Business Plan Development: Know your Finances

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StrategyDriven Managing Your Finances Article |Business Plan|Business Plan Development: Know your FinancesA great business plan is the foundation of every great business. It sets out what your new business will do, how you will overcome the challenges of starting up and, most important of all, how you will make money.

But your start-up business plan is all just wishful thinking until you start filling in the financial figures.

Your marketing plan and SWOT analysis are interesting – but they don’t mean a thing if you don’t have realistic figures on your bottom line. Your financial forecasts and statements make up the most essential section of your plan. You need it – not just to set the financial targets you will work to, and as a blueprint for running your business – but to secure funding from investors or lenders. They are going to want to see numbers that show your business has the ingredients to thrive and grow and that they can be repaid, with interest.

What should be in the financial section of your business plan?

Your financial projections need to include the key figures that business accounts will show. These are the profit and loss, balance sheet, and cash flow.

These will be similar to the detailed accounting statements your business will eventually generate – but with one important difference. You will need to make projections of the figures your business will achieve, rather than report on those you have.

This means that you have to take an educated guess about the future performance of your business. It may be easier to make your estimates if you have experience of running a similar business – and if you have, say so!

Keep it real

It may be tempting to be over-optimistic – but the more realistic your estimates are, the more professional you will look – and the better your chances of securing the funding you want.

Everyone wants to set up the next Google or Twitter, but not every business can enjoy exponential growth – and plans that suggest it will, can be a red flag for investors.

One way to ensure your figures are credible is to base them on an existing business that you know well, and to use the following structure:

Start with a sales forecast. Set up a spreadsheet projecting sales over the first three years. Set up different sections for different lines, with columns for every month for the first year (you might want to change to a quarterly basis for subsequent years).

Don’t just include units. Have columns for unit sales, unit costs, pricing, one that multiplies units times price to calculate sales, and one for sales costs. This allows you to demonstrate gross margin: sales revenue less sales costs. Plus it’s a useful number for comparing with different standard industry ratios.

Create an expenses budget. Differentiate between fixed costs, such as rent and payroll, and variable costs, such as advertising and delivery. Include contingencies and variations based on different sales figures.

You may have to estimate things like interest and taxes.

Develop a cash-flow statement. This shows the cash moving in and out of the business. It is important to remember when compiling your cash-flow projection to show how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on. Some business planning software programs will help you make these projections.

Income projections. This is your profit and loss forecast for your business for the coming three years. Use the numbers that you put in the other sections. Remember:

Sales – cost of sales = gross margin

Gross margin – expenses, interest and taxes = net profit

Include assets and liabilities. Start with assets and estimate what you’ll have on hand, month by month for cash, money owed to you, inventory, and your substantial assets like land, buildings, and equipment.

Then work out your liabilities or debts – the bills for suppliers, finance and loan repayments.

The breakeven point. If your business is viable, at a certain point your revenue will exceed your costs. This is a key point for potential lenders, who want to know that they are lending to a viable enterprise.

Do you need help?

The financial section of your business plan is so important that it is worth getting help with. Your accountant may be able to provide some input, and, remember, that you may be able to find templates for businesses like yours online.

Some accounts software may have helpful modules – and some will have the ability to translate your figures into graphic form to create pie charts or bar graphs that you can use to highlight your financials, sales history, or projected income over three years. And don’t be afraid to include visuals in your business plans – they can make complicated data much easier to understand!

How to Minimize Loss of Profits

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StrategyDriven Managing Your Finances Article|Loss of Profits|How to Minimize Loss of ProfitsIf a business is to grow, it needs to make a profit, and it needs to make more profit all the time. Losing profits is a sure way to damage your business, and eventually, if it keeps happening, the business will have to fold – you cannot sustain losses year on year and not be affected by it. Here are some simple but effective ways to minimize the loss of profits to help you stay on track and continue to grow as much as possible.

