The Basics of Building a Budget for Your Business

For many small business owners, the process of budgeting is limited to figuring out where to get the cash to meet next week's payroll.

There are so many financial fires to put out in a given week that it's hard to find the time to do any short-or long-range financial planning. But failing to plan financially might mean that you are unknowingly planning to fail.

Business budgeting is one of the most powerful financial tools available to any small-business owner. Put simply, maintaining a good short- and long-range financial plan enables you to control your cash flow instead of having it control you.

The most effective financial budget includes both a short-range month-to-month plan for at least a calendar year and a long-range quarter-to-quarter plan you use for financial statement reporting. It should be prepared during the two months preceding the fiscal year-end to allow ample time for sufficient information-gathering.

The long-range plan should cover a period of at least three years (some go up to five years) on a quarterly basis, or even an annual basis. The long-term budget should be updated when the short-range plan is prepared.

While some owners prefer to leave the one-year budget unchanged for the year in which it provides projections, others adjust the budget during the year based on certain financial occurrences, such as an unplanned equipment purchase or a larger-than-expected upward sales trend.

Using the budget as an ongoing planning tool during a given year certainly is recommended. However, here is a word to the wise: budgeting is vital, but it is important to avoid getting so caught up in the budget process that you forget to keep doing business.

It is important to budget both the income statement and balance sheet. This enables you to consider potential cash-flow needs for our entire operation, not just as they pertain to income and expenses. For instance, if you had already been in business for a couple of years and were adding a new product line, you would need to consider the impact of inventory purchases on cash flow.

Budgeting only the income statement also doesn't allow a full analysis of the effect of potential capital expenditures on your financial picture. For instance, if you are planning to purchase real estate for your operation, you need to budget the effect the debt service will have on cash flow.

In the future, a budget can also help you determine the potential effects of expanding your facilities and the resulting higher rent payments of debt service.

In the startup phase, you will have to make reasonable assumptions about your business in establishing your budget. You will need to ask questions such as:

1. How much can be sold in the first year?
2. How much will sales grow in the following year?
3. How will the products and/or services you are selling be priced?
4. How much will it cost to produce your product? How much inventory will you need?
5. What will your operating expenses be?
6. How many employees will you need? How much will you pay them? How much will you pay yourself? What benefits will you offer? What will your payroll or unemployment taxes be?
7. What will the income tax rate be? Will your business be an S corporation or a C corporation?
8. What will your facilities needs be? How much will it cost you in rent or debt service for these facilities?
9. What equipment will be needed to start the business? How much will it cost? Will there be additional equipment needs in subsequent years?
10. What payment terms will you offer customers if you sell on credit? What payment terms will your suppliers give you?
11. How much will you need to borrow? What will the collateral be? What will the interest rate be?

As for the actual preparation of the budget, you can create it manually or with the budgeting function that comes with most bookkeeping software packages.

source- entrepreneur.com

The 10 Fastest-Growing Industries for Small Business

Past performance is no guarantee of future results, as the old business truism says. But you also may have heard that you can’t know where you’re going without knowing where you have been.

To get a sense of which industries small businesses are growing in, the analysts at Raleigh, N.C.-headquartered private-company financial-information company Sageworks ran some numbers for Entrepreneur.com. Here’s a look at the industries where U.S. companies with $10 million or less in annual sales have shown the highest and lowest percentage change from Jan. 1 to Dec 31, 2012. As a benchmark, the average growth rate across all U.S. small businesses in the time period was 8 percent, says Libby Bierman, an analyst at Sageworks.

Fastest-Growth Industries for U.S. Small Businesses in 2012

1. Residential building construction: 14.77 percent
2. Building custom software and servers for businesses: 14.29 percent
3. Machinery, equipment, and supplies merchant wholesalers: 13.75 percent
4. Management, scientific, and technical consulting services: 12.31 percent
5. Architectural, engineering, and related services: 11.40 percent
6. Foundation, structure, and building exterior contractors: 11.37 percent
7. Building finishing contractors who make additions, alterations, maintenance and repairs: 11.32 percent
8. General freight trucking: 10.41 percent
9. Services to buildings and dwellings, including pest exterminators, janitorial services, and landscaping: 10.11 percent
10. Other specialty trade contractors, including site preparation activities and other specialized trades: 10.04 percent

Related: Hunting for Business Ideas? Consider Looking at These 8 Hot Industries

Slowest-Growth Industries for U.S. Small Businesses in 2012

1. Skilled nursing care facilities: -3.29 percent
2. Printing and related support activities: 1.86 percent
3. Automotive repair and maintenance: 2.81 percent
4. Offices of physicians: 3.00 percent
5. Highway, street, and bridge construction: 4.24 percent
6. Insurance agencies, brokerages, and other insurance-related activities: 4.32 percent
7. Lessors of real estate: 5.07 percent
8. Other miscellaneous manufacturing including jewelry and silverware, sporting and athletic goods, dolls, toys, and games, office supplies other than paper, and signs: 5.55 percent
9. Offices of health practitioners other than physicians and dentists, including chiropractors, optometrists, mental health practitioners, speech and occupational therapists: 5.98 percent
10. Other amusement and recreation services including bowling centers, golf courses, and recreational centers: 6.03 percent

Related: Franchise Forecast Continues Strong for 2013

The good news for entrepreneurs is that much of the fastest growth is in service businesses, which can be started without a lot of money to buy equipment and inventory, says Bierman. Software development, management consulting and architecture firms have been frontrunners have been for a few years now, says Bierman.

