Why is the business plan so important
A Business Plan

Do you have a business plan? Why is the business plan so important? If you have a business you have a starting point you have direction you have focus. Without a business plan you may not have considered all the important factors that can affect your business success or failure.

Business plans do more than set you on course they make you aware of all the things you may not have considered.    When writing your business plan start with the easy information and work your way through it.  Don’t look at the plan as a whole but start by breaking it down. 

Your company information is your first step.  Your legal description, your history and your start up plans is what you will put in your company information section.  Your product and/or service information is next.  What will you sell, where will your revenue come from?  This section will help you develop your ideas and possibly make you think about things you hadn’t considered.  At this point you may add other products/services or focus your business in other areas.

Market Analysis – have you done your research?  Who will your customers be?  What are your customer’s needs, how will you find your customers?  Knowing who you will be selling to and why they would want what you are offering will help you realize the potential demand for your product.  At this point being realistic about you products and services will help you understand why you may or may not be successful in getting those sales.

Strategy and Implementation – what are the management responsibilities, do you have a timeline or specific dates for rolling out the start up and continuation of your business.  Do you have a budget that corresponds to a timeline in your business?  Do you have a guideline to measure how you will get from point A to B and the costs associated with it?

Web Plan Summary – do you have an e-commerce plan?  Have you considered the cost of a website and the type of website to best promote your business?  How does your sales and marketing, operations, tie into your e-commerce plan?  What is your marketing plan?

Management Team – who are the key management people and what skills and experience do they have to carry out the plans of this business?  What is their roll and how will they help your business move forward.

Financial Analysis – have you created a financial budget, cash flow statement, projected income statements, to understand how your business will get started and continue to operate. 

Executive Summary – the executive summary is presented at the beginning of your Business Plan however it is generally written after you have finished all other sections of your plan.  There are several websites that can offer assistance in writing your plan and there is a vast amount of information to guide you through the process. 

A Business Plan will help you develop your business idea and in some cases make you realize you shouldn’t move forward with your idea at all.  Creating a business plan is a valuable exercise in developing your business idea and in helping you determine your potential success by pushing you to understand all aspects of your business.

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Managing your cliens
Client Relationships

How well do you manage your client relationships? How important is your relationship with your customers? Do you have a client relationship management system – a CRM? Do you need one?  There are several types of client relationship scenarios to consider however they all boil down to keeping your customer happy if you want them to return to do business with you.

For many face to face customer sales like retail type stores what matters most is the type of customer service your client receives.  No fancy database systems are required you don’t need to know a great deal about your client.  Although you may not need to know a lot about your client you want your client to know about your business and encourage your customer to receive information on upcoming deals you have to offer.  The great news is you don’t need a special software program to do this you just need your client’s email address and/or a facebook page.

For business to business transactions it’s not quite as simple.  A CRM – Client Relationship Management system can be used to track sales activity.  You set your clients up by some grouping protocol and you enter into the system every phone call, email, meeting, information package sent, conversations, future call times and meeting dates, and anything else you need to know about your client.  Not only can you keep track of everything that has transpired between you and your client so can your company.  It is an almost seamless process for tracking relationships with clients so anyone in the company can access the client information.

With your CRM system you can add invoicing and billing information, contract details, payment methods, contract amounts, probability of securing sales, at which stage of the sales funnel you are at and personal details like birthdays. Not all business to business relationships require this type of information.  Smaller systems like invoicing systems or financial software that include a client or accounts receivable module may be all you require.  Even a paper filing system can be used to track your client information.

Regardless of the type of client relationship system you use the service you provide your customers is the important factor in retaining your customer’s business.  Without your client’s continual support you will find all customer relationship systems cumbersome and ineffective.

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You can become more profitable without increasing sales
Increasing your Profitability

2 ways to increase your profitability in business – cuts costs or increase sales revenue. It’s not as simple as making more sales as generally making more sales leads to an increase in costs. Are you looking to increase the dollar value of monthly sales or increase the profitability margin on your sales? 

