You may need alternative sources of income while your business is growing. Many businesses do not make a profit in their first year but can earn enough to cover their outgoings. If your business does make a profit, you may want to plough back it to help your business develop.A financial adviser or accountant can help you address these issues in the initial days.

Forecast your personal financial needs

When starting your business you will need to make a realistic forecast of your personal financial needs. A personal budget is a plan detailing your domestic financial needs for the year. It should try to set limits on the amount you plan to spend each month on various items like rent, food and housekeeping.

Tracking your personal spending can help you find out how much money you will need to take from the business. You can record how much you spend each month in our personal budget spreadsheet (XLS) and adapt it to your individual needs.

You can now work out how much money you will need each month. If you multiply the monthly figure by 12, and make adjustments to cover one-off spending such as holidays or car tax, you will know how much you need to live on during your first year of trading.

It is important to be realistic. You may need to find other funds or borrow money. Financial advisers usually say that the equivalent of three months money should be held on deposit for a rainy day.

Some expenses, such as your rent or mortgage, are likely to be fixed, whilst your spending on other items may change from month to month. You need to keep a close eye on the areas where savings can be made - such as leisure or travel. The first year in business is vital to its growth and you may have to accept that a financial sacrifice of some sort is required to keep on trading.

You need to identify how much money your business is likely to bring in over the coming year and then how much profit you hope to make.

You can do this by:

• estimating your total income from sales
• estimating your expenses
• working out a figure for salaries and dividends, including tax
• working out the difference between your financial requirements and the amount you are prepared to take out of the business

This will leave you with the amount you potentially need to find from other sources. For advice on what you will need to take into account and plan for.

Profit and cashflow

It may not be easy to calculate exactly how much your business will make in its first year, so concentrate on cash. Cash and profit are very different, a fact which is often misunderstood. A business can survive for a short time without sales or profits but not without cash.

Profit is the difference between the total amount your business earns and the costs it must pay out over the trading period - usually a year.

Cashflow is the balance of all the money flowing into, and out of, your business. It covers actual payments of money, as opposed to what is owed by your debtors or to your creditors. Cash pays the bills and allows trading to continue. The need for cash is even greater if your business is growing and extending credit to more customers.

The main outflow of cash is the money you spend including salaries and overheads such as stock, raw materials and any other capital spending.

If you sell on credit, your cash inflow is delayed until you are actually paid so effective credit control is important. A business that buys on credit and is paid in cash, such as a retailer, is at a great advantage in cashflow terms.

Many businesses rely on bank overdrafts and quickly reach their borrowing limits. It is therefore important to think carefully about your cashflow and reduce the need to rely on an overdraft.

Make savings

There are ways you can save money on goods and services, both at home and in your business.

You could reduce the amount of money you pay out each month by consolidating your debts. This might mean taking out a further loan to cover all your existing commitments. One single monthly payment will often work out cheaper than a number of separate payments to credit card companies or banks. Many credit card companies now offer 0 per cent APR on six-month periods with balance transfers, but again you should look carefully at exactly what is being offered.

Today many companies offer different mortgage options. Re-mortgaging your property can reduce outgoing monies that would otherwise be tied up.

There are many ways you can save money on essential goods and services. Many utility companies offer attractive deals when you change to a new supplier. You could think about changing your telephone, electricity, gas or water supplier. Look carefully at exactly what is being offered by each of the utility suppliers. You may find, for example, that you can make savings if you receive both your gas and electricity from a single supplier.

You can also try to reduce your everyday expenses. For example, you could sell your car and buy one that is cheaper to run or use public transport.

You could implement simple cost control systems across your whole business to identify scope for savings. You could cut unnecessary or excessive costs, for example, by not heating your premises at night or finding low price suppliers for goods or services. Consider leasing goods or buying them second hand. Consider whether you can save money by running your business from home.

Other sources of income

You will almost certainly have to find other ways to finance your needs during the initial days of your business.

There are a number of options open to you. You could:

• Use savings - make sure that you have an emergency rainy-day fund which should add up to three months spending.
• Release equity from an existing asset - for example, trading in your car for a cheaper one.
• Sell unwanted assets to create income - many people have things that they do not use or want that can be sold at auctions, online or private sales.
• Get a loan from your family and friends. In most cases people who borrow from family or friends do not pay as much interest on such loans. However, be aware of ill feeling that may be caused if you are unable to repay on time.
• Borrow against future income by selling your debt to a third party.
• Get an overdraft. Remember that the overdraft will have to be repaid, and the interest rate may be high.
• Look for investment from external sources in return for a share in your business.
• Take on a second or part-time job - this will offer a useful source of income but it is important that it does not distract you from your priority of running your business.

