Small Business Financial Planning

Been thinking about being your own boss lately? Feel like giving that ‘great high school plan’ a try? Starting a small business comes with its perks but demands an equal amount of your patience. The finances especially, could get the better of you, if you are unprepared. But take heart, we have just the thing for you: a crash course in small business financial planning! We’ll take you through all that you need to do before you start your own small business.

Ask yourself: Don’t overestimate and ask all the hard questions. How much can you pool in and how much will you need to borrow? Is your business cyclical or seasonal? Does it seem risky? Trust us, the banks will want to know. Your loan eligibility will depend on the answers.

Check personal finances: Prepare a worksheet of assets and liabilities. On the asset side, record details like cash at hand, savings, investments in stocks, bonds and real estate, life insurance policies, vehicles owned and other liquid assets you can think of. On the other, record your credit card debts, auto loans, real estate loans, insurance payments, taxes and other liabilities. The difference between the two will give you your net worth. This will come in handy while requesting a loan.

Prepare a family budget: Effective small business financial planning requires you to have a clear idea about your family’s annual expenditure. Prepare a budget that covers all the major expenses incurred and the income earned in the past year. Divide the expenses into fixed and flexible. Fixed expenses should cover such details as auto & insurance payment, mortgage or rent and taxes. Flexible expenses should cover all others such as clothing, entertainment, gas, repairs, gifts etc. Use this to make a survival plan for your family, in the event that your business does not make or loses money. To be on the safer side, save at least one fourth of your annual income and cut down on expenses that can be done away with.

Figure the costs of your venture: What is small business financial planning without a plan for your business? You need to calculate startup and operating costs. Ordinarily, start up cost comprises expenses on advertising, equipment, insurance, legal fees, licenses, remodeling, deposits and other one time expenses. Operating cost is what you need to run the business. You need to account for supplies, utilities, rent, wages, telecom bills and so on. Balanced against your net worth, the costs will give you an idea of how much you can finance yourself and how much will have to be borrowed. On an average, small businesses must have ready cash to meet with at least three weeks of operating costs.

Investigate financing options: The success of small business financial planning will lie in the sort of financing you finally opt for. You could borrow capital from banks, raise it through the stock market or opt for tradeable instruments like debentures. We recommend a mix, to help you leverage expenses and share risk.

Calculate break even: Once in the business, it is essential to know how much you need to sell before you cover all your costs. The formula to be employed is:

Total Fixed Costs/ (Price per Unit – Variable Cost per Unit) = Sales at Break Even Point

Calculating this beforehand can help you plan targets for sales.

Keep an eye on the cash: Prepare a cash flow statement to keep track of your financial strength. Maintain details of cash balance at the beginning of the month, all cash received and paid out during the month, and what your balance at the end of the month is. Such statements effectively capture lags in sales that you would have missed otherwise as well as help you find avenues to save.

Do an industry comparison: Look up some industry reports and compare your profits with others in the business, to know whether or not you need to buck up.

Can’t wait to start? Try or “201 great ideas for your small business” by Jane Applegate, available at for some neat ideas on starting your own small business. “Financing your own small business” by Art Dethomas available at could give you a useful insight into strategic financial planning for your business.

Small business financial planning can be a success only when you do a reality check on your finances and your business. Apart from making a good financial plan, research your industry, look out for competition, and explore cheap financing options. Plan well and stay ahead!

Why Consider Small Business Factoring?

In Business, everyone has creditors and debtors. If you are a Small Business owner, your largest debtor is represented in your accounting books as accounts receivables. The total of your Accounts Receivables is the expected collections from your debtors.

You bill each customer for the amount they owe you and until they pay, each invoice is recorded as Accounts Receivables in your books. But even though this figure actually represents current assets to your company, they cannot be used to finance anything. That’s where Small Business Financing comes in.

There are many different terms used as synonyms for Small Business Factoring such as Invoice Discounting, Invoice Factoring and Accounts Receivable Factoring. With this type of Commercial Lending, a company would sell or offer as collateral their outstanding Invoices to a Commercial Funder who would advance them a percentage of the face value of the Invoices. The advance rate will vary from Commercial Funder to Commercial Funder, but an average will be 85% of the Invoice face value.

Once you enter into an agreement with a Small Business Factoring Company, the Factoring Lender will now take over the rights to collect the debt amount from your debtors. Thus your debtors would be informed to pay the Factoring Company directly on behalf of your company. This works out to be a win-win situation for you and the Factoring Company.

The advantages to Small Business Factoring are many, here are a few:

1. Cashflow Increased: With an available Cashflow, your company will be able to pay bills and meet payroll without having to worry about having sufficient funds.

2. Predictable source of funding for your business: You will not be forced to wait for 30 to 90 days to collect on your sales; you will have funding available to you within 48 hours of generating your invoices.

3. Reduced reporting: As you know, when you have a traditional Line of Credit with a bank, you will likely need to do monthly reporting to stay within the covenant set out by the bank. With Small Business Factoring, you will not need to do nearly the same reporting. In fact, much of the Accounts Receivable reporting is done from the Factoring companies systems.

4. Fewer rules than banks have: Banks are famous for their strings being attached to everything. Factoring Companies do not have as many rules and are more flexible for changing situations.

Now that you have seen some of the advantages of Small Business Factoring it is time to speak with your Commercial Finance Broker to see which programs fit your company the bestBest of all, most Commercial Finance Brokers are set up with the Small Business Factoring companies and they pay your broker, not you!

How to Acquire Funds for Your Startup Business: A Guide to Business Financing Options

One of the most difficult issues for any business, especially a small business or startup, is how to raise funds for projects. You may not be able to fund a business from your savings or friends’ help alone. To that end, many organizations, banks, venture capitalists and government organizations provide funds to businesses that have the potential to turn into something big.

This article discusses two of the most important sources of funds for startups — leases and loans.

Leasing:

Many small businesses and startups prefer to lease property and equipment rather than purchase it, since it is cheaper and less risky in case the business fails. Professional firms help startups hire or lease equipment and provide funds for the purpose. Many companies are dedicated to leasing for businesses in specific industries. Therefore, whether you have an IT business, agriculture or manufacturing business, there is a lease-purchase firm out there ready to finance your business.

Apart from providing leasing and mortgages, finance companies also provide startups with information on other sources of funds. In fact, with the advent of the Internet, you can access information on many different types of funding with the click of a mouse.

Startups may face some initial difficulty in getting a business lease since most leasing companies prefer to work with established businesses. However, there is no reason to lose hope. There are many companies, who specialize in financing startup enterprises. With a little patient research, you will be able to locate some lease-purchase companies willing to finance your business. Many companies even finance individuals working from home, so you will find finance options even if you work from your home office.

Loans:

You can opt for short-term or long-term loans depending on your business needs. If you wish to finance short-term projects, then short-term loans are ideal. For acquiring assets, however, or for business expansion, a long-term loan might be your best option.

The principal amount of a term loan is based either on the collateral of what is being purchased or on the profits the business anticipates earning during the duration of the term. The term period may be anywhere from 1 to 10 years. One of the major advantages of term loans is that the interest rate is fixed. In a market where interest rates are rising, this is a highly desirable factor for the small business. No matter what the financial situation of the company or the interest rate market, the company will pay the same rate of interest on the loan principal.

Before you sign with any financing institution for a loan, grant or investment, it is best to consult a business advisor who can tell you the pros and cons of each kind of loan. There are many flexible financing options available for startups today, and entrepreneurs need not give up on their dreams or ideas because of a shortage of funds.