Category Finance

Entries 26 Total

Cost Cutting for Small Business – Payment Terms

Aug 24, ’07 3:37 PM
Author Stefan Töpfer (Editor) Categories Boomer Business, Business Ideas, Contractor, E-Commerce, Entrepreneur, Finance, Freelancer, Generation-Y, Home Business, Lifestyle, Outsourcing, Personal Business, Relationships, SOHO/SMB/SME/Micro, Self-employed, Small Business / SOHO, Social Entrepreneur, Sole-Trader, Start-Up, Suppliers, Virtual Assistants, avoid growing pain, bootstrap, do a reality check, do cost cutting, do credit control, find funding, grow your business, handle problems, lower overheads, outsource effectively, plan cash-flow, plan your business, recruit the right people, start-up in business, use online IT

There are two ways to get better payment terms from your suppliers – make sure you know what the pricing is and negotiate the payment terms last, without warning. Most businesses do not expect small business and start-up business, like SOHO-, SME, SMB-, Micro-, Lifestyle-, Home-, DIY-, Hobby-, Boomer-, Professional-, Personal businesses to negotiate payment terms, so you have the element of surprise on your side – and it makes you look more professional.

Firstly there is the extended payment term, of 60, 90 and 180 days – see if your supplier will allow any of those terms. Even if they only give you 60 days, you can always go back after 3-4 month using this payment terms in which you have shown to be trustworthy. If it is declined and only 30 days are offered – because you have no history – then this is the perfect scenario of our second method.

Early payment discounts of 2% if you pay within 7 days. This is like a 24% p.a. discount on the invoice value, not a bad way to compensate for the overdraft interest charges from your bank.

Surly you supplier is interested in your business, and is not going to decline both offers – you win either way – if they decline, then look for a new supplier. Because you are not only helping yourself with your cash-flow, but theirs too.

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Small Business Checklist: Business Costing

Aug 15, ’07 6:46 PM
Author ideasdemaon Categories Business Checklists, Finance, plan cash-flow

Do you know what your overheads and variable costs are in your business – have every worried about that? If you have then you must keep up-dating your costing every few month, as they will change as the business grow and changes. Here are a few things to look out for:

  1. Yearly costs – like insurance, spread them over 12 month and add them to your monthly cost estimate.
  2. Bank charges – easy to overlook, you may notice your banker never talks about these, check an compare them.
  3. Fixed costs – rent, rates, utilities bills, make sure you add these to your monthly out goings.
  4. Time – do you know where and on what all the time in your business is spent – you should – time is money.
  5. Bad debts – look at your past performance, come up with an average monthly figure and mark your products and services up accordingly.
  6. Buying – keep control of your spending, make one person sign off on all purchases, ideally that person should be you.
  7. Keep up to date – update your cost sheet on a regular basis.
  8. Mark-up – make sure you review your mark-up on a regular basis to protect your margins.
  9. Budget – create a budget and put it in your cash-flow.
  10. Cash-flow – compare your cash-flow fore-cast with the actual numbers on a regular basis and learn from it, it’s not about being spot on, but about knowing what happened so you can control it.

The more you know about where your money goes, the easier it is to figure out how to optimise your capital usage for maximum business benefit.

Many small business and start-up business, like SOHO-, SME, SMB-, Micro-, Lifestyle-, Home-, DIY-, Hobby-, Boomer-, Professional-, Personal businesses, fold because they don’t look after the money.

For more of my checklists see the Small Business Checklists category and as always please add to my list with your comments, tell us what works for you.

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Private Equity and Small Business

Aug 8, ’07 7:20 AM
Author Stefan Töpfer (Editor) Categories Finance, News, Personal Business, Small Business / SOHO

Private equity plays a crucial role in the manner in which new entrepreneurs can shape their business and work at making it a success. And thus it is understandable that there is a growing concern in the manner in which the Government seeks to change its policy regarding Private Equity.

The British Chambers of Commerce (BCC) has expressed concern on the manner in which small business, like SOHO-, SME, SMB-, Micro-, Lifestyle-, Home-, DIY-, Hobby-, Boomer businesses, will be affected if the government decides to clamp down on capital gains tax relief.

