Simply Junior

The last article ended with the business plan updated through the Operating Income line. So we’ve discussed revenue, direct expenses, and most SG&A expenses. Here we’ll finish with the calculation of net income. We’ll wrap up our business plan discussion with some overall thoughts in the next article.

The next area we need to consider are the effects of any financial activity your firm will be engaged in. Interest income and expenses need to be forecast. Part of the overall aspects of your business plan will be what financing you receive, how much of that money you will use directly, how much you will use over time, and how much that not currently being used will earn.

For instance, let’s say you received $100K in financing at the beginning of year one. You anticipate that, given your specific operations and level of business, you will use $50K by the end of year one. The average amount that you will not be using at any given time during the year is $75K, as you run it down from $100K to $50K. You will probably have that money in an interest bearing account. We can assume an interest rate, say 1%, and multiply by the average balance, $75K. The result, $750 would be our interest income for year one. You should continue your cash flow analysis and calculation through years two and three.

Of course, you may have some Interest expense as well. If you financed your business with a loan of $100K, for instance, then you would calculate the interest expense for the year. If the interest rate were 6%, then your Interest expense for the year would be $6K. Depending on your payback schedule, the interest expense could be slightly different – this assumes you are paying interest-only for the year, but this would be close in any case. You should continue this projection for years two and three.

Most small business will not be paying out dividends, but if yours will, the next line is where they would be shown.

We should deduct our net interest expense and dividends from our Operating income to give us our Net Income before Income taxes. Last but not least, we have income taxes to project. For simplicity, we’ll assume that the business is a sole proprietorship. In that case, tax rates are the same as individual rates. Your net income from your business is added to any other net income you may have through any other salary or business, and the tax owed would be calculated accordingly. In the same way, you should estimate the tax for years two and three.

Once you deduct your income tax from the previous line you will have your projected Net Income for your business. At this point you will have essentially completed the revenue, expense and income picture for your business as per your business plan. Of course, an ancillary product of this process would be year-end balance sheet figures and cash flow statements. These will show the cumulative financial results / effects and cash position, respectively.

Please see the next article in the business plan article series where we will take a step back and take a look at the big picture and the most important issues related to the business plan.

Trying to get a business loan, the lender will require among other things a business plan. One should not panic, there are plenty of resources on the web and off-line that can help. Really, a business plan is just a plan that shows the lender one has done their research and developed a reasonable plan to make their business a success. The primary difficulty with the business plan is the financials. Even experienced entrepreneurs sometimes have trouble with their financials. The following is a quick synopsis of what the three financials in a business plan are in relation to a business. These financials are an income statement, a cash flow statement, and a balance sheet.

The income statement is also known as a profit and loss statement (P&L statement). The intent of an income statement is to show how much net profit the business is or will be generating. It may be one of the simplest of statements because it calculates first a business’s gross profits. Gross profit is revenue minus cost of goods. Then the statement begins to account for the other business expenses like payroll, rent, utilities, advertising, etc. Once that is calculated and subtracted from gross profit, it leaves the net profit. This will be an important figure for a lender.

The next financial is the cash flow statement, which essentially shows how cash is flowing in and out of the business. It can be argued the cash flow statement is similar to the profit and loss statement with a lot of the same categories. However, a cash flow statement accounts for loan payments (principal), owners draw, and capital purchases, but not depreciation or write-offs. Essentially any cash transaction is accounted for, so a company’s liquidity is being tracked. Its goal is to point out when a business will need cash or be cash rich.

The final financial is the balance sheet. Everyone talks about a balance sheet being a snapshot in time about a company’s health. The balance sheet totals the company’s assets and liabilities. It also tracks the owner’s equity by placing it with the liabilities, this provides a way for the two categories to balance. When totaled the assets and liabilities with owner’s equity should equal each other. What one finds with this financial is where the business capital and liabilities are placed. It may not be too good if a business’s assets are primarily in accounts receivables or equipment. Or the liability column is too heavy in the owner’s invested capital showing little capital coming from revenue. Regardless, a balance sheet is a company’s momentary report card.

When writing a business plan one should not be too afraid of the financials. Once the planner understands what they are trying to show, the numbers will come naturally to complete the plan.

It is possible that you might need cash to start your business. If this is the case, think about small business loans. Depending on the business you are starting, you might need more money than you currently have. The government aids worthwhile small companies with government small business loans that come with stipulations that must be met by the enterprise before the loan is approved. While the government does guarantee them, for the loan to stay within the small business itself, certain terms and conditions must be met 100% of the time. Small and medium business loans funded by the government carry specific limitations and terms.

The hardest thing for a small business owner is often just obtaining the money needed to run necessary business operations. If you approach it correctly, your preparation for small and medium business loans can be very simple. It’s all up to you. When a bank receives a loan request from a new business owner or one starting over, they always consider the risk factors. But you will be able to obtain a favorable business loan as long as you are completely prepared.