Prepare a financial plan

Once you have gathered together all your key financial information such as estimates, overheads and expenses you can construct a financial plan.

The first step is to draw up a budget - a plan for spending and saving your money.

It is important to stick to a budget so you don’t risk overspending or running out of money for essentials. The key to budgeting is maintaining simple but good records. You will need to keep track of where your money comes from and where it goes.

You should:

• prepare budgets showing the level of sales and profits you expect to achieve, and the costs involved in doing so
• estimate your total sales
• prepare monthly or weekly cashflow forecasts (which should be regularly updated), looking ahead one year - overheads such as rent can be accurately predicted
• make sure you will have enough money on the day to cover each payment

Find support

The majority businesses require assistance at some stage in their development. This is especially true of businesses in the initial days.

There are a number of sources of help, including:

• local Business Links  
• start-up schemes
• schemes for young starters - eg Shell LiveWIRE, Prince’s Trust
• financial advisers
• accountants

You may also be entitled to Working Tax Credits. These are payments to top up the earnings of working people on low incomes, together with the self-employed. You can uncover more about Working Tax Credits by calling the HM Revenue & Customs Tax Credit Helpline on Tel 0845 300 3900.

Tags: startups

Your business plan is crucial

A business plan is essential for your enterprise. Whether your business is starting up or established, the business plan is the roadmap for future development. It is a key document when you are looking for business funding - whether applying for a simple overdraft or looking for new investment or capital.

This guide explains how to present your business plan to a variety of people, including potential investors, shareholders and your bank.

The business plan helps a variety of people, including potential investors, shareholders and your bank to understand your vision and goals for the business, how you are going to spend the invested or borrowed money, and how this will benefit the business and potential funding providers. It is the first source of information that most providers of funding see about a start-up company and is crucial in getting their attention and interest. This guide sets out the key elements that they will be looking for.

The elements

Potential investors and lenders will examine your business plan closely to determine whether to risk their money.

There is no standard format but most plans include:

• An executive summary highlighting the main points - to catch people’s attention.
• Details of key personnel with an organisational chart showing individual responsibilities.
• Details of competitors and how your product or service fits into the market - eg who your potential customers are and why you think they will buy your product or service.
• Your marketing plan - how you are going to get your product or service in front of potential customers, together with any assumptions made when setting your targets.
• Financial information - eg key ratios. These can be used to compare your business’ performance against industry benchmarks. It’s also a good idea to give details of any major expenditure you’ve made on long-term assets and explain the reasons behind any changes in working capital items, such as stock, debtors and creditors. Remember to include balance sheet and profit and loss account details. Many lenders ask for three years’ financial information. If this is not available, supply details about trading to date.
• How you will manage credit, expenditure, stock planning and control, and debtors and creditors.

When seeking funding, include:

• A cashflow forecast indicating the amount of funding you need and why. For a start up include estimates of how much finance you will need for two to three years or until you start to make a profit. Indicate contingency funds that might be needed for rough patches. This is usually between 10 and 20 per cent of the total funding requirement.
• Financial forecasts for a three to five year period. Try to present this information in the same way as historical financial information, so that straightforward comparisons can be made.
• How a loan will be repaid, how investors can get their money back, and when.

Target audience

A business plan serves a number of purposes and you may have to modify information depending on your target audience.

Your bank will be interested in:

• how you intend to repay a loan or overdraft
• what you are going to do with the money
• how the loan will help the business to grow
• what other loan or debt commitments you have

Most lenders operate a credit-scoring system. Make sure you give up-to-date and relevant information. A good relationship with your bank manager will not influence the credit score - the manager may have discretion to negotiate terms but not to change the decision itself.

Tell potential investors about:

• what you are going to do with the money
• when and how you are going to pay it back
• the expected return
• your other sources of funding
• your management’s track record

Include a detailed forecast of your profits and cashflow.

Indicate to shareholders:

• the prospects for the share price
• how they may be able to sell their shares
• what dividend they can expect on their shares
• your management’s track record
• what say they might have in the business

Demonstrate how they can exit with positive returns within three to five years.

