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Minggu, 03 Februari 2008

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:

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.