Break-Even Analysis

Break-Even Analysis

When you have what you think is a good idea, the first step is to analyze whether your business will succeed. The first financial tool you should use is a break-even analysis. A break-even analysis will calculate what your revenues must be for your business to produce a profit.

The key to using this tool is to be realistic in your expected revenues and conservative (high) in your expected costs. The break-even analysis will force you to do the research that will allow you to know whether you should pursue your business idea further.

You will need to do a break-even analysis for your business plan anyway, but it’s a good idea to do it now to determine whether it is even realistic to pursue your business idea and whether it is worth writing a complete business plan.

Revenues above the break-even point result in profits whereas revenues below the break-even point result in losses. You can do a break-even analysis whether you are selling a product or a service. If you have a rough idea of what your expected revenues will be, you can tell after doing a break even analysis whether you can expect a profitable business. If not, you either have to make some changes or give up your business idea. It is crucial to understand some basic concepts before doing a break-even analysis.

• Sales revenue is the total dollars from sales activity that you bring into your business each month or year. To perform a valid break-even analysis, you must base your forecast on the volume of business you really expect -- not on how much you need to make a good profit.

• Fixed costs (sometimes called "overhead") don't vary much from month to month. They include rent, insurance, utilities, and other set expenses. It's a good idea to add a cushion to your projected fixed costs because there will always be miscellaneous expenses that you can't predict.

• Variable costs are expenses that change in proportion to the activity of a business. Variable costs vary with the number of units produced. Variable costs are made up of direct costs which are costs that are attributable to preparing each unit for sale, andindirect costs like certain overhead which can vary with the number of units prepared for sale. Together, variable costs and fixed costs make up the two components of total cost.

• The break-even point for a product is the number of units you need to sell for total revenue received to equal the total costs, both fixed and variable.

To prepare your break-even analysis for your potential startup business you have to make an educated guess as to the number of units you can sell, the expected sales price per unit, fixed costsand variable costs. This educated guess is made on the basis of research.

Once you’ve estimated the four numbers above, it’s easy to calculate your break-even point by using the following formula:

Break-even Point = Fixed Costs / (Unit Selling Price - Variable Costs)



Let’s see how that works in an example where we estimate we can sell 1,200 widgets per month at $10 each, resulting in sales revenue of $12,000. We estimate that our fixed costs for rent, utilities, and so on are $5,000 per month. We also estimate that it will cost us $5 per widget to buy raw materials and prepare the widgets for sale (our variable cost).

Plugging our numbers (except the number of widgets we expect to sell) into the formula, we get the following:

Break-Even Point = $5,000/ ($10 - $5)



or, Break-Even Point = $5,000/$5

or, Break-Even Point = 1,000 widgets per month



At the Break-Even Point, then, we would sell 1,000 widgets at $10, for sales revenues of $10,000. Our costs would be $5,000 fixed costs + $5 x 1,000 widgets, or $10,000. If we sell more than 1,000 units per month we make a profit. If we sell fewer than 1,000 widgets per month, we lose money.

Based on our break-even analysis, we calculate that if we sell the number of widgets projected, 1,200, we would make a profit of $1,000 per month, as follows, using the numbers we already know:

Profit = Sales Revenues – Fixed Costs – (Variable Costs x Units Sold)



or, Profit = 1,200 units x $10 - $5,000 – ($5 x 1,200)

or, Profit = $12,000 - $5,000 – $6,000

or, Profit = $1,000 per month

Are you satisfied with $1,000 profit per month? If not, you must have a plan to increase sales or lower costs. Maybe you can start by selling 1,200 widgets per month, knowing you will earn $1,000 per month and then have a plan to expand your product line. Many such issues can be addressed once you have determined your break-even point and your expected profit given your expected sales.
If your Estimates Fail to Break EvenIf your estimate doesn't at least show sales at the break-even point you can make adjustments before you start your business. Consider the following:

• Find a less expensive way to make your product.

• Reduce your fixed costs. Maybe you can save on rent. Maybe you can do with fewer employees.

• See if you can sell your product or service at a higher price.

• Find a larger market niche to increase unit sales.

If you can do none of those things, maybe your idea is not economically feasible. It’s better you know it now than later.
ConclusionBreak-even analysis is a powerful tool you can use to determine whether your business idea will be profitable. Consider your break-even analysis to be only one tool in your arsenal. Even if this analysis shows that you can make a profit given your expected sales and costs, there are other tools you will use in your business plan to give you a fuller picture of your financial forecasts. Among them are:

• A profit and loss statement

• A cash flow projection

• A start-up cost estimate

These tools are covered in the business plan section.

Make Money Working Online

Make Money Working Online

You can make money working online. A productive website is often critical to the success of a startup business. Go through this entire page if:


• you are starting or have an offline business for which you need critical website help, or


• you want to make money with your computer and you don't have an off-line business.