You can become more profitable without increasing sales if you are not as efficient as you could be.  When you start to look at your expenses you will see expenses that you could cut and still function in the same manner.  When you start to question your current processes and how you to change things to become more efficient or to eliminate waste you will be surprised on the improvements you can make.

To start take a look at one process or one thing that your business could do without or could do better.  Whether it’s cutting time from a process, combining steps in a process, processing multiple items at a time, there is a way to become more efficient.  Sometimes hiring a person with a higher level of skill can be brought in and increase the flow and effectiveness of a process.

New employees bring in a new perspective they don’t have the same tunnel vision that you and the present staff do.  Because they don’t know “this is the way it’s always be done” new employees inadvertently do things differently – they may have learned a better way at a prior employer.  Innovation is the art of making things work better and when the old ways aren’t working being open minded and accepting of new ideas can take your business to a new profitability level. When you successfully find new ways of becoming more efficient these new efficiencies are reflected in your profitability. 

Increasing sales generally increases costs because more time must be spent on generating these new sales.  Fixed costs like rent do not change with the increase in sales so overall profitability will increase unless new costs like more staff hired is incurred without the increase in sales.  Getting existing staff to increase sales revenue without incurring more overhead will incrementally increase sales revenue with few expenses.  What will it cost you to get existing staff to work harder to get more sales?

There may be some alternatives or better approaches to the way you make your sales.  By taking the time to review your sales approach and your marketing techniques there may be some changes you can make to increase your sales while reducing or maintaining your costs. 

How to find new ways to becoming more efficient and better at your sales approach, ask you employees, use the internet to find ideas – blogs, marketing websites, competitors, business associates, books, you will find solutions everywhere all you have to do is ask the questions and look for solutions.

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Financial software packages include invoicing options
Invoicing Systems

How do you decide on what type of invoicing system you need? There are many factors to consider when deciding on an invoicing system. Who will be responsible for the invoicing? If you are a small business, a consultant or a one person company you will likely be the one doing the invoicing.  Will you buy an invoice book and scribble up an invoice – depends on the type of business you run and the level of professionalism you require.

What is your level of computer skill or the level of computer skill for the person responsible for the invoices?  If you prefer a computer generated invoice over a hand scribbled invoice you need to consider what your level of computer literacy is.  Creating invoices requires more skill than entering numbers into a template.  Once you create an invoice how do you save & file it?  Do you understand how to file documents in a computer system?  Understanding how to file documents is one of the first lessons they teach in a computer class.  Without understanding how computers file you will likely create an invoice that gets filed where you will never find it.

Invoices can be created using a spreadsheet or a word document program if you know how to use these types of software in addition to understanding how to file your documents once completed.

Financial software packages include invoicing options.  You can create invoices, set up clients, run reports etc.  Financial Software packages must be installed and set up to perform these functions.  If you do not have the skills to set up a system you can hire someone to set up your package and train you how to use it.  Ensure they teach you how to back your system up should your system crash and you lose all your data.

Depending on what type of invoicing you require and your computer skill there are other options besides financial software packages and spreadsheet and word document programs.  An online invoicing system is a system that requires less computerized training and looks after the filing system for you.  Because the system is already set up there is no installation or backup system required.  Generally signing up and data entry are the only requirements for an online invoicing system.

If you require an invoicing system or your computer skills are questionable an online invoicing system is the perfect solution for you.  Take the Start Invoicing Tour to find out how you can start creating invoices now.

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Are you an entrepreneur
Before You Launch a Business

You want to start a business but have you done your research? Before you start your business you must do some planning. Understanding your role and responsibilities as an entrepreneur will go a long way in helping you to decide if this is really for you.