BCC director general David Frost says,

“While the BCC recognizes the advantages private equity managers can take of capital gains taper relief to pay lower rates of tax, we worry that any knee jerk changes could have serious implications for the entrepreneurial culture embedded within our membership.”

Currently the capital gains policy supports budding entrepreneurs who utilize private equity for their businesses and create jobs. On its part the government maintains that it needs to take steps to make the private equity industry more open and transparent.

TUC general secretary Brendan Barber says, it wants the Treasury to review the tax paid by private equity investors, and calls into question the ease with which the super-rich can claim non-domiciled tax status.

The government policy with regard to Private Equity will have a deep impact on the manner in which business start-ups work and SMBs need to pay keen attention to it.

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Want to waste some more time before you start your business?

Aug 2, ’07 7:43 AM
Author Stefan Töpfer (Editor) Categories Entrepreneur, Finance, How to ..., Personal Business, Small Business / SOHO, bootstrap, find funding, plan cash-flow

While it does take a great idea to make a good business the fact is that is just not enough to make it successful. Now that you know what your great idea is, it is time to get down to reality and facts. To begin with it is essential to have a cash-flow forcast that is viable and realistic, do a SWOT analysis and spend on hour or two – not more – reading through a business plan questionnaire, just to make sure you have not overlooked something – otherwise business plans are highly overrated for business start-ups.

There are some basic things that need to be looked into and checked before you are set to start your business. To begin with there is the financing of your small business, like home-, micro-, lifestyle-, mobile-, SME-, SMB-, SOHO-businesses, that is of utmost importance.

Remember one of the main reasons that many small businesses across a globe close down is that they did not anticipate the cash or finance they would require to get their business up and running and give it a fair chance or to put it more plainly – they simply run out of money.

It is important to understand the cash flow in the business and hence you must have an accounting system with integrated cash-flow forecasting in place, that does away with the need to pen down expenses and credits and allows you to go through your financial details in a comprehensive manner.

Is writing a business plan bad? No, but wasting to much time on it is. Ask yourself all the questions critically, but don’t spend hours, days or even weeks on it. I would do a SWOT analysis, SWOTs are:

Strengths: attributes of the business, products or services that are helpful to achieving the objective.
Weaknesses: attributes of the business, products or services that are harmful to achieving the objective.
Opportunities: external conditions that are helpful to achieving the objective.
Threats: external conditions that are harmful to achieving the objective.

I also add a little list of what I want to achieve with my business, no more then five points each. This and your cash-flow forecast should be your constant companion, you need to read and work on these every week to stay focused and see problems coming a long way off.

Next you would need to ensure that your business complies with government regulations. Take into consideration all the practical aspects of running a business and you would have a list of the infrastructure you need to have in place for your business. Having an online office is an excellent way to keep in touch with your office wherever you go.

Proper marketing and image management can ensure that your business has a foothold in the market. Finally you need to pace the development of the company and try to stick by your business goals as far as possible.

Now add some bootstrapping techniques to your small business infrastructure and you could be onto a winner.

UPDATE: I have posted the following question on our forum “ Business Plans – Have you done one?” I would love to hear from you about it.

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Watch out, watch out, the taxman's about

Jan 10, ’07 2:13 PM
Author jason holden Categories Finance, SME-Blog

According to recent reports tax inspectors are being offered financial incentives, of up to £2,000, to encourage them to collect more tax.

According to a recent article in the Timesonline, tax compliance teams throughout the country have been told to increase the amount of tax that they recover, by one quarter in 2007.

The fear with this results related bonus system approach by HMRC is that this will lead to more investigations, which in turn may lead to unreasonable and protracted enquiries from inspectors under pressure to perform.

Yes, everyone should pay the right amount of tax, of that there can be no doubt, but, is this really the way to ‘build a strong economy’, one of Gordon Browns aims when he delivered his pre-budget report at the later end of 2006.