Don’t Launch Too Soon

In order to make more profits, every business needs to innovate and come up with new and exciting ideas. However, launching those ideas too soon can be a disaster; if the product is not ready, if there are problems with it, if no one is actually going to buy it, or if it is simply not cost-effective then you will waste money and not make any profits.

This is why testing your products with Digivante is important. When you do this, you will receive feedback that you can act on and ensure you make the necessary changes to help your product sell. You will also be able to fix any issues before launching to the general public.

Make Use Of Technology

They say that time is money in business, and therefore if there is anything that can be done to save time, you are likely to be saving money too. Using the latest technology to help complete tasks more quickly and effectively is a great way to stop losses from occurring. If you or your team are able to save time by using a machine or computer program, for example, you can use that time to be more effective elsewhere, maximizing your chances of selling.

Not only that, but you won’t need so many staff if a lot of your important tasks can be automated or done more quickly, and again this will help to save you money. Quite often, staff costs are the most expensive part of running a business.

Price Correctly

It may seem a simple concept, but pricing your products and services correctly will stop you from making a loss when it comes to your profits. If you haven’t calculated the prices properly, you run the risk of not making a profit at all, and therefore losing money.

This is why you need a budget before choosing to sell any kind of product or service. You must know what your bottom line is and what you are spending if you are going to be able to price your products in such a way as to make a profit but not alienate your customers. This can be a difficult balancing act, but it is well worth the effort to make sales and minimize losses.

Take It Seriously

Many people run their new businesses as a sideline while working a full or part-time job. This can mean that it is not taken as seriously as it should be, and you might not be pushing the business as hard as you would if you were running it full time.

In order to minimize losses, you need to take your business seriously, whether it is your full-time concern or not.

3 Key Benefits to Automating Accounts Payable

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StrategyDriven Managing Your Finances Article |Accounts Payable Automation|3 Key Benefits to Automating Accounts PayableThe accounting department is one of the most important in a business. It’s therefore vital that it runs smoothly and that errors are kept to a minimum. Usually tasked with reducing costs and improving business performance, a key tool in delivering these objectives is accounts payable automation software. Some of the key benefits are outlined below.

Eliminate Manual Data Entry and Reduce Errors

Accounts payable can use a lot of business resource because it is traditionally a very manual process. Usually it requires someone transferring or inputting invoice information from one system to another be it from an email or a paper invoice. This kind of manual data entry often leads to errors, especially when dealing with large amounts of data.

In accounts payable in particular it’s especially important that mistakes aren’t made as they can have a huge impact on business. An additional zero or a decimal in the wrong place can disrupt other departments and in smaller businesses can lead to cash flow problems.

Implementing accounts payable automation software will help to reduce common errors and will free-up employees to work on higher priority deliverables. One key feature of good accounts payable software is AI driven invoice capture. This will automate the capture of data within invoices that are received via mail, email or fax and input it into the system. Manual data entry and errors are therefore almost completely eliminated.

Streamline Business Processes

All businesses will have an accounts payable process in place to ensure that invoices are paid on time and that the correct approvals are sought. However, usually employees rely on each other to know their part in the process. This becomes a problem if someone leaves the business as it can cause a breakdown in communication, key parts of the process to be missed and payments being delayed.

One way to overcome this is by setting up workflows and processes within automated accounts payable software. Having a visual representation of the procedure and a digital sign off process means that everyone is kept in the loop. It also means that invoices are logged and processed on time and efficiently.

If your business gets discounts for early payment of invoices this can be especially valuable.

Take Advantage of Holistic Reporting

Being able to generate and access reports that give an indication of the health of your business is vital. Typically accounts payable might be using spreadsheets or other software that isn’t linked to other systems in the business. This can lead to data quickly becoming out of date as it’s captured at a single point in time.

Connecting automated accounts payable software to existing systems will give you a holistic view of your business. Real-time dashboards and reports, as opposed to snapshots of data, will ensure that everyone is kept in the loop and that decisions are made based on the most up to date data.

