Making a Family Budget

Before you start planning for the cash needs of your new business, you must determine how much cash you will need to survive. You have to plan cash needs during the startup and first few months of your new business. It would be nice to think that your business will be profitable from the day you open the doors, but that's not realistic.

The best way to start is to prepare a family budget schedule that shows where you spent your money in the last 12 months. It is advisable to use a monthly family budget schedule because expenses will fluctuate greatly from month to month. For example, if you have children in private school or college and the tuition is due twice a year, then those months will require additional cash.

In your family budget schedule, include all the expenses that you have incurred on a monthly basis. These expenses range from home mortgage payments to vacations to doctor bills. When preparing the schedule, keep in mind the expenses that could be reduced or eliminated if needed.

ncluded among the Business Tools is a family monthly budget sheet. This worksheet is an Excel 5.0 template. Because it's a template, you can use the worksheet over and over again and still retain an original copy of it.

The worksheet is set up to be used for projecting your family monthly budget schedule for 12 individual months. We've formatted the worksheet and put in most of the income and expense descriptions. All you have to do is put in your numbers and print it.

Once you've downloaded the worksheet, feel free to modify it to fit your own needs.

Let's go through the abbreviated monthly family budget schedule provided below. First, a couple of assumptions: the husband will be the one starting the new business and quitting his current job, and the wife will continue earning a comparable wage.

In January this family would be able to live on just the wife's wage and other income. But, looking at February, this family would be short by $525 for the month. When you go through your monthly analysis, you will probably find that in some months you have extra cash, while in others you will be short of cash. If the month that you are short is the result of some unexpected bill, like a major repair on the car, exclude that amount when you are trying to determine income needs for the new business. You should always have an emergency fund for these types of expenses. If the extra bill is to pay for school tuition, budget for this so that you have the money when needed. If the extra expense was for a long vacation, you need to determine your cash priorities. If every year you think you need to spend that money on a vacation, then include it in your budget; if this was a one-time vacation, then exclude it in planning your future budget.

As this condensed budget shows, this family would be a little short in the annual total. With a few discretionary cuts, they would be able to live on the one wage income while the new business is being started and until it is profitable.

Monthly Family Budget Schedule
Description	January	February, etc.	Annual Total
Wife's wages	$3,500	$3,500	$42,000
Husband's wages	$2,000	$2,000	$24,000
Other income	$100	$75	$1,800
Total income	$5,600	$5,575	$67,800
Rent	$600	$600	$7,200
Other expenses	$3,000	$5,500	$37,800
Total expenses	$3,600	$6,100	$45,000
Monthly extra
(Short) cash	$2,000	($525)	$22,800

Now go back to the monthly family budget schedule and make changes that reflect the opening of the new business. For instance, make the husband's wage zero and compute the amount of income needed to live.

After you have determined what income you will need to support yourself and family during the development of your new business, what comes next? How long are you willing to go with a loss in your new business? How long are you willing to be just scraping by and have only enough to pay the business expenses? Finally, how much income do you want to make in your new business? At this point you should have the goal in mind (and written down) that can answer these questions.

Potential new business owners should consider a one- to three-year plan for family survival, at a minimum. Lack of staying power, especially in small businesses that may not generate enough cash to live on for a year or two, is one of the reasons that small businesses fail.

If your goal is to make $50,000 per year, you will need to determine whether your new business is capable of generating that much income in its present form. See our discussion of managing your cash flow for more information.

Profitability Assessment

One of the most common reasons small businesses fail is that the owners underestimate how much money they will need to start the business. It always seems to cost more than they thought. Have you ever heard the old adage about planning a trip from the U.S. to Europe: Plan what you should wear and how much it will cost, then halve the clothes and double the money. Perhaps we need a similar adage about starting a small business.

In the Business Tools area is a checklist of everything you'll need to consider when figuring out how much money you'll need to start a new business.

The lesson to be learned from the many small business failures is that you need to be extremely careful when determining how much money you need to start your new business. Don't fall into the "rosy forecast" trap in which the new owner over-optimistically predicts robust sales in the first year and, as a result, doesn't have enough money on hand when the cash flow dries up.