A continuous flow of cash is required to run any small business, but the finding of such cash is a very hard experience. Loans for small and medium businesses offer the perfect answer to this dilemma, however you must be fully prepared to obtain these loans. Lending institutions, such as banks, do a thorough assessment of the borrower’s risk factors before considering the approval of your business loan terms and application. For this reason, unless you can truly meet the requirements of the lender, your loan request will probably be denied.

Prospects for small and medium businesses are available in places ranging from the web to publications concentrating on smaller businesses. These opportunities come with the chance for small business loans that can make your visions become reality. There are countless amounts of small and medium business opportunities, given the right amount of time and research. Be sure that you are really interested. The next thing to do is seek small and medium business loans that will help you get started on your small business.

There is a number one rule in building business credit and that is to pay your bills on time. This shows other businesses, particularly investors and suppliers that the process of business is being carried out the way it should be. But even more importantly it allows banks and financial institutions to see for themselves whether or not the business is operating under good financial parameters.

When a bank or other lending institution receives a request for a business loan one of the first things they do is check the business credit score with Experian Business, Equifax Business or Dun and Bradstreet. The reports a creditor can buy from these companies will immediately identify any outstanding business liabilities as well as showing how well a company has been doing to pay their bills and keep their suppliers happy.

The other important factor in building business credit is to for the owners or principals of a business to look after their own personal finances. When a bank lends money in the form of a business loan or business line of credit they have to satisfy themselves that the corporate officers of the business are themselves creditworthy. In fact under the Small Business Administration guidelines this is one prerequisite for banks to access funds under the Small Business Act.

Another element in building business credit is to keep good financial records and have a solid accounting system that not only tracks accounts payable and accounts receivable, but is also capable of making forecasts and projections about financing and cash flow problems before they arise. One of the major reasons that small businesses fail is that they do not properly track their financial situation so even if a business never has to borrow money, it will need to be financially well organized just to survive.

A final way in building business credit is to create a business credit track record. A business can do this by borrowing small amounts of money or arranging limited financing using personal guarantees. This shows the banks that a business is not afraid to invest in itself and is prepared to back that up with their own personal monies. Just like getting a car loan and making all twenty four payments on time at the bank will improve your personal credit so too will meeting your financial commitments in a business arrangement improve and build your business credit.

Building business credit is a process that will evolve over a period of time. Just staying in business past the first two years will improve your business credit outlook. So too will keeping your suppliers happy and ensuring that your financial recording systems are accurate and up to date. The longer that you pay your bills on time the greater your business credit will grow. Look after the small things in your business and building your business line of credit will look after itself. Learn more about building business credit at http://www.corporatecredit.biz

Besides the myriad of problems that a small business owner faces, the most severe issue is lack of capital and limited avenues to raise capital from external sources. Being a small business owner, it is never easy to get a business loan, as most lenders would consider them as borrowers with unstable income and poor credit. Justifiably, as most small business often do not have a steady flow of income in the initial period and runs on low profit, it actually becomes a challenge for the owners to pay off their business loans. Most financial institutions and banks are therefore not very enthusiastic about lending to these small business owners and are concerned about their ability to repay.

However, the good news is that there is a group of lenders who would not like to let go this increasing market segment of small business borrowers and they have devised a lending scheme that fits the requirements of the small business owners. They can use these small business loans for expansion of their business, purchasing new tools and technology or even to meet revenue expenses like paying wages or buying raw materials.

Apprehensive about the increased risk involved in lending to small business owners, these lenders would always take sufficient measures to cover against any probably loss. In most cases the small business owners would be required to keep an asset as the security for his borrowed amount. Also, the interest for small business loans is always charged at a higher rate than other loans. Unlike normal business loans there is often a cap to the amount that any financial company would lend to a small business owner. Depending on the stability of the business, the credit history and several other factors the maximum amount of loan offered is decided.

Small business loans [http://1rstfunds.com/Small-Business-Loans.php] can be either for short term (ranging from few months to an year) or long term, which can be repaid over a longer period that might stretch even to 20-25 years. The small business entrepreneurs needs to decide on this repayment period and other terms and conditions depending on their specific requirements.

The most important factors that most small business owners should consider while deciding on a loan is the flexibility of repayment. As most small business would experience irregular income for some period in its life cycle, a flexible repayment schedule can be immensely helpful. There are lenders that offer extremely flexibility in terms of amount paid towards repayment as well as any pre specified period of repayment. This helps the small business owners to make repayments for any particular period based on their income during that period. As there is no specific pre determined amount to be paid, there is no question of underpayment or further interests being applicable. However, it is very difficult to find such a lender who will be so sensitive to your financial condition and offer you the highest degree of flexibility.

Alternative to small business loans there are many other companies that are offering business cash advance to small business owners, where they are not liable to repay. Business cash advance is not a loan and the organization offering this cash advance gets their money from the credit card sales that the business does in a specific period, there by reducing the burden of paying back the loan and the terms and conditions to qualify for such cash advance are also relatively simple.

With this increasing number of sources available for small business funding it is high time that you unleash the entrepreneur in you and give shape to that dream project you have in your mind.