Archive for the ‘Financial Management’ Category:
I saw this posting recently, “Tax Hell: Our Accountant’s Mistake Almost Ruined our Business,” and was reminded of one of the things we stress in the LaunchX System. That no matter whether you plan to do accounting in-house with hired staff or outsource to a professional accountant, that it is still your business, and you must understand the details of how things are set up, where costs are coded, and what those pesky financial statements actually mean.
In this example, the business owners almost lost their entire business due to a mistake by an outside accountant that caused a huge tax bill that they couldn’t pay in one payment. It took almost two years for the original mistake to be identified and corrected, however, their business had suffered from reduced business credit, a much tighter cash flow, and reduced lines of credit from their bank.
It is easy when starting a business, and seems efficient, to do some research, hire an accountant, and then put the details of the finances in their hands. After all, they are the experts in all things accounting and you, well, are not. Unfortunately, they are also people who can make mistakes, use software that makes mistakes, and just plain drop the ball. As the business owner, it is imperative that you understand the fundamentals of accounting prior to hiring an accountant or accounting firm, and then keep an eye on all the details after they are hired.
The owner in this example, Diane Carrier, now says, “I’m done relying on financial people to take care of things completely for me. Now I know every dollar that comes into and out of our business.” Sound financial advice from the school of experience!
Starting a Business? Start Here. Go Far. LaunchX.com
This recent press release from the South Texas RCIC reminded me of the various state and local government programs that may be available to business startups and early-stage businesses.
The STRCIC is a 501(c) (3) non-profit corporation that works to identify technology-based entrepreneurial ventures, increase cooperation between industrial, financial, and Institutions of Higher Education and encourage the formation of commercial enterprises based on advanced technologies. As a resource to its client companies, the STRCIC has a full-time staff, experienced volunteers and a strong collaborative partner organization. For detailed information about the Emerging Technology Fund and the South Texas RCIC, visit the web site www.strcic.com. To date, the TETF has allocated more than $130 million in funds to 102 early stage companies, and $153 million in grant matching and research superiority funds to Texas universities.
When you are searching for funding to either start a business or to expand your current business, don’t neglect to search for state and local economic development entities like the STRCIC that may have access to funding programs that you qualify for.
Starting a Business? Start Here. Go Far. LaunchX.com
In honor of Tax Day, here are some helpful hints on recordkeeping from the IRS.
There are many records you have that may help document items on your tax return. You’ll need this documentation should the IRS select your return for examination. Here are five tips from the IRS about keeping good records.
- Normally, tax records should be kept for three years.
- Some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.
- In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return.
- Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Starting a Business? Start Here. Go Far. LaunchX.com
I recently read this article at Entrepreneur.com and was struck by one of the “flubs” cited by the featured startup. #2 was “Instead of setting up a business account, they used their own money and ended up with an accounting mess.” This is so easy to do when starting a business. You start using your own cash in the very beginning, since you may not have your entity registered yet and can’t open a business account. However, opening your business bank account and setting up your accounting software should happen immediately after you have your entity registered. Don’t wait!
Mingling personal and business funds can cause all kinds of headaches — from not knowing exactly how much you have put into the business, not knowing how much you have spent, and not having accurate records at tax time. If your business is based on a partnership, these headaches are multiplied exponentially…leading to disagreements as to how much each partner has contributed and how much each deserves.
Using a real business accounting software from the beginning helps you keep track of all your income and expenses, all your owner contributions, and makes growth so much easier. We include Peachtree Accounting as a part of the LaunchX System (a complete business startup kit) because getting your finances in order from the beginning is so important, and Peachtree allows for easy, GAAP compliant growth.
Starting a Business? Start Here. Go Far. LaunchX.com
Just came across this article How To Calculate A Return On Investment – ROI Calculation at Entrepreneur.com. Calculating ROI is one of the startup financial calculations that is easily mis-calculated and mis-stated. Use this quick and dirty calculation to estimate the ROI for your startup or to evaluate the plans of people requesting an investment in their startup.
Starting a Business? Start Here. Go Far. LaunchX.com
One metric that every business should know is the cost to gain a new customer. This is important because it lets you determine if your marketing efforts are cost-effective or if they need to be changed. It can also let you know if you can lower (or need to increase) your prices based on the cost of making that sale.
To calculate the cost per customer, you will need to know exactly how much you spend on sales and marketing (preferably by source) and how many new and returning customers you get from each source. For example, if you spend $500 on per-click advertising and get 25 new customers and 25 returning customers (ask them during checkout how they heard of you), then your cost per customer is $10. This is great if you make an average profit of $1,000 per customer, not so good if the average profit per customer is $5.