Work Smart

When you estimate how much you'll need, either build in some cushion by padding the numbers or go back and change your estimates every time something costs more than you thought.

For example, a lot of small business owners who limit their advertising to the Yellow Pages will estimate their advertising costs as the cost of placing an ad. But when they actually take out the ad, they'll decide instead to place it under three categories rather than one.

Although the difference may only be $30 to $40 a month, the numbers really add up and the planning gets completely skewed when the owner decides to make similar changes in several different areas.

For a complete picture of how you can determine what it will cost you to start a new business, consider the following:

• Making a family budget— a look at your family's fixed and variable living expenses. It's important to know the amount of personal costs that you'll have to cover during the startup phase of your business.
• Costs of setting up the business— a look at the costs associated with forming the new business, including a complete rundown of everything you need to consider before you start your business.
• Costs of running the business— a look at the costs associated with operating the business, including some advice on how to estimate how much you'll need to keep your business going.
• Cash flow peaks and valleys— a look at the costs associated with uneven cash flows and seasonal businesses and how to plan for them.
• Wearing the parachute— a look at some ways to limit your costs, and to cushion your fall if things don't go as well as expected.

Market Assessment

One of the first steps in examining your business idea is to do some research to get to know more about your market. Presumably you already know that a market exists for your product. If you have an idea for a business but you're not sure whether a market for it exists or is big enough to support your business, you are getting ahead of yourself. If that description applies to you, you'll need to take a step back and look at finding the right small business for you.

For those who believe that a market exists, but who want to know more about the size and shape of the market in order to forecast their chances for success, research is the best place to start. Researching your market to know more about your customers and your competitors is a critical step for small business owners. If Procter & Gamble puts out a product that doesn't sell, they move on to the next idea. If you put out a product that doesn't sell, you're out of business.

When you conduct research, you'll want to find out the following:

• Who are your likely customers? Will who they are affect where you need to be (for example, if students are your customers, you may need to be near schools)?
• How can you reach your customers? Which marketing options will reach the most customers at the lowest cost?
• How much will they pay for your product or service? Are you planning to charge too much for your product or service? Are you planning to charge too little?
• Who are your competitors? Have you also considered those who aren't direct competitors but who might nevertheless compete against you (for example, if you sell an online magazine, you're competing not just against other online magazines but against other products that occupy someone's leisure time)?
• How will be you be positioned in the marketplace? Will you compete with existing businesses head on or will you try to find a special niche?

For a more complete analysis of how to assess your market, see our discussion of the following:

• Analyzing the market environment will help you analyze your competitors and develop competitive strategies.
• Market research on a budget will help you locate and target your potential customers.
• Business planning will help you develop the marketing portion of your business plan.

Evaluating Your Chance for Success

Once you've decided that you have the right stuff to be an entrepreneur, you're ready to determine if your business idea has the right stuff. Before you pump your life savings into a small business, you want to know if it has a chance to succeed.

Here's a look at the prime considerations for determining if your business idea has a chance to succeed:

• Market assessment— is there a market for your product or service? If so, how much income can you expect to derive from it?
• Profitability assessment— how much will starting a new business cost you? Can you afford a lengthy "red ink" period following startup, as well as periodic lulls in cash flow? Can you afford to fail?
• Financing assessment— will you be able to obtain the necessary financing for your business? If so, from where?
• Legal assessment— what potential legal liabilities are you exposing yourself to by starting a new business? Are the costs of protecting yourself worth the trouble?
• Researching your industry— how can you learn more about your chosen industry and about the resources that are available to help you?

Customer Service Action Form

The attached file contains a simple, easy-to-use form designed to aid in the quick resolution of customer service problems. It will help prevent customer problems from falling through the cracks, provide for an orderly hand-off to someone who can address the matter, and help you establish fool-proof procedures that ensure prompt action is taken when a customer is unhappy with the products or services received. You can quickly customize the form to reflect the work flow of your company.

File Description:

The file contains a two-page document — a one-page action form and one page of instructions and suggestions on how to use the form. The form is formatted as a table in Microsoft Word 6.0, so you need Microsoft Word version 6.0 or above, or other word processing software compatible with Word documents to use this form.