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Book-keeping requirements – Start Up Guides – Part 7

Jul 28, ’06 1:39 AM
Author jason holden Categories Accounting, Finance, SME-Blog, Software as a Service, Start-Up, Web Technology

Okay, I know this is the least favorite part of running your own business, having to keep ‘the books’.

As a practicing accountant I can also say it is my least favorite part when a client turns up with records that are in a mess, and as a result of sorting this mess out, I am then left with the quandary of a level of fee that does not represent any value for the poor client.

It is so important, boring and dull maybe, but, it is important that you understand you have to keep proper records, not only for the tax and vat man, but also for yourself, yes yourself, how else do you know who you owe, who owes you, or if your actually making or worse losing money.

You need to look on your books as your very own window on the health and well being of your business.

So, now you know why you need to keep books, but how do you go about it.

There are many ways to keep records, from nothing (not recommended), then there is manual and next you have countless software packages, all varying in price.

Nothing at all

Worth a mention I guess – DO NOT USE THIS METHOD! There, mention over.

Manual records

If you have decided that pen and paper is your preferred choice then it would be easiest if your records are maintained on what is called a ‘receipts and payments basis’.

You will record who you pay, and who pays you when the transaction takes place, and if you are vat registered your vat will be accounted for at this time also.

You can of course run your vat on what is called an ‘invoice basis’. This method involves you claiming vat back on expenditure and paying vat on sales when the invoices are raised, irrespective of when payment is made. This would mean you need an extra couple of books for this alone, and can lead to making the whole issue far more complex.

Manual records are great if you run a small business with little real need for tracking a significant number of transactions, but once your business starts to grow getting the right information from a set of manual records will prove time consuming, and time is something you may not have a lot of.

Computerised records

This is my preferred choice; using the right package for your needs and with suitable training and support of course.

This method allows you to keep your records in either the ‘receipts and payments basis’ or the ‘invoice basis’ as mentioned above, but which ever method you opt for it will not become a messy and complex affair because the software system will deal with everything for you behind the scenes.

Computerised systems now fall into two very different camps, the first are those that sit on your computer, and as such you need to take responsibility for ensuring you back your data up on a regular basis. Also, when you buy such a system the up front costs can be expensive.

Some such systems are Sage, TAS, Clearlybusiness, and VT transaction.

Next is the new generation of SaaS (Software as a Service) offerings, these operate in much the same way those that sit on your computer do, except you use them over an internet connection . They come with the distinct advantages that backing up of data is dealt with for you, you pay a low monthly cost (note: winweb is free for one user) and not an up front cost, you can access your records from anywhere in the world as long as you have access to the internet and your accountant can also log in and see what is going on financially in your business in real time.

Some of these providers are Winweb, Twinfield, Liberty Accounts and KashFlow.

You also need to decide who will keep your records, will this be you or your spouse? Keeping your books can be very time consuming, don’t under estimate this. 

Some people will use their accountants and other will use bookkeepers. If you are going to use a bookkeeper, the first port of call should be a Professional Book-keeping Institute.

Which ever method you decide you are going to use take professional advice first, it may save you a lot of time and effort and maybe money to.

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Cash planning and forecasting – Start Up Guides – Part 4

Jul 6, ’06 11:34 AM
Author jason holden Categories Development, Finance, SME-Blog, Sales, Start-Up

I am sure you have all heard the expression CASH IS KING; well this has never been truer than in business.  The lifeblood of any business is its ability to collect its debts and pay its bills, employees and ultimately you as the owner.

There are many small businesses that are profitable, but they can find that they do not have enough operating capital to meet their immediate needs, this can result in them being forced to sell out to a competitor, seek outside investors and thereby giving away more of the business than they would like or even worse, closing the doors for good. Not exactly something you intend to happen when you start a business.

This is where forecasting comes in. You need to forecast cash resources so you know where the peeks and troughs are, when you will be swamped with money and when you won’t have any.  You have to remember that forecasting is an art; it’s by no means a science, after all none of us have a crystal ball.

