
Investing in major equipment for your business keeps it relevant in the marketplace. However, the costs can be formidable. Be sure to research what equipment you need and the most cost-effective way to get it, whether that is leasing or purchasing. Take into account maintenance and taxes, as well as the cash involved.

Lease or Buy Equipment

View Resource Lease or Buy Equipment
Every accountant will tell you the same thing: always keep your business and personal expenses separate. Also, each small business owner or one-person operation will nod her head and agree wholeheartedly. Meanwhile, back to business as usual. It can be hard to do. As sensible and logical as it sounds, and as highly recommended as it is, it is not easy for the entrepreneur to carry out. They often have a very rough and tumble life in the marketplace. It can be difficult deciding where your personal day ends and your business life starts. Moreover, when cash is hard to come by, it makes sense to rob Peter to pay Paul and vice versa. However, there are consequences to this mingling of moneys. The tax people do not like it. Your accountant gets mad. Your business suffers. Keep them happy and your business prospering. Here are five ways to ensure that your business money stays separate from your personal money. Best Practices
1. Keep two bank accounts: a business account and a personal account. This is the basic way you can make sure the money from your life does not get mixed up with your business operations. If you put money into the correct account and take it out of the proper account, you are home free. One of the first things the IRS looks for is a separate business checking account.
2. Have two sets of financial record keeping, one for business, and one for personal. Most small businesses use a system like Quicken, Microsoft Money, or QuickBooks for their accounting. So do many households. Be sure that you keep the record keeping entirely separate. This is essential for tax reporting purposes and also improves your financial organization. If you do not know where the money is going in your business, you cannot tell if you are making a profit. With a complete record from your financial reporting system, everything is in one place, listed by date and category. It makes filling out tax forms easy. If you leave the separating out of expenses, from personal to business, until March or April, you stand a good chance of making mistakes. It also requires major amounts of time that could better be spent running your business.
3. Get a business credit card. Small companies and one-person operations often have trouble qualifying for a business credit card, but keep trying. It is a help for record keeping, gives you proof of expenses when the IRS comes calling, and also builds your business credit history. You can also get a deduction on your taxes with a business credit card from any interest charges.
4. Incorporate. This is the complete way to ensure that your personal and business expenses do not mingle. As a separate legal entity, your business will have its documented life. Two of the most popular and useful incorporation structures for a small business are the LLC and the S corporation. It is best not to do this as a do-it-yourself project. Get a team composed of lawyer, accountant and financial planner to help you decide which form makes the most sense for you business needs.
5. Pay yourself a salary. This is easy if you have incorporated, but is advisable even if you are a sole proprietorship. Pay yourself a wage. Don’t go over that amount with your personal expenses. Exceeding it just encourages you to dip into business funds to pay your current grocery or rent bills. When tax season rolls around, each of these five practices will make filling out forms easy and headache-free. Your company’s finances will be well-organized, enabling you to have a clear view of how it is doing, where the weak spots are, and where it is excelling.

Keeping Your Business & Personal Finances Separate

View Resource Keeping Your Business & Personal Finances Separate
Cash flow is the lifeblood of most businesses. In the ideal world, it circulates smoothly. Customers pay their bills regularly which builds positive cash balances in your books. This cash is the money used to pay your suppliers, employees, and to fund your growth. That in turn, keeps your customers buying and paying. However, there are many twists and turns with the cash flow process. That is why it is important to know how to utilize it best to keep your business solvent and thriving. Basics of Cash Flow and Definitions It is helpful to understand the terms used when accountants, bankers, and business owners talk about the cash flow process.
• Cash flow: Quite simply, this is the way funds move in and out of your company.


• Negative cash flow: This occurs when the cash outflow is greater than that coming in. This typically represents an unsatisfactory situation for any business.


• Positive cash flow: This occurs when cash inflows from sales, accounts receivables, or other sources are greater than cash outflows from salaries, accounts payable, or other expenses. This is a healthy situation for any business.


• Inflow: The movement of funds in to your cash account, usually from sales and accounts receivable.


• Outflow: The movement of funds out of your accounts, usually from payroll, accounts payable, and overhead.


• Cash flow analysis: A process of monitoring expenses and incoming funds to ensure your business has enough cash on hand each month to keep your company operating.


• Profit: At the most basic level, profit equals revenue minus expenses.


• Cash flow gap: When you need more money for current expenses than you have on hand, you have a cash flow gap.


• Successful cash flow management: Keeping cash coming in on a steady, reliable basis, while delaying outflows as long as you can.


• Cash flow worksheet: Represents a way to track your cash flow. Quickbooks and other accounting software make it an easy step-by-step process to put together a cash flow statement.
Comparison of Cash Flow to Profit Profit is different from cash flow. You may realize a healthy profit at year end, yet face an unhealthy cash flow at various times of the year. Understanding your business finances is not as simple as just looking at a profit and loss statement. Fundamentally, profit is simply your revenues minus your expenses. However, cash flow depends on a broad range of factors including:
• Accounts receivable
• Inventory
• Accounts payable
• Capital expenditures
• Debt service
In essence, profit refers to income and expenses at a point in time. It is static in this regard. On the other hand, cash flow is dynamic. It involves the timing of the movement of money in and out of the business. Tips to Improve Cash Flow A healthy cash flow is an integral part of any successful business. Implement these suggestions as applicable to help you manage and improve the cash flow of your business.
• Collect your receivables in a timely manner. Consider using a lockbox from a bank or credit union, to process payments more quickly. Offer discounts for quick payment. Suggest customers use depository transfer or pre-authorized checks.


