Know your costs
In order to cut costs strategically you must first know your costs. You must be able to see what your costs have been over time and hopefully have a plan for the future.
Knowing your costs is sometimes easier said then done, often the overworked business has not implemented the systems necessary to know their costs and plan them strategically. Quite often small business owner/managers busy themselves trying to hire, train and retain capable bookkeeping staff, rather than analyzing their costs and the strategic effects of these expenditures on the business. If you need help implementing systems to track and maintain your costs, while cutting your costs and freeing up your time to strategically understand your costs CLICK HERE.
Know Where You're Going
Once you have implemented a cost tracking system and you have freed up your time to strategically plan for your company you need to create your plan. Strategy demands that you express clearly the results you intend to achieve. Two things are important here: a) Have the end result in mind before you start, and b) For clarity, quantify that end result.
Strategy needs to be articulated into quantifiable results. With respect to cost reduction, ask yourself what level of profitability are you aiming for? Write it down and refer to it often.
Cost reduction is only a means by which you can increase profits. Cost reduction is not the end result you want; increasing profits is. So don't lose sight of this important distinction. It can have a major impact on the effectiveness of your strategy.
Finally, you must thoroughly understand the ramifications of your decisions, before you make them. It is difficult when you are a busy small business owner to take the time to strategically plan for your company, but it is a step that is imperative to your long-term success. This is the work that keeps you in business; it is planning and organizing the steps you need to take; it includes clearly defining, measuring, and tracking your results. It is precisely this planning that will help you get the result you want increase profits and insure your business success.
In the future installations of this series (coming soon), we'll take a look at some of the tactical steps you can take once you've determined your overall strategy. Stay tuned!
Showing posts with label outsourcing. Show all posts
Showing posts with label outsourcing. Show all posts
Wednesday, August 18, 2010
Friday, June 25, 2010
Cost Reduction - Part 2
Consider the Big Picture
Let's examine more closely why looking at the big picture is so important. For starters, the big picture gives you a wider view of your market and your business.
Clearly, good strategies are critical to making good business decisions. Poorly conceived strategies can haunt you. In bad times, strategies such as "slash and burn" are employed by the well intended business owner trying to save their. But, be careful.
The slash and burn approach is short term. It is reactive in nature and characterized by the wholesale cutting of people and programs across the board, without much consideration of the consequences. The approach is reactive because it comes from no strategy at all, other than cutting costs. Hence, the tactic often achieves a positive short-term effect on earnings, but commonly leads to disastrous long-term results. Why? Because short-term cutbacks are, for the most part, unsustainable.
Let's examine more closely why looking at the big picture is so important. For starters, the big picture gives you a wider view of your market and your business.
Clearly, good strategies are critical to making good business decisions. Poorly conceived strategies can haunt you. In bad times, strategies such as "slash and burn" are employed by the well intended business owner trying to save their. But, be careful.
The slash and burn approach is short term. It is reactive in nature and characterized by the wholesale cutting of people and programs across the board, without much consideration of the consequences. The approach is reactive because it comes from no strategy at all, other than cutting costs. Hence, the tactic often achieves a positive short-term effect on earnings, but commonly leads to disastrous long-term results. Why? Because short-term cutbacks are, for the most part, unsustainable.
Thursday, April 29, 2010
Michael helps me stay focused
My experience has shown me that the people who are exceptionally good in business aren't so because of what they know but because of their insatiable need to know more.
Michael Gerber
Michael Gerber
Wednesday, April 21, 2010
Financing Your Business
2010
April
By Diane Fries, CPA
No matter what stage you are in your business you need access to adequate funding sources to ensure success. There is no “perfect” way to financing a business, but there are some fundamental steps owners need to take to ensure success.
Step 1: Know your business
Have a plan and write it down. Know where you want your business to go and how you are going to get there. Start with a budget and forecast, support these items by making sure you keep good records and know your cash needs. This can be done with the help of the appropriate accounting software. If you show up at the bank with a shoe box full of receipts and an unbalanced check register you will not make a good first impression.
Know your customer, market and your competition. Being in business just because you want too will not get you where you want to go. Do your homework and create a business plan.
Step 2: Establish a relationship with your banker
The next step to financing a business is to build a relationship with a banker. Even though a bank may not always be part of the solution, this step can be crucial and should take place before a financial need arises. If you need money it’s late to get started in this process.