Download:

Customer service action form

Special Features:

The customer service action form and instructions feature the following:

• Easy-to-fill out format, including separate fields for description of the problem, action taken, recommended next steps, and routing.
• Suggestions for incorporating the form into the normal workflow as an integral part of your business's efforts to satisfy customers.
• Quickly customizable to reflect your company's products, services, and work flow.

More information:

Improving Quality and Satisfaction

Customer Satisfaction Survey Form

Customer satisfaction is the key to success. Getting your customers to tell you what's good about your products or services, and where you need improvement, helps you to ensure that your business measures up to their expectations. The attached file contains a customer satisfaction survey form designed to help you gather this important information. It was designed to make it easy for customers to fill out and to make it easy for you to quickly customize to exactly match your company's activities. It also includes suggestions for distributing the form, ensuring that customers will return the form, and following up on comments.

File Description:

The file contains a two-page document (one page of instructions and suggestions on how to use the survey and a one-page survey form) in rich text format (RTF) that is suitable for use with most word processing programs used in the Windows environment.

Download:

Customer satisfaction survey

Special Features:

The survey features the following:

• Covers all the key business activities — products, services and support, delivery, ordering and billing, and even your employees. You can also quickly modify the form to match any of your company's activities.
• Is easy to fill out — no ranking of quality on a scale of one to five, no lengthy questions, just a list of key business activities and space to respond, all on one page.
• Even includes its own short letter to customers at the beginning that you can quickly edit and customize — you won't have to draft an accompanying letter.

The preliminary instructions discuss the following:

• How to get the survey to your customers.
• How to make it more likely that customers will complete and return the surveys.
• How to follow up on the comments you receive.

More information:

Communicating TQM to Customers

Daily Cash Sheet

Is much of your business transacted in cash? If so, precise control over your daily cash receipts is critical to the financial health of your business. To help you keep track of how much cash you take in and where it went — each day and right down to the penny — we have designed a simple reconciliation form, the Daily Cash Sheet, contained in the attached file. Just plug in your amounts for the day, and you will be alerted to any cash discrepancies, which may be the result of theft, an accounting error, a mistake when charging a customer, or an overlooked transaction. You will also be alerted to any special transactions that occurred during the day, such as cash received from non-sales sources or cash paid out. All of this should result in better financial records and possibly even lower accounting fees if an accountant does your books.

After you download the form, you can customize it to fit the particular needs of your business.

File Description:

The file contains a Microsoft Excel (version 4.0 and above) spreadsheet template.

Download:

Daily cash sheet template

Special Features:

Download this spreadsheet template just once, and be able to use it to prepare a cash reconciliation every day.

• Items that usually need to be considered when reconciling your cash receipts are already listed — just take a couple of minutes at the end of each day to plug in your amounts.
• The template can be quickly customized to fit the special needs of your business.

More information:

Daily Cash Sheets

Customer Statement of Account

Do you extend credit to your customers? If you do, two things are essential to maintaining control of your receivables. First, you need to maintain an accurate accounts receivable ledger for each customer — in other words, an up-to-date record of each customer's charges, payments, and balance due. Second, you also need to be able to send an accurate monthly statement to every customer who owes you money.

To help you accomplish both tasks, we have designed a spreadsheet, contained in the attached file, that combines the accounts receivable ledger and customer statement of account. You can use it to keep track of charges and payments on each customer's account and then, at the end of the month, send the same form to your customers, reminding them of their balance due.

File Description:

The file contains a Microsoft Excel (version 4.0 and above) spreadsheet template.

Download:

Customer statement of account template

Special Features:

• Download this spreadsheet template just once, and be able to use it to create a statement of account for each of your customers.
• Customize the statement to meet your needs. Add or delete entries, move things around, or modify the format of the statement any way you like.
• Use this same template to maintain accurate accounts receivable ledgers and as a statement of account to send to each customer who owes you money.

More information:

Accounts Receivable

Cash Flow Budget Worksheet Template

The Cash Flow Budget Worksheet is used to project your business's cash inflows and outflows over a six-month period of time. It has many important uses. It can predict the ability of your business to create the cash necessary for expansion or to support you. It can project your business's cash inflows and outflows and predict your business's cash flow gaps — periods when cash outflows exceed cash inflows. It can also be used to prepare a formal cash flow budget for your lender to help assure the lender that you will have the cash available to pay back the loan.

