15 Reasons Why You Need a Business Plan

Whether you're just starting out, growing your business or seeking outside help, a well-thought-out business plan is the vehicle you need to get you there. Why do you want a business plan? You already know the obvious reasons, but there are so many other good reasons to create a business plan that many business owners don't know about. So, just for a change, let's take a look at the less obvious reasons first and finish with the ones you probably already know about.

15. Set specific objectives for managers. Good management requires setting specific objectives and then tracking and following up. I'm surprised how many existing businesses manage without a plan. How do they establish what's supposed to happen? In truth, you're really just taking a short cut and planning in your head--and good for you if you can do it--but as your business grows you want to organize and plan better, and communicate the priorities better. Be strategic. Develop a plan; don't just wing it.

14. Share your strategy, priorities and specific action points with your spouse, partner or significant other. Your business life goes by so quickly: a rush of answering phone calls, putting out fires, etc. Don't the other people in your business life need to know what's supposed to be happening? Don't you want them to know?

13. Deal with displacement.Displacement is probably by far the most important practical business concept you've never heard of. It goes like this: "Whatever you do is something else you don't do." Displacement lives at the heart of all small-business strategy. At least most people have never heard of it.

12. Decide whether or not to rent new space. Rent is a new obligation, usually a fixed cost. Do your growth prospects and plans justify taking on this increased fixed cost? Shouldn't that be in your business plan?

11. Hire new people. This is another new obligation (a fixed cost) that increases your risk. How will new people help your business grow and prosper? What exactly are they supposed to be doing? The rationale for hiring should be in your business plan.

10. Decide whether you need new assets, how many, and whether to buy or lease them. Use your business plan to help decide what's going to happen in the long term, which should be an important input to the classic make vs. buy. How long will this important purchase last in your plan?

9. Share and explain business objectives with your management team, employees and new hires. Make selected portions of your business plan part of your new employee training.

8. Develop new business alliances. Use your plan to set targets for new alliances, and selected portions of your plan to communicate with those alliances.

7. Deal with professionals. Share selected highlights or your plans with your attorneys and accountants, and, if this is relevant to you, consultants.

6. Sell your business. Usually the business plan is a very important part of selling the business. Help buyers understand what you have, what it's worth and why they want it.

5. Valuation of the business for formal transactions related to divorce, inheritance, estate planning and tax issues. Valuation is the term for establishing how much your business is worth. Usually that takes a business plan, as well as a professional with experience. The plan tells the valuation expert what your business is doing, when, why and how much that will cost and how much it will produce.

4. Create a new business. Use a plan to establish the right steps to starting a new business, including what you need to do, what resources will be required, and what you expect to happen.

3. Seek investment for a business, whether it's a startup or not. Investors need to see a business plan before they decide whether or not to invest. They'll expect the plan to cover all the main points.

2. Back up a business loan application. Like investors, lenders want to see the plan and will expect the plan to cover the main points.

1. Grow your existing business. Establish strategy and allocate resources according to strategic priority.

8 Deadly Mistakes When Running a Business

Anyone who have been in business made mistakes. In fact, the longer you’re in business, the more mistakes you’ll make. It’s just that the ratio of good decisions to bad ones improves over time. To help you guide not to commit some of the obvious ones, we list here 8 deadly mistakes you would likely commit. Keep on reading.

1. Underestimating the importance of cash-flow management. You can be making plenty of money, but if the cash is not arriving in time to meet the payroll, finance your borrowings and buy inventory when it’s needed, you can be quickly out of business.

2. Sloppy record keeping. Good records are a key decision making tool. If you are not keeping track of your business, you are denying yourself the tools to make good business decisions.

3. Ignoring inventory. If you end up with stale inventory, discount it and get rid of it. Otherwise you are tying up money and storage space.

4. Neglecting collections. Unless you have a systematic collection plan and make sure it is carried out, people just won’t pay.