Many businesses with growth potential fail to raise funds because they lack investment readiness, ie they do not understand the expectations of investors, cannot turn proposals into attractive opportunities or are unaware of financing sources.

Common reasons why business plans and loan applications fail include:

• a weak management team
• a flawed marketing plan
• unrealistic forecasts
• incomplete and poor presentations

Commitment to the business

If you want to attract outside funding, it is important to invest your own money in your business. If you are not prepared to risk your own capital a lender is unlikely to want to risk theirs. If you are looking for funds, the business plan needs to show the extent to which you are committing your own resources. It should list all the cash and assets that you have put into the business. You can demonstrate strong commitment to your business by:

• reinvesting profits from the business rather than taking dividends yourself
• putting in more cash of your own
• using personal borrowings (eg a mortgage) and guarantees to raise funds
• finding funds from family, friends and existing investors

It is always helpful to detail the backing you already have from banks and other investors - especially independent investors. Remember that money attracts money. The more backers you have, the easier it is to attract new ones.

Because your commitment and track record in meeting your obligations are so important, lenders and investors will want to know your personal credit history. Credit references will be taken up for sole traders and each partner in a partnership. A credit reference agency will discover if you, or any partner or co-director of the business, have a poor credit history or county court judgments. If you have poor credit rating, use the notes supporting the business plan to state the facts and give your own version of how the poor credit history arose. This is much better than having the new investor find out without any explanation. You should also state what you are doing to repair your credit history.

Key considerations

Your business plan is a tool you can use to attract new funds or use as a strategy document. Give yourself the best chance of success by following these suggestions.

Before presenting the plan ensure that you:

• check that the help you are applying for is still available - you may no longer qualify
• back up any assumptions in the plan with thorough research
• find out your own credit rating by applying to Experian or Equifax for your credit file - a small charge is payable
• get someone to read the plan to spot spelling and typing errors, and to ensure that it makes logical sense

Write your plan in a way that demonstrates your commitment to the business. Give it a professional feel by limiting the use of graphics, colours and font types. Above all, make sure that your plan is always honest and realistic.

Things to avoid:

• Being overly ambitious - make sure you can justify any assumptions or projections.
• Ignoring financial difficulties - warn your bank or lender if you anticipate that you may not be able to meet a repayment. There is every chance you will be able to come to some arrangement.
• Failing to devise and implement effective cashflow arrangements, eg. have clear procedures for chasing up any accounts receivable.

Once you have presented the plan, ensure you review and revise it as your business grows. If you are refused investment or a loan, take the criticism on board and consider how you might improve the plan.

Tags: business plan

Dear Friend,

Here’s a simple question for you: what’s the point of saving? Why bother of putting money in the bank or pension fund instead of other form of investment?

It is in our mentality: The reason why we put cash aside today is so that we’ll have more cash tomorrow! In other words, we stash money away in the hope that our pot will be worth more in future.

However, one economic trend works against this goal. Inflation is the tendency for the prices of goods and services to rise over time. Most developed countries have some degree of inflation in their economies. The notable exception is Japan, which has experienced deflation — falling consumer prices — in recent years.

Thus, as the price of goods and services tends to rise over time, it’s vital that the UK’s cash outpaces this growth. In other words, if the value of your cash isn’t growing in ‘real’ terms (after inflation), then your buying power will reduce over time.

However, inflation isn’t the only problem that savers face, because the government must have it’s share. Although non-taxpayers can avoid tax on their savings interest, the reality is that most British savers lose a part of their savings interest to HM Revenue & Customs. Only about a tenth (10%) of workers earn high enough wages to pay higher-rate tax at 40%. Thus, most taxpayers pay a fifth (20%) of their savings interest to the taxman.

So, what are the combined effects of inflation and tax on our savings return? Take a look at the tables below, which show the after-tax, after-inflation returns of various interest rates. The current yearly rate of inflation, using the Retail Prices Index (RPI) figure to this September 2007, is 3.9%. I’ve used this figure in these tables:

Non-taxpayer

Pre-tax interest rate (%)	Rate after 0% tax	Rate after RPI inflation
3	3	-0.9
4	4	0.1
5	5	1.1
6	6	2.1

So, in order for non-taxpayers to earn a tiny real return after RPI inflation, their savings need to earn 4% a year gross (before tax). A significant number of savings accounts don’t even pay 4% a year, so these savers are losing out…

Basic-rate (20%) taxpayer

Pre-tax interest rate (%)	Rate after 20% tax	Rate after RPI inflation
3	2.4	-1.5
4	3.2	-0.7
5	4.0	0.1
6	4.8	0.9

For basic-rate taxpayers, a rate of 5% a year is needed to make a modest real return. Given that the majority of savings accounts pay less than this rate, most basic-rate taxpayers actually lose money by saving. Ouch!