Are you an entrepreneur?  Are you an enterprising individual who builds capital through risk and/or initiative?  Is your experience, attitude, goals and lifestyle compatible with owning your own business?  Do you like to take on new projects, are you at ease in difficult situations, do you enjoy challenges, are you effective in stressful situations, are you self motivated, do you take action, do you want to be your own boss – these are just some of the things you need to succeed in running your own business.

One of the benefits of entrepreneurship is you get to take an idea from inception to final delivery.  Being the boss, making the decisions, having the final say on something, creating policies and procedures, making the rules, choosing the location, company setup, all come from you.  Having the potential to earn more, work less, involvement in all areas of the company, and creating a family asset are all benefits of owning your own business.

Have you done your research on business survival rates, and how many competitors there are?  What are your odds of success and what do you have that will help your business succeed where others may have failed.

Have you done a business plan?  A business plan can help you answer many questions you may not have even considered.  A business plan outlines your business strategy, a marketing plan, an operational plan, swot analysis – strength, weaknesses, opportunities, and threats, a human resource plan, your social responsibilities, your technology plan, and your financial information plan.

Is there a need for your business?  Research and statistics can help you determine whether there is a need, is there a market, what about labour requirements, do you know the demographic you will be marketing to, have you considered the economy, international and local markets, importing and exporting, and will you have any impact on the environment.  There are many places to find information to help you find answers to all your questions.

Will you start your own business or purchase an existing business?  There may be many factors to consider when answering this question.  There will be both pros and cons to both scenarios and ultimately cost and other considerations will determine your decision.  Will you have a proprietorship, partnership, or corporation?  Many components in your business will help you determine the best structure to choose and when in doubt consult an expert to help you decide.

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Ways to manage accounts receivables
Management of Accounts Receivable

You’ve made the sale you’ve invoiced your customer and have granted them some form of credit if they’re not paying at the time of delivery. There is an opportunity cost in carrying accounts receivable. By delaying the collection of monies owed you are carrying the debt of your customers. The benefits derived from carrying your customer’s debt is the sale of your goods and services and ultimately your profitability.

Before offering to carry your customer’s debt you must first determine the credit worthiness of your customer.  A credit analysis will help you determine who is worthy and can be trusted to pay and those who are a credit risk.  Gathering information about your customer and setting the credit terms are part of the process.  Credit terms include the amount of credit to be extended and the payment terms as to how much and how often payments will be made.

Another way of managing accounts receivable is to offer cash discounts.  By offering discounts on early payment you are receiving your payments earlier and reducing your risk of non payment.  The early payment allows you to utilize the cash sooner however the discount reduces your profitability. 

Collection procedures for overdue accounts are a sensitive issue between supplier-customer.  By communicating with your customers and understanding their payment regularity you will find a better balance in time spent on following up on overdue accounts.  When accounts do become overdue work with your customers to set up a plan where you can ensure payment.  Customers want to pay their bills just like you do however there are times when your customer may have cash flow issues.

Generally customers are not paying their invoices because they never received or misplaced the invoice so they are unaware that it exists or hasn’t been paid.  In the event your customer is unhappy about the product or service they sometimes withhold payment to get your attention.  Once they have your attention and you are calling for payment the customer will then voice their displeasure and will negotiate a satisfactory outcome or further discussion may be needed to secure payment.

If your customer is having short term cash flow issues it may be better for future considerations to hold back on aggressive collection procedures.  Determine the collection effort needed, the time and energy as well as other resources and costs before moving into a collection process that may end up costing you more than the receivable is worth.  Managing your accounts receivable by setting up procedures will help to reduce time spent on following up on outstanding invoices.

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Business budget tools

A business budget is one of the best tools a company can use to forecast the future and determine how well they are performing in contrast to how they planned to perform.  Creating a budget is similar to creating future goals it starts with forecasting into the future in a small way and gradually builds on those plans.

If you have never created a budget you may not know how or where to start.  So start with something you know.  If you have rent to pay every month you will have a cash outflow for the rent.  If you have other monthly obligations add those to your budget.  Now you have a starting point – you have a list of financial obligations.  Now how will you pay those obligations?