5. Disregarding employee concerns. Get expert advice on human resource issues. While it may look expensive, it can save you a bundle in the end.

6. Failing to delegate. Turn some of the job over to the best assistant you can hire and trust that person to do the job. If you insist on doing it all yourself, you can’t grow.

7. Offering something the customer doesn’t want. Talk to customers and respond to what they tell you. The house recipe might have been in the family for three generations, but tastes do change and you will have to adjust to that.

8. Letting costs get out of control. Be careful not to spend all the profit. Keep your personal funds separate from your business money. Reinvest a healthy percentage for business expansion or bank it in reserve for a rainy day.

Source: Business Line

Financial Statements 101

As an entrepreneur, one of the things you need to learn is how to analyze your financial statements. Understanding financial statements is critically important to the success of a small business especially during its first two years.

Financial statements can be used as a roadmap on your business journey to economic success. Using numbers as navigation aids can steer you in the right direction and help you avoid costly mistakes. Most entrepreneurs don’t realize that financial statements have a value that goes far beyond their use to prepare tax returns or loan applications.

Any business, whether new or old, has to have updated financial statements all the time. An entrepreneur will have a better understanding of how this business is doing by analyzing the different critical information which financial statements present. By doing so, he can nip in the bud any problem besetting his business before it’s too late.

First, ask your accountant to derive the following financial information from the balance sheet and income statement:

1) Sales Growth on a monthly basis
2) Gross Margins as a percentage of Sales
3) Net Operating Expenses as a percentage of Sales
4) Accounts Receivables (Days)
5) Inventory (Days)
6) Accounts Payables (Days)

The first three data are what we call the Growth and Fundamental Profitability Indicators of an enterprise. These are critical factors that determine whether the business can generate enough cash to be sustainable in the long-term.

The second set of data (Account Receivables Days, Inventory Days and Accounts Payable Days) is called the Swing Factors. They are called swing factors because any small improvement or decline in any of the three variables can result in a significant shift or swing to the cash position of the company.

Now, what’s the implication or importance of this financial information to your operations? First, the analysis of your monthly (annual) sales growth will reveal whether the business is generating enough cash. It is worth noting that any changes in monthly/annual sales will impact on your monthly/annual cash flow. Sales growth is an indication that your business is using a large amount of cash to finance any business growth.

As an entrepreneur, you know that sales is a function of the selling price and the quantity sold. Manipulate these two critical variables to achieve your desired sales level.

Analyze where the bulk of your sales is coming from by deriving percentage of each business unit’s contribution to the total sales. How much is your present gross margin and operating expenses (net of depreciation and amortization expenses) as a percentage of total sales? Procedurally, you will arrive at your gross margin by deducting your cost of sales/revenues from your net sales. Consequently, deducting from your gross margins the net operating expenses will give you your “cash cushion.”

Gross Margin = Net Sales – Cost of Sales

You should remember that by definition, gross margin represents the amount of profit per peso of sales that the company retains after accounting for its cost of sales. It is important for you as a starting entrepreneur to remember that any increase in gross margin is a source of cash flow. A higher gross margin will enable your enterprise to cover your operating expenses.

The operating expenses on the other hand, is the amount of gross margins that is consumed by operating expense. An increasing trend in your operating expenses means a decrease in your cash flow. A higher cushion will enable the enterprise to cover its current operation and make the enterprise liquid in the current term. Being liquid would mean that it would have the ability to pay its overhead expenses including interest and tax payments.

Take a look at the last set of financial information that you should examine. These are your Accounts Receivables Days, Inventory Days, and Accounts Payable Days. As a manager, you can control them through rules and regulations that you will put in place with regard to extending credit, terms of payment and collection policies.

