Posts Tagged ‘financial planning’
Tips for Building a Budget and Sticking With It
Monday, March 31st, 2008
Building a budget for your business will take time to put together. However, it can be easy to move away from following the budget. Below are some ways to help you stick with the budget you spent time developing.
First, if you have never done it before living within a budget can be difficult as well as educational. For instance, knowing how to reasonably trim your expenses, or how much of a cash reserve to keep on hand will take time to develop the skills. Learning along the way, adjusting when appropriate will become easier as you practice.
Next, you developed a budget, but that was a best guess. You will need to be prepared that you will most likely miss your budget projections. However, your actions in correcting the missed budget will be adjusting it accordingly. Specifically, if you have a bill that you budget for, say around $100 a month and for the last three months it has been consistently around $150, this is where you will need to adjust your budget accordingly. If it is running less expensive than you budgeted for, you can then reallocate that money somewhere else within your budget.
Even though you have established a budget, this does not mean that you become extremely rigid in regard to the budget. You will need to be flexible to change things accordingly, such as your revenue is not as high as you had budgeted for, then you will need to trim back on expenses, and if you are bringing in more than expected, you may want to invest the money into upgrading equipment, etc.
Additionally, ensuring that your inflow is more than your outflow will be crucial to following your budget. Monitoring the inflow will help you to know if you will be able to cover your monthly expenses, particularly if your business has long periods of time between the inflow of money.
It is also a good idea to be a little more conservative when setting up your budget. You can do this by overstating some of your expenses, along with anticipating your revenue to be lower. This is a good strategy to ensure that your cash flow will be enough to cover your expenses. Money saving ideas is a good choice as well, such as lower phone plans or less expensive office furniture, etc.
If you can, set aside a cushion of cash. Having a stash of cash will help any small business with both success and threats to its survival. Of course trimming expenses is a good way of adding cash, but if there is any extra, it is a good idea to put it away. If your budget allows for it, earmark a certain amount of money and put it into a money market account. This money may come in handy if your taxes were higher than anticipated or an unanticipated bill is received.
Again, ensure that you are checking your budget every month, if not more often. Examining your cash flow will ensure that you are away of what available funds you have and need. If you are adjusting your budget as you go, then this will help to provide a cushion should you have any overruns in your budget. Of course saving any extra for such occurrences is also a good idea.
Last, your budget should help to restrain you from impulse purchases rather than constraining you to pay for what you should be paying. Setting up and maintaining a budget is a good discipline tool as well as ensuring that you are reviewing it for any adjustments needed.
Tags: Accounting, budget, building a budget, Finance, Finance and Accounting, financial planning, larry Slusser, money, tips
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Make Sure Your Business has an Umbrella for a Rainy Day
Tuesday, March 11th, 2008
Most business owners don’t feel the need to have a “rainy day” or “emergency” fund until business is slow or an unexpected expense is incurred. Instead of having to scramble over some “fast cash” for the business, why not slowly build up a savings account that holds several months worth of operating cash? Even if your business is a start-up and you feel that every dollar is already spent before it’s earned, having a “rainy day fund” is a good idea - and you don’t need a lot of cash to start.
If money is tight, set a goal to have three months worth of expenses saved up within the next twenty-four months. That will give you time to slowly contribute to the account each month. Once your cash flow has picked up, you can then make a new goal of building your emergency account to hold another three months worth of expenses.
Having a rainy day fund is more than just a cushion ready to protect the business when disaster strikes. Think of it also as your reason to take more calculated risks. Whereas before you may have thought better of doing something “outside the box”, with a financial “just in case” backup, you have the freedom to make smart business growth choices that don’t come with a 100% guarantee. As many successful business owners will tell you, it’s the risks you take that could very well bring your business to the next level.
Yet another reason for your business to have a rainy day fund is that having a ready source of cash can help you take advantage of business opportunities you otherwise may not have been able to afford. Seasoned business owners know that not all business decisions and opportunities are months in the making. You might find your product supplier over-ordered and is selling pallet-sized shipments at a 30% discount, or maybe a large and well-known mail order catalog has selected your product for inclusion, but there is a $2,000 placement fee. The situations are endless, but unless you have a way of getting “fast cash”, you could very well miss out on opportunities that could have done wonders to skyrocket your business.
Starting your rainy day fund is easy: just take a look at your financial statements to figure out your average business expenses per month. Then, figure out how much you can reasonably contribute to the fund until it has enough to cover three to six months worth of operating expenses. If you come to the conclusion that you simply don’t have any leftover money to contribute, then look again and see what expenses you can cut out. Are you over-paying on shipping? Do you really need that fresh-from-Starbucks coffee every morning (ever hear of the latte factor?) Even if you can scrape together $25 a week, that’s better than nothing and you will find that once you start it, contributing to your rainy day fund is easier than you thought!
Tags: Accounting, budget, Carrie Hinkel, Finance, Finance and Accounting, financial planning, rainy day fund, saving money
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An Entrepreneurs Biggest Cost
Monday, July 9th, 2007
When launching a new product or company, an entrepreneur must consider their biggest cost - the opportunity cost. Opportunity cost is an economic term that is defined as the cost of passing up the next best alternative when making a decision. For instance, if an asset such as capital is used for one purpose, the opportunity cost is the value of the next best purpose for which the asset could have been used. In the entrepreneur’s case, this asset typically includes the entrepreneur’s time and money.
For an individual currently working in a corporate position, the opportunity cost of launching their own venture is typically the financial security that their corporate position affords. Fortunately, this security could be mitigated by attaining funding for the venture and setting the same salary as the prior position. However, if the venture fails, the individual may have lost the opportunity to return to the corporate position and/or does not realize the steps up the corporate ladder that they may have made had they stayed in their prior position. Likewise, if they chose to pursue one entrepreneurial opportunity rather than another, the individual may have lost the opportunity to try to launch the other opportunity.
Opportunity cost is related to the risk/reward tradeoff that is implied in entrepreneurship. The risk/reward tradeoff implies that the higher the risk, the higher the potential reward. Opportunity cost comprises a large part of the "risk" in the risk/reward tradeoff, although it doesn’t include many intangible factors such as potential embarrassment caused by taking capital from friends and family and having the venture fail.
Each entrepreneur has a different opportunity cost such as the amount of their salary should they currently be employed elsewhere. Likewise, companies have different opportunity costs when determining whether to launch new products, services, etc. Identifying the opportunity costs, analyzing them, and then making the optimum decisions is a critical process for entrepreneurs and small and large companies alike, and can be a critical factor in the long-term success of a venture.
Article written and copyrighted by Growthink Business Plans . Reprinted with permission.
Tags: Accounting, business plan, Finance, Finance and Accounting, financial planning, Growthink, loans, Starting a Business, startups
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