The Cash Flow Budget Worksheet template in the attached file was designed to make it easy for you to prepare a cash flow budget. The worksheet has been set up and formatted for budgeting your cash flow for six months and contains most of the cash inflow and outflow categories. Just plug in your numbers and print the worksheet. You can modify it to fit your own needs.

File Description:

The file contains a Microsoft Excel (version 4.0 and above) spreadsheet template.

Download:

Cash flow budget worksheet

Special Features:

• Download the worksheet template just once, and be able to use it over and over again.
• When you open the Cash Flow Budget Worksheet template, a copy of the template for you to work with will automatically be created and the original retained.
• The worksheet is easy to use. Just plug in your numbers and print it out.
• The worksheet already contains the essential cash inflow and outflow categories.
• The worksheet can be modified to suit your needs.

More information:

Cash Flow Budget

Balance Sheet Template

A balance sheet is a financial "snapshot" of your business at a given date in time. It includes your assets and liabilities and tells you your business's net worth. You've probably seen a formal balance sheet for other businesses, or have paid an accountant to do one for yours. If you would like to try preparing a balance sheet for your business, you can use the spreadsheet template, contained in the attached file, as a starting point. Just plug in your account balances and the spreadsheet will automatically compute all the subtotals and totals and tell you if your balance sheet doesn't balance.

Although the template is an example of a balance sheet for a sole proprietorship, you can quickly modify it for a corporation or partnership. You can add or delete account titles, revise the format, or otherwise modify it to suit your needs.

File Description:

The file contains a Microsoft Excel (version 4.0 and above) spreadsheet template.

Download:

Balance sheet template

Special Features:

• Download this spreadsheet template just once, and be able to use it over and over again.
• The spreadsheet contains the essential items that need to be considered when preparing a balance sheet.
• The spreadsheet can be completely customized — you can quickly add or delete items or revise the format to meet your needs.
• The spreadsheet is easy to use. Just plug in your numbers and it will automatically compute all the subtotals and totals and even tell you if your balance sheet doesn't balance.

Managing Your Business Finances

If you want to succeed in business, you need to know about financial management. No matter how skilled you are at creating a product, providing a service, or marketing your wares, the money you earn will slip between your fingers if you don't know how to efficiently collect it, keep track of it, save it, and spend or invest it wisely.

Poor financial management is one of the leading reasons that businesses fail. In many cases, failure could have been avoided if the owners had applied sound financial principles to all their dealings and decisions. Financial management is not something that you can leave to your banker, financial planner, or accountant — you need to understand the basic principles yourself and use them on a daily basis, even if you plan to leave the more complicated work to hired professionals.

In this module we'll outline the basic concepts of financial management, as they apply to small business owners, starting with the simplest, everyday bookkeeping tasks and moving on to more sophisticated concepts:

• Your basic bookkeeping explains how to record daily transactions, work with your accountant, and, for the do-it-yourselfers, how to close the books and draw up financial statements.
• Credit and collections discusses the pros and cons of accepting credit cards or offering trade credit, and tells you how you can more quickly and effectively collect the money your customers owe you.
• Managing your cash flow describes the professional way to manage your cash flow to reduce the lag between cash outflows and inflows, and tells how to invest the surplus cash you'll soon have on hand!
• Major purchases and projects shows you how to evaluate larger investments in capital equipment or business facilities, by using some of the same financial tools used by accountants and other financial professionals.
• Analyzing your current financial position delves into some of the more sophisticated ways of examining your financial statements and other aspects of your business, to identify trends, spot problems before they become too large, and compare your business to others in the same industry.

Financing to Start a Business

By. Mary Sullivan

A reader recently asked about obtaining a loan to finance the start of his pastry shop franchise. He is currently training with an existing franchisee to learn the recipes and the business, and he hoped that would help him get a loan to cover the purchase of initial inventory and funds to get him through the early months until the business was self-sustaining. I contacted an experienced commercial banker and asked what weight lenders give various factors when a person applies for this type of business loan. I thought I'd share as a post what I passed on to the reader:

• Top on his list of criteria is how much of the needed funds the business owner plans to put up personally.
• Also high priority is the quality of the franchise company -- "There is a wide range of success/failure factors that separate franchises."
• Planned business location is also a consideration with lenders. "What is the growth trend in that particular neighborhood ... declining, or lots of new construction, etc.? And what is the competitive situation in the proposed location?"