Your Three Website Choices

In setting up your website you have three choices:

1. Write your own website with no help from an expert. You can do this by using pre-formed templates and the result may be a pretty nice-looking site. The main purpose of this type of website is for you to be able to send people to your website to get more information. If you want this type of branding or informational website, this may be the way to go. If you want people to find you on the internet without you sending them to the site then this is not the way to go.

2. Pay a search engine optimizer or computer expert to use search engine optimization (SEO) techniques to build your site. By doing this you will pay thousands of dollars to specialists who are experts at writing sites. Expect to be involved as the site expert will not necessarily know about your business. There are thousands of SEO experts chasing the latest Google innovations trying to rig a website so it will score among the top search results.

The problem with this approach is that 1) the people at Google are very smart and stay one step ahead of the SEO experts, and 2) as Google keeps changing its algorithms to stay ahead, you have to keep hiring experts to counter Google. A top site today achieved by SEO methods will not necessarily be a top site tomorrow.

3. Write a site with great content in the field that you are an expert. Use an all-in-one solution for web hosting, niche search, optimization and other tasks you will need to do. Google, and the other search engines, are in the business of providing searchers with good results. Good results for a site engine means coming up with sites that give good, useful information. Searchers will keep going back to the search engines that give them good results and the search engines can charge their advertisers more--their advertisers are their real customers.

Accounting 101 for Your New Business

Accounting 101 for Your New Business

Accounting is how we keep score in business; accounting is the language of business. Today, we keep score almost exclusively on the computer. There are a variety of powerful yet simple accounting software programs that help you to know how you are doing.

Before introducing those, it’s very important to have at least a rudimentary knowledge of accounting. That's what we call "Accounting 101".

It's important to realize why accounting is important. Accounting communicates information about a company’s business; it allows business owners and managers to make informed decisions; accounting also measures economic events.

But no matter how much accounting you know, you are almost certainly going to need an accountant to help you with your tax return if nothing else.

Find an accountant that's right for your business!



or

Find out what criteria to use to find the best accountant for you.



The next section shows how business keeps score.
Basic Accounting PrinciplesBasic accounting principles start with the most basic accounting reports. The three most basic reports we use in keeping score are:

• The balance sheet tells you how much you own and how much you owe. The difference between the two is your equity in the business


The balance sheet has three sections as follows:



1. Assets, including cash, accounts receivable, inventory and fixed assets such as property and equipment,


2. Liabilities, which is what you owe, including what you expect to pay this year and what you have to pay more than a year out,


3. Owner’s equity, which is how much was put in by the owners plus or minus cumulative profits.





• The profit and loss statement tells you how much your profit (or loss) was over a certain amount of time (a year, a quarter, a month)


The profit and loss statement, also called the income statement is calculated as follows:



• Sales - Cost of Sales = Gross Profit


• Gross Profit - Expenses = Net Profits



• The cash flow statement tells you whether you have more cash than you had at the beginning of the period, and what the sources and outflows were. This is a good predictor of your cash position in the future.


1. Start with your beginning cash balance, add any cash taken in, and then subtract any cash going out.




2. The difference between what you take in and what goes out is the “cash flow”.


3. If you take your cash flow and add it to your beginning cash balance you will have an ending cash balance. This cash balance then becomes the beginning cash balance for the next period.


4. Cash comes in, in the form of cash sales, accounts receivable collections, new loans and new investments.


5. Cash going out typically goes to expenses paid, equipment purchased, accounts payable paid, inventory purchased and paid for, and loans paid.



Of the three statements above, the cash flow statement is the most frequently overlooked. Do so at your peril, though. No matter how profitable your business is, you will soon be out of business if you run out of cash. Remember that cash is king.

Writing Business Plan

Writing Business Plan

Writing business plans is like creating the crucial roadmap you draw when starting a business. An unknown author said: "When you fail to plan you plan to fail." The biggest reason for failing to plan is the perception that one doesn’t have enough time. Unfortunately for those who think that way, they will pay many times later on in terms of time spent for their failure to find time to write business plans.

The best way to show bankers, venture capitalists, and angel investors that you are worthy of financial support is to show them that you have written a great business plan. Make sure that your business plan is clear, focused and realistic. Then show them that you have the tools, talent and team to make it happen. Your written business plan is like your calling card; it will get you in the door where you'll have to convince investors and loan officers that you can put your plan into action.

Once you have raised the money to start or expand your business, your plan will serve as a road map for your business. It is not a static document that you write once and put away. You will reference it often, making sure you stay focused and on track, and meet milestones. It will change and develop as your business evolves.
Purpose of a Written Business PlanWriting business plans for your startup business has several purposes in addition to the fact that you are building the road map for every facet of your startup business:

• The planning process for a new business (thinking, exploring, researching and discussing) is a crucial step in starting your own business. A business plan ensures that you actually do the necessary preparation.