If you will be paying these obligations from your monthly sales revenue how will you know what those revenues will be?  If you have monthly contracts that are invoiced to clients then you know what your existing revenues are.   If you have a sales forecast report you could use the numbers from this report to add to your budgeted revenues.  Your budget would show existing incoming cash flow revenues and expected cash inflows based on the probability of the new sales.

For retail type stores you would use prior sales data to forecast new sales information.  Budgets are best guess scenarios when there are no absolute numbers to correlate to.  Best guess numbers are based on past data and incorporate the likelihood of success based on variables that affect your particular business.  Weather, the economy, competition, expectations of seasonal changes, sports events, etc may impact your level of sales and you must adjust your best guess numbers on the variables that affect your revenues.

Your costs may fluctuate based on the number of sales.  Fixed costs like rent will not change however things like sales commission, inventory costs, and other variable costs will change in relation to the change in sales.

Budgeting and forecasting the future will help you to understand any changes you need to make to ensure your business viability.  A Cash Flow Report can help you in creating your budget as you already know the expected cash inflows and outflows.  A budget will build on this and create a more comprehensive picture of how well your business will progress in the future and to your probability of business success.

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Small Business - Financial Liabilities

Liabilities are legal debts or obligations incurred by a business through a past transaction. Liabilities of a business are reported on the Balance Sheet and will be settled over time with the transfer of an economic benefit like money or goods and services. There are various types of liabilities and each type is classified into either a Current or Noncurrent liability.

Current Liabilities are short term liabilities that will be paid within one year from date of inception.  Some current liabilities include wages, taxes, accounts payable, short term notes payable, and interest payable.

Long-Term Liabilities are noncurrent and will not be paid within one year.  Typical long-term liabilities are for major business expansions, business purchases, and major asset purchases that require longer periods of time to repay.  These liabilities are set up as mortgages, notes payable, lease obligations, deferred taxes, pensions, etc.

A Trade or Account Payable is a common liability that has resulted from the receipt of some form of good and the payment of the good has not yet been made.  The outstanding payment is set up as an Account or Trade Payable and is generally payable to a supplier, vendor, creditor, or lender.  Typically a supplier invoice is received for purchases of goods or services and is entered into accounting software and sits in the system until a payment is issued.

Another type of liability is a Contingent Liability where there is a possibility of a liability arising from a transaction or event that has already occurred.  Contingent liabilities occur when a possible legal action or lawsuit has been taken against a company and there is a possibility of a financial obligation.  The amount of the obligation is not apparent but the potential liability must be reported in the notes of the financial statements.

The liabilities section on the Balance Sheet is an important section in understanding how a company is performing.   A Current Ratio or Working Capital Ratio compares current assets to current liabilities. This ratio measures whether a business has the ability to pay its shorter term liabilities. A ratio of 2:1 is generally considered acceptable and means for every $2 of assets there is $1 of liabilities.

The Quick Ratio or commonly called the Acid Test Ratio compares current assets which are easily converted to cash to pay current liabilities. This test assesses whether your business can repay its current liabilities immediately. A ratio of less than 1:1 indicates that it cannot.

By utilizing a Cash Flow report you will already understand whether you have the funds or will have the future funds to meet your financial obligations for your liabilities. Staying on top of your incoming funds like your Customer Invoicing and receivables will help keep your ratios in check.  If you can’t pay your liabilities your business could be heading for financial failure as your suppliers will not continue to provide goods and services when your bills go unpaid.

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Year-End Accounting
Year-End Accounting

How do you prepare for your fiscal year-end? Every business has one and they don’t all end with the calendar year. If you are the type of business that has a month-end process each month or even a quarter-end process you are on your way to a smoother year-end.  If you have investor or bank requirements for monthly or quarterly financial statements you will already have a process in place.