• Tighten the credit you offer. Research your customers, don’t offer credit to everyone. Ask them to fill out a credit application. Take credit cards.


• Increase your sales. Run a promotion to attract new customers. Offer additional products or services to your current list.


• Apply for a short-term loan if needed.


• Don’t pay all your bills at once. Space them out, according to projected cash flow throughout the month.


• Pay with the cash you have on hand, not on expected sales.


• Don’t use sales tax to pay other bills. This can backfire.


• Consider using a payroll service. They know how to collect and pay payroll taxes, simplifying your business accounting.


• Build a relationship with a bank, credit union, or reputable credit company that provides working capital. Do this before any cash flow gap happens.
Remember, cash flow is the heartbeat of any business, large or small. Monitor it regularly, and do what it takes to keep a smooth flow of money circulating through your company.

Managing Cash Flow

View Resource Managing Cash Flow
Developing and managing budgets can be a tiresome task for both individuals and companies. Without them, however, you do not know how your business is doing. Nor are you able to optimally plan for your business’s future. If you are budgeting by memory rather than pencil and paper, or worrying about payroll from week to week, you may be putting your company in danger. Budgets are a living, breathing part of a successful business if you plan them precisely and revisit them frequently. Use them as a map for the future, as well as a financial journal describing in detail where you have been. Budget Components There are three essential components of any budget:
1. Sales and other revenues


2. Total costs and expenses


3. Profits
Here’s a look at each in more detail.
1. Sales and other revenues
   The more accurate you are with your revenue estimates, the easier your next year’s finances will be. Be conservative as you check over last year’s revenue, evaluate the current economy and the situation of your business.
   If you are a startup, look at the financial health and growth of others in your industry, use your experience, and conduct market research. If you are an established business, use the prior year as a base but adjust for current projections and marketplace conditions.


2. Total costs and expenses
   Next, calculate your total costs of doing business, which includes identifying fixed, variable, and semi-variable expenses.
   Fixed: This includes fixed costs, such as rent, leased items like electronics, heavy equipment, furniture, and insurance.
   Variable costs: These expenses change based on sales. These include raw materials for manufacturing, freight costs and inventory.
   Semi-variable: Salaries, advertising, and telecommunications are typical examples.


3. Profits
   This is why you are in business. Use either of these two formulas to determine if you made a profit:
   Sales = total cost + profit
   Sales – total cost = profit
   If you are a startup, benchmark your profit levels against others in your industry by checking with peers in your field and conducting market research.
   Without a good handle on what your profits will be from year to year, it will be next to impossible to plan for future years. New equipment purchases, a move to a larger location, and the raises and bonuses due your employees will all be dependent on understanding the profit position of your company.
Budget Outlines The goal of identifying a budget outline is twofold. It helps you to find and organize information. A framework that is appropriate for your business will enable you to develop a budget with precise costs and income. Use the same outline from year to year to understand your prior years and help you plan for the next ones. Incorporate these tips when preparing the budget outline for your business.
• Check trade journals and associations to find current industry standards and estimates. The internet and the library are great places to start.


• Utilize a budget spreadsheet that will help you figure out how much you need to allocate for raw materials, rent, taxes, insurance and other expenses.


• Consult with your suppliers if you work in a volatile market.


• Plan it out, month by month, for the calendar year. In addition, include a longer-range version that covers outer years on a quarter by quarter basis. This will be helpful for financial statement reporting.


• Check your budget over and look for areas where you can cut expenses. Look for new suppliers with lower costs. Ask your insurance agent how you can lower your premiums. When you see all the numbers in front of you, in the context of the overall budget, some expenses will stand out as too high. This is the time to look for better deals.
Budgeting Basics and Best Practices There are a number of budgeting best practices you should follow:
• Put your budget together during the last two months of the year at the latest. This allows enough time for research, double checking figures, and discussion. If you prepare your budget too early, your numbers might not be accurate enough. If you do it too late, you won’t have time to make needed adjustments.


• Update your budget each month, with the help of managers and your accountant. Factor in how well you did for the month and what your expenses were. Look at probable sales for the coming month. Be sure to take note of any upcoming expenses that you did not anticipate.


• Make changes like altering your staffing schedule to match market conditions. Try different actions that can help your bottom line. Perhaps you can speed up payment from clients as a way to improve cash flow.


• Link performance bonuses for your staff directly to the budget. This gives each eligible person a reason to keep the needs of the business front and center when making decisions during the month.


• Adjust the budget and account for changes you hadn’t anticipated. If a significant client cuts back on his orders or if a supplier suddenly has a slowdown in deliveries, you need to act quickly to keep your budget in equilibrium. In other words, just like your business, your budget isn’t static.


• Always check your budget before making a significant expenditure. One of the most helpful aspects of an up-to-date budget is reducing risk. It will tell you if you can afford to buy a new piece of machinery or sign a lease.
Every company needs to spend time developing and updating their budget throughout the year. Your investors and lenders will want to review it if you are looking for an infusion of capital. Your budget helps you to manage cash flow and keep up with payments to employees, vendors, and suppliers. Most importantly, it can help you plan — and realize — future growth and profits.

The Basics of Budgeting

View Resource The Basics of Budgeting