• There will be interested parties who are going to want to see your business plan. Among them will be potential partners, providers of equity capital and lenders. You must answer for yourself the difficult questions they will ask. The business plan is your way of doing that.

• A business plan should make obvious any weaknesses you may encounter once you start your business. The act of researching, thinking about, and writing business plans will force you to look at all your facts, your assumptions, and all your projections in a methodological and thorough manner. It’s better to anticipate and plan for these weaknesses before you actually encounter them and are managing the crises.

• You will show your business plan or parts of it to consultants, others in the industry, potential suppliers, and other experts. Your plan can be a basis for further ideas and new options you or they may come up with.
Do you Need to Write Business Plans?Not everyone who starts and runs a business begins with a business plan, but it certainly helps to have one. If you are seeking funding support from a venture capitalist, you will certainly need a comprehensive business plan that is well thought out and contains sound business reasoning.

If you are approaching a banker for a loan for a start-up business, your loan officer may suggest a Small Business Administration (SBA) loan, which will require a business plan. If you have an existing business and are approaching a bank for capital to expand the business, they often will not require a business plan, but they may look more favorably on your application if you have one.

Back when you were “Evaluating the Potential” on Step 3 of this “How to Start a Business Guide”, on the page entitledIndependent, Franchisee, or Associated with a Large Company, you decided whether you wanted your business to be completely independent, a franchisee, or associated with a large company. The decision you made at that point will determine whether you need to write business plans.


• If your business is completely independent, then you need to go through the process of writing business plans. You will benefit greatly from the exercise. If you are going to approach angel investors, bankers or venture capitalists you need to have a professional plan. Find our more from this article.




• If your business is a franchisee, then the franchiser should give you a complete business plan. Your task is to evaluate that business plan. Have your accountantand your attorney review your business plan and any contracts the franchiser wants you to sign.


• If you are associated with a large company, review carefully the business plan provided by the company or your sponsor. Follow the instructions below for a guide to how detailed your plan should be.



The detail of your business plan will vary with the financial commitment and the time commitment you will give to your business. The larger the commitment, the more detailed you will want your plan to be.

The most efficient and effective way to write business plans is to use a business plan template. There are free business plan templates available but they don't compare to business plan templates you can buy for very little money. The gold standard for business plan templates are those written by a company called Palo Alto Software. They offer two low-cost options depending on the complexity of your business.
Elements of a Business PlanThere is no one fixed way to write a business plan. The nature of the business, its state of development, the need for outside capital and other factors will determine the exact outline of the plan and will also determine how specific the plan must be.

However, there are elements of a plan that are universal:

• Your business concept. This is the concept you came up with in the Small Business Ideas section. Go back to it if you aren’t entirely sure that you have picked well.

• Supply and demand for your product or service. What is the niche you are filling? How large is it? How will your customers find you? What about competition, today and in the future? What is your competitive advantage?

• The management structure you anticipate. Who are the key players? What is their experience in business? What is their experience in the industry? Will you have employees who complement your strengths and make up for your weaknesses?

• The financing for your startup. What is your overhead? What are your fixed costs and your variable costs? Where is your break-even point. What will be your cash burn rate? If these concepts are foreign to you now, you should be an expert by the time the business plan is written.

As you write your business plan, you will rework your plan again and again. Give yourself several weeks to formulate your business plan.
Business Plan OutlineThe following outline can be used to write a plan for most small businesses:

I) Executive Summary
A) Objectives
B) Mission
C) Keys to SuccessII) Company Summary

A) Company Ownership
B) Start-up Summary
C) Company Locations
III) Products or Services

A) Product/Service Description
B) Competitive Comparison
C) Sales Literature
D) Fulfillment and Delivery
E) Technology to Support Sales
F) Future Products/Services
IV) Marketing Plan

A) Market Segmentation
B) Target Market Segment Strategy
C) Target Market Analysis
D) Competition and Buying Patterns
E) Main Competitors
F) Distribution
G) Business Participants, Partners, Affiliates
V) Strategy and Implementation Summary

A) Pricing Strategy
B) Sales Strategy and Sales Forecasts
C) Milestones
D) Strategic AlliancesVI) Management Summary

A) Organizational Structure
B) Management Team
C) Personnel Plan including Planned Pay Structure
VII) Financial Plan
A) Funding
B) Key Financial Indicators
C) Important Assumptions
D) Starting Costs
E) Break-Even Analysis
F) Projected Profit and Loss
G) Projected Cash Flow
H) Projected Balance Sheet
I) Business Ratios
VIII) Appendices (as appropriate)

Small Business Marketing Checklist for Start-up Businesses

Small Business Marketing Checklist for Start-up Businesses

The next section was adapted from an article written by Katrina Sawa.