One of the first places to start in a month or year-end process is with the bank reconciliation.  Reconciling your monthly bank statements to your general ledger in your financial accounting software will help you to ensure all items that have cleared your bank have been properly accounted for.  Any methods for payment including all bank accounts, personal cash payments, credit card payments, payments from other companies you may have all need to be reconciled to process all expenses to your company general ledger.

Outstanding Accounts Receivable will need to be reviewed for accuracy to ensure all payments received have been applied against invoices.  Year-end is the perfect time to review customer accounts and recognize uncollectible accounts, incorrect invoicing, and to clean up the accounts receivable so the new fiscal year starts fresh.

When preparing your year-end to give to your Tax Accountant you should supply backup for any balance sheet accounts.  Once your bank account is reconciled you will provide a copy of the bank reconciliation in your year-end file.  The dollar amount reported on your financial statements for your Fixed Assets like Furniture should have an invoice to back up/verify the amount on your financial statements.  By preparing a file for year-end with all your working papers – document verifications/invoices you will save your accountant time in trying to locate something to substantiate your numbers.

Preparing backup verification files for all Assets listed and a file for all Liabilities listed on your financial statements will help your year-end process run smoother.  As with your Accounts Receivable this would be a good time to clean up your Outstanding Accounts Payable.  Ensure you have entered all the invoices you know should be expensed in the fiscal year and if you are missing some invoices call your suppliers and get copies.  Provide copies of invoices to verify the Outstanding Accounts Payable for any large dollar invoices as well as an AP listing to verify what makes up the amount on the balance sheet.  For any unpaid over 90 days invoices that may be in dispute provide this information to your accountant.

Year-end is also a great time to visually scan all expense accounts to ensure no expenses were double posted or posted incorrectly.  Reviewing payroll, tax remittances, contracts etc can be part of the process to ensure all internal procedures are being followed.  Year-end is the time to clean up and take care of loose ends and to make sure you have accounted properly for your sales and expenses.  This is your time to get a good look at what you have accomplished for the year and to move forward with changes in the New Year.

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Profitability in accounting
Profitability and Profit Margins

Profitability in accounting is the difference between the customer purchase price and the cost of bringing the product or service to market. Profitability ratios report a company’s performance and overall efficiency.  There are several parties interested in the profitability of a company including any investors, lenders, owners, employees, competitors and suppliers as each has a vested interest in the future viability of the company.

Investors want to ensure they receive a return on their investment and that they don’t lose their initial investment.  Lenders like banks that have a stake in the business have lent the business funds to operate or purchase assets and they want to ensure they don’t lose those funds.  The owners are in business to make a profit or a living by doing something they invest their time and energy into.  Employees want to ensure their future is not in jeopardy by dedicating themselves to a company that won’t be around in the future.  Competitors are always watching a business they compete with so they don’t lose their share of the market and by understanding a profitable or unprofitable business they can see what is working or what is not working.  Suppliers have a vested interest in a business they provide goods and services to especially when they have they have extended credit.

One unprofitable business can affect the future of many other businesses and lives.  There are many telltale signs of how well a company is performing without looking at financial statements.  Understanding the signs or knowing the signs is not considered rocket science.  If you have ever been to a business where the service was so bad you wondered how the owners were still in business you have likely been to a business that didn’t care about profitability.  A business that mistreats their employees doesn’t understand the impact their employees have on profitability.  A lack of products, overpriced products for the market the business is serving, a poor location, an unappealing space all have an impact on profitability.  A business name can also negatively impact the profitability of the business.

Although you cannot tell how profitable a business is you can see the effects of a business that is under performing.  A business may seem to be doing well but it may owner investment that is carrying a company and not the customer sales.  For any business to succeed a demand for products or services is required.  The margin of profitability is determined by many factors some directly requiring an outlay of funds and others that have a direct relationship to generating more sales.  Whether it’s increasing sales or reducing costs there are many variables involved in the overall profitability of a business it’s not always as simple as buying a widget for $1 and selling it for $2.

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