Having this insight will help across the business and deliver on key objectives including:

  • Increasing responsiveness to customers
  • Being pro-active about any emerging cash flow problems
  • Providing a better service based on data-driven insights

“Can I Deduct That?” 8 Must-Know Tax Deductions for Small Businesses

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StrategyDriven Managing Your Finances Article |Tax Deductions for Small Businesses|"Can I Deduct That?" 8 Must-Know Tax Deductions for Small BusinessesThere are over 32 million small businesses operating in the US.

That’s a lot of people working hard to sell their products/services and, hopefully, turn a profit!

Let’s face it, money is the lifeblood of any business. It’s a competitive world. With insufficient capital to hand, it won’t be operational for long.

For that reason, it’s vital that small businesses squeeze as much money as possible from operations.

Tax deductions constitute one essential method of doing exactly that.

After all, paying a hefty tax bill is rarely pleasant. For small businesses trying to maximize their profits, it can even mean the difference between success and failure. Are you looking for ways to save money on your business’ tax bill this financial year?

Keep reading to find out 8 must-know tax deductions for small businesses.

1. Business Supplies

Let’s start with the basics:
You can deduct from your tax bill all of the expenditure on essential business supplies.
It might not seem like much. However, any owner knows how much these necessary fees can stack up. For boot-strapping start-ups, every little bit counts!

Look around you. It’s possible to claim for almost anything you’ve bought for the purpose of doing business. Stationary (pens, pencils, paper, staples…), printers, cleaning materials, desks, chairs, sofas, whiteboards, projectors…The list goes on.

You can deduct any and all of them.

2. Travel Expenses

Business travel isn’t cheap.

It’s also essential for many companies. Business travel is commonly a vital aspect of creating leads, meeting with investors, attending conferences, generating interest, and so on.

There is all manner of opportunities to travel for business purposes.

Nicely, almost all of it can be claimed for. Often, entertainment costs can be claimed for too.

All of those flight tickets, bus tickets, train fares and so on are all deductible. Likewise, certain related expenses such as meal costs, room service, dry cleaning and so on can be claimed.

Of course, keeping a solid record of each transaction is important. Equally, certain limitations apply too. You can’t claim for absolutely everything! You must understand your tax obligations in full to be successful in any tax preparation.

3. Personal Vehicle Expenses

Many small business owners use their personal car for work purposes.

The money spent on this process is often tax-deductible. Note that only the business side of things can be claimed for! It’s crucial to separate the business from personal usage.

Granted that’s possible, then you can claim for everything from mileage to parking fees. It’s often tricky to ascertain true mileage for a trip. Be sure to record mileage by referring to the odometer, or a GPS system.

Don’t forget to deduct expenses for insurance and maintenance costs too. Owning a vehicle isn’t cheap. Using it for work can only exacerbate that. Be sure to leverage the tax deductions available!

4. Necessary Overheads

Look at what you fork out every month to keep your business operational:

Rental commitments, utility payments, internet costs, and phone usage are all crucial costs. They’re all unavoidable expenses. You couldn’t do business if you didn’t pay for them all.

For that reason, it’s possible to deduct it all from your tax bill! This can make a big difference at the end of the financial year. Again, accurate record-keeping throughout the year is essential.

5. Software & Equipment Costs

Almost every business has specific demands.

Industry-specific equipment and software is often a necessary expense. Likewise, updates and new installs are vital to staying up to speed.

These costs represent another worthwhile deduction on your tax bill. You can claim for each and every one of them, up to a certain amount of money. That means your actual computers, and all computer software can be claimed for.
Other essential equipment (such as equipment for manufacturing) can also be deducted under this bracket.

6. Your Home Office

Most people think of business and conjure images of swanky corporate offices in the city.
And, of course, that’s often accurate.

However, many small businesses are operated straight out of the family home. If that’s your set up, then you have the benefit of claiming for the costs of your home office.