About the Author --

Katrina Sawa, Small Biz Marketing Expert, helps entrepreneurs and small business owners build their database of clients and prospects; she helps them determine the best ways to market their business to their target market; she teaches them how to network, develop follow up systems, and create marketing and advertising plans, and helps them find ways to get free or low cost publicity, which all lead to more customers and increased sales!

The following eight items are what I consider a good small business start up checklist. If you are in business or thinking about getting into business you will want to make sure you are working on each of these points constantly. The mix of all of these necessary items works well to maximize your exposure, credibility, and expert status as well as build your database and help you make informed marketing decisions.

1. Determine a Realistically Defined Target Market -- Most small business owners actually have way too large of a target market to be realistic. They can't market to their entire market with the limited time and budget available. More than likely you might want to narrow down your market or define your niche even more with specific demographics and psychographics; then you'll really begin to see unique opportunities that might become available to reach that market. And don't forget about all your referral sources -- they are your target market too!

2. Create Marketing Plan -- This plan should outline everything you could possibly do in your marketing based on who your target market (ideal client) is and the best ways to reach that client including various guerrilla marketing techniques, promotions, and co-promotions.

Then you need to stick to your well-researched plan and not get sold or steered away by random advertising opportunities.

This marketing plan should also include a publicity plan, which includes pertinent media contacts, press releases, article submissions and event listings for ongoing exposure. If youÂ’re not submitting press releases regularly to the local media, local organizations you belong to, etc. you are missing FREE opportunities to get additional exposure for your business.

When you create marketing plans you should also include anadvertising plan which should include a time line and a budget. More than likely, you're not spending enough money on advertising--period, end of story. If advertising is done in the right places, places that reach your target market, with a good message or headline and for a reasonable length of time you should see good results. If you only try it once or go too small or have no idea how to design your ad effectively you will not get results.

Learn about all the advertising mediums in your target area, who they reach, their demographics, what kind of circulation they have based on their cost, etc.

When you create marketing plans you should also include an active networking plan. This should include any appropriate organizations, associations, chambers or other professional groups that bring in referrals or are good venues for prospecting or business development.

Pick two to five organizations you believe are the best ones to promote your business or build your business in; join them and then become as active as you possibly can so you become the well known expert in your field. Volunteer your time generously and most of all put their events on your calendar before ANY other client meeting or job. Rather than having to spend a lot of money on traditional advertising (which doesn't typically work much anyway for most small businesses) go networking instead; it's less expensive and more effective.

To put a quick Marketing Action Plan into effect for your business right away, if you want some help, sign up for a 1 Hour Strategy Session with me; go to the coaching page of Katrina's website. She has a unique talent for developing just the right blend of marketing strategies for every budget and business - online or offline. Plus this session is 100% guaranteed or your money back!!

3. Database -- your database should be inputted and formatted in the computer. You should be able to distinguish clients, prospective clients, referral sources and contacts. You need one place where everyone you have ever known or done business with is housed in the computer so it's easily mail merged. Sort your contacts if you can by hot, warm or cold prospect or referral source. Then you should regularly stay in touch with your database through effective Database Marketing and Follow Up in order for you to be on the top of their minds when the topic of your service/product comes up.

Your database marketing and follow up can include letter and email templates, a system for following up with hot, warm and cold prospects and ongoing database marketing. If you are not doing quick follow up after you meet someone then you are missing opportunities and they will forget about you. You want to follow up with everyone you meet within 48 hours and then continuously. You need to make this automatic, systematic and practical so it will get done; delegate this if you have to.

4. Website - including Domain Name (s), Hosting, Reciprocal Links, and Internet Submission. You are missing out on sales if you do NOT have a website (see Note from Tom at the bottom of this page). But a professional website is a must, not a home-made, amateur site; that will hurt you and your credibility. It doesnÂ’t have to cost an arm and a leg, but the goal should be to inform, entice and capture. Capturing the contact info from everyone who visits your site should be your most important goal. Then you can continue marketing to them either by mail or email and they more likely will use or refer you.

5. Email Marketing - Distribution Lists, Programs for Email Marketing, Newsletters, Promotions. Email marketing is the cheapest form of marketing anyone can do these days but there are spam laws to follow and email etiquette you should strive to follow so you look as professional as you can. For example, adding people you meet to your ezine or email newsletter without getting their ok or online opt in is against the spam laws and you definitely don't want to do it!

See www.spamlaws.com for more tips on what to look out for in your email marketing. I have all kinds of products on my website where you can learn more about effective email marketing techniques and strategies even for those people you meet that you want to connect with!

