Simply Junior

This is the second in a multipart series to ensure that your new business is successful. This article also concerns business plans. We previously covered how to estimate revenue for the first three years.

The next step in the process is to estimate your cost of sales. Your cost of sales for many businesses is the cost of goods sold, or the cost of the products and other direct expenses that you actually sold to your customers. This would be appropriate for a manufacturer or distributor. So let’s say selling headlight bulbs is part of your business, and you plan to sell 10,000 of them in year 1 (as per your previous revenue/volume projections). Estimate what the average cost of the bulbs to you is. You may sell many different kinds so you need the weighted average. Let’s say it’s 10 dollars. And this includes any direct cost involved with readying them for sale. Multiplying this out you can see your cost of sales is projected to be $100,000 for year one. Estimate any cost changes you anticipate for years two and three. Multiply to arrive at your direct expenses for those years.

You may have many items that you intend to sell. You should repeat the above for all of them and add together for a cost of sales total. This total can be deducted from your total Revenue figure for year one to produce your gross margin amount. Gross margin is the amount left after deducting direct costs from revenue. You should then continue this calculation for years two and three, making any adjustments to your direct expense that you may anticipate.

We should look at the business plan as a more strategic document. The concept of cost of customer acquisition is important, even if it doesn’t explicitly show in your P & L statement. This is the cost that it takes to acquire your customers, both in total and broken down to a per customer basis. This is important to know as far as general profitability, unit profitability, and in a marginal cost sense. Marginal cost is that associated with producing one additional unit.

Components of customer acquisition cost may include advertising, direct sales expense including sales commissions, and affiliate marketing expense. If we make an assumption on how many products a customer will buy or dollar value spent per customer, we can calculate the cost per product. So if we plan to spend 10,000 dollars in those three categories to acquire our customers from the previous example, then we would have a one dollar per unit acquisition cost. A related concept is LTV or lifetime value of a customer which is the estimated lifetime dollar amount spent per customer.

Of course, one can see how different marketing programs might influence what total revenue the acquisition expense might be. I’ll discuss this separately when we examine scenario analysis.

We can now take a look at the remaining expense items in your projected Profit & Loss statement.

The next general expense category is called S, G & A, or Selling, General and Administrative expense. This includes important items such as compensation (salaries and fringe benefits), rent, travel, office supplies. It also includes marketing expenses that we’ve quantified above. The largest component is usually compensation. Carefully analyze what personnel you will need. Determine what the average salary is and the number of people. A good rule of thumb is to add 30% for fringe benefits, but this will vary depending on the benefits you offer and what jurisdiction you operate in (ex: state workers compensation).

In the next article in the series we will continue with SG&A and other expenses in your business 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.

This one entails a well planned way in order to succeed. Well laid plans for the business before it kicks on the ground is quite essential and a most definite to set up a strong foundation of the business.First one has to plan on the type of business to start up. Various points should be put into account when coming up with the business ideas.

Then a suitable name for the business should also be put in place and should match the type of business notion and the services and products to be given. Then the other big step is setting up a budget of the business. This one will require thorough market research and survey to come up with the right figures. Budgeting will incorporate all the business entities from the premises on which to operate and also from the products targeted in the business plan.

This will be followed by a genuine way to finance the business, take a step to register your business and put it in a formal legal structure in order to operate smoothly and within the law, in this you will acquire business licenses and permits. If necessary a new business may require selling itself, this is to be done through advertising the business products and services rendered to make it known.

With all these in place, you may seek advice from experts and also business consultants. Business magazines also will equip you will important details, all this wrapped together will give one enough courage to start-up a small business having a strong belief the foundation set is also strong enough and the business can kick off.

The essence of the 5K business (a business you start for $5,000 or less) lies in the fact that you can have low overhead expenses and make more money than your competition. But the 5K biz model also has requirements that need money and time. Often new business owners make the mistake of spending too much and deplete their resources.

Renting office space and buying new, state-of-the-art equipment are the top on my list of can-do-withouts. The success of a new 5K biz depends on your ability to keep your profits high and that is possible only if you equip yourself with some smart money-saving tips.

The best money saving tip I can give you is to work with online businesses as much as possible. With cut throat competition on the web, it isn’t difficult to find Internet businesses that excel in their field and offer you the most innovative products at prices the brick and mortar counterparts can’t match.