• Two other considerations are: how well thought-out the business plan is, and of course, prior experience. You won't have had ownership experience, but you're getting good practical operating experience.

The reader followed up, telling me of his excellent credit rating and wondering about the proportion of start-up costs he would need personally and how much the bank would be willing to lend. I replied:

• Your excellent credit rating counts for a lot. The percentage of total funding a bank will lend you will depend on how strong are your other factors, but another big consideration is economic conditions outside your control. You've probably have heard that the impact of the current mortgage lending crisis has, to some degree, affected commercial lending; the bank where you apply may be more or less affected than another bank due to the make-up of their own loan portfolio.

• So the answer is, "It depends." Don't hesitate to speak with several banks, and find out what they'd be willing to do for you!

What Really Makes an Entrepreneur

By. Mary Sullivan

Talk abounds on the subject of what it is that makes a successful entrepreneur. The statistics would probably say that more people believe it is that over-worked term "passion". Well, I have known successful entrepreneurs who were very committed to their businesses, but I wouldn't describe them as passionate.

A few days ago, StartUp Nation suggested that the attribute that marks an entrpreneur is "initiative". They gave a good example of someone who is making a success of business through pure initiative. That term is a start, because clearly a person doesn't get a business going without initiative.

My own view is that underlying both "initiative" and "passion" is COMMITMENT. Passion is the desire, and initiative is the impetus to put that desire to work. But without a strong personal commitment, we may give up when the going gets rough -- and yes, I mean when, because it will happen at some point in every startup. So my view is that it is "commitment" that makes an entrepreneur. Not just wanting to operate a business and getting it started, but the focus to follow through on a vision is what really makes an entrepreneur

Do You Have the Right Stuff to Be an Entrepreneur?

What does it take to start a successful business? While there's no such thing as the perfect entrepreneur — even Bill Gates has made mistakes — a number of personal qualities can help you to build a successful business. If you pass muster on most of these traits, you're off and running.

• You can delegate. No matter how smart and energetic you are, it's a mistake to try to attend to every detail yourself. Unless you're a solo act, you're going to have to trust employees to do their jobs so that you can run the business.
• You are a teacher. In order to delegate successfully, you will need people with appropriate skills — and they may have to learn some of those skills from you.
• You are self-motivated. As a small business owner, you won't have a boss to tell you when to get to work. If that's a problem, keep your day job.
• You can work with numbers. You will spend a fair amount of time keeping track of money — expenses, revenues, taxes and the like. A math phobia won't help.
• You don't mind making mistakes. You will make them; the trick is to learn from them and move on. Not everyone finds that easy to do.
• You like to work. Contrary to myth, you don't need to be a workaholic to start a successful business. Many entrepreneurs find that it makes more sense to establish a reasonable working pace — one that lets them strike a balance between work and their personal lives. That said, don't start a business unless you enjoy work. There's going to be plenty of it.
• You don't mind selling. You'll have to sell products to customers, of course. You may also need to sell lenders or other financial backers on the prospects of your company. And you'll need to convince potential employees to accept jobs with your firm rather than going to work for the competition.
• You don't quit easily. You'll encounter obstacles that might stymie some individuals. You'll have more success if you are the type of person who relishes such challenges. A dash of optimism helps; it will help you handle the uncertainty that is part of every venture.

What Skills Are Necessary for Starting a Business?

What does it take to successfully start a business? Contrary to popular belief, you don't need to be a workaholic. But you do need to enjoy work because there will be plenty of it. You also need to be a good seller since you will need to sell your products to customers, your ideas to employees, and your dreams to financial backers.