There are online email programs you can use to really make your emails POP but remember to send people information that they want to read, not just what you want them to read. When you consult with me, we evaluate the best format and program to use for your email marketing campaigns as well as figure out how often you should send them, what to say in them and how to make more money with them.

6. Professional Marketing Materials - Business Cards, Letterhead, Envelopes, Brochures, Sales Packets, Fliers, and Postcards. Do whatever is necessary to reach your target market. Of course these materials need to be professionally designed, printed and presented! DonÂ’t try to design your own marketing materials unless you are a qualified graphic artist; trust me, they will not reflect the image you want to project. ItÂ’s not just important for the materials to look good, they also need to have an attention getting headline, message and a clear call to action.

Hiring a good graphic designer is tough; many designers are not what they say they are. Ask me for a referral or have me help you. With my sales and marketing expertise and one of my talented graphic designers, we can create outstanding marketing materials that will make you stand OUT from your competition.

7. Branding - Includes Signage like Name Tags, Shirts with Logo, Vehicle Signs, Banners, Promotional Products and Giveaways. The more your name is in front of peopleÂ’s faces the better. You want people to recognize your brand on everything you do and everywhere you go. Find a good promotional products company from your local chamber of commerce or ask me for a referral.

One very inexpensive way to brand your company and products is with printed t-shirts and other garments. In the old days small companies were shut out because screen printers required large minimums as well as setup charges for each job. Big Frog imprints garments digitally. It's an eco-friendly system and they require no minimums, they don't charge for artwork, there are no setup charges, and they have a 24 hour turnaround time. I have personally had many garments printed there and their graphic designers are great and very easy to work with. Their garments never crack, separate or peel and the print will last as long as the garment! They offer a great selection of high quality products and 100% satisfaction. Their prices are also very reasonable. They will also ship nationwide. You can also check them out on facebook.

8. Good, Reliable Vendors - Includes industry vendors as well as those for your business development like printers, mailing houses, delivery services, rental companies, assistants. You'd be surprised to know you're probably spending too much money in one or more of these areas right now. Find reliable, inexpensive sources. 

Choosing the Right Business Organization

Choosing the Right Business Organization

Two Important Decisions

There are two decisions every entrepreneur must make fairly early in the life of a startup business.

1. Will you go into business alone or with a partner?

2. What type of legal business organization will you use?


The Business Organization You Choose……is one of the most important decisions you make. Your decision affects your level of risk, the taxes you pay, and how much accounting help you will need.

The choices for your business organization and a brief description are:

• Sole proprietorship—a sole proprietorship has no separate legal existence from its owner. Liabilities for business debts are not limited to assets of the business. The owner of the business is responsible for all debts incurred by the business. The owner can have the business under his/her name or “doing business as” (DBA). The business, since it is not a separate legal entity, does not file a separate tax return. Accounting for a sole proprietorship is the most simple of legal forms.

• Partnership—a partnership consists of two or more individuals who co-own a business. Although the business is not taxed separately, it must prepare a return which indicates the distribution of partnership profits and losses to the co-owners. The amount of money and time invested by each partner should be written down in a partnership agreement. In a partnership, any partner can be held liable for the entirety of the business’ debts.

• Limited partnership—a limited partnership is similar to a partnership except that there are one or more general partners in addition to one or more limited partners. The general partners are in the same position as partners above, having authority to act as agents of the partnership, having management control over the business, and being liable for the debts of the business. The limited partners, on the other hand, have limited liability, meaning they are only liable to the extent of their investments. Limited partners do not have authority over the management of the business. They invest in the business and receive a share of profits and losses as stated in the partnership agreement.

• Corporation—a corporation is a legal entity separate from the persons that formed it. Owners of a corporation are known as shareholders. The shareholders elect a Board of Directors who hires managers to manage the corporation. In a small corporation the owners, directors and employees may be the same people. Accounting for a corporation can be more complicated than for other forms of organization. The corporation is taxed on its profits and owners may receive dividends which are taxed again.

• “S” Corporation—an “S” corporation is one that has made an election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. Subchapter S corporations do not pay federal taxes. Instead, profits and losses are divided among the corporation’s shareholders who then report them on their income tax returns. “S” corporation owners thus enjoy the advantage of limited liability and profits are not subject to double taxation. However, accounting systems are as complicated as regular corporations. There are certain legal restrictions to your ability to form an "S" corporation. There may also be tax situations where a regular corporation is advantageous to an "S" corporation.