Accounts Receivables (AR) are your credit sales. And here we are looking at the average time your business takes to collect trade receivables arising from credit sales. An increasing trend in the AR days reflects a decrease in cash flow and vice-versa. On the other hand, Inventory Days tells you the average time your business takes to sell its inventory goods. You should remember that a rising inventory (INVTY) is costly to your operation. It is money lying idly in your storeroom or warehouse. Similarly, an increasing trend in your INVTY days also reflects a decrease in cash flow and vice-versa. The Accounts Payables Days is the average time it takes your business to pay its trade creditors or suppliers. An increase in AP days reflects a source of cash. This is so because as long as you can delay payment to your suppliers, you can hold on to our use your cash for other purposes than payment.

Source: www.sme.com.ph

Tech trends for 2007

What? The year's over already? As my favorite Matrix actor would say it, "Whoa!" Time again for our annual trend reports!

The good news is that 2007 looks like it will be such a good year for entrepreneurs, and I'm not talking about the release of Windows Vista either. I say this because if you search the web today, you'll most likely find a nifty tool not only for your personal use but also for your business. The catchword for 2007 therefore could very well be "Better tools on the Web, for free (or at lower cost)!"

Trend #1: Collaboration through Web and IM will become even more popular.

More than ever, we will be getting better and cheaper computer hardware from the Internet and get cheaper Internet connections besides. The World Wide Web (aka "the Web") can provide us with even more exciting entertainment as well as faster and more productive ways to gather information and to get more work-real work-done. All this, thanks to Web 2.0, a revitalized, dynamic platform that provides even better collaboration tools.

The most outstanding of these new tools are Google Docs & Spreadsheets for word processing and spreadsheet calculations, Basecamp for project management, and Gliffy for flowcharting and diagramming. These tools all run from the Web but they behave like traditional software, performing such mundane information-processing tasks as drag-and-drop and copy pasting. All you need to put these tools to work is an Internet connection and a browser like FireFox. There's absolutely no need to download and install anything. In addition, Google recently purchased other collaborative tools from independent developers that might be made available to users soon-most probably also for free!

Recent advances in real-time instant messaging (IM) will also definitely greatly enhance collaboration over the Internet. Now fast becoming standard fare in IMs is voice over IP (VoIP), which is geek-speak for "allowing us to make and receive telephone calls through an Internet connection." The most popular IM tools are Yahoo Messenger and Skype because they allow for both voice conferencing and video conferencing. These handy, easy-to-use IM tools are excellent free alternatives to the expensive traditional video-conferencing services.

Trend #2: Here comes crowdsourcing.

The growth of the Web also makes possible a new service capability: crowdsourcing. This feature is different from outsourcing, which is the use of experts outside the company to provide products and services. In crowdsourcing, the company collaborates with volunteers and amateurs to create products and solve problems for the company. In a typical crowdsourcing project, a company can post the project on its website and invite interested parties to propose, bid, or work on the project either for free or for cash incentives.

Crowdsourcing has three advantages for entrepreneurs. First, the more people working on a problem, the more chances that they can get a better solution within a shorter time. Second, crowdsourcing is mediated by the Internet, which is a largely free medium. And third, crowdsourcing can draw volunteers and enthusiasts who often work for much lower cash incentives than the usual outsourcers. It is a threat to big companies, of course, but for entrepreneurs, it opens up a lot of previously unavailable opportunities.

Trend #3: Even better open-source software will become available.

Crowdsourcing is actually riding on the coattails of the Open Source Software (OSS) movement, which draws on crowd power and the internet to collaboratively build inexpensive software. The result is software that is more reliable, more secure, and more customizable than proprietary products like those produced by Microsoft. Small-scale entrepreneurs with tight IT budgets should look into OSS as an alternative.

How reliable is OSS? Just take a look at the most popular OSS software programs, FireFox and Thunderbird. The web browser FireFox is better at blocking unwanted ads and viruses compared to Internet Explorer. On the other hand, the email program Thunderbird offers better spam filtering and more security than Microsoft Outlook Express. Both FireFox and Thunderbird were created by the Mozilla Foundation which is backed by an active open source community that can post patches to bugs and virus threats in less than a day.