Not all of the businesses on the fastest-growing list are service based. In particular, the residential housing market has just started to recover, and that is supporting businesses related to the construction industry, including foundation and exterior construction and specialty contractors. A lot of construction projects were abandoned during the recession and so part of the bounce in construction is businesses and individuals picking back up old half-finished projects.

Business services and construction are looking strong in the coming years. “They provide services that are, maybe not critical, but very much needed by other businesses and people who are trying to even grow their homes,” Bierman says. “I don’t see these industries going anywhere. Maybe their growth rate won’t be as high as it has been, but I don’t think it will be a decline anytime soon.”

Related: Most New Business Ideas Hatching for 6 or More Months

A list of the fastest-growing industries for all businesses would include manufacturing, says Bierman, but most successful manufacturers have more than $10 million in annual revenue. “Manufacturing as a whole has been something that has pretty positive news lately,” she says. “If those manufacturers are having pull, the middlemen, or the wholesalers that are transacting those sales, will continue to see growth, too.”

During the depths of the recession, many industries were contracting. Now, almost all industries are growing, albeit some at more sluggish rates. The slower-growth companies are not seeing impressive growth rates because they are entrenched in technology that is becoming obsolete, such as printing. But some of those industries are seeing slower growth simply because they have relatively inelastic demand. For example, an economic recession does not change the fact that sick people need to go to the doctor. The growth rate for physician’s offices does not typically change drastically.

Overall, the home health-care industry has seen positive growth rates in revenue over the past year as consumers look for an alternative to moving into a nursing care facility, says Bierman. Skilled nursing care facilities come up on this list as a shrinking, but that’s partly because of the restrictions placed on the data. For this research, Sageworks included only those businesses with less than $10 million in annual revenue. The decline in skilled nursing care facilities may be an indication that smaller facilities are losing ground to their larger competitors or home health care alternatives, she says.

source- entrepreneur.com

What Would-Be Entrepreneurs Fear Most About Starting Up

While a majority of Americans prefer to be self-employed, relatively few actually take the plunge. What's stopping them?

According to a 2012 survey conducted for the European Commission by TNS Custom Research, 51 percent of Americans would rather be self-employed and 44 percent think it would be possible for them to go into business for themselves within the next five years -- a figure that has increased 8 percentage points since 2009.

But despite the relatively large number of Americans who want to be in business for themselves and believe it feasible in the near future, relatively few would-be entrepreneurs actually take the initiative. Bureau of Labor Statistics data indicate that only about 6 percent of the adult population is self-employed, making the fraction of Americans who would prefer self-employment to wage employment about eight times as large as the share of Americans actually working for themselves.

Related: Why Americans Love Small Business

Why are so few would-be entrepreneurs starting businesses?

While a number of those surveyed have no intention of becoming entrepreneurs any more than they might act out their preference to play professional basketball or be a runway model rather than continue their day job, a surprising number have legitimately considered founding their own company and not followed through. One third of the people who told TNS they wanted to start a business said they gave up on the idea after having thought about it or taken steps to get the company going.

A number of those who wanted to start-up but didn't, faced real obstacles that kept them from going into business for themselves -- 4 percent could not come up with a business idea, 15 percent didn't have enough capital, 8 percent said they lacked the necessary skills and 2 percent said administrative barriers held them back.

Related: 10 Questions to Ask Before Quitting Your Job to Start a Business

Most people, however, didn't go into business for themselves because they were afraid of what would happen if they didn't succeed. When asked to identify what would-be entrepreneurs most feared about starting a business, the top responses were a fear of going bankrupt (38 percent) and a fear of irregular income (37 percent), which amount to a significantly larger sum than those who feared personal failure and losing job security.

But while the largest number of would-be entrepreneurs often stop themselves from starting a business because of the financial risks that self-employment entails, making money isn't the reason most Americans prefer to be entrepreneurs in the first place. Only 9 percent of respondents said they preferred self-employment because it offered a greater potential for making money than working for others. Instead, a majority -- 54 percent -- said they preferred to be entrepreneurs because of the independence self-employment affords, and a third said they would prefer it for the freedom to decide when and where to work.

In the end, money still plays an important role in influencing whether or not people go into business for themselves. While the opportunity to make money doesn't draw many Americans to entrepreneurship, the fear of going broke keeps them from taking the plunge.

source: entrepreneur.com

Fresh Idea: The Unlikely Inspiration Behind Food-Saver FreshPaper

By the time she was 17 years old, Kavita Shukla held multiple patents. Today, she is the 27-year-old CEO of Fenugreen and inventor of its core product FreshPaper, a technology that aims to keep fruits and vegetables fresh for longer. Inspiration struck in an unlikely place: a tooth-brushing accident while visiting her grandmother in India, an experience that has shaped her core business philosophy.