• Limited liability company (LLC)-an LLC is a legal form of business that offers limited liability to its owners and is also a type of corporation. It provides its owners with characteristics of both a corporation (limited liability for it owners) and a partnership or "S" corporation (pass-through income taxation, meaning owners are taxed only at the individual level, not at the company level first). LLCs have become very popular for their flexibility and they are often well suited for a single owner. However, LLCs may have a more difficult time raising capital with an eye toward an Initial Public Offering. Also, many states levy a franchise tax which a partnership or a sole proprietorship would avoid.

If you have decided to form an LLC or a corporation your question may be, "Which one?" The answer isn't always clear -- but because your choice will affect the legal and tax status of your business, it's the most important question you'll need to answer. "LLC or Corporation?" will help you make the right choice with plain-English explanations.

Money for Starting a Business

Money for Starting a Business

High Investment Businesses and Low Investment Businesses

Getting money for starting a business, especially in these difficult economic times, is tough but need not be impossible. The process of finding money for starting a business, or financing a business, will serve to make sure that your business idea is a good one. If you can get financing that means that somebody has confidence that you will succeed and is betting money that you will.

Generally, the higher cost your business startup, the faster you should see a return on your investment. Take into account interest expense when calculating your return.

There are also low cost businesses with a great deal of potential. The person who can start his own business with very little money and perhaps no outside financing will usually invest "sweat equity" into the business instead of financial equity. This means that a low cost business may take longer to produce results. In the long run, however, if it has enough potential, it may be the right business for those that have few financial assets.
How to Get Money for Starting a Business--Start with Your Money FirstGetting money for starting a business is one of the thorniest parts of starting a business. The first key is to save money so that you can put your own personal savings into the business. Nobody is going to want to invest in your business if you do not invest in your business yourself.

It is difficult enough to get a loan with a business startup and next to impossible if you don't invest in your own business. Lenders want a track record and you may have none. Live frugally and save money so you can show potential lenders that you are committed to your business.

Lenders cannot help poor people. But they can certainly help rich people that don't have any money yet. Start this section by looking at a short video which explains how the rich get to be that way and the importance of investing in yourself.
The Importance of the Business PlanBefore you look to outside sources for money for starting a business, make sure you have completed the entire business plan. The business plan template is your road map. It will tell you how much money you need, when you will need it, and when you expect to pay it back. Potential lenders will want that information and you should want it also. You should always prepare a business plan before asking anybody for money. The business plan outline I have prepared for you provides you with several free financial calculators including a Starting Costs Calculator, a Cash Flow Projection, and a Break-Even Analysis.
Understanding the Language of Business Financing

There are several business terms you should understand in order to make good decisions on getting money for starting a business:

A credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person. A credit score is primarily based on credit report information, typically sourced from credit bureaus.

Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. The use of credit or identity scoring prior to authorizing access or granting credit is an implementation of a trusted system.

Click on the banner at the right to find out your credit score.

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral. In the event that the borrower defaults the creditor takes possession of the asset used as collateral and may sell it to satisfy the debt by regaining the amount originally lent to the borrower.

Unsecured loans are monetary loans that are not secured against the borrower's assets.

Collateral means a security or guarantee (usually an asset) pledged for the repayment of a loan if one cannot procure enough funds to repay. The amount of collateral determines how much lenders will lend.

Personal guarantee is a promise made by an entrepreneur to repay the company debts in the event of default by the business. If the business doesn't have enough assets to pay the debts, the owner has to pay out of his personal assets. A personal guarantee tells the bank that the business owner is serious about his business and about repaying his debts. When the owner is unable to cover the debts personally, the bank will start to seize personal assets. In a startup situation it is virtually impossible to borrow money from a bank and not give the bank a personal guarantee.

Alternative Methods of Raising Capital for Your Business - Borrowing Money

Alternative Methods of Raising Capital for Your Business - Borrowing Money

Here is an interesting article on alternative methods of raising capital for your business.

Borrowing Money

You may think of borrowing money from a bank first. Think of the bank last. Here is a hierarchy of money sources after personal sources have been depleted:

• Friends and relatives Go first to the people who know you best; hopefully these are the people who trust you the most. Consider whether you will be offering an equity stake in the business or whether you want to borrow money. There are advantages and disadvantages to each. You don't have to repay an equity stake; on the other hand you will be sharing your profits with the stakeholders. You may also give up some control over your own business.

• A lien on your home This has become much more difficult lately. It used to be that lenders would lend an ever-increasing amount based on ever-increasing home values which caused equity to increase which in turn could be used as collateral. That carousel has stopped, however, and lenders are looking much more carefully at your homeÂ’s (fallen) value as well as your ability to repay. Advantages of this source of money are low interest rates and a long period of time to repay. Disadvantages include the fact that you may lose your home.