Other traits to cultivate include:

* Self-motivation
* Working well with numbers (expenses, revenues, taxes)
* Not being afraid to make mistakes

In addition, make sure to read these articles:

• What's Covered in a Good Business Plan?
• Supporting Documents in Your Business Plan
• Business Planning Demands Research
• Take the Time to Build Your Business

Evaluating New Business Ideas

For every great business idea there are scores of others that just won't work. You will save yourself a great deal of time, trouble and money if you put your ideas to the test before you try to implement them. Half an hour of careful thought, an afternoon of research, or a phone conversation with a knowledgeable friend might steer you away from a flawed idea — and months of wasted effort and thousands of dollars of losses.

Moreover, the process of testing your ideas will help you determine the kinds of things to take into account when you're creating a business concept. Eventually, your efforts will help lead you to an idea that has a solid chance of success.

Unlike giant corporations that invest huge sums of money to test potential toothpaste flavors or product names, you probably won't have to spend a lot of time or money to evaluate your ideas. If you don't know your target market (see Understanding Your Target Market), however, and haven't done some basic market research (see Market-Research Techniques), chances are you won't succeed.

Begin with these simple steps:

1. Ask your friends and associates to help you evaluate the concept. If you know successful entrepreneurs, ask them what they think of your idea. Chances are, they'll think of problems you are likely to encounter. You may be willing to face those obstacles — or you might decide that some of them are insurmountable.
2. Ask potential customers how much they'd pay for your product or service. Their answers will help you focus on your potential market, and will give you a sense of how strong that market is. Once you have some answers to this question, you can begin to estimate your prospective firm's potential revenues.
3. Consider whether you are excited about the idea. Will you actually enjoy the work that will be required to make your venture a success? If not, move on.

The Feasibility Study: Getting Down to Details

If your initial research and thinking turns up positive results, begin work on a feasibility study. The study can take the form of a formal document that will help you recruit potential partners, investors, or lenders. Alternatively, however, it can be a simple memo to yourself — a series of questions designed to help you decide whether you should proceed to the nextlevel of commitment.

Either way, your feasibility study should address the following issues, each of which will require in-depth consideration:

1. The product or service. What are its unique features? How will it be designed, manufactured, and delivered to customers?
2. The management team. Does your team have experience in the industry? What skills or qualifications are missing from the current team?
3. The market. Who are the target customers? How big is the potential market? Is the market growing? What are the costs required to reach the target market?
4. The competition. Who are your major competitors? Is your product or service superior to the competition? Would it be easy for competitors to duplicate your product or service? What are your competitors' strengths and weaknesses? How will competitors respond when your firm enters their market?
5. The costs. What will it cost to start and run your business? Where will you raise the money?

Fed pledges to act to counter market turmoil

By Steven C. Johnson

NEW YORK (Reuters) - Federal Reserve officials on Friday said falling home prices and financial market turmoil are big risks to the U.S. economy but pledged that the central bank would not shrink from taking bold steps to support growth. At a symposium in New York, Fed Governor Frederic Mishkin said the central bank "has been acting and will continue to act decisively" to counter rapidly deteriorating financial market conditions.

"The disruption in financial markets poses a substantial downside risk to the outlook for economic growth, and adverse economic or financial news has the potential to cause further strains," Mishkin said. His tone echoed that of Fed Chairman Ben Bernanke, who signaled on Thursday that the Fed was ready to cut interest rates in the face of housing and credit crises that Wall Street fears could tip the United States into recession this year.

Financial markets now expect the central bank to cut benchmark borrowing rates by half a percentage point to 3.75 percent at the Fed's January 29-30 policy meeting. A bevy of weak U.S. housing, employment and manufacturing data in recent weeks has sparked fears of recession at many Wall Street firms.

Boston Fed President Eric Rosengren may have bolstered those fears on Friday. In a speech in Vermont, Rosengren traced a gloomy outlook for the economy when he said declining U.S. home prices could fall further this year.

"Since prices have declined substantially even in a relatively benign economic environment, one cannot discount the possibility that they could fall more rapidly should economic performance not remain strong in 2008," he said. In addition, he said the job environment may be weakening. He said a report showing the economy added just 18,000 jobs in December while the jobless rate surged to 5 percent suggested "less welcome developments."