No idea is too simple, Shukla said today at the Women in the World Summit, where she was honored as a "mother of invention." The annual conference in New York is hosted by Newsweek and the Daily Beast and gathers some 2,500 attendees, including A-listers like Hillary Clinton, Oprah Winfrey and Angelina Jolie. Shukla shared her startup success story and lessons for other aspiring inventors.

At 13, Shukla accidentally drank the water while brushing her teeth at her grandmother's home in India -- a recipe for disaster in a country with notoriously unsafe tap water. As a remedy, her grandmother mixed up a batch of herbs and spices. She didn't get sick. When she returned home to the U.S., Shukla started experimenting with those same spices as part of a middle-school science project and discovered the combination was a potent inhibitor for bacterial growth.

A few years later, when she was a senior in high school, FreshPaper was born. It is a simple sheet of paper lauded as a "dryer sheet" for produce. Put a piece of FreshPaper where you store your fruit and vegetables, and they will stay fresh up to four times longer, the company promises.

Last year, Shukla launched FreshPaper in a local farmers market in Boston. It rapidly gained attention through word of mouth and is now sold in 35 countries. While she initially imagined that the paper would be most useful in the developing world, as 1.6 billion people globally live without proper refrigeration, the product is increasingly popular in the U.S. and recently became available at Whole Foods.

"I didn't realize [food spoilage] was a big issue in the U.S.," said Shukla. "I was really amazed by the response. People said things like, 'FreshPaper makes it possible for me to eat healthier and for me to afford fresh healthy fruits and vegetables.' Now, we actually donate FreshPaper to local food banks."

The next major step is to engage with farmers, both in the U.S. and in the developing world. If she could get FreshPaper in their hands, Shukla believes they could stop a great deal of food spoilage at the source and create more access to healthy food for people around the world. Fenugreen has already worked with farmers in Malawi and Haiti and hopes to expand.

Shukla offered these three tips for aspiring entrepreneurs.

Simplicity is valuable. 
"FreshPaper is powerful because it's so simple," Shukla said. "Simple ideas are the ones that have the power to change things because they can be used by everyone, everywhere around the world."

A good idea doesn't have to be trendy. 
"Believe in your idea," said Shukla. The next big thing doesn't need to be a fancy mobile technology or app. You never know how your idea will connect with others until you test it out.

Inspiration is everywhere.
"I often think [of] what would have happened if I hadn't drank my grandma's mixture, or dismissed it," Shukla said. Don't be afraid to play and experiment. Her grandmother's potion may as well have been magic, she said. 

source- entrepreneur.com

3 Apps to Help You Write a Marketing Plan

You might have a great product or an excellent service but your business won't grow unless people know you're out there. That requires marketing -- online, mobile, on Google, Facebook, direct mail or even printed flyers on doorstep. But where do you begin?

It all starts with a marketing plan. It's a written strategy to help achieve your goals and spread the word about your startup.

Here are three apps that can help you figure out your needs, understand your competition and develop a cost-effective marketing strategy:

1. Marketing Plan Premier 
This comprehensive iPad app is both a fill-in-the-blank tool and a mini-marketing text book. Marketing Plan Premier relies heavily on the idea that all good businesses provide a solution to a consumer problem. The initial steps involve defining that problem and how your product solves it.

From there, the app helps you analyze your competitors, determine your target market and come up with a price. Finally, the app briefly runs you through options for advertising.

Related: A Data-Driven Reality Check for Your Marketing Budget

Once you fill in all the blanks, Marketing Plan Premier inserts your answers into a pre-written multi-page, executive summary. You can export the finished Word document by email or through Dropbox.

Price: $9.99

2. Marketing Plan App 
If you don't need a lot of guidance, Marketing Plan App can get you similar results in less time. The app is available for iOS and Android, and it's formatted to work with the smaller, mobile phone screen.

This app can help you craft everything from your Vision Statement and market analysis, to helping you determine your marketing budget. After you fill in the blanks, save the document as a PDF or Word doc, then email to export or print straight from your device.

Price: $9.99 for iOS, $7.99 for Android.

Related: Writing a Business Plan? Don't Forget About Marketing

3. MarketMyBiz
This marketing plan app comes from a very unusual source: the government of Australia. MarketMyBiz is a beautifully designed app for the iPad or Android tablets. It isn't as wide-ranging as Marketing Plan App, but the navigation structure is intuitive and you won't get bogged down in boxes as you move from page to page.

This app also includes a section that helps you discover your weaknesses and helps you create a plan to address each one.

When you're finished, MarketMyBiz compiles your answers into one, simple report that you can print from the tablet or email as a PDF.

Price: Free

source: entrepreneur.com