Keeping track of cost per customer by marketing source will help you manage your marketing budget and focus your resources on the avenues that will give you the best bang for your buck!
Starting a Business? Start Here. Go Far.
Everyone wants to know how long it will take to be making the big money before they decide to launch a business. And, there are hundreds of scam get-rich-quick programs out there ready to exploit that concern. They claim you can turn $500 and no work into thousands of dollars per week, and it will happen immediately! Of course, that’s not true (99% of people who buy into MLMs and no-work programs never even recover their minimal investment), but thousands of Americans throw away perfectly good startup cash on these “opportunities” every day. Still, these folks do have it half right – entrepreneurship is just about the only way to increase your personal wealth. But you have to do it the right way.
The amount of time it will take to turn a profit at all, much less become rich, depends entirely on a series of factors. The product and market are major factors. If your offering is brand new, it will take some time to convince people to try it. If you are entering a crowded market, your customers already know they need the product. You just have to convince the market to try your improved version – much easier and faster than starting from scratch. The amount of resources you are willing to commit is another major factor. Startups require significant time and money to get off the ground, and having less of one means you need more of the other. If you are starting part-time, it will take far longer to grow than if you can commit most of your time to the business. If you have to bootstrap your expenses as you go, it will require more work and more time than if you have deep pockets of startup capital. Other factors include the specific setup requirements of your business idea, how much capital you need to launch (and where you will get it), and your marketing plan (if you will rely on print ads in magazines, there is generally a several-month lead time), among other things.
To figure out how long YOUR business idea will take to become profitable, you need to thoroughly plan out your startup idea. A good plan will take into account your product’s place in its life cycle, the behavior of your target market, your own resources, your marketing plan and schedule, your sales and financial forecasts, and dozens of other details that, when taken together, will give you a pretty good road map of where your startup is going and how long it will take to get there. While you are not likely to get rich overnight, every day you put off getting started is another day you aren’t headed in the right direction. Remember, time is going to go by whether or not you launch your business idea…so you might as well jump on the road to success today!
The LaunchX System is designed to speed the startup process, and the one-on-one coaching that comes included with every LaunchX package will keep you on track and motivated. Don’t wait to start your road map to success, and let LaunchX show you the way.
Start Here. Go Far. LaunchX.com.
Successful entrepreneurs are creative. From finding the right niche to innovating marketing techniques, thinking outside of the box is often the difference between those who make it on their own and those who fail. That creativity is necessary from the start. An enormous number of would-be entrepreneurs claim to have a great business idea but NO money to fund the startup. You cannot launch a successful business with NO money, but you can find creative ways to find the cash you need to succeed.
In our experience, those who claim to have no cash or access to cash haven’t really looked that hard. The first thing to do is look at your current income and expenses. There are ways to cut costs – eat out less, cut out the premium cable channels, reduce the minutes on your cell phone plan. If you just can’t see any way to cut, you aren’t looking hard enough. Keep track of everything you spend for a week – you’d be shocked at how much cash is spent outside the things you actually need. What if your salary was cut in half today? What would you cut out then? If you are serious about starting a business, take a long, hard look at your current expenses and develop a plan for cutting costs. That’s right, set an actual budget, with money set aside for your startup, and stick to it. If you can’t find the drive to do that, running your own business properly will be too much.
Once your budget is set, consider what you would do if your car blew up or your television broke…where would you find the money to fix those? If you have a way to cover those expenses, you can find the money to plan your business the right way – the way that reduces risk and all but guarantees long-term success. Look around your house for things you don’t need. Craig’s List and Ebay offer great opportunities to unload your junk and make a little cash. Think about your own skills. Are there any side jobs you can do to bring in extra cash? What about a part-time job? Can you fit a night or two per week into your schedule to earn money for your startup?
Entrepreneurs have all kinds of stories about the great lengths they have gone to scrape together capital. One former business executive was so dedicated to going out on his own that he mowed lawns during the planning stage to stay afloat. Another provided tutoring to a few neighborhood kids. One family held a yard sale and traded everything they did not use or could replace for their company’s seed money. Still another asked every person he knew to lend him $100, to be paid back in one year at $110. Not only did he raise enough to buy the tools to plan his business the right way, he also found an amazing support system of people who wanted to see him succeed…and ultimately one of the $100 investors decided to fully finance his well-planned, viable startup!
If you have a great idea and are serious about starting your own business, you will find a way to get it done. Every aspect of a startup requires creativity, commitment, and sacrifice from the entrepreneur, and the first steps are no different.