Rosengren, a voting member last year on the central bank's rate-setting Federal Open Market Committee, had cast a dissenting vote in December in favor of a half point cut. The Fed cut rates by a quarter point to 4.25 percent at the meeting. But the Fed finds itself in a difficult situation on both sides of its mandate -- sustaining growth and keeping inflation pressures in check -- because fears of recession are increasing at the same time that energy prices are rising and employment growth is waning.

Mishkin said inflation expectations "appeared to have remained reasonably well anchored." As a result, "easing the stance of policy in response to deteriorating financial conditions seems unlikely to have an adverse impact on the outlook for inflation." He said the U.S. central bank needed to be timely, decisive and flexible at times of economic distress, especially during periods of financial market disruption. Former Chicago Fed President Michael Moskow also said on Friday that the central bank "clearly has to understand that the risks are on the growth side, not the inflation side."

Moskow, who was making his first comments on the economy since retiring from the Fed in August, said he expects "at least another 50 basis points" of rate cuts after whatever action policymakers take in January. In response to questions, Mishkin said it was vital to avoid "importing" inflation through devaluing a currency, which effectively raises the costs for consumers of imported goods. The U.S. dollar has declined sharply in value in recent years, drawing protests from European trade partners while giving U.S. exports a boost.

Starting Up: Budgeting for Small-Biz Travel

By Diana Ransom

WHEN THELMA M. MCCALL recently sought out $35,000 in start-up capital for her patented board game "Shapes and Numbers," she knew she'd also have to secure funding for business travel.

"To get [a company like] Mattel to manufacture the game, I'll need to cover time off and travel fees," says the former middle-school teacherrom Arlington, Va., who plans to take her game on the road to find willing toy manufacturers. "It will generate quite a bit of money as far as royalties are concerned. I just need to get it in front of the right people."

Traveling for business is rarely cheap. And according to the American Express annual Global Business Travel Forecast, prices are going up. The average cost of a domestic trip including airfare, car rental and hotel stay is expected to increase 6% to $1,110 in 2008, up from $1,047 this year. The price for international trips is forecast to advance 7% to $3,171 next year, up from $2,966 in 2007.

Budgeting for travel expenses is particularly burdensome for small businesses, which typically have fewer resources than their larger counterparts. And it's usually the first to go during an economic downturn. But for many budding entrepreneurs, putting in face time with clients and customers is paramount. In-person meetings can help set you apart from more established competitors — and, as in McCall's case, potentially land a lucrative business deal.

With some businesses, says James J. Holtzman, a financial planner at Legend Financial Advisors Inc., in Pittsburgh, "you can't replace the human touch. You have to be able to look people in the eyes."

To get a handle on your travel budget, here's a primer:

The Power of Planning

The more travel dates you can predict in advance the better, says Holtzman. It's easier to budget for expenses you know about. Plus, if you book your travel arrangements a certain number of days in advance, you can usually find discount prices.

It's also a good idea to know how to get around in the city you're visiting. Figure out whether it is smarter to take a cab or jump on a train. Knowing the cab rates in the city you're visiting will help you understand and plan for such costs, says Holtzman. If cab prices are high or if you have far to go, "it might even make sense to hire a limo." That way, he says, "you can get some privacy and the cost differential may be negligible."

Mapping out cheaper places to exchange U.S. currency in advance of foreign travel can also cut down on costs. Or, check out your bank's automated teller machine policy abroad. For example, Bank of America is part of the Global ATM Alliance, which includes eight banks in nine countries including the U.S. and offers customers free access to more than 30,000 ATMs.

Make reservations at restaurants within your price range in advance of your trip. That way you won't have to endure long waiting times or seek more expensive alternatives. Plus, in places such as New York or Chicago, "sometimes you can't get in; if you're trying to entertain a client that can be embarrassing," Holtzman says.

But even if you do plan out your trip, business travel is going to cost you, says Mari Adam, a financial planner in Boca Raton, Fla. After a recent conference in Seattle, in which airfare, a hotel room and registration set her back more than $2,000, she says, "I probably won't do that every month." But, she added, meeting with business contacts and colleagues in similar situations made the trip worth it.