That said, it must be wholly business-related. You can’t work from your kitchen and claim it’s your office! Instead, a designated space from which you operate is required.

Tick that box, and say hello to deductions for internet, insurance, rent, phone bills…and so on. Likewise, furniture and supplies can be claimed for too.

7. Outsourced Professional Services

It’s rare for someone to actually enjoy the tax process!

Consequently, many business owners opt to outsource the process. All bookkeeping and tax returns are completed by a professional.

Nicely, their fee can be deducted from your tax bill at the end of the year. Even better, it’ll be their job to work it out and complete the forms for you!

It doesn’t stop there. You might work with lawyers and consultants as well. It’s possible to claim for the money you’ve paid them too.

8. The Interest Payments on Debt

If you’ve gone into business, then chances are you’ve taken on debt to fund it.

Leverage, in the form of bank loans, is often an essential means of getting it up and running. After all, almost every business needs upfront investment to become a success. This start-up capital is used for all sorts of reasons. It can amount to a significant sum.

The burden of debt is rarely fun. However, it’s possible to claim for some of it.

Unfortunately, the loan itself is off-limits. But the interest payments are entirely tax-deductible.

Final Thoughts on Tax Deductions for Small Businesses

There you have it: 8 essential tax deductions for small businesses to know about.

Millions of small businesses are currently operational in the US. It’s guaranteed that profit maximization is a priority for every single one of them.

Indeed, the ability to cut expenses and turn a profit is vital to remain in business. Cutting costs wherever possible often comes into it. Tax deductions are an easy and essential method of doing exactly that.
Hopefully, this post has highlighted the main sources of tax deduction out there.

Key Financial Tips For Entrepreneurs

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StrategyDriven Managing Your Finances Article |Finances|Key Financial Tips For EntrepreneursStarting a new business venture can be an incredibly exciting time, but you must also be careful and well-organized during this period, especially when it comes to your finances. Money will be incredibly precious when first starting out so you must have a clear budget in place and know where every single cent is being used. This can be tricky with so many areas that need attention and particularly if this is your first business venture. With this in mind, here are a few financial tips for entrepreneurs which should help you to manage money effectively from the start.

Secure Enough Funding

Possibly the biggest mistake that entrepreneurs will make is not getting enough funding to get the business up and running to a high standard. It can be hard to change how your brand is perceived, which means that you need to get off to a good start. Work out exactly how much money you need factoring in every expense and then use a variety of funding sources to reach this amount. This might include:

  • Personal savings
  • Loans from friends/family
  • Angel investors
  • Venture capitalists
  • Bank loans
  • Crowdfunding

Keep Costs Low

Every cent counts when first starting out, so you need to find ways to keep costs as low as possible without it impacting the quality of the product/service. There are a few different ways to do this, including:

  • Outsourcing instead of hiring staff
  • Working remotely
  • Going paperless
  • Using alternative energy
  • Negotiating with suppliers

Car Finance

Most modern-day businesses will require at least one vehicle if not a fleet as part of the operation. This can be a huge cost, which is why car finance deals are a smart option. There are poor credit car finance deals from specialists like CVS, which can make it possible to lease a car even if you have poor or no credit at all.

Invest In Insurance

It’s always better to have a safety net when it comes to insurance, and this is true in the business world too. The types of insurance that you use will depend on your industry but make sure that you have adequate coverage before getting started. You can usually make savings on insurance by shopping around and consolidating insurance policies.

Reinvest Into The Business

Once the business starts to find success, it can be tempting to splash the cash and increase the amount that you pay yourself, but this is a classic mistake. Instead, this money should be reinvested back into the company to drive further success. Putting more money in marketing is always a great idea as increasing brand awareness, and reputation is vital for growth and competing against the bigger brands in your industry.

Every entrepreneur will have concerns over finances when launching a new business, and this is for good reason. The above are a few key tips to keep in mind which should help you to use your money smartly to help get the business up and running to a high standard. You should then continue to be stringent with every cent as the business starts to grow.