Here are 11 ways to reduce your expenses and keep more of the money you earn through your 5K biz. Let’s take a look:

1. Office space: A lot of new business owners feel having a well furnished office will give them a professional look. But most 5K businesses don’t really need an office to meet with their clients and can work out of a spare room. In a case like that, is it wise to spend hundreds of dollars every month on renting office space? However, if you still feel you need an office occasionally, try this new concept of renting office space for short periods. Look up ‘office rentals’ in your city’s Yellow Pages and you are sure to find one like [http://www.intellilgentoffice.com] or http://www.officeconcepts.com . By being a member of these groups, you can rent office space from them for as little as $11 an hour, have an official mailing address, a receptionist, and eliminate a big monthly bill.

2. Office supplies and equipment: Supplies like stationary and brochures can be very expensive but not if you know how to keep the costs low. I advise 5K biz owners to not print color stationary because it is an expenditure that doesn’t add value to your services. Try using black & white stationary that can be designed and printed on your own computer system. The same is true for printing brochures. Print if you must but keep the number low because brochures and other marketing collaterals are bound to become obsolete quickly as you grow in the business and add or delete services. Buy refurbished or second hand equipment from online auction sites like http://www.ebay.com to save money on computers, printers and other consumables.

3. Car expenses: This is one expense you can do little to minimize. However, there are a few things you can do to cut down your car expenses. For one shop around for economical car insurance to reduce your total bill. Another money saver is to try and resist the charm of the latest model because it doesn’t really add to your image but increases your expenditure. Thankfully, you can use your existing car for business purposes and deduct most of the expenses. To keep a check on your auto expenses, it is a good idea to put all business charges on a separate credit card.

4. Bank charges. There are no free business checking accounts at any bank. But you could look for a bank that offers reasonable charges and is close home so that you don’t add to your auto expenses by driving across town. You can try online banking but take care to check out the quality of their services and transaction speed. You may find that using the local bank is the best deal for maximizing your time and convenience.

5. Communications: An important factor of any business and especially a 5K business is easy and quick communication. Your clients should be able to reach you easily. Thankfully, there are several options available to keep your communication costs low. Growing competition has made phone services more affordable and easy to use. Use a service that offers add – ons like voice mail, caller ID, call waiting and forwarding. Having a fax and an email account are must haves for a 5K business and are also great money savers. Try [http://www.efax.xom] for a cheap way to get faxes without paying for a separate phone line.

6. Logo: Here is a great opportunity to use online graphic artists and get a great deal. There is a growing community of freelance designers on the Internet and getting a professional logo designed is a matter of a few days and as little as $50! Check out http://www.elance.com and http://www.guru.com.

7. Business cards: Business cards are a must for they not only give your company a professional image but are also a great advertising opportunity. I use http://www.vistaprint.com and http://www.iprint.com to print my business cards and save some money. Again a word of caution: don’t print 1000’s of cards at first. Start with 250 or so. Wait for your company to mature and see what services you want continue to offer. As you grow and learn, you will find that your business model will change.

These are big costs to be saved and if you can find an alternative to the elements of a traditional business model, you give your 5K biz a jump start on competition. With online businesses booming, see if you can find a deal and save that startup money.

Today’s recession has had an impact on personal and business credit cards. Over the past 1-2 years many any people are receiving letters from their credit card lenders informing them of an increase in interest rates or a decrease in the credit limit.

Small business credit cards can be an additional source of financial income. They also help in keeping other lines of credit open. Using this type of credit card can ensure that suppliers are paid on time while giving the business an interest-free period (float) in order to obtain enough money to pay off the credit card debt. As the recession has begun to deepen, businesses have found that obtaining credit cards for their business has become much more difficult.

The worst thing a new business owner can do is to use their own personal credit card to finance their business purchases. This makes it very difficult to separate business and personal finances, but also makes the individual responsible for the debt of the business. Not a good thing!

Some businesses are using business even credit cards to pay their tax bill, which is tempting as it avoids any fines for late payment. There is however a fee for doing so. Usually, this fee is significantly lower than the penalty would be for not paying taxes on time.

There are still plenty of opportunities out there for small businesses who have good credit record to take advantage of their business’ credit cards. Even though lenders are stricter in their acceptance criteria than in previous years, you should not give up. Before applying for credit make sure that you meet all the requirements for acceptance. Every time your credit is check, the credit score goes down. As a result, only apply for cards when you feel confident that you will be accepted.