Still, "if youaren't judicious and you spend too much in the beginning, you could run out of money," Adam says. Keep in mind, these types of business-generating strategies don't always pay off right away. It's like a pharmaceutical company investing in research and development: "There can be a long incubation period, in which you might not see evidence of its benefits for some time," she says. With business travel, as with advertising and other marketing costs, "you have to be patient and plan for the long haul," she says.

Business Expense Deductions

According to the Internal Revenue Service, business owners may deduct part or all of the unreimbursed cost of meals, airfare, transportation and hotel stays while traveling. These expenses are usually only deductible if they are deemed to be "ordinary" and "necessary" and your business concerns require you to travel out of town overnight.

"The biggest issue for small businesses is record-keeping," says Bill Fleming, a managing director of private-company services at PricewaterhouseCoopers in Hartford, Conn. At the end of each trip, write purchase descriptions on the back of receipts and staple them to an expense-reporting form, he suggests. If you have employees, develop a policy for substantiating receipts. "Be a real taskmaster about receipts," he says. The good record-keeping will save time, expense and frustration in the event the IRS questions a return. For record-keeping instructions, check out IRS guidelines here .

Travel Rewards

To keep better track of expenses, use a business credit card to buy meals, airline tickets and other costs associated with travel, suggests Greg Rosica, a tax partner in Ernst & Young's Personal Financial Services Practice in Tampa, Fla. "It makes keeping track of purchases easier and more manageable," he says. For more on business credit cards, see our story

If you're planning on doing a fair amount of traveling, look into business credit cards with travel rewards, suggests Holtzman from Legend. For instance, Delta Air Lines, U.S. Airways and United Airlines partner with credit-card companies to offer airlines miles; other cards offer hotel discounts or rebates on gas. For a list of various travel and airline rewards credit cards go to IndexCreditCards.com . Business owners who plan to carry a balance, however, are wise to pick a card with the lowest annual percentage rate, rather than the best travel-rewards program.

Treasury lines up new Rock boss

The Treasury has recruited the former boss of Lloyd's insurance market, Ron Sandler, to lead Northern Rock, should the troubled bank be nationalised.

A decision could be taken within days, says BBC business editor Robert Peston.

According to bankers close to the Rock, the Treasury has a fully developed plan to own and manage the bank, should a commercial solution be impossible. Mr Sandler is widely regarded as having restored confidence in Lloyd's after its years in financial disarray. The BBC has learned that Mr Sandler would become executive chairman of Northern Rock in the event that the troubled bank is fully nationalised. The former boss of Lloyd's of London is well known to Prime Minister Gordon Brown, and worked for the Treasury in developing the so-called stakeholder pension and investment products that were intended to help those on lower incomes save for retirement.

Shareholder meeting

John McFall, Labour MP and chairman of the Treasury select committee, said Mr Sandler was "someone of the highest reputation".

"He has form in that he was parachuted into Lloyds Insurance and, indeed, he was also parachuted in as chief executive of NatWest when there was a hostile takeover. He earned his spurs there and he came out with credibility in the City." The coming week will be a crucial one for Northern Rock. On Tuesday, shareholders will attempt to restrict the ability of the company's board to sell assets without seeking their permission. Robin Ashby, of the Northern Rock Small Shareholders' Group, said he would not welcome nationalisation. "I do hope that we can get a shareholder-led solution and that the extraordinary general meeting on Tuesday will be a step in that process. "There is an executive management ready to come into the company... and I do not see nationalisation as either a sensible solution or indeed one that needs to be done."

The shareholders' action is regarded by the Treasury as potentially hostile to the interests of taxpayers. Taxpayers are exposed to the Rock to the tune of £55bn through direct loans made by the Bank of England and guarantees to other lenders made by the Treasury. A decision will also be taken imminently by the Treasury on whether to pursue a proposal by the investment bank Goldman Sachs to convert up to £15bn of the taxpayer loan into bonds, for sale to international investors. If that proposal to raise new finance for the Rock flops, it is likely to undermine attempts to organise a commercial rescue of the Rock by either a consortium led by Virgin or by the Olivant Group.

Chancellor Alistair Darling says his priority is to secure repayment of taxpayers' money. On Thursday at the Treasury Select Committee, the chancellor made it clear that nationalisation remains a very live option