Every business needs a bank for its checking, savings and merchant account services but your relationship should go far beyond this. A good banker can facilitate the lending process, but this works more successfully if you have a relationship with your banker and they have a clear understanding of your business and its needs. This process should take place over time so a true relationship is created between you and a banker (sometimes two or three). Your bank becomes your partner when the bank “invests” in you by lending you money.
When evaluating loan requests, banks essentially attempt to predict your future. Accurately forecasting the future requires a dynamic partnership between the banker and borrower. The banker will need to know you, your business and your market.
Starting a relationship when you open your checking account is not too soon, this will give the banker time to get to know you. As your business goes through its early stages you can ask your banker for referrals to accountants, lawyers and possibly suppliers and customers. A good banker is entrenched in the local business community and is a great resource
Step 3: Determine how much money is needed
Another important initial step to financing a business is identifying the amount of funds that will be needed. The amount will depend on your budget, which would be encompassed in your business plan. For new businesses, Fitzgerald says, the budget would be broken into two components: startup capital and working capital. Startup capital is for items you will need to spend money on before opening, such as equipment, office furniture, lease payments and insurance. Then you would need to anticipate what your cash flow needs would be during the first 90 to 180 days the doors are open.
"This is one of the areas that I see folks typically under budget," Fitzgerald says. "They underestimate the length of time it will take for cash to come in the door or the number of customers they anticipate will come in the door."
Existing businesses, on the other hand, should always be looking back at and updating their original business plan, Alvarado says. "It should be a living document for any business," he says.
The next question becomes whether the need relates to capital fixtures or working capital. Every business is different, and the current need will determine the amount and type of financing that will be required. Once you've determined your expenses, you will need to estimate how much of those funds you can provide and how much you must secure elsewhere.
Step 4: Consider funding sources and types
Many new businesses start out using credit cards, home equity loans/lines or borrowing money from private sources such as family and friends. Relatives and friends can be an important source of capital for businesses because they typically offer more flexible payment terms.
Banks are another obvious solution for businesses needing funds to get established or grow. However, it can be difficult for a new company to borrow from a bank since lenders generally prefer to lend to stable businesses. The bank's first responsibility is to protect its depositors; therefore bankers tend to be very cautious about lending money.
Other private sources of finances also can be external providers, such as angel investors or venture capitalists. Venture capital firms, which specialize in investing in unproven businesses, typically provide equity funds to new and young companies. Venture capitalists don't make outright loans, so there's generally nothing to repay. Instead, they buy an equity interest in the business and become hands-on investors.
Business’ may also be able to take advantage of government-financing programs. For example, the Small Business Administration (SBA) offers a variety of loan-guarantee programs to promote the long-term needs of small businesses that have difficulty getting financing on reasonable terms through normal lending channels. Loans are available for a wide range of business purposes, from working capital and inventory to real estate and expansion. Generally, the SBA can guarantee financing up to $750,000 at between 70 percent and 90 percent of the loan value.
Eligible small businesses can also participate in the SBA 504 Program, which is designed to provide longterm, fixed-rate financing. Loan proceeds can be used for fixed assets, such as real estate and long-life equipment, new construction, and even improvements to existing properties. Participating lenders typically loan 50 percent of the eligible project costs, while the SBA lends another 40 percent in a second-lien position.
Step 5: Provide supporting documentation
Preparing documentation to support the financing request is another important step to securing funding with banks and other lenders. Your proposal should show how much funding you will supply, your budget and your expectations about your future income. Hopefully, you have done good record keeping. It is important to know the financial implications of your business decisions. A good set of internal books and financial statements are the best way to provide the financial information you will need for your loan documents. Most businesses can use their internal financial statements along with tax returns to quantify your supporting information. Those with larger requests--in excess of seven figures--will need more specialized financial reporting. This could include compiled statements, financial statements reviewed by a CPA and even a financial audit.
Once the business has its numbers, business plan, credit and other documentation in order, it's time to move to the negotiation stage. Keep in mind that financing is a business decision on both ends of the equation.
April
By Diane Fries, CPA
No matter what stage you are in your business you need access to adequate funding sources to ensure success. There is no “perfect” way to financing a business, but there are some fundamental steps owners need to take to ensure success.
Step 1: Know your business
Have a plan and write it down. Know where you want your business to go and how you are going to get there. Start with a budget and forecast, support these items by making sure you keep good records and know your cash needs. This can be done with the help of the appropriate accounting software. If you show up at the bank with a shoe box full of receipts and an unbalanced check register you will not make a good first impression.