• Credit cards This too has become much more difficult lately. Credit card companies are tightening the amount of money they will lend. Your all-important FICO score, indicating your credit history, will determine how much money you can borrow. Be careful about borrowing more on your credit cards than you can afford to pay back. Many people have borrowed too much money and have gotten into a cycle of ever-increasing debt amounts and ever-increasing interest payments. If you are conservative borrowing on credit cards, however, this can be a relatively easy source of funds.

• Inventory Suppliers Ask your suppliers to finance your purchases for a longer period of time. This can be like free money; however the amount of time suppliers will be willing to carry you may be limited. As with other sources, be sure to pay your suppliers on the agreed-upon date. Inventory suppliers are your lifeblood. When they refuse to sell to you, you may as well close your doors. You have nothing to sell. Suppliers may also help you pay for advertising and promotional programs.

• Equipment suppliers Compared to your regular purchases, capital purchases can often be financed over longer terms. Consider also leasing equipment rather than buying outright.

• Your landlord In today's economy, many commercial landlords are facing high vacancy rates. Many will be willing to negotiate lease improvements that they will pay for in exchange for a relatively long contract. They may also reimburse you for moving-in expenses and may give you a few months free of rent at the beginning of your term.

• Customers If you are giving credit to your customers you may want to encourage them to pay quicker by means of a discount. Making sure your customers pay you quickly will result in less need for financing so watch your accounts receivable carefully.

• Venture capital Venture capital is a type of private equity capital typically provided to early-stage, high-potential, growth companies in the interest of generating a return through an eventual realization event such as an Initial Public Offering (IPO) or trade sale of the company. Venture capital investments are generally made as cash in exchange for shares in the invested company.

Venture capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms. If your new business has enough potential, venture capitalists may be interested in investing in it.

• SBA loan guarantee programs The Small Business Administration (SBA), an agency of the federal government, has a program whereby they guarantee a loan made to your business by a lender. There are SBA loans on continuing businesses as well as startups.

• Leasing companies A commercial lease on capital equipment can be a lifesaver for startup businesses. Business equipment leasing can reduce your initial costs for acquisitions and can increase your cash flow. You can often borrow more advantageously from a supplier; however, if a supplier has no leasing program, this can be an excellent source of funds.

• Finance companies Expensive alternative. These companies typically have no money of their own. They finance the business and borrow the money from a commercial bank. They will also sell the loan to a "loan holder" and use those funds to pay off the commercial bank. Often they make their money by servicing the loan. Everybody needs to make money which is why this is an expensive but sometimes necessary alternative.

• Banks A banker will want to see your detailed business plan; he will want to make sure you've got a track record and that he trusts in your ability to pay back the loan. He will most likely ask you to provide the bank with plenty of collateral. Be sure to see a business banker, preferably one you already know or one your CPA knows.
How to Get Loans• Complete your entire business plan. It is your road map.

• Get the help of a good CPA. CPA's typically have good contacts.

• Be prepared to give the lender the following documents he may ask for: business and personal financial statements, business and personal tax returns, your business plan including cash flow projections.

• Suggest a proposal with which you can comply for how you will repay the loan. Be honest and conservative. Lenders don't want bad surprises.

• After you have borrowed the money, make sure you stick to your agreements. If you cannot, communicate with the lender as soon as possible to work something out.

Advantages and Disadvantages of Working from Home

The Advantages of Working from Home

There are many advantages of having a part time work from home job or business. If you can do it full time, there are even more advantages. Among them are:

• Closer relationship with family

• No dress code

• No more commuting to and from work

• Save money by not commuting, not eating out, and perhaps, not paying for daycare.

• More flexible schedule—if your work is time flexible, you can work around your schedule instead of working during office hours.

• Less likely to get sick

• Possibly higher morale from not having to deal with a boss or coworkers

• Increased productivity, according to studies

• Fewer negative influences


The Disadvantages of Working from Home

Before you make the decision on a part time work from home job or business, however, consider the potential disadvantages of working from home:

• The social factor—don’t underestimate the advantages of being able to socialize in the office. Being around people is very important. If you are to work at home, have an active and varied social life. If your business is centered on meeting people and you work at home, your challenges to leave your home will be even greater.

• Lower motivation—there is no doubt that interaction with other people is a motivating factor for many people. The synergy that results from interaction with co-workers can spark greater productivity. Having no interaction with people could lead to boredom, which could decrease your motivation.

• Merging your work life with your home life—in addition to the risk of lower motivation, there is the opposite risk of working all the time since you are in the office all the time you are home. You might be spending more time in the same house as your family but actually spending less timewith your family.

• More distractions—the home phone rings, the kids come home from school, the refrigerator beckons you, or the repairman rings the doorbell. Life can easily get in the way of doing what you have to do in terms of your work.

• Lowers discipline—all these distractions, plus you don't have a boss who is expecting to see you at a certain time and neither do you have to open a store at a certain time. These facts can result in lower work discipline even for the initially highly motivated.