Higher-rate (40%) taxpayer

Pre-tax interest rate (%)	Rate after 40% tax	Rate after RPI inflation
3	1.8	-2.1
4	2.4	-1.5
5	3.0	-0.9
6	3.6	-0.3

So, even higher-rate taxpayers who earn 6% a year on their savings see their money shrink in real terms after RPI inflation. Tax and inflation hit these savers particularly hard.

Two clear, lessons emerge from this analysis:

1. First, it’s vital to maximize the interest rate on your savings account. At present, you should aim to earn at least 6.3% a year before tax.
2. Second, you should do your best to avoid paying tax on your savings. The simplest way to do this is to save inside a hugely popular tax shelter known as an Individual Savings Account (ISA).

---

The bottom line: Personally I do not believe in RPI figures. I think that RPI stands for Rip People Intensively. Look on the percentage of yearly transport cost increases, council tax etc. I think, because of prime-mortgages problems, that in the nearest 6 months better investment can be done on Stock Exchange. You can invest not as an individual but as c company (if you buy one).

Tags: venture capital

Is debt negotiation bad? To answer your question is debt negotiation bad? You need view it as a last-resort measure. The truth of the matter is it’s one step away from declaring bankruptcy. Well, yes and no. It all depends on your situation and how you view the negatives (and positives) of debt negotiation.

Educating yourself about the ins and outs of debt negotiation is a good first step. Please note that the term “debt negotiation” is also known as debt arbitration or debt settlement.

For starters, a lender has little motivation to arbitrate anything less than the full amount unless the person is two to three months behind in payment.

Remember, your lender gave you the money or property in good faith. He or she has every right to expect that the loan be repaid in full. Morally, you should do everything that is within your power to pay your debt (s).

However, this is not always possible and despite how much you would like to repay the loan in full you just can’t – not now and not in the foreseeable future. This is where debt negotiation comes into play. It may be your only logical course of action. And, in the case of an old debt that you’ve long since forgotten about, debt negotiation would be the best way of dealing with it. But if you find yourself overwhelmed with your current debt load, credit counseling should instead be your first action step. A credit counselor will give you some tools and suggestions for reducing your payments.

Debt consolidation may be more appropriate. A credit counselor will walk you through the debt consolidation process. In a nutshell, it means creating a whole new loan for a longer period of time. This would hopefully lower your payments enough so you can get back on track.

Please know however, that debt consolidation can be nothing more than a way of putting off the evitable. It really does little to correct the problem. That’s why many people come back to debt negotiation as a way of getting out of their financial problems and starting fresh start.

If you’re determined to pay of your debt (s) and turn over a new “financial” leaf you may wish to contact your creditors yourself. By doing so, you may be able to negotiate a lower interest rate or a more realistic repayment plan. This is known as self-arbitration.

So, is debt negotiation bad if you really need it? The bottom line answer is no. When your debt is very delinquent, negotiation is often in your best interest. If this is the case, now is the time to either consider self-arbitration or seek out the help of a debt negotiation company. Although a debt negotiation program will lower your credit score for as long a you’re in the program, you’ll also find that most debt negotiation companies require the creditor to make sure that the final credit report reflects the account is now paid in full. Therefore, once your account is settled you will no longer have a negative report.

A number of debt negotiation companies also include a credit repair service as part of their debt negotiation program. This repair service removes any negative items caused by the program. Although it is part of the program there are additional fees associated with this service.

Debt negotiation companies work with your creditors to reduce your debt balance. Your search for debt negotiation companies may even find ones who can reduce your debts by as much as 75%.

The best way to simplify your search for debt negotiation companies is to understand how they work and what they can do for you. Once you understand how a reputable debt negotiation company can help you, your search for debt negotiation companies is made easier. It’s important to realize however that debt negotiation is only for people who are close to bankruptcy, it’s not available for people who are looking for an easy way out of having to pay back money.