Verizon Wireless is aggressively marketing their new MIFI product – a portable wireless internet hotspot that can link up to five laptops on the go. A very cool product and definitely an excellent purchase for many types of businesses. However, their latest commercial features a catering company as the example of how this gadget can help small business. A catering company? I can’t even imagine a situation where five employees of a catering service would need to be online in the same room. What are they doing, checking the Top Chef website for recipes? I can tell you that if I hired a caterer and found five of them playing Mafia Wars in my kitchen, I would be one unsatisfied customer.
The point is that just because cool gadgets exist, it does not mean they are right for your business. Entrepreneurs do tend to be on the leading edge of technology and innovation, but if it doesn’t improve your bottom line, you don’t need to waste precious capital on it. Once your company has grown into a bloated corporation with too much profit to spend, then you can splurge on the unnecessary but fun toys. But the only way to get there is to watch the pennies. For those of you looking forward to the top-of-the-line lifestyle that comes with entrepreneurial success, keep in mind that the work has to be done to get you there. This means you are probably stuck with your three-year-old flip phone and six-year-old pickup for now. However, by restraining yourself from falling for the convincing ad telling you that your entire culinary staff needs wireless internet access now, you have a much better chance of actually building that thriving company.
Startups do require you to spend money, but the money should be spent sensibly. Before you make any purchase, objectively consider the value it adds to your bottom line. If it doesn’t make your venture better, faster, or stronger, you can probably add that item to your wishlist. Caterers with MIFI…can you think of a less sensible way to spend your startup budget?
Start here. Go far. LaunchX.com
With the bleak employment outlook extending well in to 2010, there will undoubtedly be extra federal dollars pouring in to economic development not-for-profits (NFPs) and SBAs near you. No question, the next six to twelve months are an excellent time to launch your great business idea, and the extra cash likely to be distributed by the government will make for some great opportunities. If you are planning to take advantage, you need to begin preparing now.
A good idea, by itself, won’t even get you in the door. To qualify for grants or loans through any NFP or SBA program, you must have two things – decent credit and a well-developed business plan. The SBA requirements on credit score are very stringent and, with most SBA programs, you still have to find a bank to loan you the cash. Each local NFP is likely to have their own standards, but in order to get the federal money in the first place, they are often required to have strict credit policies for direct grants as well. If your credit score is abysmal, you are not likely to qualify, no matter how good your idea is. The first thing to do is pull your free annual credit reports from each of the three credit reporting agencies. You can order them once per year at www. annualcreditreport.com. Review the entire report for errors and dispute them immediately. If you have multiple negative entries, you can try to fight them through the basic disputing methods and sometimes it will work (if the company can’t verify the debt, if there are enough inaccuracies to question the validity, etc.). In general, however, negative entries that are valid aren’t going anywhere until the seven years are up. DO NOT spend one dime on “Credit Repair” – the Federal Trade Commission says they have “never seen a legitimate credit repair company.” Guess why?
If your credit is pretty good, but not perfect, consider contacting your creditors to see if they will work with you. Sometimes they are willing to remove a single late payment entry, especially if you are generally responsible about your debt. Once you have cleared up any errors, request your FICO score. This, by itself, will usually cost under $10 and don’t be roped in to any package deals. There are multiple versions of your credit score – each credit agency has their own calculation, FICO is the original, others pop up every so often – but FICO is still the most commonly used, particularly by government agencies. A score over 680 is good and will give you a good chance of securing a loan. Below 620, not so much. Consider looking for informal routes to financing your startup through friends and family, your own funds, etc.
In addition to decent credit, you will need a comprehensive business plan to qualify for any startup assistance. A formal business plan is more than just plugging some broad ideas into a basic business plan template. The purpose is for you to actually plan the business. Doing the work of developing a solid business plan will create a virtual road map of your company. Done right, the creator of a formal business plan should have a complete vision of the ins and outs of how the business will actually run, how money will be made, and how money will be spent. If you are serious about starting your business, there is no good reason to have someone else write your business plan. You need to understand everything that goes in and be able to justify every decision and every number you submit. Business plan services (that write the plan for you) are the second biggest modern scam, right after credit repair. Take the time to do the work yourself. You will not only have a clearer picture of what your business will be, but you greatly reduce the risk of startup by researching, analyzing, and determining the best options for your venture on your own.
If your credit is good and you do the work to really develop your business idea, your chances of securing grants or loans are greatly increased. Begin working on both requirements as soon as possible as it will take several weeks to several months to be completely prepared. Check in with the SBA and economic development NFPs (sometimes called business or community development) to find out the opportunities and requirements as you may need to incorporate certain issues into your business plan. This is an excellent time to launch a business – over half of the Fortune 500 companies were started in a recession!
Start here. Go far. LaunchX.com.
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