It is important to take these potential disadvantages into account. You have to be a certain type of person to work successfully from home without a boss. Be careful in assessing whether you are that type of person.

Website is a Must

If you are planning to start a business from home, a website is a definite "must". Clients and customers are not going to find you at home like they would if they were driving by your location. Instead, they must find you on the internet. Read carefully through the "Building a Website" Step and especially this website building tool page.

Business Goals

Setting and Achieving Goals

It is crucial to make sure you are setting and achieving goals. This is as true in business as it is in any endeavor.

The most common and most costly mistake is choosing the wrong business.Choosing the wrong business most often comes from failing to set goals. This page gives you a framework for setting and achieving goals--both personal and business goals.

Read the entire page to learn how to set and achieve your goals; then go to the next page, goal setting forms, to help you determine what your personal and business goals will be and whether a business that you may be considering will achieve those goals.

The Correct Decisions in the Correct Order

Whether or not you already have your business idea, go through this page to determine whether the business you are getting ready to start is a good business for you.

Whose Advice to Take

It's also important to determine whose advice to take in evaluating the potential of your business idea to achieve your personal and business goals. There will be people with your best interest in mind who just aren't in a position to give you good advice. Others will have their own agenda. Still others will be in a good position to give you good advice and will not have their own agenda. Watch the short video below to determine how to distinguish among the different advice givers. This advice is true for any industry. And remember, you are setting and achieving your goals.

Make the Most Important Decisions First
Now that you've made the critical first decision of taking your future into your hands and starting your own business, you need to make decisions on the basis of the answers to three more questions, each in its correct order. They are:


I. What are my personal and business goals?
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II. What are the correct strategies to achieve my goals?

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III. How can I execute the strategies I have set to achieve my goals?

The first question you need to answer is this:

I. What are my personal and business goals?

You will have both personal and business goals. Make sure you've got those goals clearly in your mind.

It is critical that you go through this process now. These are going to be the factors you will use to evaluate your business ideas.

Start Business

Why People Don't Start Businesses

The answer to: "how to make real money" is obviously to start a business. The net worth of business owners in the United States is five times higher than that of employees. In spite of this many people do not start their own businesses. Studies have shown there are three main reasons why people don't start their own business:

1. Fear of failure


With knowledge comes confidence and confidence removes fear of failure. So succeeding starts with knowledge and ends with action. This guide provides that knowledge and takes away the fear of failure.



2. Lack of capital


There are plenty of businesses that can be started with minimal capital. "Money equity" can be replaced by "sweat equity".



3. Lack of knowledge


People fail to follow through on their ideas because they have no structure to determine whether their ideas have a chance of being successful--they simply do not know how to start a business. Failing to plan means planning to fail. This guide provides that planning structure for those who follow it step by step.


The WRONG Approach to Business StartupsThe three biggest causes of business failure are:

• READY, AIM, READY, AIM, READY, AIM. This guide pushes you through the key decisions so you can pull the trigger, and be confident about the decisions you keep putting off. Preparation breeds confidence and confidence will lead you to your successful business startup.

• FIRE, READY, AIM. This guide will make sure you go through the necessary steps so you don’t make wrong decisions. By the time you are ready to "fire", you will know how to start your business.

• FIRE, FIRE, FIRE. Some people just have a lot of business ideas and start one project after the other but never get anywhere with any of them. This is because they “fall in love” too quickly and then, just as quickly, “fall out of love” with their ideas. This guide will give you a structure to establish which idea is the “right one”, the one to which you can commit, the one business you will start.
The RIGHT Approach to Business StartupsThis guide takes the steps to starting a business using the READY, AIM, FIRE approach to starting a business. By taking the step by step approach to starting your business you will be taking the right approach to your business startup and getting the right answer to your question: how to make real money.

The READY steps include evaluating yourself to make sure you are ready for what is coming. These steps will also open the possibilities of different business types. Before you focus on one idea you should take the opportunity to look at all the possibilities. This is your chance to do that.

Once you have taken into account all the relevant factors to make your choice, you are ready to focus in on the business you want. These steps are the AIM part of the approach.

Once you have a laser focus on the business you want to start, the FIREsteps will take you through the process of preparing to start your business.
Final WordsJohn Maxwell, a leadership expert, said: "It's not making the decision to do something, it's managing your decision each and every day that makes the difference."

You've got the right approach to starting your business--ready, aim, fire. It's now time to take off the bib and put on the apron. Bibs are for people who want to be fed and for those not yet ready or willing to feed themselves. Aprons are for those who don't mind getting their hands dirty; aprons are for those who are willing to take responsibility; aprons are for those who, having made a decision to do something, manage their decisions each and every day.