Home Business Financial Planning

Begin your financial planning by estimating your initial or start-up costs. Include all items of a nonrecurring nature such as fees, licenses, permits, franchise fees, insurance, telephone deposit, tools, equipment, office supplies, fixtures, installation of fixtures and equipment, remodeling and decorating, funds for your opening promotional event if you plan to have one, signs, and, of course, professional fees for your attorney and accountant.

Depending on your type of operation, the amount of money you invest, and the energy you expect to put in (part-time to full-time) can determine how much working capital you will need. Many business experts say if you expect  profit in six months, double that time and be ready to operate without profits for twelve months to give yourself a cushion in case of unanticipated expenses or delays. Study the growth patterns of other similar business and ask for advice from your accountant and attorney.

Projecting Operating Income and Expenses

Next, estimate the "working" capital you will need to keep operating for six to twelve months. Operating expenses include salaries; expenses for telephone, light, heat, office supplies, and other supplies or materials; debt interest; advertising fees; maintenance costs; taxes; legal and accounting fees; insurance fees; business membership fees; and special services expenses, such as secretarial, copying, and delivery service.

It is a good idea to obtain typical operating ratios for the kind of business in which you are interested. Among the sources for such ratios are Robert Morris Associates, Dun & Bradstreet, Inc., the Accounting Corporation of America, trade associations, publishers of trade magazines, specialized accounting firms, industrial companies (for example, National Cash Register Co.), and colleges and universities. The typical ratios for your type of business combined with your estimated sales volume will serve as benchmarks for estimating the various items of expense. However, do not rely exclusively on this method for estimating each expense item. Modify these estimates through investigation and quotations in the particular market area where you plan to operate.

In addition to business operating capital, you will need to plan for reserve capital to cover personal expenses. This estimate will include all your normal living expenses, such as food, household expenses, car payments, rent or mortgage, clothing, medical expenses, entertainment, and taxes for you and your family.

After you have estimated start-up costs, working or operating capital needed for six to twelve months, and personal expenses and obligations, you may see that you need more start-up capital than you thought. What will you do? Discuss this with your accountant, attorney, and trusted business associates and family. Entrepreneurs secure needed capital in a variety of ways. You can:

* Get loans or gifts from family members or friends. Make businesslike, written agreements and be sure to disclose fully the potential risk as well as the possible profit.

* Apply for a bank loan. For this you will need a comprehensive statement of your personal financial condition and a business plan with financial projections to present to the loan officer. If you need help in preparing your loan application, take a course for small business people at a local community college or visit your nearest SBA office to get assistance from a SCORE counselor.

* Apply for an SBA loan guarantee. The SBA is not a bank, but it does extend guarantees and may rarely participate in a loan when the bank is unable or unwilling to provide the entire financing itself. The SBA loan officer will ask you the same hard questions as a loan officer in a commercial bank and require the same carefully considered data on your personal finances, start-up costs, and business projections.

If you manage a factory, wholesale outlet, retail store, Service shop, or are a builder, you'll need to sell. However good your
product is, no matter what customers think of it, you must sell to endure.

Direct selling methods are through personal sales efforts, Advertising and, for most companies, display - like the styling and
packaging of the item itself - in windows, at the establishment, or even both. Establishing a good reputation with the general
public through courtesy and special services is an indirect process of selling. While the latter should never be neglected, this
brief discussion will be confined to direct marketing methods.

To establish Your Company on a firm footing requires a great deal Of aggressive personal selling. You might have established
competition to conquer. Or, if your thought is fresh with little or no competition, you have the additional difficulty of
convincing people of the value of the new idea. Personal selling work is almost always necessary to accomplish this. If you aren't
a good salesperson, seek a worker or asociate who's.

Another way to build sales is by advertising. This may be achieved Through papers, shopping newspapers, the yellow pages section
of the phone directory, along with other published periodicals; radio and tv; handbills, and direct email. The media you select,
as well as the message and kind of presentation, depends upon the particular customers you wish to attain. Plan and prepare
advertisements carefully, or it'll be ineffective. Most media will be able to describe the features of their audience (readers,
listeners, etc.). Ever since your first planning described the characteristics of your potential clients, you want to match these
features with the media crowd. If you're selling expensive jewelry, then don't market in high school newspapers. Should you fix
bicycles, you probably need to.

Advertising can be very expensive. It Is a Good Idea to place a limit upon An amount to invest, then stay within that limit. To
help you in determining how much to spend, study the operating ratios of similar companies. Media advertising salespeople can
allow you to plan and also prepare ads for you. Be sure to tell them your budget limitations.

A third method of stimulating sales is successful displays both in Your place of business and outside it. If you have had no prior
experience in display function, you are going to want to study the subject or turn the job over to somebody else. Watch screens of
different businesses and read novels, trade magazines, as well as the literature supplied by equipment manufacturers. It may be
smart to employ a display expert for your opening screen and unique occasions, or you could get the help of one on a part time
basis. Much is dependent on your type of business and what it takes.

The appropriate number and types of marketing campaign to use vary from business to business and from owner to owner. Some
companies prosper with low-key revenue efforts. Others, such as the used-car lots, thrive on competitive, hoop-la promotions. In
any case, the importance of effective selling can't be over-emphasized.

On the other hand, do not Eliminate sight of your Key goal - to Earn a profit. Everyone can generate a large sales volume selling
dollar bills for ninety bucks. But that will not last long. Keep control of your own costs, and price your product carefully.

Record Keeping. One essential element of business management is the keeping of adequate records. Study after study shows that many
supervisor failures could be attributed to insufficient records or the proprietor's failure to use what information was available
to him. Without documents, the businessperson cannot see in advance that way the company is going. Up-to-date records may predict
impending disaster, forewarning you to take steps to prevent it. While additional work must keep an adequate set of records, you
will be more than paid for the effort and cost.

If you are not prepared to keep adequate records - or have someone Keep them for you - you should not try to operate a small
business. At a minimum, records are Required to substantiate:

1. Your yields under tax laws, including income tax and social Security legislation;

2. Your request for credit from equipment makers or a loan From a bank;

3. Your claims about the company, in case you wish to market it.

However, most important, you need them to run your business successfully And to increase your profits. Having an adequate. Yet
simple, accounting system you may answer such questions as:

How much company I doing? What are my costs? Which seem to be too high? What is my gross Profit margin? My net profit? How much am
I collecting on my charge business? What's the state of my operating capital? How much cash do I have on hand? How much in your
bank? How much do I owe my Providers? What is my net worth? That is, What's the worth of my ownership of The enterprise? What are
the trends in my Receipts, expenses, gains, and net worth? Is my financial situation improving Or growing worse? How can my assets
compare with what I owe? What's the Percent of return on my investment? How many cents from every dollar of Earnings are net
profit? Answer these and other questions by planning and studying balance sheets and profit-and-loss statements. To do this, it's
Important that you record information about trades as they happen. Maintain This data in a detailed and orderly fashion and you'll
be able to answer the above questions. You'll Also have the answers to these other vital questions About your business as: What
products or services do my clients like best? Next best? Not at all? Can I take the product most frequently asked? Am I Qualified
to render the professional services that they need most? How many of my charge Customers are slow payers? Shall I change to cash
only, or use a credit card Charge plan?

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