In your search for debt negotiation companies you’ll find that most have fees including start up and maintenance fees. Essentially what happens is that reliable debt negotiation companies will collect money from you on a monthly basis and put this money in trust until you have built up enough to begin settling one or more of your accounts. When a designated amount has been accumulated, the debt negotiation company will then contact your creditors and begin the negotiation process on your behalf. Once a debt settlement is reached the money is sent to that creditor and you begin the process again for any other debts you may have.

Another important thing to bear in mind is that while you’re accumulating money and your money is being held in trust you’re also building last fees and interest charges both of which add to your overall balance.

Finally, many reliable debt negotiation companies will offer a free consultation. Therefore, when starting your search for debt negotiation companies it’s best to look for ones who encourage business through a complimentary look at your financial picture. As a rule, such companies are more reliable than those who ask for fees upfront.

Is debt negotiation bad? Ultimately, you’re the best person to judge whether debt negotiation is right for you or if it’s in your best interest to consider another alternative such as debt consolidation. This is where negotiation and your question, “Is debt negotiation bad?” comes in. Debt negotiation is bad as it completely rewrites your credit history.

Anyway - It is better than bankruptcy!

Tags: debts

When on the lookout for an excellent “Web-based” free tax software deal, begin your exploration at the “IRS Free File Alliance” page where you will find different free tax software proposals from 20 major vendors of tax-software manufacturers available for free when you do your tax preparation and filing electronically.

In fact, an increasing number of individuals are using tax software packages for doing their taxes personally through their home computers. Recent survey done by “CCH Complete Tax” revealed that only sixteen percent of American taxpayers use the pencil and paper method when filing. When E-filing started in 1986, only about 25 thousand tax returns where filed online. However today, that number has greatly increased with nearly 68 million filed online individual returns.

Free online tax filing and preparation is powered by the “Internal Revenue Service” that currently is struggling so to meet the congressional mandate to have 80 percent electronically filed tax returns by the year 2007. IRS has worked together with software manufacturers to offer free online tax preparation as well as requires these manufacturers to meet IRS standards for privacy and security.

You will be able to perform online tax preparation and filing for free when you use the “IRS Free File website”. Note that you need to start at the “IRS Free File page”, as if you would directly go to the tax manufacturer’s website, you will not qualify for free E- filing service. However, know that all free programs offered at the IRS sight could possibly not offer all tax software features as those that are available for purchase; and as in all tax soft wares, they each have their limitations specially when unusual circumstances apply and can create inaccurate returns should users fail to interpret questions accurately.

Benefits of filing online through IRS free tax software’s:

1. Convenience. E-filing is considered a “one stop shop”, as it permits filing of state and federal tax returns all in one program.
2. Easy to understand and use. Free tax software enables you to easily prepare as well as file tax electronically, providing you with “alerts” that guides you throughout the whole process and signals you to make the most of any tools that can help you.
3. Direct electronic payment. Electronic payment or deposit is available for your convenience.
4. Fast refunds. Mostly, refunds are released within just days of acceptance.
5. Confirmation of returns. Receipts of tax returns are generally confirmed through an “electronic acknowledgment system”.
6. Few errors. E-filed returns are normally received almost free from errors.

Free tax software reviews:

1. TurboTax. The “Free file edition” of TurboTax is very simple to use as well as it is accurate and fast. TurboTax delivers best results when used along side Internet Explorer. State return addition costs $24.95. However, TurboTax consistently delay the tax preparation process because of repeated marketing messages that prompts you to upgrade to their paid version.
2. TaxCut. TaxCut , the free version grants free access into their “TaxCut Premium” software that enables all tax payers to use all “TaxCut Premium” forms, tips and tools. Internet Explorer is required, fast and simple to use. Addition of state return is $24.95 and there are no marketing messages that pressure you to upgrade into a paid version.
3. TaxACT. It is very accurate and highly recommended. Also simple to use and manipulate as well as it is fast. Addition of state return is $12.95.
4. CompleteTax. It provides accurate and quick tax computations in an “interview-based” format. It also is simple to use. Addition of state return is $9.95.

Keep in mind, not to simply accept and use the first software that offers free tax-filing you find. Even if the software is offered for free, it is still necessary to make certain it fits all your tax preparation needs.

Tags: software