When forecasting you have to bear in mind you are guessing as to when customers will pay and when you will have to pay others, you are also guessing at what the sales figures will be and how much your expenses will cost you.

Some hints on forecasting:

You need to be able to make a guess/estimate at the level of sales you will generate for the period of the forecast, this figure needs to be as realistic as possible, after all there is no point in saying your sales will be in the millions if no one in your industry has ever achieve anything past £250,000.

Forecasting sales like this is harder for a new business than an existing one; after all if you have been in business for a few years you already have historic data that can be used as the basis for the forecast.  If you’re new to business it maybe worth trying to get the historic details of a similar business operated by a competitor.

Other areas you might want to address in the forecast are what if scenarios; what if you add a new product line, cease unprofitable products, increase the workforce, or reduce the workforce for those who are not productive enough when compared to everyone else (be careful though, employees have rights).

Also, consider other areas that may impact on your forecast, is your industry subject to seasonal variations, what state is the economy in now and for the rest of your forecast.

Once you have achieved the above, you know your target sales figures and you have accounted for the numerous outside factors that will impact on your sales you now need to consider the CASH side of the forecast, what percentage of your sales will be on credit and over what period, 30 days, 60 or even 90 days, what percentage will you receive in cash, what about discounts for early payment or if a customer pays on credit card you get your money quicker than waiting 60 days, but the credit card company will charge you a percentage, all these factors must be factored into the forecast to determine what your inward cash flow will be.

It maybe you will at some point need to invest in machinery, or a new car, for this you will need money, will you take a loan out or put the money in yourself, of take on an outside investor, again this needs considering for the forecast.

Once you have dealt with the inward flow of money for the forecast you can move onto dealing with paying money out. This will operate pretty much the same as above, you need to deal with how you will pay for goods and services, over what period you are allowed credit, what and who is paid and when and how much.

Important to remember:  Once you and/or your accountant/business advisor have prepared your forecast for a given period of time don’t just put it in a draw and forget about it, your business is fluid and always changing and it is for this very reason you should do the same with your forecast, revisit it on a regular basis, update the figures for changes that are occurring, this way you will have a forecast that is worth the paper its printed on.

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The eight traits of entrepreneurship

Jul 6, ’06 10:34 AM
Author jason holden Categories Accountants/CPAs, Business Ideas, Development, E-Commerce, Finance, Marketing/PR, SME-Blog, Sales, Start-Up

This recent article from Cobweb Information Ltd caught my eye so I thought I would reproduce it for everyone. The one that interested me most was Cameron Johnson, I wonder if there are any accountants out there advising nine year olds on how to run their business?

A US journalist-turned-author reckons there are just eight traits essential to entrepreneurship:

  • Seizing opportunities that nobody else has noticed.
  • The desire to run your own show.
  • Innovative behaviour since childhood.
  • Flexibility.
  • Doggedness.
  • Self-confidence.
  • Pragmatism.
  • The ability to 'fail upwards'.

The final one, apparently, means that you should be prepared to go under – as long as you take away the lesson of why you failed, and what you can do better next time.

That's according to Brent Bowers, who says: "Some entrepreneurs brag about their bloopers. As one of the experts I talked to told me, they consider making a mess of things practically a badge of honour so long as they take stock of what went wrong and learn from it."

Some of the examples he gives of entrepreneurs showing the eight traits include:

  • James Poss, who spent his childhood pulling apart, mending and creating gadgets. He later founded the Seahorse Power Company, which makes solar-powered rubbish compactors.
  • Cameron Johnson started in business at nine, selling greetings cards online, then made $1,000 auctioning his sister's toys on eBay, before earning up to $150,000 a day while still at school by selling Internet adverts.

Find out more from Brent's book If At First You Don't Succeed: The Eight Patterns of Highly Effective Entrepreneurs.

You can also check out some of Cobweb Information Ltd factsheets, which will help you to assess your own personality traits to discover if you could run your own business.

ABOUT THE AUTHOR: This small business news article has been written by Cobweb Information Ltd, the UK's leading publisher of information for small businesses and their advisers. To get more regular, fresh, practical information and news about starting up and running a small business, go to www.enterprisequest.com.