Know your customer, market and your competition. Being in business just because you want too will not get you where you want to go. Do your homework and create a business plan.
Step 2: Establish a relationship with your banker
The next step to financing a business is to build a relationship with a banker. Even though a bank may not always be part of the solution, this step can be crucial and should take place before a financial need arises. If you need money it’s late to get started in this process.
Every business needs a bank for its checking, savings and merchant account services but your relationship should go far beyond this. A good banker can facilitate the lending process, but this works more successfully if you have a relationship with your banker and they have a clear understanding of your business and its needs. This process should take place over time so a true relationship is created between you and a banker (sometimes two or three). Your bank becomes your partner when the bank “invests” in you by lending you money.
When evaluating loan requests, banks essentially attempt to predict your future. Accurately forecasting the future requires a dynamic partnership between the banker and borrower. The banker will need to know you, your business and your market.
Starting a relationship when you open your checking account is not too soon, this will give the banker time to get to know you. As your business goes through its early stages you can ask your banker for referrals to accountants, lawyers and possibly suppliers and customers. A good banker is entrenched in the local business community and is a great resource
Step 3: Determine how much money is needed
Another important initial step to financing a business is identifying the amount of funds that will be needed. The amount will depend on your budget, which would be encompassed in your business plan. For new businesses, Fitzgerald says, the budget would be broken into two components: startup capital and working capital. Startup capital is for items you will need to spend money on before opening, such as equipment, office furniture, lease payments and insurance. Then you would need to anticipate what your cash flow needs would be during the first 90 to 180 days the doors are open.
"This is one of the areas that I see folks typically under budget," Fitzgerald says. "They underestimate the length of time it will take for cash to come in the door or the number of customers they anticipate will come in the door."
Existing businesses, on the other hand, should always be looking back at and updating their original business plan, Alvarado says. "It should be a living document for any business," he says.
The next question becomes whether the need relates to capital fixtures or working capital. Every business is different, and the current need will determine the amount and type of financing that will be required. Once you've determined your expenses, you will need to estimate how much of those funds you can provide and how much you must secure elsewhere.
Step 4: Consider funding sources and types
Many new businesses start out using credit cards, home equity loans/lines or borrowing money from private sources such as family and friends. Relatives and friends can be an important source of capital for businesses because they typically offer more flexible payment terms.
Banks are another obvious solution for businesses needing funds to get established or grow. However, it can be difficult for a new company to borrow from a bank since lenders generally prefer to lend to stable businesses. The bank's first responsibility is to protect its depositors; therefore bankers tend to be very cautious about lending money.
Other private sources of finances also can be external providers, such as angel investors or venture capitalists. Venture capital firms, which specialize in investing in unproven businesses, typically provide equity funds to new and young companies. Venture capitalists don't make outright loans, so there's generally nothing to repay. Instead, they buy an equity interest in the business and become hands-on investors.
Business’ may also be able to take advantage of government-financing programs. For example, the Small Business Administration (SBA) offers a variety of loan-guarantee programs to promote the long-term needs of small businesses that have difficulty getting financing on reasonable terms through normal lending channels. Loans are available for a wide range of business purposes, from working capital and inventory to real estate and expansion. Generally, the SBA can guarantee financing up to $750,000 at between 70 percent and 90 percent of the loan value.
Eligible small businesses can also participate in the SBA 504 Program, which is designed to provide longterm, fixed-rate financing. Loan proceeds can be used for fixed assets, such as real estate and long-life equipment, new construction, and even improvements to existing properties. Participating lenders typically loan 50 percent of the eligible project costs, while the SBA lends another 40 percent in a second-lien position.
Step 5: Provide supporting documentation
Preparing documentation to support the financing request is another important step to securing funding with banks and other lenders. Your proposal should show how much funding you will supply, your budget and your expectations about your future income. Hopefully, you have done good record keeping. It is important to know the financial implications of your business decisions. A good set of internal books and financial statements are the best way to provide the financial information you will need for your loan documents. Most businesses can use their internal financial statements along with tax returns to quantify your supporting information. Those with larger requests--in excess of seven figures--will need more specialized financial reporting. This could include compiled statements, financial statements reviewed by a CPA and even a financial audit.
Once the business has its numbers, business plan, credit and other documentation in order, it's time to move to the negotiation stage. Keep in mind that financing is a business decision on both ends of the equation.
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