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Some of the Ways to Small Business Financing

Small businesses require some form of capital to get started. Business owners are therefore forced to look for other strategies through which they can finance their ventures. It is worth noting that one source of finance may be better suited for a given enterprise than another, especially considering the repayment plan.

One of the most convenient ways of financing a small enterprise is to use ones own savings. This is because, you will be left to repay yourself at your own convenient schedule and even if the venture happens to fail, then you can just let it go without being harassed from left, right and center to repay that money. You might lose your investment, but nobody will be on your neck.

Government grants and loans are also another source of funds. They are cost effective and reliable. The government has established the Small Business Administration agency that assist small enterprises raise funds with which to set up the ventures. The repayment plans are quite pocket friendly and the interest rates are quite affordable even to the smallest venture in terms of turnover.

Another way to finance your venture is to borrow from private lenders. Although their interest rates may be higher than those of the government, they are less likely to reject your loan application on the basis of your financial background, be it good or bad. If this borrowing fails, or does not play music to your ears, then you can consider financing your venture through partnerships, where you and your partners bring in a given amount into the venture, which will be repaid after your enterprise has realized profits.

10 Financial and Tax Tips for Getting Your Small Business Finances in Order

A thorough review and analysis of your business will allow you to optimize your current financial situation as well as prepare for the future. Below are some tips to help you take a closer look at your overall business, financial and tax situation.

1. Bank Accounts

Review your outstanding cheques and write off any cheques that have not been cashed for 6 months, as they are no longer valid (unfortunately banks often tend to screw this up, but chances are that somebody who has not cashed a cheque has either lost it or is dead). Assuming your bank accounts have been reconciled, this will add to your available cash balance (sort of like a Christmas bonus).

2. Accounts Receivable

This is a good time to thoroughly review customer receivables and write off uncollectible amounts. In addition to cleaning up your list (who doesn’t like cleaning?), this will help reduce your taxes payable as the write off is reflected as a bad debt expense. Amounts should be submitted to a collection agency and in the event that you ultimately collect the amounts you can show it as a bad debt recovery. This is also reduces stress levels as you don’t have to see the names of the deadbeats when you are reviewing the list in the new year.

3. Inventory

Similarly all items in inventory should be reviewed and older and/or obsolescent items should either be written off or reduced to the amount that you think they are worth. If you have a bunch of VHS tapes lying around, you can probably safely write these down to $0. By reflecting a loss on your inventory you will reduce your tax liability.

4. Fixed Assets

Take a cold hard look at your business fixed assets i.e. computers, furniture, equipment etc and get rid of anything that is reflected on your books but you are no longer using (do you really need that 5 year old laptop?). This will allow you claim a terminal loss as long as the proceeds do not exceed the net book value. And less clutter can go a long way to improving productivity.

5. Credit Cards/Line of Credit:

If cash flow allows this is the perfect time to pay down all your credit cards (in all honesty any time is a perfect time to pay down credit cards). This will help reduce interest paid on outstanding balances which is often excessive due to ridiculous interest rates. If you are not able to pay down your credit cards, you should consider speaking to your bank about getting a line of credit. Interest rates are usually significantly lower and can lead to substantial savings.

6. Bonuses

If the net income of your business exceeds $500,000, you should consider paying yourself or family members (who are of course employees) a bonus for the excess amount. This will allow you to take advantage of the small business deduction that applies to Canadian Corporations with net income less than $500,000. It is also a good time to pay other bonuses to reduce your taxable income rather than deferring them to the New Year. And it makes for happy employees.

7. Computer Hardware

If you have excess cash and are just itching to use it, you should consider purchasing a new computer or electronic data processing system. Since this is 100% deductible to the end of February, 2011 it can greatly reduce your taxes payable.

8. Accounting/Filing:

This is the fun time of year where you get to put all your receipts, bills, invoices and expenses in order. If you receive electronic documents you should either print them or save them in an organized fashion in an accounting folder. Organize all your receipts by category eg. telephone, insurance, gas, food etc. Also ensure that you have all your business bank statements for the year. If you do not use an accounting software for your sales, your accountant will greatly appreciate a sales summary, preferably in excel.

9. Financial Statement Analysis

Your financial statements are your report card for your business and let you know how you have done. Take a look at how much you sold, and how much it cost you to sell it. Assess if you are spending too much or not enough, and if you are you charging your clients or customers enough (or possibly too much?). The same goes for suppliers. You can also take this time to see if another cell phone provider will gouge you less or if you can get a better deal with your insurance provider. Service providers will often reduce rates with a simple phone call and a mild threat. As an aside, if you do threaten to leave, however, always makes sure you have a backup.

10. Budget

Once everything is order, you should start planning for next year by preparing a budget which will allow you to assess your cash flow requirements and estimate your profitability.

As we (and our mothers) invariably wonder where the year went, and gear up for the holidays, this is a great time to organize your business finances, reflect upon (and pat yourself on the back for) your accomplishments, learn from your mistakes and prepare for next year.

Business Finance

Financial planning is the application of planning to various aspects of finance function. Basically, business finance involves the formulation of a financial plan that states the quantum of finance required, the pattern of financing and the policies to pursue for the administration of the financial plan. A business enterprise requires short-term and long-term capital. The total capital required by a concern is called capitalization. The short-term capital or the working capital is the capital required to meet the day-to-day obligations or the operating expenses. The long-term capital is required to acquire the fixed assets. Generally, on a conservative ground, a portion of the working capital is also met out of long-term capital.

The capital required may be collected from different sources. A substantial share is raised from internally generated funds. The remaining part is raised from outside sources such as issue of shares and debentures and loans. This pattern of financing is known as capital structure. It is designed in such a way to obtain the required amount needed at the lowest possible cost. Once the required amount is raised, then the funds are allocated in the best possible way to obtain the maximum benefits.

Implementing proper control systems can ensure the efficient use of the funds. Finally, all-important matters are reported to the top management to take proper actions at the right time. The financial reports are analyzed to evaluate the performance of the firm. According to Cohen and Robin, business finance aims at determining the financial resources required meeting the company’s operating program. Business finance also forecasts the extent to which these requirements are met by internal generation of funds and the extent that they will be met from external resources. Business finance helps in establishing and maintaining a system of financial control governing the allocation and use of funds.