Last year, I predicted that Linux would enjoy increasing use as a cheap alternative to Windows. That prediction is now coming to pass, thanks to the development and introduction of Ubuntu Linux, which is very easy to install and is compatible with more hardware. In fact, the computers in our office-including laptops-run on Ubuntu, making them virtually free from viruses and hardware crashes. And by the way, I am writing this column with OpenOffice, a free and open source word processor.

Trend #4: E-commerce will still be hobbled by high-cost online payment facilities.

Entrepreneurs who wish to go online in the Philippines still have to contend with a major obstacle: collecting payments for goods and services when they are not paid in cash upon delivery. As predicted last year, the online payment facility PayPal has become available in the Philippines. Its use remains very limited, though, and online stores still only have G-Cash and Smart Padala as viable alternatives for getting paid online. It's true that PayPlus and EasyPay have been set up as local versions of PayPal, but these two charge simply too much. In fact, PayPlus and EasyPay are missing the point: their services are actually best suited for small businesses, but their rates are too high to attract the small businesses.

Small-scale and medium-scale businesses simply can't afford those rates. And PayPlus and EasyPay shouldn't really hope to be servicing big businesses. After all, those businesses are already big and will most likely ignore the online market anyway. It is the small businesses that have a crying need for low-cost online payment alternatives and are more ready for technological innovation.


source: Entrepreneur

Make money from your blog: 5 tips

Many of the people who write blogs today simply want to share their opinion on something. But then there are the business-minded folks, who have found a way to use blogs, or Web logs, to bring in a little extra cash too.

If you're interested in taking it further — blogging for bucks, if you will — here are five strategies that could turn your blog into a moneymaker.

1.Sell advertising. This is likely the most common means of leveraging a blog to generate income. If yours happens to become a well-known blog, or one that is well-received in a particular niche, it's always possible to sell ad space on your own. For lesser-known blogs, services such as Google's AdSense or BlogAds enable bloggers to establish ad programs.

AdSense's — which lets you select several ads that are consistent with the content of your blog — pays you based on how many readers click on the ads for further information. Even better, it's free. BlogAds, on the other hand, hooks bloggers up with would-be advertisers and levies a commission in return for any ad placements that result.

2.Help sell others' products. Here is another click-through opportunity. Affiliate programs enable your blog to serve as a conduit between readers and online sites offering various goods and services. One popular choice is Amazon.com. If, for instance, you offer book reviews or even just mention a book in passing in your blog, an affiliate program provides a means for your readers to click directly from your blog to Amazon to obtain further information about the book. If they break out the checkbook or charge card, you get paid as well.

3.Solicit contributions. Not every blog-related income opportunity involves hawking goods or services. As Blanche DuBois did in "A Streetcar Named Desire," consider relying on the kindness of strangers. Ask for contributions. If, for instance, your small-business blog supports a cause or issue in some fashion — say you repeatedly mention tax reform, health care or some other topic — you can always ask for reader support.

Even if you've attracted a group of regular followers who simply enjoy reading what you have to say, they may be willing to underwrite their loyalty with a little financial help. Programs such as PayPal make it easy to establish a simple on-site contribution collection button.

4.Market your services in your blog. Many people associate blogs exclusively with a cyberspace-based soapbox — a place to shout your opinions and little more than that. Granted, blogs are an ideal venue to share your thoughts with others, but don't overlook their capacity to generate new business as well. When appropriate, work in references to what you do and, in turn, what you may be able to offer any would-be client or customer who may be reading your blog. That can spread your opinion and your business moxie at the same time.

5.Use a blog to deepen your existing customer relationships. Nor does any marketing material inserted in blog content have to be limited to bringing in completely new business. By using a blog to regularly communicate with existing clients as well as other readers, you can take advantage of the opportunity to fully inform them about everything your business does. That may expand your readers' understanding of the full scope of your products or services.

Donald Trump & Robert T. Kiyosaki