© Cobweb Information Ltd [link: http://www.cobwebinfo.com] 2005
Reproduced with the copyright owner's permission

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The Value of Keeping Your Accounting up to date

Jun 15, ’06 1:49 AM
Author Kathie Thomas Categories Accounting, Business Ideas, Data Security, E-Commerce, Finance, SME-Blog

If you're like me you use your credit card online to purchase domain names, update software, purchase new software or online services, buy the odd book here and there, and so on. The convenience of buying online just makes things happen faster – and we're in a time where everyone wants things now.

I received a letter from my bank today advising that someone from SHG.D…. tried to process a payment of SEK$20,338.32 – over $3,000 in my own currency to my credit card. The bank knocked it back, thankfully, and then wrote a letter advising me. Turns out there were several other attempts too, but because there were unavailable funds at the time, they knocked it back. I asked the bank officer about this as I saw no evidence on my account online of any debits and credits corresponding to this. She told me they suspected the attempts were fraudulent and that's why they hadn't shown up. She also said they were from middle Eastern countries and one was from Malta and they were fairly sure that I wasn't over there – nor had any of my previous spending habits shown amounts to these values.

I check into my account on a daily basis and reconcile my bookkeeping every 2-4 days, depending on how many entries have occurred. As so many of my clients now pay me online I need to be able to keep my ledgers up to date and it helps me see what else is going through the account – any cheques that have recently been processed, a periodic debit that hasn't gone through yet, and so on. It makes good sense to keep up to date with your accounting and the bank officer this morning confirmed it is also a good practice if you're running an online business. Another good thing is that I usually pay by Bpay and only use my Visa for small incidentals such as the items I listed above – another thing that alerted the bank to the large so-called purchases with my Visa card. Something else that assists is that I shift the larger proportion of my cleared funds into another account, which incidentally isn't connected to my Visa, so that has been a saving grace for me also.

I asked her how they got my credit card and she replied that often software is used to try out variations of numbers with expiry dates and when they find some that work they just keep using them – sounds like they must sell these numbers to others too, hence the use in different countries. I am careful about which sites I use my Visa on and was momentarily concerned that one of these may have been compromised but that doesn't appear to be the case.

I'm hoping my post on this topic may assist you, the reader, in developing a regular habit of keeping an eye on your bank accounts and monitoring any activity that may appear to unusual. KMT

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Want to do good?

May 22, ’06 3:35 PM
Author Dennis Howlett Categories Development, Finance, SME-Blog

Late last week, Shel Israel, co-author with Robert Scoble of Naked Conversations contacted me about a forthcoming European tour he and venture capitalist Rick Segal are planning for August. I explained that most of mainland Europe and lumps of the UK will be away on holiday so it might be tough to fill the time. Shel was of the view that startups would forego holiday as they beaver away to get product or services out the door. He obviously doesn't know a great amount about the European psyche :)

Shel and Rick are trying to find early stage businesses developing for the so-called Web 2.0 space. That means they are looking for individuals and small that are developing the next generation applciations. Details are dribbling out slowly and for those interested, I suggest subscribing to Shel's RSS feed so you can receive automatic notification of updates.

This is unusual. It is rare for US VCs to look outside their borders as most of the action is said to happen in Silicon Valley. Also, the lads want to find folk with really smart ideas rather than fully baked business models. They have made it clear they are not after PowerPoint presentations (phew – I hate those at the best of times.) As professional accountants, this is a golden opportunity for you to support people in your community who are coming up with ideas that you think could make a difference in the world.

Let's put it this way – how many people do you know who have ideas that haven't a snow flake's chance in hell of getting funding because they are just that – an idea that is as yet unproven or untested? I remember meeting one such in the 1980s. His idea was so mad I thought it would never get funded. But we did and today he is a very wealthy person employing many hundreds of people. So there is hope. And nothing to lose.

Anyone out there brave enough to engage with the big bad world of venture capitalism? Anyone know which is the next Skype?

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